<PAGE>   1

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

                                                                   EXHIBIT 10.40

                                LICENSE AGREEMENT


        This License Agreement ("Agreement") is made this 3rd day of March 2000
("EFFECTIVE DATE") by and between BTG INTERNATIONAL LTD., a British corporation
("BTG"), having a principal place of business at 10 Fleet Place, Limeburner
Lane, London EC4M 7SB, ENGLAND and AVIGEN, INC., a Delaware corporation
("AVIGEN"), having a principal place of business at 1201 Harbor Bay Parkway,
#1000, Alameda, California 94502, U.S.A. (both BTG and AVIGEN being together
referred to as the "Parties").

PRELIMINARY STATEMENT

        BTG has rights to certain patents relating to the Factor IX gene and
wishes to effect commercialization of human gene therapy products that
incorporate the Factor IX gene and that result in Factor IX protein expression
in vivo.

        AVIGEN desires to acquire commercialization rights to the Factor IX gene
patents in order to commercialize and market products for human gene therapy
that incorporate the Factor IX gene and that result in Factor IX protein
expression in vivo.

        NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, BTG and AVIGEN
agree as follows:


1. DEFINITIONS

In this Agreement, the following terms, including their correlative plural or
singular forms, shall have the following meanings:

1.01 "AFFILIATE(S)" shall mean any entity, directly or indirectly, controlling,
controlled by, or under common control with AVIGEN. The term "control"
(including as correlative meanings, the terms "controlling", "controlled by" and
"under common control with") shall mean direct or indirect ownership of at least
fifty percent (50%) of the stock or shares entitled to vote for the election of
directors of any entity, or the possession, direct or indirect, of the power to
cause the direction of the management and policies of an entity, whether through
the ownership of voting securities, by contract or otherwise.

1.02 "AGREEMENT" shall mean this Agreement, including all attachments hereto.

1.03 "BANKRUPTCY EVENT" shall mean any of the following:

        (a) AVIGEN becomes insolvent, or generally fails to pay, or is generally
unable to pay, or admits in writing its inability to pay, its debts as they
become due or applies for, consents to, or acquiesces in, the appointment of a
trustee, receiver of other custodian for AVIGEN or a substantial part of its
property, or makes a general assignment for the benefit of creditors;



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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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        (b) AVIGEN commences any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any state or federal bankruptcy or insolvency
law, or any dissolution or liquidation proceeding;

        (c) Any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any state or federal bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is involuntarily commenced against or in
respect of AVIGEN, and such involuntary case or proceeding shall remain
undismissed and unstayed for a period of sixty (60) days, or an order for relief
is entered in any such case or proceeding; or

        (d) A trustee, receiver, or other custodian is appointed for AVIGEN, or
a substantial part of AVIGEN'S property.

1.04 "COMPLETION" shall mean, with respect to a clinical trial carried out for
the purpose of securing marketing approval from a governmental regulatory
agency, the administration of a last dose of a Licensed Product to the last
enrolled subject of a clinical trial.

1.05 "DISTRIBUTOR" shall mean any entity with whom AVIGEN, its Affiliates or
Sublicensees establish a business arrangement for the commercial marketing of
the (i) Licensed Product or (ii) Licensed Product and Services.

1.06 "EFFECTIVE DATE" shall have the meaning set forth in the Preamble.

1.07 "FAIR MARKET VALUE" means the cash consideration that AVIGEN, or its
Affiliate, or its Sublicensee or Distributor would realize from an unaffiliated,
unrelated buyer in an arm's length sale of an identical item sold in the same
quantity and at the same time and place of the transaction.

1.08 "FIRST COMMERCIAL SALE" shall mean the first sale of a Licensed Product in
any country within the Licensed Territory by AVIGEN, its Affiliates,
Sublicensees, or Distributors following approval of its commercial marketing by
the appropriate governmental agency for the country in which the sale is to be
made, and when governmental approval is not required, the first sale in that
country.

1.09 "INDEX" shall mean the United States City Average All Urban Consumer Price
Index (all items) published by the United States Department of Commerce or, in
the event no longer published by the United States Department of Commerce or its
successor agency, such other equivalent index of inflation at the consumer level
as may then be published and generally recognized by the financial services
industry as a measure of inflation at the consumer level.

1.10 "INITIATION" shall mean, with respect to a clinical trial carried out for
the purpose of securing marketing approval from a governmental regulatory
agency, the administration of a first dose of a Licensed Product to the first
enrolled subject of a clinical trial.

1.11 "LICENSED PATENTS" shall mean the U.S. and foreign patents and patent
application(s) listed in Schedule A, all divisions and continuations of the
listed application, all patents issuing from such application, divisions, and
continuations, and any reissues, reexaminations, or extensions, including
Supplementary Protection Certificates, of all such patents.

1.12 "LICENSED PRODUCTS" shall mean viral vector products, including without
limitation adenovirus (AV) and adeno-associated virus (AAV) viral vector
products, for in vivo human gene therapy use whose manufacture, use, sale, offer
for sale, importation or other transfer or disposal would infringe one or more
claims of the Licensed Patents. Specifically excluded from the Licensed Products



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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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are utilization of non-viral vector products, any ex vivo approach based on the
administration of living cells, Factor IX protein produced by or from transgenic
animals, and any license rights to make, use, offer for sale, sell, or import
Factor IX protein.

1.13 "LICENSED TERRITORY" means all countries of the world where any of the
Licensed Patents are pending, issued or otherwise granted.

1.14(a) "NET SALES PRICE" or "NET SALES" shall mean the gross billing price of
any Licensed Product or Licensed Product and Services, as applicable, received
by AVIGEN, its Affiliates, Sublicensees or Distributors for the sale or
distribution of any Licensed Product in the Licensed Territory, less the
following amounts actually paid out by AVIGEN, its Affiliates or Sublicensees or
Distributors or credited against the amounts received by them from the sale or
distribution of Licensed Product to the extent that such amounts are reflected
in the price charged and do not exceed reasonable and customary amounts in the
country in which the sale or distribution occurs:

          (i)   discounts allowed;

          (ii)  returns;

          (iii) transportation and transportation insurance charges or
allowances;

          (iv)  custom charges and duties; and

          (v)   sales, transfer and other excise taxes or other similar
sales-related governmental charges but no franchise or income tax of any kind
whatsoever.

       (b) Transfer of a Licensed Product to an Affiliate, Sublicensee or
Distributor for sale by the Affiliate, Sublicensee or Distributor shall not be
considered a sale; in the case of such a transfer the NET SALES PRICE shall be
based on the gross billing price of the Licensed Product by the Affiliate or
Sublicensee or Distributor as invoiced to its ultimate arms-length customer. In
the event that a transfer of a Licensed Product from AVIGEN to any of its
Affiliates, Sublicensees or Distributors can be characterized as a sale or, in
other similar situations where the sale is made in other than an arm's-length
transaction, the value of the NET SALES attributed to such transactions shall be
based on the Fair Market Value of the Licensed Products or Licensed Products and
Services.

       (c) In addition to a bona fide sale to a bona fide customer (not to be
construed as including AVIGEN or its Affiliate or Sublicensee or Distributor),
every commercial use or disposition of any Licensed Product shall be considered
a sale of such Licensed Product at the Net Sales Price then payable in an arm's
length transaction, except for the following uses or dispositions:

                (i) in assuring product testing or control; or

                (ii) for reasonable, limited promotional distribution to
physicians; or

                (iii) for distribution to researchers for the sole purpose of
industry research by or on behalf of AVIGEN or any of its Affiliates,
Sublicensees or Distributors; or

                (iv) in obtaining regulatory approvals; or

                (v) required to be provided to a regulatory agency or a court of
law.

