Document:

EXHIBIT
10.1

 

SETTLEMENT
AGREEMENT

 

THIS SETTLEMENT AGREEMENT (this “Agreement”),
dated as of April 20, 2010, is made by and between AVI BioPharma, Inc.,
an Oregon corporation with its principal executive office located in Bothell,
Washington (“AVI” or the “Company”), and George W. Haywood (“Mr. Haywood”),
Cheryl Haywood (“Ms. Haywood”), Rockall Emerging Markets Master
Fund Limited (the “Fund”), Meldrum Asset Management, LLC (“Meldrum”),
Con Egan (“Mr. Egan”) and Conor O’Driscoll (“Mr. O’Driscoll”)
(“Mr. Haywood”, “Ms. Haywood”, the “Fund”, “Meldrum”, “Mr. Egan”
and “Mr. O’Driscoll” each a “Shareholder Party” and, collectively,
the “Shareholder Group”) (each of the Company and the Shareholder Group,
a “Party” to this Agreement, and collectively, the “Parties”).  Leslie Hudson (“Hudson”) is executing
this Agreement solely for the purpose of his agreement with the provisions set
forth in Section 3(a) and Section 8 and K. Michael Forrest (“Forrest”)
is executing this Agreement solely for the purpose of his agreement with the
provisions set forth in Section 3(e).

 

WHEREAS, the Shareholder Group
may be deemed to beneficially own shares of common stock of AVI (the “Common
Stock”) totaling, in the aggregate, 13,371,529 shares, or approximately
11.9% of the Common Stock issued and outstanding on the date hereof;

 

WHEREAS, on March 16, 2010, Mr. Haywood,
Ms. Haywood and Meldrum requested that the Company call a special
shareholders meeting to (i) remove certain members of the Company’s board
of directors (the “Board”) and (ii) elect new directors to the
Board to fill vacancies left by the removal of directors; and

 

WHEREAS, the Company and the
Shareholder Group have agreed that it is in their mutual interests to enter
into this Agreement to set forth, among other things, the parties’ mutual
understanding relating to the 2010 annual meeting of shareholders (the “2010
Annual Meeting”) and other related personnel matters.

 

NOW, THEREFORE, in consideration
of the premises and the representations, warranties, and agreements contained
herein, and other good and valuable consideration, the Parties mutually agree
as follows:

 

1.  Representations and Warranties of
the Shareholder Group. The
Shareholder Group represents and warrants to the Company that (a) this
Agreement has been duly authorized, executed and delivered by the Shareholder
Group, and is a valid and binding obligation of the Shareholder Group,
enforceable against the Shareholder Group in accordance with its terms, except
as enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws generally
affecting the rights of creditors and subject to general equity principles; and
(b) the execution of this Agreement, the consummation of any of the transactions
contemplated hereby, and the fulfillment of the terms hereof, in each case in
accordance with the terms hereof, will not conflict with, or result in a breach
or violation of the organizational documents of the Shareholder Group as
currently in effect.

 

2.  Representations and Warranties of
the Company. The
Company hereby represents and warrants to the Shareholder Group that (a) this
Agreement has been duly authorized, executed and delivered by the Company, and
is a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws generally 

 

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affecting the rights of creditors
and subject to general equity principles; (b) the execution of this
Agreement, the consummation of any of the transactions contemplated hereby, and
the fulfillment of the terms hereof, in each case in accordance with the terms
hereof, will not (1) conflict with, result in a breach or violation of,
constitute a default (or an event which with notice or lapse of time or both
could become a default) under or pursuant to, result in the loss of a material
benefit or give any right of termination, amendment, acceleration or
cancellation under, or result in the imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to any law, any order of any court or other agency of
government, the Company’s Third Restated Articles of Incorporation (as amended)
(the “Restated Articles”), the Company’s First Restated Bylaws (the “Restated
Bylaws”), or the terms of any indenture, contract, lease, mortgage, deed
of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company is a party or bound or
to which its property or assets is subject or (2) trigger any “change of
control” provisions in any agreement to which the Company is a party; and (c) no
consent, approval, authorization, license or clearance of, or filing or
registration with, or notification to, any court, legislative, executive or
regulatory authority or agency is required in order to permit the Company to
perform its obligations under this Agreement, except for such as have been
obtained.

