Document:

Prepared by MerrillDirect

 

Exhibit
10.39

LICENSE
AND DEVELOPMENT AGREEMENT 1

             THIS LICENSE AND DEVELOPMENT
AGREEMENT (this “Agreement”) is made and entered into as of June 20, 2001
between AVI BIOPHARMA, INC. (“AVI”), an Oregon corporation, and MEDTRONIC, INC.
(“Medtronic”), a Minnesota corporation.

RECITALS

             WHEREAS, AVI has developed
technology relating to antisense compounds which may have application in the
treatment of vascular disease;

             WHEREAS, Medtronic makes and sells
medical devices relating to the treatment of vascular disease;

             WHEREAS, an affiliate of Medtronic,
Medtronic Asset Management, Inc. (“MAMI”), has entered into an Investment
Agreement dated as of May 22, 2001 (the “Investment Agreement”) pursuant to
which, among other things, MAMI has purchased, and AVI has sold, certain shares
of AVI Common Stock and a Warrant to purchase certain shares of AVI Common
Stock;

             WHEREAS, AVI desires to grant, and
Medtronic desires to obtain, the rights set forth herein;

             WHEREAS, AVI and Medtronic are
entering into a Supply Agreement of even date herewith (the “Supply Agreement”)
regarding AVI’s supplying Medtronic’s requirements for the Drug; and

             WHEREAS, the parties desire that
Medtronic attempt to develop products using the Technology (as defined below)
for the treatment of vascular disease through non-systemic applications.

AGREEMENT

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

ARTICLE
1

DEFINITIONS

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

             “Additional License Agreement”
has the meaning given in Section 4.4(c).

             “Additional Supply Agreement”
has the meaning given in Section 4.4(d).

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

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

 

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

             “*    
*     * Agreement”
means the *     *    
* Agreement dated *     *     * by and between AVI and *     *    
*, as amended from time to time.

             “Compound” means (a) any
“drug” as defined in the Federal Food, Drug and Cosmetic Act, as amended, not
licensed hereunder and all derivatives and analogues of such drug, (b) any
“biological product” as defined in the Public Health Service Act, as amended,
not licensed hereunder and all derivatives and analogues of such biological
product and (c) the antisense compounds not licensed hereunder.

             “Compound Option Period”
means the period commencing on the First Closing Date (as defined in the
Investment Agreement) and continuing until termination of this Agreement.

             “Drug” means formulation or
formulations of antisense compounds (including the *    
*     * substance known as
*     *    
*) that target the genes listed on Exhibit B attached hereto, all
derivatives and analogues thereof, and all modifications and improvements
thereto.

             “Exclusivity
Termination Date” means, with respect to a Compound, the date which is *     *    
*.

             *      *     
*

             “Expiration”
or “Expired” means, with respect to a particular patent, the patent’s
expiration, abandonment, cancellation, disclaimer, award to another party other
than AVI in an interference proceeding, or declaration of invalidity or
unenforceability by a court or other authority of competent jurisdiction
(including final rejection in a re-examination or re-issue proceeding).

             “FDA” means the U.S. Food
and Drug Administration.

             “FDA
Approval” means the receipt by Medtronic of all approvals by the FDA
necessary or required for the commercialization in the United States of a Royalty
Product.

             “Field”
means the treatment of vascular disease *     *     *.

             “First
Commercial US Sale” means the first commercial sale of a Royalty Product in
the United States pursuant to Medtronic’s customary commercial release
executive approval procedures and guidelines. 
Commercial sales do not include sales for use in clinical trials or
other testing purposes.

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

             “Invention”
means any invention, discovery, know-how, trade secret, data, information,
technology, process or concept, whether or not patented or patentable, and
whether or not memorialized in writing.

             “Investment
Agreement” means the Investment Agreement dated May 22, 2001 by and between
AVI and Medtronic Asset Management, Inc.

             “Joint
Inventions” is defined in Section 6.3.

             “Know-How”
means all know-how, trade secrets, expertise, Inventions, discoveries and
technical information now or hereafter owned by, licensed to, possessed by, or
under the control of, AVI which are necessary, appropriate or useful for
designing, developing, processing, manufacturing, using, selling or delivering
the Drug within the Field, including but not limited to information embodied in
drawings, designs, copyrights, copyright registrations and applications,
trademarks, service marks and registrations thereof and applications therefor,
patent applications, material specifications, processing instructions,
formulas, equipment specifications, product specifications, confidential data,
computer software, electronic files, research notebooks, invention disclosures,
research and development reports and the like related thereto, and all
amendments, modifications, upgrades and improvements to any of the foregoing,
occurring before or during the term of this Agreement.

             “Liens” means liens,
mortgages, charges, security interests, claims, voting trusts, pledges,
encumbrances, options, assessments, restrictions, licenses, sublicenses, or
third party or spousal interests of any nature.

             “Net
Sales” of Royalty Products with respect to a particular period means *     *    
*.

             “Patents”
means (a) the patents and patent applications, together with any patents that
may issue based thereon, set forth on Exhibit A; (b) any other patents or
patent applications now or hereafter owned by or licensed to AVI that are
necessary, appropriate or useful for designing, developing, processing,
manufacturing, using, selling or delivering the Drug within the Field; (c) all
continuation, divisional, re-issue, re-examination and substitution
applications that may be filed, before or during the term of this Agreement, by
or for the benefit of AVI based on the foregoing referenced patents or patent
application, together with any patents that may issue based thereon; and (d)
all foreign applications that may be filed, before or during the term of this
Agreement, by or for the benefit of AVI based on the foregoing referenced
patents and patent applications, together with all patents which may issue
based thereon.

             “*     *    
* License” means the *     *     * Agreement-*     *    
* by and between *     *     * and AVI *    
*     *, dated *     *    
* as amended from time to time, covering certain patents
involving *     *    
*.

             “Restenosis”
means *     *    
*.

             “Restenosis
Rate” shall mean the rate at which Restenosis occurs in the clinical trial.

             “Royalty
Product” means the Drug *     *     *. 
No more than one (1) payment calculated in accordance with
Section 3.3 shall be paid on any single product covered by the Patents even
though such product, including its manufacture, sale or use may be covered by
Valid Claims of more than one patent included in the Patents.

             “Technology”
means the Patents and the Know-How.

             “Third
Closing Milestone” shall have the meaning set forth in the Investment
Agreement.

             “Unexpired”
shall mean a patent that has not Expired.

             “Valid
Claim” means a claim in an Unexpired patent included with the Patents which
has not been held unenforceable, unpatentable or invalid by a decision of a
court or other governmental agency of competent jurisdiction, unappealable or
unappealed within the time allowed for appeal and which has not been admitted
to be invalid or unenforceable through reissue or disclaimer.

             1.2        Definitional
Provisions.

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

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

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

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

ARTICLE
2

LICENSE TO MEDTRONIC

             2.1        Grant
of License.  Subject to the terms
and conditions of this Agreement, AVI hereby grants to Medtronic an
irrevocable, worldwide, sublicensable, exclusive license to the Technology to
make, have made, use, import, export, distribute, sell, offer to sell and have
sold the Drug in the Field and to make, have made, use, import, export,
distribute, sell, offer to sell and have sold products incorporating or
utilizing the Drug and/or the Technology in the Field, practice methods covered
thereby, and otherwise to commercialize and exploit, the Drug and/or the
Technology in the Field.

             2.2        Technology Transfer.  AVI shall, upon Medtronic’s reasonable
request from time to time, provide to Medtronic at no charge available
drawings, specifications, processes, materials, and any manufacturing
procedures and such other documentation and Know-How as is reasonably necessary
or useful to enable Medtronic to fully utilize the license granted to Medtronic
under this Agreement.  In addition, AVI
will make available personnel as requested by Medtronic, to provide such
individual training to Medtronic technical and manufacturing personnel as is
necessary to enable Medtronic to fully utilize the license granted to Medtronic
under this Agreement, at such reasonable times and places as Medtronic may
request from time to time, including, without limitation, to complete any
development of the Technology in the Field, and to assist in the transfer of
any manufacturing and regulatory submissions (including raw and compiled clinical
data), certificates or other documents or approvals.