        1.15 "SERVICE" shall mean any process, procedure or treatment that is
used, sold, disposed of, transferred or otherwise rendered by AVIGEN, its
Affiliates, its Sublicensees or Distributors, in such a way that a license would
be required under the Licensed Patents for such use or sale or offer for sale or
importation or other disposal or transfer of such process, procedure or
treatment, in the absence of a license to the Licensed Products under this
Agreement.

        1.16 "SUBLICENSEE" means any entity to whom AVIGEN grants a sublicense
pursuant to Section 3.01 of this Agreement.



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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2. GRANT OF RIGHTS

2.01 License Grant: BTG hereby grants and AVIGEN accepts, subject to the terms
and conditions of this Agreement, a non-exclusive license to make, use, sell,
offer for sale or import Licensed Products under the Licensed Patents, with a
right to grant sublicenses only as provided in Article 3.

2.02 Nonassertion of Related BTG Patent Rights: BTG agrees that with respect to
any patents or pending patent applications that are not Licensed Patents and
that relate to the Factor IX gene or protein, which on the Effective Date BTG
owns or under which it has the right to grant licenses of the scope of the
licensed granted in this Agreement, BTG will not assert against AVIGEN, its
Affiliates, Sublicensees or Distributors any claims for infringement based on
the manufacture, use, sale, offer for sale or importation of any Licensed
Product for which a royalty has been paid in accordance with the provisions of
Article 5.

2.03 Pre-existing License Agreements: The license grant is subject to the
following pre-existing rights granted to third parties:

(i) a non-exclusive license to Pharmaceutical Proteins Ltd., in all fields of
application, with no right to sublicense without BTG's consent;

(ii) non-exclusive licenses with Genetic Therapy Inc., now assigned to Genetics
Institute, Inc., in the fields of human gene therapy utilizing retro viral
vector constructs only and human gene therapy utilizing viral vector constructs
other than retro viral vector constructs, now without rights to sublicense;

(iii) a non-exclusive license to Transkaryotic Therapies Inc. in the field of
human gene therapy excluding any product, process or treatment based on virally
induced cell transformation; and

(iv) a license to Genetics Institute, Inc. in the field of human recombinant
Factor IX protein produced from cell culture.

2.04 Termination of License: The non-exclusive license granted herein shall
terminate upon termination of this Agreement in accordance with Article 13.


3. SUBLICENSING

3.01 Sublicense Right: AVIGEN may grant sublicenses under its rights in Section
2.01, provided that such sublicenses shall be at least as favorable to BTG as
the present Agreement and provided that each Sublicensee is bound under a
written agreement with terms and conditions consistent with and no less
restrictive than those applicable to AVIGEN under this Agreement.

3.02 Binding Effect: AVIGEN agrees that any sublicenses granted by it shall
provide that the obligations to BTG under this Agreement shall be binding,
commensurate with the scope of the sublicense, upon the Sublicensee. AVIGEN
further agrees to attach copies of this Agreement to all sublicense Agreements.
AVIGEN shall be responsible for the operations of any Sublicensee relevant to
this Agreement as if such operations were carried out by AVIGEN itself,
including, without limitation, the payment of royalties or other payments
hereunder.

3.03 Termination Provision: Any sublicenses granted by AVIGEN under Section 3.01
shall provide for the termination of the sublicense, or the conversion to a
license directly between such Sublicensees and BTG, at the option of BTG upon
termination of this Agreement under Article 13.

3.04 Copy of Sublicense Agreements: AVIGEN agrees to forward to BTG a copy of
each fully executed sublicense agreement under Section 3.01 within thirty (30)
days of the execution of such



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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agreement provided that AVIGEN may redact from such copy any information that is
not relevant to this Agreement. To the extent permitted by law, BTG agrees to
maintain each such Sublicense Agreement in confidence in accordance with Article
16.

3.05 Bankruptcy Provision: If AVIGEN becomes subject to a Bankruptcy Event, all
payments then or thereafter due and owing to AVIGEN from its Sublicensee shall,
upon notice from BTG to any Sublicensee, become payable directly to BTG for the
account of AVIGEN, provided, however, that BTG shall remit to AVIGEN the amount
by which such payments exceed the amount owed by AVIGEN to BTG.


4. LICENSE FEES AND MILESTONES

4.01 License Grant Fee: Within fifteen (15) days after the Effective Date,
AVIGEN shall pay to BTG a non-refundable, non-creditable license grant fee of
[ * ].

4.02 Stock Warrant: As additional consideration for the license grant in Section
4.01, AVIGEN shall grant to BTG (on behalf of BTG and its Licensor) at the
Effective Date a warrant for [ * ] shares of AVIGEN common stock, $0.001 par
value, with an exercise price of the closing price for such stock on the
business day immediately prior to the Effective Date. Such warrant shall be
exercisable at any time on or after the first anniversary of the Effective Date
and shall have an expiration date on the fifth anniversary of the Effective
Date.

4.03 License Milestones: AVIGEN shall pay to BTG the following non-refundable,
non-creditable development milestone license fees, adjusted for inflation in
accordance with Section 4.04 and payable within thirty (30) days of the
milestone event date, in respect of a Licensed Product:

        (a) [ * ] upon first Initiation (or at the Effective Date, if initiated
prior to the Effective Date) of a Phase I clinical trial for a Licensed Product
or upon approval from the U.S. Food and Drug Administration to forego such Phase
I studies;

        (b) [ * ] upon first Completion (or at the Effective Date, if completed
prior to the Effective Date) of a Phase I clinical trial for a Licensed Product
or upon approval from the U.S. Food and Drug Administration to forego such Phase
I studies or by March 15, 2001, whichever occurs first;

        (c) [ * ] upon first Initiation of a Phase II clinical trial for a
Licensed Product or upon approval from the U.S. Food and Drug Administration to
forego such Phase II studies;

        (d) [ * ] upon first Completion of a Phase II clinical trial for a
Licensed Product or upon approval from the U.S. Food and Drug Administration to
forego such Phase II studies;

        (e) [ * ] upon first Initiation of a Phase III clinical trial for a
Licensed Product or upon approval from the U.S. Food and Drug Administration to
forego such Phase III studies;

        (f) [ * ] upon first Completion of a Phase III clinical trial for a
Licensed Product or upon approval from the U.S. Food and Drug Administration to
forego such Phase III studies;

        (g) [ * ] upon first submission of a biological product license
application for a Licensed Product to the U.S. Food and Drug Administration or
to its equivalent governmental agency having jurisdiction over the approval for
commercial use of a Licensed Product outside of the United States, whichever
occurs first;



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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

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        (h) [ * ] upon receipt of a first marketing approval for a Licensed
Product from the U.S. Food and Drug Administration or from its equivalent
governmental agency having jurisdiction over the approval for commercial use of
a Licensed Product outside of the United States, whichever occurs first.