 

3.  CEO Resignation; Board Matters; Nominations
at 2010 Annual Meeting.

 

(a)           Simultaneously with the execution of this Agreement and
the Separation and Mutual Release Agreement by and between Hudson and the
Company attached as Exhibit A hereto, Hudson hereby irrevocably resigns as
the Chief Executive Officer and director of the Company.  The Parties hereto agree and acknowledge that
the preceding sentence shall serve as Hudson’s formal irrevocable resignation
delivered to the Company and upon execution of this Agreement and the
Separation and Mutual Release Agreement, which agreement shall be executed
concurrently with the execution of this Agreement, no additional agreement,
notice or action shall be necessary to immediately effectuate such resignation
in accordance herewith.  Hudson agrees
that he shall not contest or seek to contest the validity or effectiveness of
such resignation.

 

(b)           As set forth in the Separation and Mutual Release
Agreement attached as Exhibit A, the Company hereby acknowledges that
Hudson will be due certain severance payments under Section 13(d) of
the Employment Agreement with the Company, dated February 8, 2008 and the
Company shall pay such amounts promptly in accordance with the terms of such
agreement.

 

(c)           Contemporaneous with the resignation of Hudson as the
Chief Executive Officer, the Company will appoint J. David Boyle II, the
Company’s current Senior Vice President and Chief Financial Officer as the
Company’s interim Chief Executive Officer. 
The Company agrees that a permanent replacement Chief Executive Officer
will not be made or approved by the Board until after the 2010 Annual Meeting,
provided that the Company may conduct a search for a permanent Chief Executive
Officer prior to such time.

 

(d)           The Parties acknowledge that the Board has amended,
subject to the execution of this Agreement by the Parties, (i) Section 3.2
of the Restated Bylaws to provide that the number of directors of the Company
shall be a minimum of one (1) and a maximum of seven (7) as
determined from time to time by the Board and that the Board has determined to
set the number at seven (7), and (ii) Section 3.10 of the Restated
Bylaws to clarify that a director appointed by the directors to fill a vacancy
shall fill the term of the director whose seat he or she is succeeding.

 

(e)           Simultaneously with the execution of this Agreement and
immediately prior to the effectiveness of the amendment to Section 3.2 of
the Restated Bylaws, Forrest hereby irrevocably resigns as a director of the
Company.  The Parties hereto agree and
acknowledge that the preceding sentence shall serve as Forrest’s formal
irrevocable resignation delivered to the Company and no additional agreement,
notice or action shall be necessary to immediately effectuate such resignation
in accordance 

 

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herewith.  Forrest agrees that he shall not contest or
seek to contest the validity or effectiveness of such resignation.

 

(f)            Simultaneously with the execution of this Agreement, the
Board and the Nominating and Corporate Governance Committee of the Board (the “Nominating
Committee”) shall appoint Anthony Chase (the “New Director”) to
serve as a director of the Company to fill the vacancy created by the Hudson
resignation and to serve in such capacity for the remainder of Hudson’s term or
until his successor is duly elected and qualified, subject to the terms of this
Agreement.  The Parties acknowledge that
each of the Nominating Committee and the Board has in good faith, reviewed and
approved the credentials of Anthony Chase and in the exercise of its fiduciary
duties, concluded that such candidate has business experience in such areas as
would reasonably be expected to enhance the Board, and the Nominating Committee
recommended to the Board that it appoint, and the Board appointed, the New
Director to fill the vacancy on the Board created by Hudson’s resignation and
the Board has appointed the New Director to serve as a member of the Nominating
Committee immediately upon his appointment to the Board.  The New Director also shall be eligible to be
a member of any other committee of the Board (as the Board may determine) if he
meets any independence or other requirements under applicable law and the rules and
regulations of the Nasdaq Stock Market or other securities exchange that the
Company’s securities may then be traded for service on such committee.

 

(g)           The Parties acknowledge that the Nominating Committee has
recommended to the Board, and the Board, in good faith after exercising its
fiduciary duties has determined that, in connection with the 2010 Annual
Meeting, the following persons to be included in the Company’s slate of nominees
for director shall (i) not include current directors Michael D. Casey (“Casey”)
and Christopher S. Henney (“Henney”), both of whom have previously
notified the Company of their decision not to stand for re-election of
directors at the end of their current term and (ii) shall include current
directors William Goolsbee (“Goolsbee”) and Gil Price (“Price”);

 

(h)           The New Director will be governed by the same protections
and obligations regarding confidentiality, conflicts of interests, fiduciary
duties, trading and disclosure policies and other governance guidelines, and
shall have the same rights and benefits, including (but not limited to) with
respect to insurance, indemnification, compensation and fees, as are generally
applicable to any non-employee directors of the Company.