ARTICLE
3

FEES, ROYALTIES AND REPORTS

             3.1        Fee Based on First Commercial US Sale.

                           (a)         Medtronic shall pay to AVI an up-front
one-time licensing fee of *     *     * within thirty (30) days after the date
of the First Commercial US Sale of a Royalty Product, provided that Medtronic
has received FDA Approval with respect thereto before *     *    
* (or ***, if at any time the regulatory process necessary or required
to obtain FDA Approval consists of *    
*     * followed by the *     *    
*).

                           (b)        The parties acknowledge and agree that
if FDA Approval occurs on or after *    
*     * (or *     *    
*, if applicable), then no fee shall be payable under this Section 3.1.
Further, the fee under this Section 3.1 shall be payable only with respect to
the first system incorporating any Royalty Product, and no additional fees
shall be payable under this Section 3.1 for the first commercial sale in the
U.S. or outside the U.S. of other systems incorporating Royalty Products.

             3.2        Fee Based on Clinical Study
Restenosis Rate.

                           (a)         If the Restenosis Rate in the clinical
trial conducted by Medtronic in the U.S., the European Union or Japan in order
to obtain regulatory approval for the commercial sale of the Royalty Product in
the United States is equal to or less than *** percent (* * *%), then Medtronic will pay AVI an
up-front one-time licensing fee of *     *     * within sixty (60) days after the
completion of such study, provided, however, that such payment of such
licensing fee shall not occur unless and until Medtronic has received FDA
Approval for the Royalty Product to which such study pertained.

                           (b)        The parties acknowledge and agree that
if the Restenosis Rate exceeds *** percent (***%), then no fee shall be
payable under this Section 3.2.

             3.3        Earned  Royalty.

                           (a)         Subject to the terms of this Agreement,
Medtronic shall pay to AVI a royalty equal to *** percent (***%) of Medtronic’s Net Sales of
Royalty Products.

                           (b)        If Medtronic determines that, in order
to make the Drug functional, fully utilize the license granted hereunder or to
commercialize a product incorporating or utilizing the Drug or the Technology,
it is required to make a payment to one or more third parties because of the
rights of any such third party, then the royalties due under Section 3.3(a) to
AVI shall be reduced by *** percent (***%) of any payments due to such third
parties, provided, however, the application of the foregoing shall not reduce
the amount due to AVI under Section 3.3(a) to less than *** percent (***%).

                           (c)         Provided that AVI has complied with its
obligations set forth in Section 5.4, the royalty payable pursuant to Section
3.3(a) shall be increased by *     *     * that AVI is required to make
pursuant to *     *     * for sales
by Medtronic.  Such increase is not
subject to reduction under Section 3.3(b) (including as Section 3.3(b) may be
modified pursuant to Section 4.2).

                           (d)        After the date hereof, if the parties
agree that AVI needs to obtain rights to a third party patent that it does not
have rights to on the date hereof to commercialize the Drug within the Field,
then the parties shall agree on the allocation between the parties of the cost
of obtaining such rights (including any royalties that may be payable).

             3.4        Reports and Payments.  Within sixty (60) days after the end of each
calendar quarter, Medtronic shall provide AVI with a written report indicating
the amount of Net Sales of Royalty Products during such preceding period and
the amount of the royalties due for such period.  Simultaneous with making such report, Medtronic shall pay to AVI
the amount of royalties then due. 
Notwithstanding the foregoing, if AVI is obligated to make any royalty
payments to third parties with respect to sales by Medtronic hereunder within
45 days or less of the end of each calendar quarter, then such written report
and the payment of royalties by Medtronic shall be due within 45 days after the
end of each calendar quarter.  With
respect to sales of Royalty Products outside the United States on which any
earned royalties are payable hereunder, conversions to U.S. dollars, if
applicable, shall be made in accordance with Medtronic’s standard accounting
policy for conversion of foreign currencies. 
Notwithstanding anything to the contrary contained in this Agreement,
Medtronic shall be entitled to withhold, from earned royalties payable
hereunder, all taxes thereon required, by competent governmental authorities,
to be withheld.

             3.5        Records.  Medtronic agrees to keep accurate written
records sufficient in detail to enable the royalties payable under this
Agreement by Medtronic to be determined and verified for a period of *     *    
* after the delivery of any royalty report (or such longer period
of time as may be necessary for AVI to comply with its reporting requirements
under *     *    
*).

             3.6        Audit of Records.  Upon reasonable notice and during regular
business hours, Medtronic shall from time to time, but no more frequently than
once annually (or as often as may be necessary for AVI to comply with
requirements set forth in *     *     *), make available the records
referred to in Section 3.5 for audit at AVI’s expense by independent
representatives selected by AVI and reasonably acceptable to Medtronic to
verify the accuracy of the reports provided to AVI.  Such representatives shall execute a suitable confidentiality
agreement reasonably acceptable to Medtronic prior to conducting such audit.  Such representatives may disclose to AVI
only their conclusions regarding the accuracy of royalty payments and of
records related thereto, and shall not disclose Medtronic’s information to AVI
without the prior written consent of Medtronic.  No claim may be asserted by AVI against Medtronic for any errors
unless made within *     *     * following completion of such
examination or audit made pursuant to this Section 3.6.  The right to audit shall extend for *     *    
* (or such longer period of time as may be necessary for AVI to
comply with its reporting requirements under *    
*     *) from delivery of
any royalty report and thereafter any royalty report shall be deemed complete
and accurate.  Each royalty report shall
be subject to only one such examination and audit.  The party benefiting from any discrepancy will promptly pay the
amount of such discrepancy to the other. 
If a discrepancy is found that is greater than *    
*     * in any calendar
quarter and AVI is the party benefited, Medtronic shall reimburse AVI for all
reasonable audit costs incurred for the related audit and Medtronic shall pay
for the next succeeding annual audit.

ARTICLE 4

DEVELOPMENT PROJECT

             4.1        Development
Efforts.

                           (a)         During the Term of this Agreement,
Medtronic will control *     *     * any regulatory and clinical
programs for the Drug in the Field as Medtronic deems appropriate (including
the clinical trials set forth in Section 3.2) and obtain in *     *    
* name any necessary device or medical regulatory approvals from
the FDA, and any applicable regulatory agencies of such other countries as
Medtronic deems appropriate, prerequisite to the commercial sale of products
for their intended uses.  AVI will, at
its expense, supply Medtronic with all available documents, instruments,
information and reports reasonably necessary or convenient as requested by
Medtronic in connection with such regulatory approval efforts and in connection
with pre-clinical efforts.  During
the Term of this Agreement, AVI will, at *    
*     * expense, assist
and cooperate with the development of the Drug in the Field, including, without
limitation, supplying the Drug to Medtronic and advising and participating in
product scientific research and development proceedings and all governmental
actions, including filings, proceedings and meetings, as requested by Medtronic.
AVI will also assist and cooperate, at *     *     * expense, with Medtronic in
Medtronic’s development of coating technology and processes necessary or
convenient for the use of the Drug in the Field.  In connection with the foregoing and at Medtronic’s reasonable
request, AVI shall make available senior AVI personnel responsible for and
knowledgeable about the Drug and the Technology.  AVI grants to Medtronic the right of reference to AVI’s
regulatory files with the FDA or other appropriate government agencies as
necessary or helpful for support of Medtronic’s regulatory submissions with
respect to the Drug in the Field.  AVI
hereby acknowledges and agrees that Medtronic shall be entitled to exercise its
discretion, taking into account its goals, objectives and priorities, in
determining the amount of resources that it will utilize hereunder.  All regulatory approvals funded by *     *    
*, and all related studies, documents, instruments, information
and reports, will be in *     *     * name and owned by *     *    
*.  Medtronic grants to
AVI the right of reference to Medtronic’s regulatory files relating to the Drug
with the FDA or other appropriate governmental agencies as necessary for
support of AVI’s current or future regulatory submissions outside the Field;
provided that AVI shall not be entitled to utilize such right in connection
with any commercialization efforts involving a medical device company.  AVI shall provide prior written notice to
Medtronic of any exercise of such right of reference specifying the time of
such exercise, the type of filing, the regulatory files to be referenced and
such other circumstances as may be appropriate for Medtronic to determine AVI’s
compliance with the exercise of such right. 
AVI’s sole remedy for any breach of Medtronic’s obligations under this
Section 4.1 shall be as set forth in Section 4.2 or Section 9.2.