4.04 Annual Maintenance Fee: In the event a First Commercial Sale of a Licensed
Product has not occurred by March 15, 2005, AVIGEN shall within ten (10) days of
such date pay to BTG an annual license maintenance fee payment of [ * ].
Thereafter in subsequent years AVIGEN shall also pay to BTG an annual license
maintenance fee payment of [ * ] within ten (10) days of each anniversary of
March 15, 2005 for which there has been no First Commercial Sale in the prior
twelve month period. If in any calendar year beginning with 2005, AVIGEN is
required to make any milestone payment to BTG in accordance with Section 4.03,
then the annual license maintenance fee due and paid in that calendar year shall
be credited against the amount due as the milestone payment.

4.05 Inflation Indexing: All payments made under this Article 4 shall be
adjusted for inflation in accordance with the following formula: Payments shall
be increased, with effect from the Effective Date, by an amount equal to the
product of (i) the amount payable, and (ii) the percentile increase, expressed
as a decimal fraction, in the last Index published on or before the Effective
Date and the last Index published on or before the date on which the relevant
payment becomes due and owing to BTG. In the event of a decrease in the Index,
the sums payable to BTG shall not be adjusted and shall be paid in full without
reference to the Index.

4.06 Regulatory Notices: Within ten (10) days after receipt, AVIGEN shall
forward to BTG copies of regulatory correspondence relevant to the (i)
Initiation and Completion event milestones and (ii) the biological product
licensing application submission and approval milestones specified in this
Article 4 and, further, copies of correspondence from a regulatory agency that
grants approval for marketing or other commercial use of a Licensed Product in
any country in the Licensed Territory. If such correspondence is not timely
received by AVIGEN but AVIGEN learns otherwise of the anticipated receipt of
such correspondence, then AVIGEN shall promptly advise BTG in writing of such
anticipated receipt. Such correspondence shall be subject to the confidentiality
and limited use obligations of Article 16.


5. ROYALTIES and ANNUAL MINIMUM ROYALTIES

5.01 Royalty: AVIGEN shall pay to BTG a running royalty of [ * ] of Net Sales of
Licensed Products and, if Services are provided, of Licensed Products and
Services by AVIGEN, its Affiliates and its Sublicensees or Distributors.

5.02 Annual Minimum Royalties: AVIGEN shall pay BTG an annual minimum royalty
payment for each calendar year in which royalties are due under this Agreement,
payable in advance in equal quarterly installments on the first day of each
quarter, i.e., January 1, April 1, July 1 and October 1 of each calendar year,
beginning with the calendar year of the First Commercial Sale as follows:

        (a) [ * ] in the calendar year (hereinafter the First Calendar Year) for
which there is a First Commercial Sale. Payment of the quarterly installment due
in the quarter during which the First Commercial Sale occurs shall be paid
within thirty (30) days of the date of First Commercial Sale. Payments for
subsequent quarters, if any, shall be made on the first day of each subsequent
quarter in the first calendar year. In the event the First Commercial Sale
occurs in other than the first quarter of the first calendar year, AVIGEN is not
obligated to make payment of quarterly installments for quarters prior to the
quarter during which the First Commercial Sale occurred.


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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.



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        (b) [ * ] in the calendar year (hereinafter the Second Calendar Year) of
the first anniversary of the First Commercial Sale.

        (c) [ * ] in the calendar years (hereinafter the Third Calendar Year,
Fourth Calendar Year and subsequent calendar years) of the second, third and
subsequent anniversaries of the First Commercial Sale.

The annual minimum royalty paid for a given calendar year shall be credited
against running royalties payable to BTG during that calendar year. There will
be no carryover credit allowed in subsequent calendar years for any unused
portion of annual minimum royalty paid in a previous calendar year that was not
used to offset running royalties payable in that same previous calendar year.

5.03 Inflation Indexing: All annual minimum royalty payments made under this
Article 5 shall be adjusted for inflation in accordance with the following
formula: Payments shall be increased, with effect from the Effective Date, by an
amount equal to the product of (i) the amount payable, and (ii) the percentile
increase, expressed as a decimal fraction, in the last Index published on or
before the Effective Date and the last Index published on or before the date on
which the relevant payment becomes due and owing to BTG. In the event of a
decrease in the Index, the sums payable to BTG shall not be adjusted and shall
be paid in full without reference to the Index.

5.04 Deferred Royalty Payments I: AVIGEN may, at its option, defer payment of
[ * ] of earned royalties due to BTG that exceed the annual minimum royalty
payment for the First Calendar Year and Second Calendar Year and such deferment
shall be no more than [ * ] after the payment was due to be paid to BTG. Such
deferred payment will be subject to adjustment for inflation, the inflation
adjustment being calculated using the formula defined in Section 6.03 but being
effective from date the deferred royalty payment first became due. The
applicable annual minimum royalties specified for the First and Second Calendar
Years in Section 5.02 are unaffected by the deferred royalty payments allowable
under this Section 5.04. Furthermore, the annual minimum royalty for the
calendar year in which payment of the deferred royalty amount is actually made
to BTG shall not be used as a credit for such deferred royalties. Such deferred
royalty amounts shall likewise not be taken into account, as a credit or
otherwise, in the calculation of running royalties that are earned and due to be
paid to BTG in any year subsequent to the year in which the deferred royalty
amount was generated.

5.05 Deferred Royalty Payments II: AVIGEN may, at its option, defer payment of a
second [ * ] of earned royalties due to BTG for the First Calendar Year, Second
Calendar Year, Third Calendar Year and Fourth Calendar Year and such deferment
shall be no more than [ * ] after the payment was due to be paid to BTG. Such
deferred payment will be subject to adjustment for inflation, the inflation
adjustment being calculated using the formula defined in Section 6.03 but being
effective from date the deferred royalty payment first became due. The
applicable annual minimum royalties specified for the First through Fourth
Calendar Years in Section 5.02 are unaffected by the deferred royalty payments
allowable under this Section 5.05. Furthermore, the annual minimum royalty for
the calendar year in which payment of the deferred royalty amount is actually
made to BTG shall not be used as a credit for such deferred royalties. Such
deferred royalty amounts shall likewise not be taken into account, as a credit
or otherwise, in the calculation of running royalties that are earned and due to
be paid to BTG in any year subsequent to the year in which the deferred royalty
amount was generated.

5.06 Claims in Licensed Patents: A claim of a patent licensed under this
Agreement shall cease to fall within the Licensed Patents for the purpose of
computing the running royalty payments in any given country on the earliest of
the dates that (i) the patent expires or irrevocably lapses, without the patent
having been extended or restored or being the basis for supplemental protection
directed to the



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COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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Licensed Product, or (ii) the claim has been held to be invalid or unenforceable
by an unappealed or unappealable decision of a court of competent jurisdiction.

5.07 No Multiple Royalties: No multiple royalties shall be payable because any
Licensed Products or Licensed Products and Services are covered by more than one
of the Licensed Patents.

5.08 No Non-monetary Consideration: Without the prior written consent of BTG,
AVIGEN (including its Affiliates and Sublicensees and Distributors) shall not
solicit or accept any consideration for the sale of Licensed Products or
Licensed Products and Services other than as will be accurately reflected in Net
Sales.