 

(i)            The Company agrees that prior to the 2010 Annual Meeting,
the Board and all applicable committees of the Board shall not (i) increase
the size of the Board to more than seven (7) directors, (ii) make any
change in the composition of the Nominating Committee other than due to death
or resignation of a member of such committee, in which case any replacement
member of such committee shall be approved in writing by each member of the
Shareholder Group, which consent shall not be unreasonably withheld, (iii) make
any change in the Restated Bylaws or Restated Articles that adversely affects
the right and ability of shareholders to act by written consent, call for
special meetings, or remove and replace directors, or (iv) take any action
that would otherwise adversely affect the benefits to be received by the
Shareholder Group from this Agreement.

 

(j)            The Company agrees that the 2010 Annual Meeting will take
place no later than June 15, 2010, and assuming a quorum is present at
such meeting, such meeting shall not be adjourned prior to the valid election
of directors in accordance with the terms of this Agreement without the written
consent of each Shareholder Party.

 

4.  Standstill Restrictions.

 

(a)           Subject to applicable law, including Section 13(d) and
(g) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Shareholder Group (and each member of the Shareholder Group,
acting alone or together with any other person or group) shall not, and shall
cause their 

 

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Affiliates and Associates (as
defined below) under its control or direction not to, in any manner, directly
or indirectly:

 

(i)            for a period of one (1) year from the date of this
Agreement, solicit (as such term is used in the proxy rules of the
Securities and Exchange Commission (the “SEC”)) proxies or consents to
vote any securities of the Company, or make, or in any way participate in, any “solicitation”
of any “proxy” within the meaning of Rule 14a-1 promulgated by the SEC
under the Exchange Act to vote any shares of Common Stock with respect to any
matter, or become a “participant” in any “contested solicitation” for the
election of directors with respect to the Company (as such terms are defined or
used in the Exchange Act and the rules promulgated thereunder), other than
solicitations or acting as a participant in support of all of the Company’s
nominees and proposals;

 

(ii)           for a period of one (1) year from the date of this
Agreement, deposit any Common Stock in any voting trust or subject any Common
Stock to any arrangement or agreement with respect to the voting of any Common
Stock, other than any such voting trust, arrangement or agreement solely among
the Shareholder Group;

 

(iii)          for a period of one (1) year from the date of this
Agreement, otherwise act, alone or in concert with others to control or seek to
control of the Board, or to control, or seek to control or influence the
management or the policies of the Company, other than through non-public communications
with the Board;

 

(iv)          for a period of one (1) year from the date of this
Agreement, otherwise act, alone or in concert with others to control or seek to
remove any director from the Board, other than through non public
communications with the Board; or

 

(v)           for a period of one (1) year from the date of this
Agreement, alone or in concert with others, (1) seek to call a meeting of
shareholders, (2) seek representation on the Board, or (3) initiate,
propose or otherwise solicit shareholders of the Company for the approval of
shareholder proposals, or cause, encourage, or attempt to cause or encourage
any other person to initiate any shareholder proposal, except as specifically
contemplated in this Agreement.

 

(b)           Subject to applicable law, including Section 13(d) and
(g) of the Exchange Act and Rules 10b-5, 10b5-1 and 10b5-2 under the
Exchange Act, for a period of six (6) months from the date of this
Agreement:

 

(i)            Mr. Haywood and Ms. Haywood shall not, and
shall cause their Affiliates and Associates (as defined below) under their
control or direction not to, in any manner, directly or indirectly, purchase or
cause to be purchased or otherwise acquire or agree to acquire beneficial
ownership (as determined under Rule 13d-3 promulgated under the Exchange
Act) of any Common Stock or other securities issued by the Company, if in any
such case, immediately after the taking of such action, Mr. Haywood and Ms. Haywood
would, in the aggregate, collectively beneficially own more than 12% of the
then outstanding shares of Common Stock; provided that the foregoing percentage
of beneficially owned Common Stock shall not include any unexercised
outstanding warrants, or shares acquired upon exercise of such warrants, held
by either Mr. Haywood or Ms. Haywood; or

 

(ii)           the Fund, Meldrum, Mr. Egan and Mr. O’Driscoll
shall not, and shall cause their Affiliates and Associates (as defined below)
under their control or direction not to, in any manner, directly or indirectly,
purchase or cause to be purchased or otherwise acquire or agree to acquire
beneficial ownership (as determined under Rule 13d-3 promulgated under the
Exchange Act) of any Common Stock or other securities issued by the Company, if
in any such case, immediately after the taking of such action, the Fund,
Meldrum, Mr. Egan and Mr. O’Driscoll would, in the aggregate,
collectively beneficially own more than 6% of the then outstanding shares of
Common Stock; provided that the foregoing percentage of beneficially owned
Common Stock shall not include any unexercised outstanding 

 

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warrants, or shares acquired upon
exercise of such warrants, held by either the Fund, Meldrum, Mr. Egan and Mr. O’Driscoll.