                           (b)        AVI shall supply to Medtronic *     *    
* such quantities of the Drug as is reasonably required by Medtronic in
connection with pre-clinical and clinical trials and in connection with
obtaining regulatory approvals.  AVI
represents and warrants to Medtronic that all Drugs supplied to Medtronic
hereunder will have been manufactured, labeled and packaged in accordance with
all applicable laws and regulations, including (as applicable) FDA GMP
requirements and all other applicable manufacturing requirements.  Medtronic agrees to provide AVI rolling
*     *     * forecasts of Medtronic’s requirements for the Drug under
this Section 4.1(b), specifying quantities and shipping dates and Medtronic
shall update such forecasts at least every *     *     *.  Such rolling forecasts by Medtronic shall be
used for purposes of facilitating Medtronic’s pre-clinical and clinical plans
and meeting the lead times required by AVI, but they are not legally binding on
Medtronic.

             4.2        *     *    
* Conversion.  In the
event that the Third Closing Milestone has not occurred on or before *     *    
*, Medtronic Asset Management, Inc. (“MAMI”) may indicate in
writing (a “Waiver Notice”) within seven days thereafter that it is prepared to
make the investment specified in Section 2.3 of the Investment Agreement in
accordance with the terms of the Investment Agreement as if the Third Closing
Milestone had occurred on *     *     * subject to
the satisfaction of any conditions to Medtronic’s requirement to make such
investment (other than the occurrence of the Third Closing Milestone). If (i)
AVI provides written notice of its rejection of such offer contained in the
Waiver Notice within seven calendar days after AVI’s receipt of such Waiver
Notice or (ii) MAMI does not provide a Waiver Notice within seven days after *      *     
*, and, in either of the cases set forth in clause (i) and clause
(ii), AVI is not otherwise in material breach of any agreement with Medtronic
or an Affiliate of Medtronic, then AVI shall have the right to convert the
license granted to Medtronic under Section 2.1 *    
*     *.  Notwithstanding the foregoing, if at any
time the regulatory process necessary or required to obtain FDA Approval
consists of *     *    
* followed by or preceded by *    
*     *, then AVI shall
not have the foregoing right and MAMI shall not be required to give the Waiver
Notice until *     *    
*.  In order to exercise
suchright, AVI must provide Medtronic with written notice of such conversion
within *      *    
*, as the case may be. Upon the exercise of such option by AVI,
the royalty rate in Section 3.3(a) hereof shall be *    
*     * percent (***%) and
provided that AVI has royalty rights with respect to sales of Royalty Products
hereunder that in the aggregate exceed its royalty obligations with respect to
sales of Royalty Products hereunder, the minimum royalty in Section 3.3(b)
shall be *     *    
* percent (***%).

             4.3        Delays.  If: (a) any of Medtronic’s activities under
Section 4.1 are delayed by an event of Force Majeure (as defined in Section
10.13) or (b) AVI is in material breach of any agreement with Medtronic or an
Affiliate of Medtronic, then the applicable *    
*     * date of the Third
Milestone under Section 4.2 and the applicable *    
*     * date of the Third
Milestone under Section 9.2 shall be extended by a period of time equal to the
period of time of the delay caused by the Force Majeure event under Section
4.3(a) above plus the period of time during which AVI is in such breach of such
agreements under Section 4.3(b) above.

             4.4        Medtronic’s
Compound Option.

                           (a)         Option.  During the Compound Option Period, AVI shall
give written notice of its (or its Affiliates’) intention to, directly or
indirectly, commercialize any Compound that is or may be suitable for use in
the Field.   Medtronic shall have the
right, exercisable at Medtronic’s option, to acquire a license, on the terms
set forth in Section 4.4(c) below, and to enter into a supply agreement with
AVI in accordance with Section 4.4(d) below, with respect to such
Compound.  AVI shall provide such notice
with respect to each such Compound that AVI or its Affiliates intends, directly
or indirectly, to commercialize. 
Medtronic shall have the right during the period ending on the
Exclusivity Termination Date with respect to such Compound, to exercise such
right by giving written notice thereof to AVI. 
Within *     *    
* after written notice of such exercise by Medtronic, AVI agrees
to enter into the Additional License Agreement and Additional Supply Agreement
with Medtronic with respect to such Compound. 
Such *     *    
* period shall survive the termination of this Agreement.  Upon execution and delivery of the
Additional License Agreement and Additional Supply Agreement with respect to
such Compound, Medtronic shall pay an up-front license fee of *     *    
*.

             (b)        Exclusivity.  Until the Exclusivity Termination Date, AVI
shall not directly or indirectly market or sell, or directly or indirectly
encourage or solicit the submission of, or entertain inquiries, proposals or
offers from any person or entity (other than Medtronic or its Affiliates), or
otherwise provide information to or engage in discussions with any other person
or entity, in any way relating to the sale, licensing, distribution or other
disposition of any Compound for use or application in the Field or any
Intellectual Property relating to the Compound for use or application in the
Field.

                           (c)         Additional License Agreement Terms.  Unless otherwise mutually agreed in writing
by Medtronic and AVI, each license agreement for a Compound (the “Additional
License Agreement”) shall provide for:

                           (i)          A grant of an exclusive license for
the Compound in the Field including an exclusive license to use, market, sell,
make and have made, the Compound for the Field, on terms substantially similar
to Article 2.

                           (ii)         Control *    
*     * by the Medtronic
of all regulatory and clinical programs required for regulatory approval of the
Compound for use or application in the Field, on terms substantially similar to
Section 4.1.

                           (iii)         In addition to the *     *    
* referenced in Section 4.4(a), the payment of the licensing fees
set forth in Section 3.1 and Section 3.2 on terms and conditions substantially
similar to those set forth in such Sections and the payment of a royalty of ***% of the
net sales of the Compound and any Medtronic device providing for direct
application of the Compound subject to reduction for royalties payable to third
parties, but to not less than ***%, on terms substantially similar to
Section 3.3.

                           (iv)       Such other terms and conditions as are
customary for license agreements of this type and as reasonably requested by
Medtronic or AVI.

                           (d)        Additional Supply Agreement.
Unless otherwise mutually agreed by Medtronic and AVI, each supply agreement
for a Compound (the “Additional Supply Agreement”) shall provide for:

                           (i)           AVI to produce and supply Medtronic
with all of its requirements for the Compound at *    
*     *

                           (ii)         Such other terms and conditions as are
customary for supply agreements of this type and as reasonably requested by
Medtronic or AVI.