6. ROYALTY REPORTS AND PAYMENTS

6.01 Royalty Reports: With each royalty payment, AVIGEN shall deliver to BTG a
full and accurate accounting in a statement duly certified to be correct by a
senior officer of AVIGEN having primary responsibility for Licensee's financial
and accounting matters, which statement shall include at least the following
information:

        (a) Quantity of Licensed Product sold, transferred for consideration, or
otherwise commercially disposed of in each country of the Licensed Territory by
AVIGEN, its Affiliates, Sublicensees and Distributors and the quantity of
Licensed Product manufactured;

        (b) Total receipts for Licensed Product in each country of the Licensed
Territory;

        (c) Quantities of each Licensed Product used by AVIGEN and its
Affiliates or Sublicensees or Distributors unless such Licensed Product is used
for the purposes excluded by Section 1.14(c);

        (d) Reductions from gross sales as permitted in Section 1.14(a);

        (e) Calculations showing the determination of royalty amounts due and
being paid; and

        (f) Deferred royalty payments being deferred and/or paid under the
provisions of Sections 5.04-5.05, with calculations showing how such amounts
were computed.

6.02 Royalty Payments Other Than Annual Minimum Royalty Payments: In each year
the amount of royalty and other payments due shall be calculated semiannually as
of June 30 and December 31 and shall be paid semiannually within the sixty (60)
days next following such date. Every such payment shall be supported by the
accounting statement prescribed in Section 6.01 and shall be made in United
States currency by wire transfer as specified in Section 6.03.

6.03 Payments: All payments shall be made in United States dollars by means of
electronic transfer to the bank nominated by BTG from time to time. Whenever
conversion from any foreign currency shall be required for the purpose of
calculating royalty, such conversion shall be at the rate of exchange published
in the Wall Street Journal (or, if the Wall Street Journal is not then
published, such other periodical of general circulation in the United States of
America as the parties may agree) on the date immediately preceding the
applicable payment date.

6.04 No Deductions: When making any payment required pursuant to the terms of
this Agreement, AVIGEN shall make such payments without deduction, other than
such amount as AVIGEN is required to deduct or withhold by law or as specified
in Section 1.14(a). In regard to any deduction required by law,



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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AVIGEN shall use all reasonable endeavors to assist BTG to claim recovery or
exemption under any double taxation or similar agreement, and AVIGEN shall
provide BTG with evidence of payment of all sums pursuant hereto. For the
avoidance of doubt, AVIGEN is not responsible for BTG corporate income tax
associated with payments made to BTG pursuant to this Agreement.

6.05 Foreign Taxes: Any tax required to be withheld by AVIGEN under the laws of
any foreign country for the account of BTG, shall be promptly paid by AVIGEN for
and on behalf of BTG to the appropriate governmental authority, and AVIGEN shall
use its best efforts to furnish BTG with proof of payment of such tax. Any such
tax actually paid on BTG's behalf shall be deducted from royalty payments due
BTG.

6.06 Currency Conversion or Transfer Limitations: If the transfer of or the
conversion into United States dollars of any payment required under this
Agreement in any such instance is not lawful or possible, the payment of such
part of the royalties as is necessary shall be made by the deposit thereof, in
the currency of the country where the sale was made on which the royalty was
based, to the credit and account of BTG or its nominee in any commercial bank or
trust company located in that country, prompt notice of which shall be given to
BTG.

6.07 Late Payments: The royalty payments and any other payments due under the
Agreement shall, if overdue, bear interest until payment, accruing from day to
day and compounded annually on 31 December, at a rate per annum equal to four
percent (4%) above the Prime Rate published in the Wall Street Journal (or, if
the Wall Street Journal is not then published, such other financial periodical
of general circulation in the United States of America as the parties may
reasonably agree), but not to exceed the maximum rate permitted by law,
effective from the day such payment becomes due and owing to BTG until payment
of such amount is in fact made to BTG. The payments of such interest shall not
preclude BTG from exercising any other rights it may have as a consequence of
the lateness of any royalty payment.

6.08 Confidentiality: All reports required by this Article 6 shall be subject to
the confidentiality and limited use obligations of Article 16.



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.



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7. RECORD KEEPING

7.01 Financial Records: AVIGEN agrees to keep accurate and correct records of
Licensed Products made, used, sold or otherwise transferred or disposed of under
this Agreement appropriate to determine the amount of royalties and the
timeliness of other payments due BTG. Such records shall be retained for at
least five (5) years following a given reporting period.

7.02 Report Verification: AVIGEN shall, upon reasonable notice and during normal
business hours, permit an authorized representative appointed by BTG, or any
authorized independent certified public accountant agreed by the parties and
whose services are paid for jointly by BTG and by AVIGEN, access to the premises
of AVIGEN and to the accounts, records and relevant documentation of AVIGEN, and
shall provide such information and explanations as the representative shall
reasonably require, all in order to verify the statements provided by AVIGEN
pursuant to Article 6 of this Agreement and to satisfy BTG that there has been
compliance with the royalty and other payment obligations undertaken by AVIGEN
pursuant to this Agreement. BTG shall be entitled, in each calendar year, to
have a representative conduct one verification (which may involve multiple
visits). The access to and inspection of AVIGEN's books shall be limited to that
which is reasonably required to verify the royalty and other payments required
to be paid pursuant to this Agreement; the BTG representative shall be permitted
to take copies and extracts of relevant documents. Any and all AVIGEN
information and documents shall be subject to the confidentiality and limited
use provisions of Article 16. BTG's right of verification hereof shall terminate
two years after termination of this Agreement, for whatever reason.

7.03 Deficiencies in Payments: If a verification or other audit discloses an
underpayment or underreporting or late payment to BTG of any royalties or other
payments due to BTG, AVIGEN shall pay the unreported or underpaid royalties
and/or any late charges as required by Section 6.07 of this Agreement, within
thirty (30) days of being notified of the same. If the verification discloses an
underpayment to BTG of more than five percent (5%) of the amount properly due in
any calendar year pursuant to this Agreement, AVIGEN shall promptly reimburse
BTG's cost of undertaking the verification provided for in this Article 7.

7.04 Disputed Underpayments: If there is a disagreement between BTG and AVIGEN
as to the amount of an underpayment which cannot be resolved in accordance with
Section 16.08, then the Parties shall agree upon the hiring of an independent
certified public accountant, at a cost to be shared equally by the Parties, to
review the verification or audit and provide a final determination of the amount
of underpayment in dispute.

7.05 Third Party Audits: In the event AVIGEN is required to carry out an
independent audit of its sales of Licensed Products on behalf of a third party
patent licensor, AVIGEN agrees to supply BTG with a copy of the report prepared
on the basis of such an audit. Such audit reports shall be subject to the
confidentiality and limited use provisions of Article 16, and AVIGEN may redact
any information not relevant to sales of Licensed Products that may be contained
in such reports.


8. PROGRESS REPORTS

8.01 Business Plan: Within ninety (90) days after the Effective Date, the
Licensee shall provide BTG with a business plan for the Licensed Territory-wide
development and marketing of Licensed Products. Such business plan should
include discussion of the regulatory approval process and estimated timelines
for Licensed Products, manufacturing plans, and commercialization plans for
marketing the Licensed Products in the United States and other countries within
the Licensed Territory.



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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8.02 Progress Reports: AVIGEN shall provide BTG with twice yearly written
progress reports on the Licensed Products, within sixty (60) days after June 30
and December 31 of each calendar year. for the immediately prior six month
period. These progress reports shall include, but not be limited to: status of
applications for regulatory approvals and of its efforts to obtain regulatory
approvals for the Licensed Product, progress on research and development,
manufacturing plans and progress, sublicensing activities and marketing efforts,
as well as plans for the present calendar year. In addition, the progress
reports should inform BTG of the sales (and of other commercially relevant
transfers or disposals of Licensed Product) during the preceding six month
period and provide a good faith estimate of anticipated annual sales projections
for the present calendar year, on a country-by-country basis. At BTG's request,
the reports shall be discussed with BTG in annual meetings to be held at a
mutually agreed time and place.

