View:
Download DOC
Download PDF
Download XLS

QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 1 TO
FORM 10-Q

(Mark One)


ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                             

Commission file number 0-22613

AVI BioPharma, Inc.
(Exact name of registrant as specified in its charter)

Oregon
(State or other jurisdiction of incorporation or organization)		   93-0797222
(I.R.S. Employer Identification No.)
     
One SW Columbia Street, Suite 1105, Portland, Oregon
(Address of principal executive offices) 		  97258
(Zip Code)

Issuer's telephone number, including area code: 503-227-0554

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock with $.0001 par value
(Class)		   23,114,399
(Outstanding at July 31, 2001)


AVI BioPharma, Inc.
FORM 10-Q
INDEX

Item 6.  Exhibits and Reports on Form 8-K

(a)   Exhibits:  The following revised exhibits are filed herewith and this list is intended to constitute the exhibit index:

 
 
10.36*
 
Investment Agreement dated May 22, 2001 between the Company and Medtronic Asset Management, Inc.

 
 
10.39*
 
License and Development Agreement dated June 20, 2001 between the Company and Medtronic, Inc.

 
 
10.40*
 
Supply Agreement dated June 20, 2001 between the Company and Medtronic, Inc.

A Confidential Treatment Request for certain information in this document has been filed with the Securities and Exchange Commission ("SEC"). Based on discussions with the SEC staff, the information for which confidential treatment has been sought has been revised with less information deleted. The exhibit is being refiled and the revised deleted text replaced by an (*).


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment too the report to be signed on its behalf by the undersigned thereunto duly authorized.

         
Date: April 23, 2002   AVI BIOPHARMA, INC.
         
         
    By:   /s/  DENIS R. BURGER      
Denis R. Burger, Ph.D.
 Chief Executive Officer
and Chairman (of the Board of Directors)
(Principal Executive Officer)
         
    By:   /s/  MARK M. WEBBER      
Mark M. Webber
 Chief Financial Officer
(Principal Financial and Accounting Officer)


QuickLinks

AVI BioPharma, Inc. FORM 10-Q INDEX
SIGNATURES

QuickLinks -- Click here to rapidly navigate through this document


Exhibit 10.36

[  *  ] Confidential portions omitted and filed separately.

INVESTMENT AGREEMENT

        THIS INVESTMENT AGREEMENT (this "Agreement") is made and entered into as of May 22, 2001 between AVI BIOPHARMA, INC. ("AVI"), an Oregon corporation, and MEDTRONIC ASSET MANAGEMENT, INC. ("Investor"), a Minnesota corporation.

RECITALS

        WHEREAS, AVI desires to issue and sell to Investor, and Investor desires to purchase on the terms and subject to the conditions set forth in this Agreement, certain shares of AVI Common Stock, $0.0001 par value ("Common Stock") and a warrant to purchase certain shares of Common Stock in the form attached hereto as Exhibit A (the "Warrant");

        WHEREAS, at the First Closing (as defined below), Medtronic, Inc. ("Medtronic") and AVI are entering into a License and Development Agreement in the form attached hereto as Exhibit B (the "License and Development Agreement");

        WHEREAS, at the First Closing, Investor and AVI are also entering into a Supply Agreement in the form attached hereto as Exhibit C (the "Supply Agreement");

        WHEREAS, at the First Closing, Investor and AVI are also entering into a Registration Rights Agreement in the form attached hereto as Exhibit D (the "Registration Rights Agreement"); and

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:

"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.

"AVI Subsidiaries" means all subsidiaries of AVI, including but not limited to the subsidiaries identified in the Disclosure Schedule.

"Change of Control" with respect to AVI means the occurrence of any of the following:

1

"Code" means the United States Internal Revenue Code of 1986, as amended.

"Common Stock" means shares of Common Stock of AVI, par value $0.0001 per share.

"Confidential Information" means know-how, trade secrets, unpublished information, scientific and technical information, inventions, methods, plans, processes, characteristics, data, business plans and the like 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 or the other Transaction Documents, excluding information which:

2

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

"Disclosure Schedule" has the meaning given in Article 3.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder.