                           (e)         Right of First Refusal.  If Medtronic does
not exercise its rights under Section 4.4(a) with respect to a Compound during
the Compound Option Period, then AVI shall be free to negotiate with third
parties with respect to the sale, licensing, distribution or other disposition
of the Compound within the Field or any Intellectual Property related to the
Compound within the Field, subject to the following rights of Medtronic.  If AVI reaches agreement in principle with,
or receives a good faith, bona fide offer acceptable to AVI from any third
party regarding such sale, licensing, distribution or other disposition, then
AVI shall promptly give written notice to Medtronic, which notice shall (i)
specify the pricing, terms, conditions and all material provisions with respect
to the proposed transaction, (ii) identify the proposed party or parties to
such transaction, and (iii) include a copy of any written agreement in
principle, letter of intent or other communication setting forth the terms of
the proposed transaction between AVI and the proposed third party or parties.  Medtronic shall have the irrevocable right
and option, exercisable in writing to AVI any time within *     *    
* after Medtronic’s receipt of such notice, to elect to enter into such
proposed transaction upon the same pricing (or the monetary equivalent of any
nonmonetary consideration), terms, conditions and other material provisions as
set forth in such notice.  Such
*     *     *
period shall survive the termination of this Agreement.  If
Medtronic so elects to exercise its first refusal option, AVI shall use its
reasonable best efforts to permit consummation of such proposed transaction
with Medtronic within *     *     * following exercise.  If Medtronic fails to exercise its first
refusal option to enter into such proposed transaction, AVI and the proposed
party identified in such notice may complete such transaction with the third
party upon the pricing, terms, conditions and material provisions specified in
such notice and contained in the proposed definitive agreement included with
such notice; provided that, if (x) AVI and such third party fail to
complete such transaction within *    
*     * after the expiration of
Medtronic’s *     *     * option, or (y) if any of the pricing,
terms, conditions or other material provisions specified in such notice and
contained in the proposed definitive agreement are modified so as to be less
favorable to AVI, or (z) if the identity of such third party changes, then, in
any such event, AVI shall give a new notice to Medtronic, and Medtronic shall
have a new first refusal option, with respect to such delayed or modified
proposed transaction, in accordance with the foregoing procedure.

                           (f)         Exception to Right of First Refusal.  Notwithstanding
Section 4.4(e) and for a period of *    
*     * commencing on the Exclusivity
Termination Date for a particular Compound, AVI shall have the right to enter
into a transaction with a third party involving the sale, licensing or other
disposition of such Compound within the Field if the pricing, terms, conditions
and all material provisions of such transaction are equal to or more favorable
to AVI than those pricing, terms, conditions and material provisions specified
in Section 4.4(a), Section 4.4(c) and Section 4.4(d).  On the date that is *    
*     * after the Exclusivity
Termination Date for a particular Compound, Medtronic’s right of first refusal
set forth in Section 4.4(e) for such Compound shall be available and in full
force and effect with respect to such Compound.

ARTICLE
5

AVI’S OBLIGATIONS

             5.1        Maintain Licenses in Force.  AVI shall comply with all of the provisions
of, and shall maintain in full force and effect, all license agreements with
third parties, including, specifically the *     *     * License, pursuant to
which AVI is licensee of Intellectual Property included in the Technology.  AVI shall promptly notify Medtronic if any
such third party alleges any breach, default, or event that, with the passage
of time or giving of notice could become a default, by AVI of any such license
agreement.  Medtronic shall be entitled,
but not obligated, to cure any alleged breach or default by AVI of such license
agreement and set-off the cost of such cure against amounts otherwise owed to
AVI hereunder.

             5.2        Medtronic
Exclusivity.   AVI will not, without
the prior written consent of Medtronic, supply, sell, transfer or otherwise
dispose of the Drug or any products or components utilizing the Drug or the
Technology or any Joint Invention to any third party if AVI should have known
after making reasonable inquiry or has actual knowledge (including the actual
knowledge of any of AVI’s executive officers) that such third party intends or
is likely to use, sell, supply, transfer or otherwise dispose of the Drug or
any such products, components, Technology or any Joint Inventions  in the Field.  Prior to any sale, supply, transfer or other disposition to any
third party of the Drug or any products or components utilizing the Drug or any
such products, components, Technology or any Joint Invention, AVI shall obtain
the agreement of such third party that it will not use, sell, supply, transfer
or otherwise dispose of the Drug or any such products, components, Technology
or any Joint Inventions in the Field. 
AVI shall obtain the agreement of such third party that Medtronic will be
an express third party beneficiary of such agreement.  The restrictions set forth in this Section 5.2 shall not apply to
transfers of the Drug to consultants or agents of AVI who are performing
research or consulting services on behalf of AVI in connection with such
transfer.

             5.3        No
Amendments to *     *    
* License.  AVI
agrees not to modify, waive or amend any provision of the *     *     * License without the prior
written consent of Medtronic.

             5.4        No
Amendments With Adverse Effects to Medtronic.  AVI agrees not to modify, waive or amend any provision of any
agreement in effect as of the date hereof that would adversely affect
Medtronic’s obligations under Section 3.3(c) without the prior written consent
of Medtronic, including any modification, waiver or amendment to any agreement
in effect as of the date hereof that could have the effect of increasing the
amount payable to the licensor under *     *    
* as a result of a reduction of (a) the *     *     * relating to sales of
Combined Products or (b) the *     *    
* relating to patents belonging to third parties that, in
either case, is in effect as of the date hereof.

             5.5        *    
*     *
Agreement.

                           (a)  AVI shall not approve the Drug as *    
*     * under the *    
*     * Agreement
and shall not otherwise subject the Drug to any of the terms thereof without
obtaining the prior written agreement (in form and substance reasonably
satisfactory to Medtronic) of *     *    
* that the Drug is subject to Medtronic’s rights in the
Field hereunder, including but not limited to Medtronic’s rights under Section
2.1.  AVI shall obtain the written
agreement of *     *    
* that Medtronic will be an express third party
beneficiary of such agreement.

                           (b)  AVI shall not approve any Compound as *    
*     * under the *    
*     * Agreement
and shall not otherwise subject any Compound to any of the terms thereof
without obtaining the prior written agreement (in form and substance reasonably
satisfactory to Medtronic) of *     *    
* that the Compound is subject to Medtronic’s rights in
the Field under Section 4.4.  AVI shall
obtain the written agreement of *     *    
* that Medtronic will be an express third party
beneficiary of such agreement.

ARTICLE 6

INTELLECTUAL
PROPERTY

             6.1        Protect
Know-How.  AVI and Medtronic agree
to maintain the confidentiality of all Confidential Information (as such term
is defined in the Investment Agreement), including but not limited to the
status of any patent applications included in the Patents.  Each party agrees not to disclose or use
(except as permitted or required for performance by the party receiving such
Confidential Information of its rights or duties hereunder) any Confidential
Information of the other party obtained during the term of this Agreement.  Each party further agrees to take
appropriate measures to prevent any such prohibited disclosure by its present
and future employees, officers, agents, subsidiaries, or consultants during the
term of this Agreement and shall be liable for any breach of this Article 6 by
and such person.

             6.2        Protection of Technology.  During the term of this Agreement, AVI shall
promptly inform Medtronic of any Invention, improvement, amendment, upgrading
or modification relating to the Drug or the Technology which may be applicable or
useful in the Field.  AVI agrees to
protect the Technology by obtaining and maintaining appropriate patent rights
as recommended by reputable patent counsel; provided, however, that Medtronic
shall have the right to review and approve any filings or other correspondence
with the appropriate patenting authority relating to the Technology or the Drug
in the Field. Medtronic shall not unreasonably withhold such approval. If
Medtronic determines, in its sole discretion, that any Technology conceived,
reduced to practice or otherwise made, developed or acquired by one or more
employees or agents of AVI is not being adequately protected by patents,
Medtronic may so inform AVI.  If
Medtronic decides that AVI’s response has been inadequate, Medtronic may take
whatever action it deems necessary at its expense to protect such
Technology.  All patents and copyright
registrations shall be applied for in the names of the actual inventors or
authors and shall be assigned to AVI, subject to Medtronic’s rights and license
therein; each party shall execute and deliver such forms of assignment, power
of attorney and other documents which are necessary to give effect to the
provisions hereof.