8.03 First Commercial Sale: AVIGEN shall promptly, no more than thirty (30) days
after each occurrence, advise BTG in writing of the date of a First Commercial
Sale of a Licensed Product in each country within the Licensed Territory.

8.04 Confidentiality: All plans and reports required by this Article 8 shall be
subject to the confidentiality and limited use obligations of Article 16.


9. PERFORMANCE

9.01 AVIGEN Best Efforts: AVIGEN shall use commercially reasonable endeavors to
develop Licensed Products for commercialization and shall seek to achieve in a
timely manner the development milestones set forth in Article 4. AVIGEN shall
obtain all licenses, registrations and other approvals necessary to enable, as
soon as commercially practicable, the marketing and use of Licensed Products in
the United States and in other countries within the Licensed Territory. AVIGEN
shall use all reasonable commercial efforts to achieve a First Commercial Sale
in the United States before March 15, 2005 and to meet the market demand in the
United States for Licensed Products.

9.02 AVIGEN Commercialization Responsibilities: AVIGEN shall be solely
responsible for compliance with, and shall comply with, all governing laws and
regulations relating to clinical evaluation, use, commercial manufacture, sale
export and import of Licensed Product and for all costs and expenses related to
the foregoing.


10. PATENTS: MARKING, EXTENSIONS, INFRINGEMENT AND ENFORCEMENT

10.01 Patent Marking: AVIGEN agrees to mark the Licensed Products or their
packaging made, used, sold, imported or otherwise disposed of or transferred in
the United States with the applicable U.S. patent. All Licensed Products
manufactured in, shipped to, used or sold in other countries shall be marked in
such a manner as to preserve BTG patent rights in such countries. The Licensee
shall provide all reasonable means for allowing BTG, from time to time, to
verify that packaging for Licensed Product is being properly marked.

10.02 Patent Term Extension: AVIGEN shall cooperate fully with BTG in pursuing
and securing available extensions or restoration of patent term for the Licensed
Patents or other protection under regulations, directives and laws governing the
development of and protection of rights relating to drug products, including
Supplementary Protection Certificates. Any patent extension or restoration of
patent term or other supplemental product protection which is secured by BTG
shall be deemed the term of the applicable patent within the Licensed Patents.
This Agreement and the obligations respecting the



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.



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Licensed Patents shall survive until the expiration of such term(s), and AVIGEN
shall pay royalties and all other required payments applicable to Licensed
Patents until the expiration of such term(s).

10.03 AVIGEN Patent Term Option: The Parties recognize, at the Effective Date,
that commercial considerations may make it more advantageous for AVIGEN to seek
patent term extension or supplemental product protection via a Supplementary
Protection Certificate for a patent owned by or licensed to AVIGEN, that is not
a Licensed Patent. BTG agrees to give AVIGEN the option to elect, by written
notice to BTG within thirty (30) days after a biological product license
application (or its equivalent) is filed in any country within the Licensed
Territory, to seek patent term extension or supplementary product protection for
a patent other than a Licensed Patent.

10.04 Exercise of AVIGEN Patent Term Option: In consideration for BTG granting
to AVIGEN the option in Section 10.03 and for BTG's forgoing its right to
require patent term extension or supplementary product protection for a Licensed
Patent under Section 10.02, AVIGEN agrees to pay to BTG payments that are equal
to the annual royalty minimums and running royalties specified in Article 5
during the period for which the Licensed Patents would have otherwise been
extended or made the basis of Supplementary Protection Certificate(s). Such
payments shall be made by AVIGEN to BTG in the same manner and at times as would
have been applicable to the annual minimum payments and running royalties due
for the Licensed Patents had the latter been extended or made the basis of
Supplementary Protection Certificate(s).

10.05 Third Party Patent Term Extension: In the event BTG elects to have a third
party licensee of BTG under the Licensed Patents obtain extension of the
Licensed Patent in the United States, where such third party's licensed product
is first marketed prior to the First Commercial Sale of a Licensed Product under
this Agreement, then such extension of the Licensed Patent shall release AVIGEN
from its obligations under Section 10.02 to extend the U.S. patent that is a
Licensed Patent and from its obligation under Section 10.04, with respect to the
U.S. patent. In a similar manner, if BTG elects to have a third party licensee
seek supplementary patent protection via a Supplementary Protection Certificate
under a Licensed Patent for the third party's licensed product, then such
supplementary patent protection applicable to the Licensed Patent shall release
AVIGEN from its obligations under Section 10.02 to extend the same patent that
is a Licensed Patent and from its obligation under Section 10.04, with respect
to such patent.

10.06 Notice of Infringement: BTG and AVIGEN agree to notify each other promptly
of each infringement or possible infringement of the Licensed Patents by any
third party in the field of viral vector products for in vivo human gene therapy
of which either Party becomes aware. AVIGEN shall provide BTG with any evidence
of such possible infringement in AVIGEN's possession or readily available to
AVIGEN, its Affiliates or Sublicensees or Distributors.

10.07 BTG Response to Infringement: BTG will take appropriate steps, in BTG's
sole judgment, to protect its Licensed Patents from infringement in the field of
viral vector products for in vivo human gene therapy and to bring suit in its
own name when, in its sole judgment, such action may be reasonably necessary,
proper and justified. BTG shall have the sole and exclusive right to determine
all matters relating to the infringement, enforcement, validity and defense of
the Licensed Patents. BTG shall be under no obligation to prosecute any claim of
infringement in respect of the Licensed Patents or, furthermore, to defend any
claim of infringement asserted against AVIGEN, its Affiliates or Sublicensees or
Distributors in respect of intellectual property rights held by any third party.
AVIGEN shall inform BTG without delay if any legal proceeding is initiated
against AVIGEN, or its Affiliates or Sublicensees or Distributors and such
proceeding challenges or otherwise may adversely affect the validity and
enforceability of the Licensed Patents.



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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<PAGE>   13

10.08 AVIGEN Infringement Relief: In the event AVIGEN shall bring to the
attention of BTG any evidence of unlicensed infringement of the Licensed Patents
by a third party in the field of viral vector products for in vivo human gene
therapy in a country within the Licensed Territory and BTG does not, within six
months from receipt of such evidence, (i) secure cessation of the infringement
in that country or (ii) enter suit against the infringing third party, then
AVIGEN may withhold payment of royalties due to BTG for the country where the
infringement is occurring; such royalty withholding may start from the end of
the six month period and continue until the unlicensed infringement is ceased.
After the date of cessation of the unlicensed infringement, AVIGEN shall
immediately resume payment of royalties accruing to and due BTG under this
Agreement from that date forward.

10.09 BTG Third Party Licenses: BTG shall act with diligence in its relations
with its third party licensees under the Licensed Patents and take appropriate
steps, as may be necessary in BTG's sole judgment, to monitor the contractual
provisions applicable to such third party licenses.