"Environmental Laws or Regulations" means any one or more of the following: the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. § 9601 et seq.; the Federal Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. § 6921 et seq.; the Clean Water Act, 33 U.S.C. § 1321 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; any other federal, state, county, municipal, local, foreign or other statute, law, ordinance or regulation which may relate to pesticides, agricultural or industrial chemicals, wastes, Hazardous Substances, or the environment; and all regulations promulgated by a regulatory body pursuant to any of the foregoing statutes, laws, regulations, or ordinances.

"FDA" means the U.S. Food and Drug Administration.

"Financial Statements" means AVI's financial statements included in SEC Documents.

"First Closing" has the meaning given in Section 8.1.

"First Closing Date" has the meaning given in Section 8.1

"Fourth Closing" has the meaning given in Section 8.4.

"Fourth Closing Date" has the meaning given in Section 8.4.

"Fourth Closing Milestone" means Medtronic's receipt of a notice [  *  ].

"Fourth Closing Market Price" means the average (rounded to the nearest full cent, with the cents rounded up if the third decimal place is 5 or more) of the closing sale prices of a share of Common Stock as reported on the Nasdaq Stock Market as of the end of the regular trading session, as reported in The Wall Street Journal, for the five (5) consecutive Nasdaq trading days ending on and including the Nasdaq trading day immediately preceding the date of the occurrence of the Fourth Closing Milestone.

"Hazardous Substance" means asbestos, urea formaldehyde, polychlorinated biphenyls, nuclear fuel or materials, chemical waste, radioactive materials, explosives, known carcinogens, petroleum products, pesticides, fertilizers, or other substance which is dangerous, toxic, or hazardous, or which is a pollutant, contaminant, chemical, material or substance defined as hazardous or as a pollutant or contaminant in, or the use, transportation, storage, release or disposal of which is regulated by, any Environmental Laws or Regulations.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations thereunder.

"IND" means an Investigational New Drug application as defined in 21 CFR Part 312.

"Initial Market Price" means the greater of (a) $5.00 per share of Common Stock, or (b) the average (rounded to the nearest full cent, with the cents rounded up if the third decimal place is 5 or more) of the closing sale prices of a share of Common Stock as reported on the Nasdaq Stock Market as of the end of the regular trading session, as reported in The Wall Street Journal, for the five (5) consecutive Nasdaq trading days ending on and including the Nasdaq trading day immediately preceding the date of this Agreement. It is acknowledged and agreed that the Initial Market Price is $7.10 per share.

"Intellectual Property" means letters patent and patent applications; trademarks, service marks and registrations thereof and applications therefor; copyrights and copyright registrations and applications;

3


all discoveries, ideas, technology, know-how, trade secrets, processes, formulas, drawings and designs, computer programs or software; and all amendments, modifications, and improvements to any of the foregoing.

"Knowledge" or "knowledge" means actual knowledge of a fact or the knowledge which such person could reasonably be expected to have based on reasonable inquiry and consistent with such person's duties and responsibilities. The knowledge of AVI shall include the knowledge of AVI's directors and/or officers.

"License and Development Agreement" has the meaning defined in the recitals hereto.

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

"Material Adverse Effect" means a material adverse effect on (a) the business, operations, results of operations, assets (including intangible assets), liabilities, prospects, or condition (financial or otherwise) of AVI and the AVI Subsidiaries, taken as a whole, or (b) the ability of AVI to perform its obligations under this Agreement or any of the Transaction Documents or any other agreement or instrument to be entered into in connection with this Agreement.

"Medtronic" has the meaning defined in the recitals hereto.

"NDA" means a New Drug Application as defined in 21 CFR Part 314.

"PMA" means a Premarket Approval Application as defined in 21 CFR Part 814.

"Purchased Securities" means the Purchased Shares, the Warrant and the Warrant Shares.

"Purchased Shares" means the Common Stock Shares purchased by Investor pursuant to Article 2.

"Registration Rights Agreement" has the meaning defined in the Recitals hereto.

"SEC" means the Securities and Exchange Commission or any other federal agency at the time administering the Exchange Act.

"SEC Documents" means all documents filed by AVI with the SEC after December 31, 2000.

"Second Closing" has the meaning given in Section 8.2.

"Second Closing Date" has the meaning given in Section 8.2.

"Second Closing Milestone" means [  *  ]

"Securities Act" means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder.

"Supply Agreement" has the meaning defined in the recitals hereto.

"Third Closing" has the meaning given in Section 8.3.

"Third Closing Date" has the meaning given in Section 8.3.