 

(c)           Notwithstanding anything contained herein to the contrary,
any member of the Shareholder Group, and any Affiliate or Associate of any such
member, shall be entitled to:

 

(i)            subject to Section 5, vote their shares on any
proposal duly brought before the 2010 Annual Meeting, or otherwise vote as the
Shareholder Group or each individual member of the Shareholder Group determines
in its sole discretion;

 

(ii)           disclose, publicly or otherwise, how it intends to vote or
act with respect to any securities of the Company, any shareholder proposal or
other matter to be voted on by the shareholders of the Company (other than the
election of directors) and the reasons therefor; or

 

(iii)          propose a slate of nominees for election as directors
and/or one or more proposal(s) for consideration or approval by
shareholders at the 2011 annual meeting of shareholders (the “2011 Annual
Meeting”) to comply with the advance notice provisions or other
requirements of the Restated Articles or the Restated Bylaws.

 

(d)           As used in this Agreement, the terms “Affiliate”
and “Associate” shall have the respective meanings set forth in Rule 12b-2
promulgated by the SEC under the Exchange Act.

 

5.  Actions by the Shareholder Group.

 

(a)           At the 2010 Annual Meeting, the Shareholder Group shall
vote, and cause their respective officers, directors, employees and agents to
vote, all of the shares of Common Stock beneficially owned by him or them for (i) each
of the Company’s nominees (which nominees have been made in compliance with the
terms of this Agreement) for election to the Board and (ii) the ratification
of the appointment of the Company’s independent auditors.

 

(b)           Following execution of this Agreement by the Parties, the
Shareholder Group shall not submit any proposals or nominations for election to
the Board at the 2010 Annual Meeting and shall revoke its prior demand for a
special meeting of the shareholders and revoke all other demands previously
made to the Board.

 

(c)           Following execution of this Agreement by the Parties, the
Shareholder Group shall amend its Schedule 13D to indicate the termination of
the demand for a special meeting of shareholders and the execution of this
Agreement.

 

6.  Termination.  This
Agreement shall terminate and the obligations of the Parties under this
Agreement shall cease on the earlier of the following (the “Termination Date”):

 

(a)           at the option of the Company, upon a material breach by
the Shareholder Group of any obligation hereunder which has not been cured
within 14 days after the Shareholder Group receives written notice of such
breach from the Company;

 

(b)           at the option of the Shareholder Group, upon a material
breach by the Company of any obligation hereunder which has not been cured
within 14 days after the Company receives written notice of such breach from
the Shareholder Group;

 

(c)           seven days prior to the date that a Company shareholder
may first submit a nomination for the election of directors at the 2011 Annual
Meeting pursuant to the Restated Bylaws;

 

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(d)           on the day that the Board publicly announces its nominees
for election as directors at the 2011 Annual Meeting; or

 

(e)           at any time, upon the written consent of all of the
Parties.

 

7.  Public Announcement. The Company and the Shareholder Group
shall promptly disclose the existence of this Agreement after its execution
pursuant to a joint press release that is mutually acceptable to the parties,
including a description of the material terms of this Agreement.  Subject to applicable law, none of the
Parties shall disclose the existence of this Agreement until the joint press
release is issued.

 

8.  Releases.

 

(a)           The Shareholder Group hereby agrees for the benefit of the
Company, and, to the extent acting in such capacity, each controlling person,
officer, director, shareholder, agent, affiliate, employee, partner, attorney,
heir, assign, executor, administrator, predecessor and successor, past and
present, of the Company (the Company and each such person being a “Company
Released Person”) as follows:

 

(i)            The Shareholder Group, for themselves and for their
members, officers, directors, assigns, agents and successors, past and present,
hereby agrees and confirms that, effective from and after the date of this
Agreement, they hereby acknowledge full and complete satisfaction of, and
covenant not to sue, and forever fully release and discharge each Company
Released Person of, and hold each Company Released Person harmless from, any
and all rights, claims, warranties, demands, debts, obligations, liabilities,
costs, attorneys’ fees, expenses, suits, losses and causes of action of any
nature whatsoever, whether known or unknown, suspected or unsuspected, matured
or unmatured, fixed or contingent relating in any way to the affairs of the
Company that the Shareholder Group may have against the Company Released
Persons, in each case with respect to events occurring prior to the date of the
execution of this Agreement (collectively, “Shareholder Group Released
Claims”).