11. NEGATION OF REPRESENTATIONS AND WARRANTIES; LIMITATION OF LIABILITY;
    INDEMNIFICATION

11.01 BTG represents and warrants that it has all necessary authority and power
to enter into this Agreement and to grant the license rights under the Licensed
Patents. Other than that, no representation, condition or warranty whatsoever is
made or given by or on behalf of BTG. BTG HEREBY EXPRESSLY EXCLUDES ANY AND ALL
IMPLIED REPRESENTATIONS, CONDITIONS AND WARRANTIES, INCLUDING, WITHOUT
LIMITATION, THE FOLLOWING:

11.02 BTG DOES NOT REPRESENT OR WARRANT THE VALIDITY OF THE LICENSED PATENT
RIGHTS AND MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER WITH REGARD TO THE
SCOPE OF THE LICENSED PATENTS, OR THAT THE LICENSED PATENTS MAY BE EXPLOITED
WITHOUT INFRINGING OTHER PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES AND HEREBY DISCLAIMS THE SAME.

11.03 BTG MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY OF THE LICENSED PATENTS or
LICENSED PRODUCTS AND HEREBY DISCLAIMS THE SAME.

11.04 BTG does not represent or warrant that it has any obligation to commence
or prosecute legal actions against third parties infringing the Licensed
Patents.

11.05 BTG SHALL BE UNDER NO LIABILITY WHATSOEVER TO AVIGEN, WHETHER IN
NEGLIGENCE OR OTHERWISE, FOR ANY EXPENSE, LOSS, DAMAGE OR INJURY OF ANY KIND,
INCLUDING LOSS OF PROFIT OR CONSEQUENTIAL DAMAGE, SUSTAINED BY AVIGEN OR ANY
THIRD PARTY AND ARISING OR INCURRED IN CONNECTION WITH THE MANUFACTURE, USE,
SALE, OFFER FOR SALE, IMPORTATION OR OTHER TRANSFER OR DISPOSAL OF LICENSED
PRODUCT.

11.06 AVIGEN shall defend, indemnify and hold BTG and its officers, employees,
agents and consultants, Licensors of the Licensed Patents, and its affiliated
companies BTG plc and BTG International Inc. (collectively, the "Indemnitees")
harmless from and against any and all claims, suits, losses, demands, actions,
liabilities, damages, costs and expenses (collectively, the "Liabilities")
incurred by any one or more of the Indemnitees, resulting from or arising in any
way from AVIGEN's



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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breach of this Agreement or any acts or omissions of AVIGEN in connection with
this Agreement, including without limitation any Liabilities arising from the
defense of any action, including attorneys' fees and expenses, in connection
with the manufacture, use, sale, offer for sale, importation, export or other
disposal or transfer of Licensed Product by or on behalf of AVIGEN, its
Affiliates or Sublicensees or Distributors, and the scope of such obligation to
defend, indemnify and hold harmless includes, without limitation, (i) any
damage, loss or liability with respect to death or injury to any person or
damage to property arising from or out of the possession, use or operation of
the Licensed Patents or any Licensed Product, and (ii) any fines or other
penalties of any nature imposed by any governmental body of competent
jurisdiction and arising from or related in any way to the manufacture, use,
sale, offer for sale, importation, export or other disposal or transfer of
Licensed Products.

11.07 Any Indemnitee which intends to claim indemnification under this Article
11 shall promptly notify AVIGEN in writing of any claim or other matter in
respect of which the Indemnitee intend to claim such indemnification; provided,
however, the failure to provide such notice within a reasonable period of time
shall not relieve AVIGEN of any of its obligations hereunder except to the
extent AVIGEN is prejudiced by such failure. The Indemnitee shall permit AVIGEN,
at its discretion, to settle any such action, claim or other matter. The
Indemnitee agrees to the complete control of such defense or settlement by
AVIGEN; provided however, such settlement does not adversely affect the
Indemnitee's rights hereunder or impose any obligations on the Indemnitee in
addition to those set forth herein in order for it to exercise such rights. No
such action, claim or other matter shall be settled without the prior written
consent of AVIGEN, and AVIGEN shall not be responsible for any attorneys' fees
or other costs incurred other than as provided herein. The Indemnitee shall have
the right, but not the obligation, to be represented by counsel of its own
selection and at its own expense.


12. INSURANCE

12.01 AVIGEN covenants that it shall promptly take out and maintain in force,
during the entire term of this Agreement and for a reasonable period thereafter,
and shall obligate its Sublicensees, commensurate with their sublicense rights,
to take out and maintain in force, during the entire term of the applicable
sub-license, commercial general liability insurance covering the manufacture,
use, sale, offer for sale, importation, transfer or other disposal of Licensed
Product, in coverage amounts reasonably acceptable to BTG and customarily
available to companies in the same or similar line of business as AVIGEN and in
coverage amounts and terms no less favorable to BTG than to other patent
licensors from whom AVIGEN has acquired patent rights with similar insurance
obligations. Such commercial general liability insurance shall include product
liability coverage for AVIGEN'S indemnification obligations under this
Agreement.

12.02 AVIGEN shall make available to BTG copies of such commercial general
liability insurance policy or policies promptly upon BTG's request. AVIGEN
covenants that AVIGEN shall also ensure that BTG is named as an insured party
under such insurance policy or policies and that BTG's rights are not subrogated
to those of the insurer or insurers, and that such policy or policies shall not
be canceled or amended so as to affect coverage of BTG's risks without the prior
written notice to BTG. AVIGEN shall provide BTG with written notice prior to the
cancellation, non-renewal or material change in such insurance; if AVIGEN does
not obtain replacement insurance providing comparable coverage in a timely
manner, BTG shall have the right to terminate this Agreement upon reasonable
notice to AVIGEN.

12.03 Any Sublicensee shall maintain insurance in favor of BTG under similar
terms as set forth above, commensurate with its sublicense rights.



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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13. TERM AND TERMINATION

13.01 Term: This Agreement is effective upon the EFFECTIVE DATE, when signed by
the parties, and shall extend to the expiration of the last to expire of the
Licensed Patents unless sooner terminated as provided in this Article 13 or
unless extended by AVIGEN's election to exercise its rights relating to patent
term extension under Article 10.

13.02 AVIGEN Termination: AVIGEN may, at any time, terminate this Agreement, by
giving not less than three (3) months' prior written notice to that effect and
upon payment to BTG of an amount equal to the accrued royalties, if any, and any
other amounts required to have been paid by AVIGEN to BTG on or before the
effective date of such termination.

13.03 BTG Termination: BTG may, in its sole discretion, terminate this Agreement
by fifteen (15) days' advance written notice to AVIGEN, upon the happening of
any of the following events:

        (i)     if any royalties or other sums payable to BTG pursuant to this
                Agreement remain unpaid for sixty (60) days after BTG's written
                demand that AVIGEN pay such amounts to BTG; or

        (ii)    if AVIGEN becomes subject to a Bankruptcy Event; or

        (iii)   if control of AVIGEN shall be acquired by any entity, or entity
                or person(s) not having control of AVIGEN at the Effective Date
                and such change in control materially adversely affects the
                development and marketing of Licensed Product as contemplated
                under this Agreement or materially adversely affects BTG's
                rights or legal interests under this Agreement or the economic
                benefits to BTG under this Agreement. For the purposes hereof,
                "control" shall mean the power to direct or cause the direction
                of the management and policies of an entity, whether through the
                ownership of voting securities, by contract or otherwise; or

        (iv)    if there is no First Commercial Sale by AVIGEN, its Affiliates
                or its Sublicensees or Distributors before March 15, 2005 and
                AVIGEN fails to make timely payment of the annual license
                maintenance fee specified in Section 4.04; or

        (v)     if AVIGEN ceases to sell Licensed Product (except for a
                temporary sales moratorium having a reasonable technical or
                scientific basis) in the Licensed Territory for a continuous
                period of twelve (12) months after the Licensed Product is first
                made commercially available; or

        (vi)    if AVIGEN is in breach or default of any other material term of
                this Agreement and such breach or default remains unremedied
                after sixty (60) days has elapsed from the date of written
                notice to AVIGEN specifying the breach and demanding remedy
                thereof, or if such breach or default is not capable of remedy
                within such sixty (60) day period, then if AVIGEN has not
                commenced good faith substantial efforts to cure such breach or
                default during the sixty (60) day period.