             6.3        Ownership of Intellectual Property.  Subject to the rights and licenses granted
to Medtronic by this Agreement, (a) any Intellectual Property conceived,
reduced to practice or otherwise made, developed or acquired by one or more
employees or agents of AVI shall be the property of AVI, (b) any Intellectual
Property conceived, reduced to practice or otherwise made, developed or
acquired by one or more employees or agents of Medtronic shall be the property
of Medtronic, and (c) AVI and Medtronic shall each have an undivided one-half
interest in any Intellectual Property jointly conceived, reduced to practice or
otherwise made, developed or acquired by one or more employees or agents of AVI
and one or more employees or agents of Medtronic (“Joint Inventions”).  For purposes of this Section, Intellectual
Property which is the subject of a patent application shall be deemed to have
been developed jointly by employees or agents of Medtronic and AVI, and thus be
a Joint Invention, if at least one employee or agent of each of Medtronic and
AVI is required to be named as an inventor in such application in order for
such patent to be valid.

             6.4        Prosecution of Patents on Joint
Inventions.  If either AVI or
Medtronic proposes to file an application for any U.S or foreign patents,
copyright registration, or any continuation or modification thereof, with
respect to any Joint Invention, then such party proposing such registration
(“the first party”) shall notify the other party (“the second party”) in
writing and the second party shall have option of joining in such action.  If the second party elects to join in such
action, the second party shall pay one-half of the total expenses incurred by
Medtronic and AVI therein and be entitled to participate in all material steps
in such action.  If the second party
elects not to join in such action, the first party shall be entitled to control
such action, but such failure to participate shall not affect the second
party’s ownership interest in the Joint Inventions or in any Intellectual
Property rights therein.  Whether or not
the second party elects to join in such action, the second party shall, upon
the request of the first party, cooperate with and assist the first party in
such action to the extent required by statute, regulation or government agency,
including without limitation, executing and delivering all documents in
connection therewith and using its reasonable efforts to obtain such executions
from all appropriate employees and agents of the second party at the second
party’s cost.  Each party will treat
Joint Inventions as Confidential Information.

6.5        Prosecution
of Infringement of Technology.

                           (a)         Each of Medtronic and AVI shall
promptly notify the other if it knows or has reason to believe that any of the
rights to the Technology in the Field are being infringed or misappropriated by
a third party or that such infringement or misappropriation is threatened.  The parties shall consult with each other as
promptly as reasonably practicable to review actions to be taken in connection
with such alleged infringement or misappropriation.  Medtronic shall have the right to institute and control the
prosecution of any alleged infringement or misappropriation of the Technology
in the Field.

                           (b)        Medtronic shall be solely responsible
for payment of all costs and expenses it incurs in the prosecution and/or a negotiation
of a settlement.  Medtronic shall have
the right to act in the name of, or on behalf of AVI, and join AVI as a party
plaintiff to any such proceeding if Medtronic believes it is necessary or
advisable to successfully prosecute such infringement or misappropriation.  AVI shall cooperate in connection with the
initiation and prosecution by Medtronic of such suit or action.  The proceeds from any judgment, decision or
settlement shall first be used to reimburse Medtronic for all costs and
expenses it incurred relating to prosecution and settlement of any action;
second, be allocated on a *     *    
* basis between Medtronic and AVI until *     *     *; and finally, the
remainder of any proceeds shall accrue to *     *     *.

                           (c)         If Medtronic fails to initiate the
prosecution of any alleged infringement or misappropriation of the Technology
in the Field within six (6) months of receiving written notice from AVI of any
commercially significant infringement or misappropriation, AVI shall have the right
to institute and control the prosecution of any such alleged infringement or
misappropriation.  AVI shall be solely
responsible for the payment of all costs and expenses it incurs in the
prosecution and/or a negotiation of a settlement.  AVI shall have the right to act in the name of, or on behalf of
Medtronic, and join Medtronic as a party plaintiff to any such proceeding if
AVI believes it is necessary or advisable to successfully prosecute such
infringement or misappropriation. 
Medtronic shall cooperate in connection with the initiation and
prosecution by AVI of such suit or action. 
The proceeds from any judgment, decision or settlement shall first be
used to reimburse AVI for all costs and expenses it incurred relating to
prosecution and settlement of any action; second, be allocated on a *    
*     * basis
between Medtronic and AVI until *     *    
* and finally, the remainder of any proceeds shall accrue
to *     *     *.

ARTICLE 7

REPRESENTATIONS
AND WARRANTIES

             7.1        Representations of AVI.  AVI represents, warrants and covenants to
Medtronic that:

             (a)         AVI is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Oregon
and has full corporate power to conduct the business in which it is presently
engaged and to enter into and perform its obligations under this Agreement.

 

             (b)        AVI
has taken all necessary corporate action under the laws of the state of its
incorporation and its certificate of incorporation and by-laws to authorize the
execution and consummation of this Agreement and, when executed and delivered
by AVI, this Agreement shall constitute the valid and legally binding agreement
of AVI enforceable against AVI in accordance with the terms hereof, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’
rights and to general equity principles.

             (c)         Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated herein
will violate any provision of the certificate of incorporation or bylaws of AVI
or any law, rule, regulation, writ, judgment, injunction, decree,
determination, award or other order of any court or governmental agency or
instrumentality, domestic or foreign, or conflict with or result in any breach
of any of the terms of or constitute a default under or result in termination
of or the creation or imposition of any Lien pursuant to the terms of any
contract or agreement to which AVI is a party or by which AVI or any of its
assets is bound.

             (d)        AVI exclusively owns, or has valid and
subsisting exclusive license rights (with the right to sublicense) to, all of
the Technology within the Field, subject to no Lien whatsoever.  Other than payment obligations under *    
*     *and under *    
*     * Agreement
dated *     *     *
by and between AVI and *     *    
* as amended to the date hereof, AVI is not subject to any
obligation to any person or entity for royalties, fees or commissions in respect
of the Technology within the Field.  No
current or former stockholder, employee, officer, agent or consultant of AVI
has any rights in or to any of the Technology within the Field.  The Technology is valid and enforceable and
has not been challenged in any judicial or administrative proceeding and AVI
has not received and is not aware of any claim or notice of any person that
such person is contemplating such action. 
AVI’s execution and performance of this Agreement, the transactions
contemplated herein and Medtronic’s use of the Technology within the Field will
not infringe, misappropriate, misuse or conflict with the rights, including
patent and other Intellectual Property or contractual rights, of third
parties.  AVI has the right and
authority to enter into this Agreement and to grant the license granted
herein.  To AVI’s knowledge, no person
or entity nor such person’s or entity’s business or products has infringed,
misused, misappropriated or conflicted with the Technology within the Field or
currently is infringing, misusing, misappropriating or conflicting with such
Technology within the Field.

             (e)         There are no actions, suits, claims,
disputes or proceedings or governmental investigations pending or, to AVI’s
knowledge, threatened against AVI or any of its Affiliates with respect to the
Technology or the use thereof by AVI, either at law or in equity, before any
court or administrative agency or before any governmental department,
commission, board, bureau, agency or instrumentality, or before any arbitration
board or panel whether located in the United States or a foreign country.  AVI has not failed to comply with any law,
rule, regulation, writ, judgment, injunction, decree, determination, award or
other order of any court or other governmental department, commission, board,
bureau, agency or instrumentality, or before any arbitration board or panel
whether located in the United States or a foreign country, which failure in any
case would in any material respect impair any rights of Medtronic under this
Agreement.

             (f)         All Patents identified in Exhibit A
have the status indicated therein and all applications are still pending in
good standing and have not been withdrawn or abandoned.  The Patents identified in Exhibit A
constitute all of the current patents and patent applications of AVI having
applicability to the Technology or the Drug within the Field.  AVI has made all statutorily required
filings, if any, to record its interest in the Patents.