 

(ii)           The Shareholder Group understands and agrees that the
Shareholder Group Released Claims released by the Shareholder Group above
include not only those claims presently known but also include all unknown or
unanticipated claims, rights, demands, actions, obligations, liabilities, and
causes of action of every kind and character that would otherwise come within
the scope of the Shareholder Group Released Claims as described above  and
which if known by the Shareholder Group would have materially affected this
settlement with the Company. The Shareholder Group understands that they
may hereafter discover facts different from or in addition to what they now
believe to be true, which if known, could have materially affected this release
of the Shareholder Group Released Claims, but they nevertheless waive any
claims or rights based on different or additional facts.

 

(iii)          With respect to the Shareholder Group Released Claims, the
Shareholder Group, for themselves and for their members, officers, directors,
assigns, agents and successors, past and present, expressly waives as of the
date of the execution of the Agreement all provisions, rights and benefits of
California Civil Code section 1542 and all provisions, rights and benefits
conferred by any law of any state or territory of the United States, or
principle of common law, which is similar, comparable or equivalent to
California Civil Code section 1542. 
California Civil Code section 1542 provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY
AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

 

6

 

(b)           The Company hereby agrees for the benefit of the
Shareholder Group, and, to the extent acting in such capacity, each controlling
person, officer, director, stockholder, agent, affiliate, employee, partner,
attorney, heir, assign, executor, administrator, predecessor and successor,
past and present, thereof, as well as the New Director, but does not include
any member of the Board (the Shareholder Group and each such person being a “Shareholder
Released Person”) as follows:

 

(i)            The Company, for itself and for its affiliates,
directors, assigns, and successors, past and present, hereby agrees and confirms
that, effective from and after the date of this Agreement, it hereby
acknowledges full and complete satisfaction of, and covenants not to sue, and
forever fully releases and discharges each Shareholder Released Person of, and
holds each Shareholder Released Person harmless from, any and all rights,
claims, warranties, demands, debts, obligations, liabilities, costs, attorneys’
fees, expenses, suits, losses and causes of action of any nature whatsoever,
whether known or unknown, suspected or unsuspected, matured or unmatured, fixed
or contingent relating in any way to the affairs of the Company that the
Company may have against the Shareholder Released Persons, in each case with
respect to events occurring prior to the date of the execution of this Agreement
(collectively, “Company Released Claims”).

 

(ii)           The Company understands and agrees that the Company
Released Claims released by the Company above include not only those claims
presently known but also include all unknown or unanticipated claims, rights,
demands, actions, obligations, liabilities, and causes of action of every kind
and character that would otherwise come within the scope of the Company
Released Claims as described above and
which if known by the Company would have materially affected this settlement
with the Shareholder Group.  The
Company understands that it may hereafter discover facts different from or in
addition to what it now believes to be true, which if known, could have
materially affected this release of the Company Released Claims, but it
nevertheless waives any claims or rights based on different or additional
facts.

 

(iii)          With respect to the Company Released Claims, the Company,
for itself and for its affiliates, directors, assigns, and successors, past and
present, expressly waives as of the date of the execution of the Agreement all
provisions, rights and benefits of California Civil Code section 1542 and all
provisions, rights and benefits conferred by any law of any state or territory
of the United States, or principle of common law, which is similar, comparable
or equivalent to California Civil Code section 1542.  California Civil Code section 1542 provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY
AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

 

(c)           The Parties intend that the foregoing releases be broad
with respect to the matters released, provided, however, this release of the
Shareholder Group Released Claims and the Company Released Claims shall not
include claims to enforce the terms of this Agreement; and provided further
that nothing in the foregoing release shall be deemed or construed, now or
hereafter, as limiting in any manner any right of indemnification inuring to
the benefit of any director or former director of the Company arising under the
Restated Articles, the Restated Bylaws or otherwise.

 

9.  Remedies.

 

(a)           Each of the Parties acknowledges and agrees that a breach
or threatened breach by any Party may give rise to irreparable injury
inadequately compensable in damages, and accordingly 

 

7

 

each Party shall be entitled to
injunctive relief to prevent a breach of the provisions hereof and to enforce
specifically the terms and provisions hereof in any state or federal court
having jurisdiction, in addition to any other remedy to which such aggrieved
Party may be entitled to at law or in equity.