13.04 Notice of Bankruptcy Event: In the event that AVIGEN becomes subject to a
Bankruptcy Event, AVIGEN shall immediately notify BTG in writing.

13.05 Termination Report and Payments Due: Within ninety (90) days of
termination of this Agreement under this Article 13 or expiration under Section
13.01, a final royalty report in accordance with Section 6.01 shall be submitted
to BTG by AVIGEN. Any royalty and other payments, including outstanding deferred
royalty payments, due to BTG shall become immediately due and payable upon



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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termination or expiration. If terminated under this Article 13, BTG may elect,
at its sole discretion, to convert Sublicensee sublicenses to direct licenses
with the Sublicensees pursuant to Section 3.03.


14. MOST FAVORED PARTY

14.01 Offer of Favorable Terms: If, after the Effective Date and during the term
of this Agreement, BTG enters into an agreement granting a license under the
Licensed Patents to products for in vivo human gene therapy to a third party and
such license (i) contains royalty rates, annual minimum royalty payments, cash
signing fees (not including stock warrants or equity rights) or milestone
payments, or BTG in fact collects such payments, which, calculated on an
equivalent basis in respect to the Licensed Patents, are lower than those
provided in Article 4 (except Section 4.02) and Article 5 of this Agreement or
(ii) contains or BTG in fact collects royalties under patent term extension
provisions that are more favorable to the third party licensee than those
provided in Article 10 of this Agreement, then BTG will promptly provide notice
to AVIGEN of such third party license and offer to AVIGEN the lower royalty
rates, annual minimum royalty payments, signing fees, milestone payments or more
favorable patent term extension provisions of the third party license, effective
as of the date (or dates) from which they became effective in respect to the
third party license.

14.02 Acceptance of Favorable Terms: AVIGEN's opportunity to avail itself of
such more favorable license terms shall only be effective, however, if AVIGEN
advises BTG in writing, within sixty (60) days of the notice to AVIGEN, that it
accepts such terms of the third party license which are more favorable to AVIGEN
than corresponding terms of this Agreement and which are brought to the
attention of AVIGEN in the notice. AVIGEN shall be entitled to have the royalty
rate or other more favorable financial terms of the Noticed Third Party License
substituted in this Agreement, in respect of events occurring from the date (or
dates) from which they became effective in respect to the third party license.


15. ASSIGNMENTS; MERGERS

15.01 Assignability: This Agreement shall not be assigned by AVIGEN except a)
with the prior written consent of BTG; or b) as part of a sale or transfer of
substantially the entire business of AVIGEN provided that such assignee or
transferee has agreed in writing to be bound by the terms and provisions of this
Agreement and is so bound by operation of law and provided, further, that BTG
does not elect to terminate this Agreement in accordance with Section
13.03(iii). AVIGEN shall notify BTG in writing of any proposed assignment by
AVIGEN of this Agreement pursuant to this Section 15.01(b) at least thirty days
in advance of such proposed assignment. This Agreement shall be binding upon and
inure to the benefit of the successors, permitted assignees and personal
representatives of the Parties.

15.02 Stock Warrant for Merger or Acquisition: In the event AVIGEN is to be
merged with or acquired by a third party, then prior to such merger or
acquisition, [ * ], having an exercise price of the closing price for such stock
on the business day immediately prior to the Effective Date. Such warrant shall
be exercisable by BTG at any time after grant of the warrant and shall have an
expiration date on the fifth anniversary of the grant date. A copy of the form
Warrant Agreement is attached as an Exhibit to this Agreement.


16. CONFIDENTIALITY



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COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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16.01 Confidential Information: The Parties anticipate that it will be
necessary, in connection with their obligations under this Agreement, for BTG
and AVIGEN to disclose to each other confidential, proprietary business and
technical information ("Confidential Information") relating to their respective
businesses and technologies. The Confidential Information shall include
information marked "Confidential" or the like disclosed in writing or in other
tangible form, including samples of materials. If disclosed orally, the
Confidential Information shall be summarized in written form within thirty (30)
days by the disclosing Party and a copy marked "Confidential" provided to the
recipient. Past disclosures made under or covered by the Secrecy Agreements
dated July 17, 1997 and December 7, 1999 between AVIGEN and BTG are understood
to be covered by this Article 16 of this Agreement.

16.02 Confidentiality and Limited Use: With respect to all Confidential
Information, both BTG and AVIGEN agree as follows, it being understood that
"recipient" indicates the Party receiving the confidential, proprietary
information from the other "disclosing" Party. During the term of this Agreement
and for a period of five (5) years from the date of expiration or termination of
this Agreement, the recipient shall protect and hold in confidence the
Confidential Information of the disclosing Party, not disclose or use such
Confidential Information except in accordance with this Agreement or except with
the prior written consent of the disclosing Party, and protect the Confidential
Information with at least the same degree of care that it affords its own
Confidential Information.

16.03 Exceptions: The obligations of Confidentiality and limited use shall not
apply to any of the Confidential Information which

        (i) at the time of disclosure is in the public domain by publication or
other documented means or later becomes part of the public domain, through no
act or fault of the recipient in violation of this Agreement; or

        (ii) is already known to recipient before receipt from the disclosing
Party, as demonstrated by recipient's pre-existing written records; or

        (iii) is received by recipient from a third party having a lawful right
to disclose the same and not in breach of an obligation to the disclosing Party
by virtue of such disclosure; or

        (iv) is developed independently by the receiving Party by individuals
having no access to the Confidential Information; or

        (v) is required to be disclosed to a third party pursuant to any
applicable law or the order of any court or tribunal of competent jurisdiction,
so long as reasonable prior written notice is given to the disclosing Party in
advance of such disclosure so as to enable the disclosing Party to take
reasonable steps to protect the confidentiality of the Confidential Information.

16.04 Return of Confidential Information: Upon termination of this Agreement and
upon request of the disclosing Party, originals and copies of Confidential
Information in written or other tangible form, including material samples, will
be returned to the disclosing Party by recipient or destroyed by recipient. One
copy of each document may be retained in the custody of recipient's legal
counsel solely to provide a record of what disclosures were made.

16.05 Confidential Status of Agreement: The milestone amounts and royalty terms
of this Agreement shall be deemed to be Confidential Information subject to the
provisions of this Article 16. Both Parties agree, furthermore, that neither
Party will make public disclosures concerning other specific terms of this
Agreement without giving reasonable prior notice to the other.


16. GENERAL PROVISIONS



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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


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16.01 Notices: Any payment, notice, consent or other communication required or
permitted by this Agreement shall be in writing and shall be deemed given on the
date sent to the receiving Party by hand delivery (personally delivered),
facsimile (receipt verified), overnight courier (receipt verified) or certified
or registered mail, postage prepaid, addressed as follows:

        (i)     in the case of BTG: Geoffrey C. Porges, Chief Operating Officer;
                with a copy to: Senior Vice President, Finance; and

        (ii)    in the case of AVIGEN: Kenneth G. Chahine, Vice President of
                Business Development and Chief Patent Counsel;

at the appropriate address for the Party set forth at above, or at such other
address as such Party may specify from time to time in writing.