             (g)        No representation or warranty made by
AVI herein and no information disclosed by AVI to Medtronic contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statement made herein or therein not misleading.

             (h)        The *     *     * License is in full force
and effect and there are no existing defaults, or events, which, with the
passage of time or giving of notice, would become defaults thereunder.  AVI is the sole and exclusive owner of the
licensee’s interest in the *     *    
* License, free and clear of any Liens.  The execution and delivery by AVI of this Agreement and its
performance hereunder will not constitute a default (or an event which, with
the passage of time or giving of notice, would constitute a default) under the *    
*     *
License.  AVI has not received notice,
nor is AVI otherwise aware, that the licensor under the *     *     * License intends to cancel
or terminate the *     *    
* License or provide notice of a default (or an event
which, with the passage of time or giving of notice, would constitute a
default) thereunder.  None of the terms
of the *     *     *
License has been impaired, waived, altered, amended or modified in any respect
(including pursuant to *     *    
* License) prior to the date hereof.  AVI has previously delivered to Medtronic a
true and correct copy of the *     *    
* License.

             (i)          AVI has made no public disclosure of
any non-patented Technology in the Field and shall make no public disclosure of
any such Technology in the Field or any such Technology in the Field which may
come into existence during the term of this Agreement, except to the extent
required by law or to obtain patent protection therefore.  AVI has otherwise taken reasonable steps to
protect its rights in the Technology.

             (j)          As of the date hereof, the genes
referred to in the definition of “Drug” set forth in Section 1.1 constitute all
of the genes that AVI has researched, developed, tested or otherwise
investigated with any antisense compound in connection with or related to *    
*     * and, as of
the date hereof, AVI has not identified or selected, and AVI is not otherwise
aware of, any other genes (including *     *    
*) with respect to which it has plans to research,
develop, test or otherwise investigate with any antisense compound in
connection with or related to *     *    
*.

             7.2        Representations of Medtronic.  Medtronic represents, warrants and covenants
to AVI that:

             (a)         Medtronic is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Minnesota and has full corporate power to conduct the business in which it
is presently engaged and to enter into and perform its obligations under this
Agreement.

             (b)        Medtronic has taken all necessary
corporate action under the laws of the state of its incorporation and its
articles of incorporation and bylaws to authorize the execution and
consummation of this Agreement and, when executed and delivered by Medtronic,
this Agreement shall constitute the valid and legally binding agreement of
Medtronic enforceable against Medtronic in accordance with the terms hereof,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors’ rights and to general equity principles.

             (c)         Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated herein
will violate any provision of the articles and bylaws of Medtronic or any law,
rule, regulation, writ, judgment, injunction, decree, determination, award or
other order of any court or governmental agency or instrumentality, domestic or
foreign, or conflict with or result in any breach of any of the terms of or
constitute a default under or result in termination of or the creation or
imposition of any Lien pursuant to the terms of any contract or agreement to
which Medtronic is a party or by which Medtronic or any of its assets is bound.

ARTICLE 8

INDEMNIFICATION

             8.1        Indemnification by AVI.  AVI shall indemnify, defend and hold
harmless Medtronic and each of its subsidiaries, officers, directors,
shareholder, employees, agents and affiliates (collectively, all such
indemnities are referred to in this Section as “Medtronic”) against and in
respect of any and all claims, demands, losses, obligations, liabilities,
damages (and including without limitation, compensatory and punitive damages),
deficiencies, actions, settlements, judgments, costs and expenses which
Medtronic may incur or suffer or with which it may be faced (including
reasonable costs and legal fees incident thereto or in seeking indemnification
therefor), (referred to as “Costs”) arising out of or based upon the breach by
AVI of any of its representations, warranties, covenants or agreements
contained or incorporated in this Agreement or any agreement, certificate or
document executed and delivered to Medtronic by AVI in connection with the
transactions hereunder.  An amount for
which Medtronic is entitled to indemnification pursuant hereto is referred to
as an “Indemnified Amount.”  During the
term of this Agreement, AVI shall maintain, at its expense, a policy of
comprehensive general liability insurance sufficient to honor the indemnity
made herein, with products liability endorsement, but in no event less than *   
 *     * per occurrence and in the annual
aggregate.  Such policy shall name
Medtronic and its Affiliates as additional insureds.  AVI shall furnish Medtronic with a certificate of insurance
evidencing such coverage within thirty (30) days of the execution of this
Agreement, which certificate shall provide for not less than thirty (30) days
notice to Medtronic prior to material change in coverage or policy
cancellation.

             8.2        Indemnification by Medtronic.
Medtronic shall indemnify, defend and hold harmless AVI and each of its
subsidiaries, officers, directors, shareholder, employees, agents and
affiliates (collectively, all such indemnities are referred to in this Section
as “AVI”) against and in respect of any and all claims, demands, losses,
obligations, liabilities, damages (and including without limitation,
compensatory and punitive damages), deficiencies, actions, settlements,
judgments, costs and expenses which AVI may incur or suffer or with which it
may be faced (including reasonable costs and legal fees incident thereto or in
seeking indemnification therefor), (referred to as “Costs”) arising out of or
based upon the breach by Medtronic of any of its representations, warranties,
covenants or agreements contained or incorporated in this Agreement or any
agreement, certificate or document executed and delivered to AVI by Medtronic
in connection with the transactions hereunder. 
An amount for which AVI is entitled to indemnification pursuant hereto
is referred to as an “Indemnified Amount.” 
During the term of this Agreement, Medtronic shall maintain, at its
expense, a policy of comprehensive general liability insurance sufficient to
honor the indemnity made herein, with products liability endorsement, but in no
event less than *     *    
* per occurrence and in the annual aggregate.  Such policy shall name AVI and its
Affiliates as additional insureds. 
Medtronic shall furnish AVI with a certificate of insurance (or a
self-insurance letter (if Medtronic is self-insured)) evidencing such coverage
within thirty (30) days of the execution of this Agreement, which certificate
shall provide for not less than thirty (30) days notice to Medtronic prior to
material change in coverage or policy cancellation.

 

             8.3        Third Party Claims.  If a claim by a third party is made against
any indemnified party, and if the indemnified party intends to seek indemnity
with respect thereto under this Article 8, such indemnified party shall
promptly notify the indemnifying party of such claim; provided, however, that
failure to give timely notice shall not affect the rights of the indemnified
party so long as the failure to give timely notice does not  adversely affect the indemnifying party’s
ability to defend such claim against a third party. The indemnifying party
shall be entitled to settle or assume the defense of such claim, including the
employment of counsel reasonably satisfactory to the indemnified party.  If the indemnifying party elects to settle
or defend such claim, the indemnifying party shall notify the indemnified party
within thirty (30) days (but in no event less than twenty (20) days before any
pleading, filing or response on behalf of the indemnified party is due) of
the  indemnifying party’s intent to do
so.  If the indemnifying party elects
not to settle or defend such claim or fails to notify the indemnified party of
the election within thirty (30) days (or such shorter period provided above)
after receipt of the indemnified party’s notice of a claim of indemnity
hereunder, the indemnified party shall have the right to contest, settle or
compromise the claim without prejudice to any rights to indemnification
hereunder.  Regardless of which party is
controlling the settlement of defense of any claim, (a) both the indemnified
party and indemnifying party shall act in good faith, (b) the indemnifying
party shall not thereby permit to exist any Lien, encumbrance or other adverse
charge upon any asset of  any
indemnified party or of its subsidiaries, (c) the indemnifying party shall
permit the indemnified party to participate in such settlement or defense
through counsel chosen by the indemnified party, with all fees, costs and
expenses of such counsel borne by the indemnified party, (d) no entry of
judgment or settlement of a claim may be agreed to without the written consent
of the indemnified party, and (e) the indemnifying party shall promptly
reimburse the indemnified party for the full amount of such claim and the
related expenses as incurred by the indemnified party pursuant to this Article
8.  So long as the indemnifying party is
reasonably contesting any such third party claim in good faith and the
foregoing clause (b) is being complied with, the indemnified party shall not
pay or settle any such claim.  The
controlling party shall upon request deliver, or cause to be delivered, to the
other party copies of all correspondence, pleadings, motions, briefs, appeals
or other written statements relating to or submitted in connection with the
settlement or defense of any such claim, and timely notices of any hearing or other
court proceeding relating to such claim.