 

(b)           In the event a Party institutes any legal action to
enforce such Party’s rights under, or recover damages for breach of this
Agreement, the prevailing party or parties in such action shall be entitled to
recover from the other party or parties all costs and expenses, including but
not limited to reasonable attorneys’ fees, court costs, witness fees,
disbursements and any other expenses of litigation or negotiation incurred by
such prevailing party or parties.

 

10.  Notices. Any notice or other communication required or permitted to be given
under this Agreement will be sufficient if it is in writing, sent to the
applicable address set forth below (or as otherwise specified by a Party by
notice to the other Parties in accordance with this Section 12) and delivered
personally or sent by recognized overnight courier, postage prepaid, and will
be deemed given (a) when so delivered personally, or (b) if sent by
recognized overnight courier, one day after the date of sending.

 

If to the Company:

 

AVI BioPharma, Inc.

3450 Monte Villa Parkway, Suite 101

Bothell, WA 98021

Attention: Chief Executive
Officer

Telephone:  (541) 738-5112

Facsimile:  (425) 489-5933

 

with copies (which shall not
constitute notice to the Company) to:

 

Davis Wright Tremaine LLP

1300 SW Fifth Avenue, Suite 2300

Portland, OR 97201

Attention:  Michael Phillips

Telephone: (503) 778-5214

Facsimile: (503) 778-5299

 

and

 

Cooley Godward Kronish LLP

3175 Hanover Street

Palo Alto, CA 94304

Attention:  Nancy H. Wojtas

Telephone:  (650) 843-5819

Facsimile:  (650) 849-7400

 

if to any Shareholder Party:

 

c/o Gary T. Moomjian, Esq.

Moomjian, Waite, Wactlar &
Coleman, LLP

100 Jericho Quadrangle, Suite 225

Jericho, New York 11753

Telephone: (516) 937-5900

Facsimile: (516) 937-5050

 

with a copy (which shall not constitute
notice to any Shareholder Party) to:

 

8

 

K&L Gates LLP

925 Fourth Avenue, Suite 2900

Seattle, Washington 98104

Attention:  Eric Simonson

Telephone:  (206) 370-7679

Facsimile:  (206) 370-6240

 

11.  Entire Agreement. This Agreement constitutes the entire
agreement between the Parties pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions of the Parties in connection with the subject
matter hereof.

 

12.  Counterparts; Facsimile. This Agreement may be executed in any
number of counterparts and by the Parties in separate counterparts, and
signature pages may be delivered by facsimile, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.

 

13.  Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

14.  Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
Washington, without regard to choice of law principles that would compel the
application of the laws of any other jurisdiction.

 

15.  Severability. In the event one or more of the
provisions of this Agreement should, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.

 

16.  Successors and Assigns. This Agreement shall not be assignable
by any of the Parties. This Agreement, however, shall be binding on successors
of the Parties.

 

17.  Amendments. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by all of the Parties.

 

18.  Further Action. Each Party agrees to execute such
additional reasonable documents, and to do and perform such reasonable acts and
things necessary or proper to effectuate or further evidence the terms and
provisions of this Agreement.

 

[Signatures are on the
following page.]

 

9

 

IN WITNESS WHEREOF, the Parties
have executed this Settlement Agreement as of the day and year first above
written.

 

 

	
   

  	
   

  	
  Mr. Haywood

  
	
   

  	
   

  	
   

  
	
  COMPANY

  	
   

  	
  /s/ George W. Haywood

  
	
   

  	
   

  	
  George W. Haywood

  
	
  AVI BIOPHARMA, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ J. David Boyle II

  	
   

  	
  Ms. Haywood

  
	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
  Interim President and CEO

  	
   

  	
  /s/ Cheryl Haywood

  
	
   

  	
   

  	
   

  	
  Cheryl Haywood

  
	
   

  	
   

  	
   

  	
   

  
	
  FUND

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Rockall Emerging Markets Master Fund Limited

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Mr. Egan

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  Meldrum Asset Management, LLC

  	
   

  	
  /s/ Con Egan

  
	
  Its:

  	
  Investment Manager

  	
   

  	
  Con Egan

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Con Egan

  	
   

  	
   

  
	
  Name:

  	
  Con Egan

  	
   

  	
   

  
	
  Title:

  	
  Manager

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Mr. O’Driscoll

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/ Conor O’Driscoll

  
	
  MELDRUM

  	
   