"Third Closing Milestone" means [  *  ]

"Third Closing Market Price" means the average (rounded to the nearest full cent, with the cents rounded up if the third decimal place is 5 or more) of the closing sale prices of a share of Common Stock as reported on the Nasdaq Stock Market as of the end of the regular trading session, as reported in The Wall Street Journal, for the five (5) consecutive Nasdaq trading days ending on and including the Nasdaq trading day immediately preceding the date of the occurrence of the Third Closing Milestone.

4


"Transaction Documents" means the Warrant, the License and Development Agreement, the Supply Agreement and the Registration Rights Agreement.

"Waived Amount" has the meaning given in Section 2.5.

"Warrant" has the meaning defined in the recitals hereto.

"Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrant.

        1.2    Definitional Provisions.    

ARTICLE 2
PURCHASE OF COMMON STOCK
AND WARRANT

        2.1    Purchase at First Closing.    

        2.2    Purchase at Second Closing.    Investor shall give written notice to AVI of the occurrence of the Second Closing Milestone within ten (10) business days thereafter. Such notice shall specify the date of the occurrence thereof. Subject to the terms and conditions hereof, including Section 2.5, and subject to the First Closing having occurred, within thirty (30) days after such written notice Investor shall invest Two Million Five Hundred Thousand Dollars ($2,500,000) in AVI in exchange for, and AVI shall sell, issue and deliver to Investor, such number of shares of Common Stock (rounded to the nearest whole share) which shall equal $2,500,000 divided by the Initial Market Price. Certificates representing any shares purchased under this Section shall be issued at the Second Closing in form acceptable to Investor and its counsel. The purchase price for the shares purchased pursuant to this Section shall be payable by wire transfer of funds to AVI's account as designated to Investor in writing prior to the Second Closing Date. In addition to Investor's rights under Section 2.5(a), Investor may, at Investor's option and by written notice to AVI, elect to pay in cash some or all of the amounts payable under this Section 2.2 as an additional capital contribution for Investor's Purchased Shares previously purchased in lieu of requiring AVI to issue Purchased Shares under this Section 2.2.

5

        2.3    Purchase at Third Closing.    Investor shall give written notice to AVI of the occurrence of the Third Closing Milestone within ten (10) business days thereafter. Such notice shall specify the date of the occurrence thereof. Subject to the terms and conditions hereof, including Section 2.5, and subject to the First Closing and Second Closing having occurred, within thirty (30) days after such written notice Investor shall invest Two Million Five Hundred Thousand Dollars ($2,500,000) in AVI in exchange for, and AVI shall sell, issue and deliver to Investor, such number of shares of Common Stock (rounded to the nearest whole share) which shall equal $2,500,000 divided by the Third Closing Market Price. Certificates representing any shares purchased under this Section shall be issued at the Third Closing in form acceptable to Investor and its counsel. The purchase price for the shares purchased pursuant to this Section shall be payable by wire transfer of funds to AVI's account as designated to Investor in writing prior to the Third Closing Date. In addition to Investor's rights under Section 2.5(a), Investor may, at Investor's option and by written notice to AVI, elect to pay in cash some or all of the amounts payable under this Section 2.3 as an additional capital contribution for Investor's Purchased Shares previously purchased in lieu of requiring AVI to issue Purchased Shares under this Section 2.3.

        2.4    Purchase at Fourth Closing.    Investor shall give written notice to AVI of the occurrence of the Fourth Closing Milestone within ten (10) business days thereafter. Such notice shall specify the date of the occurrence thereof. Subject to the terms and conditions hereof, including Section 2.5, and subject to the First Closing, Second Closing and Third Closing having occurred, within thirty (30) days after such written notice Investor shall invest Five Million Dollars ($5,000,000) in AVI in exchange for, and AVI shall sell, issue and deliver to Investor, such number of shares of Common Stock (rounded to the nearest whole share) which shall equal $5,000,000 divided by the Fourth Closing Market Price. Certificates representing any shares purchased under this Section shall be issued at the Fourth Closing in form acceptable to Investor and its counsel. The purchase price for the shares purchased pursuant to this Section shall be payable by wire transfer of funds to AVI's account as designated to Investor in writing prior to the Fourth Closing Date. In addition to Investor's rights under Section 2.5(a), Investor may, at Investor's option and by written notice to AVI, elect to pay in cash some or all of the amounts payable under this Section 2.4 as an additional capital contribution for Investor's Purchased Shares previously purchased in lieu of requiring AVI to issue Purchased Shares under this Section 2.4.