             8.4        Set-Off.  In the event Medtronic is entitled to
indemnification under this Article 8, Medtronic shall be entitled in its
discretion, without limitation of any other rights or remedies of Medtronic, to
set-off all or any part of the Indemnified Amount against any amounts which are
then owed or thereafter become owed by Medtronic to AVI.  Medtronic shall be entitled to set-off an
Indemnified Amount when such Costs are threatened, whether or not yet incurred and
whether or not the amount thereof has been finally determined. If Medtronic
defers payment of any amount to AVI past the scheduled payment date because
there exists a pending indemnification claim by Medtronic pursuant to this
Article the amount of which has not then been finally determined, the excess,
if any, of such deferred amount over the finally determined amount of the
indemnification claim shall be promptly paid upon such final determination,
together with simple interest at the rate of eight percent (8%) per annum on
such excess accrued from the originally scheduled payment date for such
deferred amount.

ARTICLE 9

TERM AND TERMINATION

             9.1        Term of License.  Unless otherwise terminated under provisions
of Section 9.2, this Agreement and the license granted under Section 2.1 shall
continue until *     *    
*, at which time the license rights of Medtronic set forth
in Section 2.1 shall be deemed to be converted, into a fully paid, exclusive,
worldwide, irrevocable, sublicensable, royalty-free license of the Technology
to make, have made, use, import, export, distribute, sell, offer to sell and
have sold the Drug in the Field and products incorporating or utilizing the
Drug and/or the Technology in the Field, practice methods covered thereby, and
otherwise to commercialize and exploit, the Drug and/or the Technology in the
Field (“Term”).

             9.2        Termination.  (a) 
If either party is in material breach of the terms, conditions or
agreements of this Agreement, then the other party may terminate this Agreement,
at its option and without prejudice to any of its other legal and equitable
rights and remedies, by giving  the
breaching party *     *    
* notice in writing, particularly specifying the
breach.  Such notice of termination
shall not be effective if the breaching party cures the specified breach within
such *     *     *
period.  Each party shall have the right
to suspend payment of any amount due to the other hereunder during the time
that the breach of the other party remains uncured.

             (b)        In the event that the Third Closing
Milestone has not occurred on or before *     *     *, Medtronic Asset
Management, Inc. (“MAMI”) may indicate in writing (a “Waiver Notice”) within
seven days thereafter that it is prepared to make the investment specified in Section
2.3 of the Investment Agreement in accordance with the terms of the Investment
Agreement as if the Third Closing Milestone had occurred *     *     * subject to the
satisfaction of any conditions to Medtronic’s requirement to make such
investment (other than the occurrence of the Third Closing Milestone). If (i)
AVI provides written notice of its rejection of such offer contained in the
Waiver Notice within seven calendar days after AVI’s receipt of such Waiver
Notice or (ii) MAMI does not provide a Waiver Notice within seven days after *    
*     *, and, in
either of the cases set forth in clause (i) and clause (ii), AVI is not
otherwise in material breach of any agreement with Medtronic or an Affiliate of
Medtronic, then AVI shall have the right to terminate this Agreement.  Notwithstanding the foregoing, if at any
time the regulatory process necessary or required to obtain FDA Approval as
determined by Medtronic consists of *     *    
* followed by or preceded by *     *     * and Medtronic has not
abandoned the process of seeking regulatory approval on and as of *    
*     *, then AVI
shall not have the foregoing right and MAMI shall not be required to give the
Waiver Notice until *     *    
*.  In order to
exercise such termination right, AVI must provide Medtronic with written notice
of such termination within thirty (30) days *     *     *, as the case may be.

             (c)         If on *     *     *, cumulative Net Sales of
Royalty Products by Medtronic are *     *    
*, AVI shall have the right to terminate this Agreement by
providing written notice to Medtronic of such termination within thirty (30)
days after such date.

             9.3        Effect of Termination.

             (a)         In the event of termination of this
Agreement, Medtronic shall be entitled to complete all work-in-process and sell
its remaining inventory of Royalty Products, subject to the payment of
royalties pursuant to Section 3.3 on such Net Sales.

             (b)        Upon termination of this Agreement, each
party will within thirty (30) days return to the other all tangible Confidential
Information of the other party (except one copy which may be retained by legal
counsel solely for evidentiary purposes in the event of a dispute), and each
party will deliver to the other a copy of any documentation in its possession
or control specifically relating to the Joint Inventions.

             (c)         In the event of termination of the *    
*     * License
pursuant to *     *    
*, the license granted hereunder, to the extent it
constitutes a sub-license under the *     *    
* License, shall, at the option of Medtronic, convert to a
license directly between Medtronic and *     *     * pursuant to, and subject
to the satisfaction of the conditions to such conversion set forth in, *    
*     *
License.  AVI shall assist Medtronic (as
Medtronic may reasonably request) in exercising its rights under this Section
9.3(c) and satisfying the conditions to such conversion.  Any such conversion shall not have any
effect on the license granted hereunder to the extent it does not constitute a
sub-license under the *     *    
* License.

ARTICLE 10

MISCELLANEOUS

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

             10.2      Complete Agreement. 
This Agreement (including all schedules and exhibits hereto and thereto)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. 
There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein or therein, with respect to the
subject matter hereof and thereof.  This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.

             10.3      Survival of Representations, Warranties and Agreements.  The representations, warranties, covenants
and agreements contained in Articles 6 and 8 of this Agreement shall survive
termination of this Agreement and remain in full force and effect.  No independent investigation of AVI by
Medtronic, its counsel, or any of its agents or employees shall in any way
limit or restrict the scope of the representations and warranties made by AVI
in this Agreement.

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

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

             if to Medtronic:

                           Medtronic,
Inc.

                           710 Medtronic
Parkway NE

                           Minneapolis, MN
55432-5604

             with separate copies thereof
addressed to

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

             if to AVI:

                           AVI BioPharma, Inc.

                           One SW Columbia

                           Portland, OR
97258

                           Attn: President, Alan
P. Timmins

             With a copy to:

                           HURLEY, LYNCH &
RE, P.C.

                           747 SW
Industrial Way

                           Bend, Oregon
97702

                           Attn:  Robert A. Stout, Esq.

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

             10.6      Public Announcement. 
In the event any party proposes to issue any press release or public
announcement concerning any provisions of this Agreement or the transactions
contemplated hereby, such party shall so advise the other party hereto, and the
parties shall thereafter use their best efforts to cause a mutually agreeable
release or announcement to be issued. 
Neither party will publicly or privately disclose or divulge any
provisions of this Agreement or the transactions contemplated hereby without
the other parties’ written consent, except as may be required by applicable
law, rule, regulation, order or stock exchange regulation, and except for
communications to employees; provided that, prior to disclosure of any
provision of this Agreement that either party considers particularly sensitive
or confidential to any governmental agency or stock exchange, the parties shall
cooperate to seek confidential treatment or other applicable limitations on the
public availability of such information. 
In particular, prior to such disclosure, each party shall use its best
efforts to redact the royalty rates and payment terms specified herein and each
party shall provide the other the opportunity to redact other information and
seek confidential treatment of any such disclosure.