  	
  Conor O’Driscoll

  
	
  Meldrum Asset Management, LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Con Egan

  	
   

  	
   

  
	
  Name:

  	
  Con Egan

  	
   

  	
   

  
	
  Title:

  	
  Manager

  	
   

  	
   

  

 

Only for purposes of indicating
agreement with Section 3(a) and Section 8 of this Settlement
Agreement

 

HUDSON

 

	
  /s/ Leslie Hudson

  	
   

  	
   

  
	
  Leslie Hudson

  	
   

  	
   

  

 

Only for purposes of indicating
agreement with Section 3(e) of this Settlement Agreement

 

FORREST

 

	
  /s/ K. Michael Forrest

  	
   

  	
   

  
	
  K. Michael Forrest

  	
   

  	
   

  

 

1EXHIBIT
10.2

 

SEPARATION AND RELEASE AGREEMENT

 

THIS
SEPARATION AND RELEASE AGREEMENT (the “Agreement”) is between Leslie Hudson, PhD
(the “Executive”) and AVI BioPharma, Inc. (the “Employer”), and is
effective eight (8) days after the Executive signs this Agreement (the “Effective
Date”).

 

The
parties agree as follows:

 

1.             Resignation. The Executive resigned his
position as Employer’s Chief Executive Officer effective April 20, 2010
(the “Resignation Date”).  The Executive
has been paid his salary and other compensation due on or before the
Resignation Date, less all lawful or required deductions either as a result of
a termination.

 

2.             Consideration.  
In consideration of  the
Executive’s agreements hereunder, the Employer shall pay to the Executive the
amounts set forth and described in Section 13(d) of that certain
Employment Agreement dated effective the 8th day of February 2008 (the “Employment
Agreement”).  The Executive’s resignation
hereunder is at the request of the Board of Directors of the Company, and
accordingly is treated as an involuntary termination of his employment without Cause by the Company for purposes of Section 13(d) of
the Employment Agreement.

 

3.             Return of Company Property. The Executive
represents that he has returned all Employer property in his possession or
under his control, including but not limited to keys, credit cards, files,
laptop computer and any and all Company documents, which shall not include
rolodex or address books (whether in hard copy or electronic) or cell phone number.

 

Release.

 

In exchange for the consideration paid to the
Executive as set forth in this Agreement, the Executive forever releases and
discharges the Employer, any of the Employer-sponsored employee benefit plans
in which the Executive participates, or was participating in, (collectively the
“Plans”) and all of their respective officers, members, managers, partners,
directors, trustees, agents, employees, and all of their successors and assigns
(in such capacities collectively the “Releasees”) from any and all claims,
actions, causes of action, rights, or damages, including costs and attorneys’
fees (collectively the “Claims”) which the Executive may have arising out of
his employment (including Claims that may arise out of the Executive’s
employment agreement), on behalf of himself, known, unknown, or later
discovered which arose prior to the date the Executive signs this
Agreement.  This release includes but is
not limited to, any Claims under any local, state, or federal laws prohibiting
discrimination in employment, including without limitation the federal civil
rights acts, Oregon Revised Statutes Chapter 
659A, the Americans with Disabilities Act, the Age Discrimination in
Employment Act, or Claims under the Employee Retirement Income Security Act, or
Claims alleging any legal restriction on the Employer’s right to terminate its
employees, any Claims the Executive has relating to his rights to or against
any of the Plans, or personal injury Claims, including without limitation
wrongful discharge, breach of contract, defamation, tortious interference with
business expectancy, 

 

1

 

constructive discharge, or infliction of emotional
distress.  The Executive represents that
he has not filed any Claim against the Employer or its Releasees, he has no
knowledge of any facts that would support any Claim by the Executive against
the Employer or by a third party against the Employer, and that he will file a
Claim at any time in the future concerning Claims released in this Agreement;
provided, however, that this will not limit the Executive from filing a Claim
to enforce the terms of this Agreement or the Employment Agreement.  This release does not cover your rights of indemnification,
to be held harmless, to contribution or to directors and officers insurance
coverage or with regard to vested benefits or equity.

 

In consideration of the promises of the Executive
as set forth herein and subject to any claims surviving the termination of the
Employment Agreement, the Employer does hereby, and for its successors and
assigns, release, acquit and forever discharge the Executive from any and all
actions, causes of action, obligations, costs, expenses, damages, losses,
claims, liabilities, suits, debts, and demands (including attorneys’ fees and
costs actually incurred), of whatever character in law or in equity known or
unknown, suspected or unsuspected, from the beginning of time to the date of
execution hereof.