16.02 Entire Understanding: This Agreement constitutes the entire understanding
between the Parties relating to the subject matter hereof, and all prior
negotiations, representations, communications, agreements, and understandings
are merged into, extinguished by, and completely expressed by this Agreement.

16.03 Severable Provisions: The provisions of this Agreement are severable, and
in the event that any provision of this Agreement shall be determined to be
invalid or unenforceable under any controlling body of law such determination
shall not in any way affect the validity or enforceability of the remaining
provisions of this Agreement. However, if this results in a material alteration
to the terms and conditions of this Agreement, the Parties will negotiate in
good faith an amendment to the terms and conditions thereof to restore to each
Party the benefits of its bargain to the extent reasonably possible under the
circumstances.

16.04 Amendments: No provision of this Agreement may be amended, waived, or
otherwise modified except by an instrument in writing duly executed by
authorized representatives of the Parties to be bound by such amendment, waiver
or modification. If either Party desires a modification to this Agreement, the
Parties shall, upon reasonable notice of the proposed modification by the Party
desiring the change, confer in good faith to determine the desirability of such
modification. No modification will be effective until a written amendment is
signed by the signatories to this Agreement or their authorized representatives.

16.05 Non-Waiver: Neither Party may waive or release any of its rights or
interests in this Agreement except in writing. The failure of a Party to assert
a right hereunder or to insist upon compliance with any term or condition of
this Agreement shall not constitute a waiver of that right by such Party or
excuse a similar subsequent failure to perform any such term or condition by the
other Party. The waiver by either Party of any breach, by the other Party, of
any of the terms of this Agreement shall not be deemed to be a waiver of any
other breach of the Agreement.

16.06 Cumulative Rights: The rights and remedies provided in this Agreement are
cumulative and not exclusive of any rights or remedies provided by law or in
equity.

16.07 No BTG Endorsement: By entering into this Agreement, BTG does not directly
or indirectly endorse any product or service provided, or to be provided, by
AVIGEN whether directly or indirectly related to this Agreement. AVIGEN shall
not state or imply that this Agreement is an endorsement by BTG or its employees
in any advertising, promotional, or sales literature without the prior written
consent of BTG. AVIGEN shall not otherwise use the name of BTG or its employees
in any advertising, promotional, sales literature or other publicity without the
prior written consent of BTG.



[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.



                                       18
<PAGE>   19

16.08 Good Faith Negotiation: The Parties agree to attempt to settle any and all
claims, disputes or contentions arising under, out of, or in connection with
this Agreement, by good faith negotiations between the Parties.

16.09 Independent Contractors: For the purposes of this Agreement, each Party
shall be, and shall be deemed to be, an independent contractor and not an agent,
partner, joint venturer, or employee of the other Party.

16.10 Force Majeure: Neither Party shall be responsible in any way to the other
Party for failure to perform any of its obligations under this Agreement when
such failure is due to any war, fire, flood, labor trouble, strike, natural
calamity, accident, riot, act of governmental authority, inability or economic
impracticality to comply with requirements imposed by environmental regulations
or orders, Acts of God, or other similar contingencies beyond the reasonable
control of either Party. The Party so affected shall nevertheless use its best
efforts to avoid or remove such cause of non-performance and shall continue
performance hereunder, with the utmost dispatch whenever such causes are
removed.

16.11 Law and Jurisdiction: The construction, validity, performance, and effect
of this Agreement shall be governed by the Laws of the United States of America
and the State of Delaware without regard to any choice or conflict of laws rule
or principles that would result in the application of the domestic substantive
law of any other jurisdiction other than (i) United States federal law, to the
extent applicable and (ii) in regard to any question affecting the construction
or effect of any patent, the law of the jurisdiction under which such patent is
granted. AVIGEN agrees to submit to the non-exclusive jurisdiction of the
Delaware courts or the United States District Courts for the Eastern District of
Pennsylvania.

16.12 Headings: The headings of Articles and Sections of this Agreement are for
convenience only and shall not in any way affect the interpretation of the
Agreement.

16.13 Schedule: The appended Schedule forms an integral part of this Agreement.


[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


                                       19
<PAGE>   20

IN WITNESS WHEREOF the Parties have caused this Agreement to be executed by
their duly authorized officers.


BTG INTERNATIONAL LTD.




/s/ Geoffrey C. Porges                      March 3, 2000
---------------------------------           ---------------------------------
Geoffrey C. Porges,  M.B.B.S.               Date:
Chief Operating Officer


/s/ [illegible]                             3/3/2000
---------------------------------           ---------------------------------
Name:                                       Date:
Title:



AVIGEN INC.




/s/ John J. Monahan                         March 3, 2000
---------------------------------           ---------------------------------
John J. Monahan,  Ph.D.                     Date:
President & Chief Executive Officer


[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.


                                       20
<PAGE>   21

                          SCHEDULE A - LICENSED PATENTS


<TABLE>
<CAPTION>
                          APPLN            APPLN              PATENT           GRANT           EXPIRY
TERRITORY                 NUMBER           DATE               NUMBER           DATE            DATE*
<S>                       <C>              <C>                <C>              <C>             <C>
AUSTRALIA                 83/17521         02-AUG-83          560686           27-JUL-87       02-AUG-03
AUSTRIA                   E48015           03-AUG-83          EP0107278        15-NOV-89       02-AUG-03
BELGIUM                   83304487.8       03-AUG-83          EP0107278        15-NOV-89       02-AUG-03
CANADA                    433806           03-AUG-83          1214125          18-NOV-86       17-NOV-03
EPC**                     88116366.1       04-OCT-88***       [PENDING]
FRANCE                    83304487.8       03-AUG-83          EP0107278        15-NOV-89       02-AUG-03
GERMANY                   P3380848         03-AUG-83          EP0107278        15-NOV-89       02-AUG-03
ITALY                     89/69173         03-AUG-83          EP0107278        15-NOV-89       02-AUG-03
JAPAN                     83/502561        04-APR-84***       2625412          11-APR-97       03-AUG-03
JAPAN                     96/281135        23-OCT-96***       2764034          27-MAR-98       03-AUG-03
LUXEMBOURG                83304487.8       03-AUG-83          EP0107278        15-NOV-89       02-AUG-03
NETHERLANDS               83304487.8       03-AUG-83          EP0107278        15-NOV-89       02-AUG-03
SWEDEN                    83304487.8       03-AUG-83          EP0107278        15-NOV-89       02-AUG-03
SWITZERLAND               83304487.8       03-AUG-83          EP0107278        15-NOV-89       02-AUG-03
UNITED KINGDOM            8320975.9        03-AUG-83          2125409          13-NOV-85       03-AUG-03
USA                       07/355900        19-MAY-89****      4994371          19-FEB-91       19-FEB-08
</TABLE>


         *Without patent term extension or Supplementary Protection
                          Certificate (SPC) protection.

         **Designates United Kingdom, Austria, Belgium, France, Germany,
             Italy, Luxembourg, Netherlands, Sweden and Switzerland.

         ***Actual date but deemed to have the date of 03-AUG-83 in the
                    European Patent Convention and in Japan.

         ****Actual date but deemed to have the date of 28-OCT-82.


[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.



                                       21