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

             10.8      Governing Law. 
The formation, legality, validity, enforceability and interpretation of
this Agreement shall be governed by the laws of the State of Minnesota, without
giving effect to the principles of conflict of laws; provided, however, that
nothing in Minnesota procedural law shall be deemed to alter or affect the applicability
of the rules of the Federal Arbitration Act as governing arbitration of
disputes as provided in Section 10.12 and, provided further, that no Minnesota
laws or rules of arbitration shall be applicable.  Subject to Section 10.12 hereof, the parties hereto hereby submit
to the exclusive jurisdiction of the United States federal and state courts
located in the county in which arbitration is conducted with respect to any
dispute arising under this Agreement, the agreements entered into in connection
herewith or the transactions contemplated hereby or thereby, and irrevocably
consent to the exclusive jurisdiction and venue of such courts and waive any
objections they may have at any time to such exclusive jurisdiction and venue.

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

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

 

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

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

             10.13    Force Majeure. 
Neither party shall be in default because of any failure to perform this
Agreement if such failure arises from causes beyond the control of such party
(“the first party”) and without the fault or negligence of such first party,
including without limitation, acts of God or of the public enemy, acts of the
Government in either its sovereign or contractual capacity, fires, floods,
earthquakes, epidemics, quarantine restrictions, strikes, freight embargoes or
unusually severe weather.  In each
instance, the failure to perform must be beyond the reasonable control and
without the fault or negligence of the first party.  If it appears that performance under this Agreement may be
delayed by an event of Force Majeure, the first party will immediately notify
the other party as soon as practicable in writing at the address specified in
this Agreement.  During the period that
the performance by one of the parties of its obligations under this Agreement
has been suspended by reason of an event of Force Majeure, the other party may
likewise suspend the performance of all or part of its obligations hereunder to
the extent that such suspension is commercially reasonable.

             10.14    Assignment.  This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and the successors or assigns of the parties hereto; provided, that (i) the
rights and obligations of AVI herein may not be assigned except to any person
who succeeds to substantially all of AVI’s business, and (ii) the rights and
obligations of Medtronic herein may not be assigned except to an Affiliate or
any person who succeeds to all or a substantial portion of Medtronic’s business
to which this Agreement relates.  Any
attempted assignment of this Agreement in violation of this Section 10.14 shall
be null and void.

             10.15    *     *    
*License.       Medtronic
agrees to be bound by the provisions of *     *     * (copies of which are
attached hereto as Exhibit D) of the *     *    
* License as if Medtronic were a party to the *    
*     * License.

 

             IN WITNESS WHEREOF, each of the
parties has caused this License and Development Agreement to be executed in the
manner appropriate for each, and to be dated as of the date first
above-written.

	 	 	 	 	 	AVI BioPharma, Inc.	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	  
  /s/      Denis Burger	 	 	 	 
	 	 	 	 	 	

	 	 	 
	 	 	 	 	 	By:	 Denis
  Burger	 	 	 	 
	 	 	 	 	 	 	

	 	 	 
	 	 	 	 	 	Its:	      
  CEO	 	 	 	 
	 	 	 	 	 	 	

	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	Medtronic, Inc.	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	/s/          Michael D. Ellwein	 	 	 	 
	 	 	 	 	 	

	 	 	 
	 	 	 	 	 	By:	 Michael D. Ellwein	 	 	 	 
	 	 	 	 	 	 	

	 	 	 
	 	 	 	 	 	Its:	             
  VP	 	 	 	 
	 	 	 	 	 	 	

	 	 	 

 

EXHIBIT
A

Insert identification of
patents and patent applications

U.S. Patent
Number *     *    
*

U.S. Patent Number *     *     *

U.S. Patent Number *     *     *

U.S. Patent Number *     *     *

U.S. Patent Number *     *     *

U.S. Patent Number *     *     *

U.S. Patent Number *     *     *

U.S. Patent Number *     *     *

International Publication Number *    
*     *

 

EXHIBIT
B

List of Genes
referenced in definition of “Drug”

 

	 	 
	 	 
	 	*     *     *
	*     *     *	 
	*     *     *	 
	*     *     *	 
	*     *     *	 
	*     *     *	 
	*     *     *	 
	*     *     *	 
	*     *     *	 
	*     *     *	 

             In addition, any other genes that
breach AVI’s representation and warranty set forth in Section 7.1(j) shall be
deemed to be listed on this Exhibit B

Exhibit C

Arbitration Procedures

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

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

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

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

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

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

             Medtronic
Asset Management, Inc.

             710 Medtronic Parkway NE

             Minneapolis, MN 55432-5604

             with separate copies thereof
addressed to

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

if to AVI to:

             AVI BioPharma, Inc.

             One SW Columbia

             Portland, OR 97258

             Attn: President, Alan P.
Timmins

With
a copy to:

             Hurley, Lynch & Re, PC

             747 SW Industrial Way

             Bend, OR 97702

             Attn: Robert A. Stout, Esq.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Exhibit D

Paragraphs *    
*     * of the *     *    
* LicensePrepared by MerrillDirect

Exhibit 10.40

SUPPLY AGREEMENT 1

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

WITNESSETH:

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

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

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

AGREEMENTS:

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

ARTICLE 1

DEFINITIONS

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

             “Manufacturing
Cost” means *     *     *

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

             “Product”
means the Drug.

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

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

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

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

             1.3        Definitional Provisions.

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

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

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

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

ARTICLE
2

SUPPLY

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

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

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

             2.4        Compliance
With Laws and Regulations.

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

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

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

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

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

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

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

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

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

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

ARTICLE 3

FORECASTS, ORDERS AND DELIVERY

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

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

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

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

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

ARTICLE 4

PRICES AND PAYMENTS

             4.1        Prices.

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

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

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

             4.3        *     *     *

ARTICLE 5

WARRANTY AND SERVICE

             5.1        Warranty.

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

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

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

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

ARTICLE
6

CERTAIN REPRESENTATIONS AND WARRANTIES

             6.1        Representations and Warranties.

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

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

ARTICLE 7

INDEMNIFICATION

             7.1        Supplier’s Liability.

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

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

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

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

ARTICLE 8

TERM AND TERMINATION

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

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

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

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

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

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

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

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

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

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

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

ARTICLE
9

FORCE MAJEURE; LICENSE

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

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

             9.3        Exercise of License.

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

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

ARTICLE 10

MISCELLANEOUS

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

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

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

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

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

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

             if to Medtronic, to:

                           Medtronic, Inc.

                           710 Medtronic
Parkway NE

                           Minneapolis, MN
55432-5604

             with
separate copies thereof addressed to

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

 

             if
to Supplier to:

                           AVI BioPharma, Inc.

                           One SW Columbia

                           Portland, OR
97258

                           Attn:
President, Alan P. Timmins

             With a copy to:

                           Hurley, Lynch & Re, PC

                           747 SW Industrial
Way

                           Bend, OR 97702

                           Attn: Robert A.
Stout, Esq.

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

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

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

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

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

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

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

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

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

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

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

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

 

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

	 	 	

	 
	Its:           CEO	 	Its:           VP & COO
	 	

	 	 	

	 
							

 

Attachments:

             Exhibit
A – Specifications

             Exhibit B – Pricing

             Exhibit C – Alternative
Dispute Resolution

EXHIBIT
A

Specifications

 

*     *     
*

EXHIBIT
B

Pricing

 

*     *     
*  

 

*     *      *

EXHIBIT C

ALTERNATIVE DISPUTE RESOLUTION

 

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

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

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

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

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

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

             Medtronic Asset Management, Inc.

             710 Medtronic Parkway NE

             Minneapolis, MN 55432-5604

             with
separate copies thereof addressed to

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

if to Supplier to:

             AVI BioPharma, Inc.

             One SW Columbia

             Portland, OR 97258

             Attn: President, Alan P.
Timmins

With a copy to:

             Hurley, Lynch & Re, PC

             747 SW Industrial Way

             Bend, OR 97702

             Attn: Robert A. Stout, Esq.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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