 

Non-disparagement. The Executive and the Employer
each agree for three (3) years not to make disparaging statements about
each other, except in the case of statements that are required under applicable
federal or state securities laws or applicable rules and regulations of
any exchange on which the Employer’s stock is traded, to comply with legal
process, normal competitive type statements or to rebut statements of the
other.

 

Consideration and Revocation Periods. The Executive understands and
acknowledges the significance and consequences of this Agreement, that it is
voluntary, that it has not been given as a result of any coercion, and
expressly confirms that it is to be given full force and effect according to
all of its terms, including those relating to unknown Claims.  The Executive was hereby advised of his right
to seek the advice of an attorney prior to signing this Agreement.  The Executive acknowledges that he has signed
this Agreement only after full reflection and analysis. Although he is free to
sign this Agreement before then, the Executive acknowledges he was given at
least 21 days after receipt of this document in which to consider it (the “Consideration
Period”).  If the Executive executes this
Agreement prior to the end of the Consideration Period, the Executive hereby
waives any rights associated therewith. The Executive may revoke this Agreement
seven (7) days after signing it and forfeit all benefits described in Section 2
of this Agreement. The Executive and the Employer agree that any changes made
to this Agreement during the Consideration Period as a result of negotiations
between the parties do not restart the running of the Consideration Period.

 

Section 409A Compliance. 
Notwithstanding anything to the contrary herein, the following
provisions apply to the extent severance benefits provided herein are subject
to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)
and the regulations and other guidance thereunder and any state law of similar
effect (collectively “Section 409A”).   
These provisions are intended either to comply with the requirements of Section 409A
or to provide a basis for exemption from such requirements so that none of the
payments and benefits described in this Agreement will be subject to the
additional tax imposed under Section 409A, and any ambiguities herein will
be so interpreted.  Each installment of
severance benefits is a separate 

 

2

 

“payment”
for purposes of Treas. Reg. Section 1.409A-2(b)(2)(i), and the severance
benefits are intended to satisfy the exemptions from application of Section 409A
provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and
1.409A-1(b)(9).  Although you are a “specified
employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code
at the time of your separation from service, the payments under this Agreement
are intended to be in compliance with the requirements of Section 409A(a)(2)(B)(i) of
the Code because payments will either be payable pursuant to the “short-term
deferral” rule set forth in Section 1.409A-1(b)(4) of the
Treasury Regulations or will not be paid until at least 6 months after your
separation from service.

 

4.             Specified Entities. 
For purposes of this Agreement and Section 7 of the Employment
Agreement, the term “Specified Entities” shall mean the following entities (and
their successors-in-interest):  Alnylam
Pharmaceuticals, Inc., Isis Pharmaceuticals, Inc., Prosensa
Therapeutics, Santaris Pharma A/S and BioMarin Pharmaceutical, Inc.

 

5.             No Liability. This Agreement shall not be
construed as an admission by either party that it acted wrongfully with respect
to the other.

 

Severability. If any of the provisions of this Agreement are held
to be invalid or unenforceable, the remaining provisions will nevertheless
continue to be valid and enforceable.

 

Entire Agreement.  Except for Sections 6, 7, 8, 9,
10 and 21 of the Employment Agreement, this Agreement represents and contains
the entire understanding between the parties in connection with its subject
matter.  All other prior written or oral
agreements or understandings are merged into and superseded by this
Agreement.  The Executive acknowledges
that in signing this Agreement, he has not relied upon any representation or
statement not set forth in this Agreement made by the Employer or any of its
representatives.

 

Arbitration and Attorney Fees. Section 21 of the Employment
Agreement shall govern any disputes with regard to this Agreement.

 

Choice of Law. This Agreement is made and shall be construed and
performed under the laws of the State of Oregon.

 

PLEASE READ CAREFULLY.  THIS AGREEMENT INCLUDES A RELEASE OF CERTAIN
KNOWN OR UNKNOWN CLAIMS.

 

 

	
  DATED
  this 20th day of April, 2010.

  	
  DATED
  this 20th day of April, 2010

  
	
   

  	
   

  
	
   

  	
   

  
	
  AVI
  BioPharma, Inc.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ J. David Boyle II

  	
   

  	
  /s/
  Leslie Hudson

  
	
  Name:
  J. David Boyle II

  	
  Leslie
  Hudson, PhD

  
	
   

  	
   

  
	
  Title:
  Interim President and CEO

  	
   

  
				

 

3

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