        2.5    Certain Limitations.    

6

7

        2.6    Waiver of Milestones.    Investor, at its option, upon written notice to AVI may waive the requirement that one or more of the Milestones referenced in Sections 2.2, 2.3 or 2.4 has occurred, in which case, Investor shall purchase, and AVI shall sell, the Purchased Shares pursuant to Section 2.2, 2.3 or 2.4, as the case may be, as though such waived Milestone had occurred. If such a waiver is made with respect to Section 2.3 or 2.4, the Third Closing Market Price and the Fourth Closing Market Price shall be determined with respect the date written notice of such waiver is given rather than the date of the occurrence of the Third Closing Milestone or Fourth Closing Milestone, as the case may be. Further, with respect to each Closing, Investor, at its option, upon written notice to AVI may waive the requirement that prior Closings shall have occurred, as referenced in Sections 2.2, 2.3 and 2.4.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF AVI

        AVI hereby makes the representations and warranties in this Article 3 to Investor as of the date of this Agreement and as of each Closing Date, as qualified by the disclosure schedule attached hereto, and as updated pursuant to Section 6.1(m) (the "Disclosure Schedule"). The Disclosure Schedule is accurate and complete as of the date hereof. The Disclosure Schedule is arranged in sections corresponding to the sections and subsections of this Article 3.

        3.1    Organization, Qualifications and Corporate Power.    

8

        3.2    Authorization of Agreements, Etc.    

        3.3    Validity.    Each of this Agreement and the Transaction Documents has been duly executed and delivered by AVI and constitutes the legal, valid and binding obligation of AVI enforceable in accordance with its terms except as may be limited by laws affecting creditors' rights generally or by judicial limitations on the right to specific performance.

        3.4    Authorized Capital Stock.    The authorized capital stock of AVI consists of (a) 50,000,000 shares of Common Stock, par value $0.0001, of which 21,575,267shares are issued and outstanding, and (b) 2,000,000 shares of preferred stock, par value $0.0001, none of which are issued and outstanding. There are issued and outstanding options to purchase an aggregate 2,866,335 shares of Common Stock, warrants to purchase an aggregate 7,352,003 shares of Common Stock, and no other outstanding subscriptions, warrants, options, convertible securities, or other rights (contingent or other) to purchase or otherwise acquire Common Stock or other equity securities of AVI. There are no agreements or arrangements under which AVI is obligated to register the sale of any of its securities under the Securities Act. Except for an existing warrant held by SuperGen, Inc. to acquire ten percent of the outstanding securities (as defined therein at the time of exercise), there are no anti-dilution or price adjustment provisions contained in any security issued by AVI (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Purchased Securities. The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class of

9


authorized equity securities of AVI are as set forth in AVI's Articles of Incorporation, a true and correct copy of which has been provided to Investor, and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws. Except as provided for in AVI's Articles of Incorporation, AVI has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of the equity securities or any interest therein or rights to acquire such securities or to pay any dividend or make any other distribution in respect thereof. To AVI's knowledge, there are no voting trusts or agreements, stockholders' agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights or proxies relating to any securities of AVI (whether or not AVI is a party thereto). All of the outstanding securities of AVI were issued in compliance with all applicable federal and state securities laws.

        3.5    SEC Documents; Financial Statements.    AVI has filed in a timely manner all documents that AVI was required to file with the SEC during the twelve (12) months preceding the date of this Agreement. As of their respective filing dates, all SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as applicable. None of the SEC Documents contained, as of their respective dates, any untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading, and such SEC Documents, when read as a whole, do not contain any untrue statements of a material fact and do not omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Financial Statements comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. The Financial Statements have been prepared in accordance with United States generally accepted accounting principles consistently applied, and fairly present AVI's consolidated financial position as of the dates thereof and the results of AVI's consolidated operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments). Except as set forth in the Financial Statements, neither AVI nor any AVI Subsidiaries has any liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business subsequent to December 31, 2000, and liabilities of the type not required under United States generally accepted accounting principles to be reflected in such Financial Statements. Such liabilities incurred subsequent to December 31, 2000, are not, in the aggregate, material to the financial condition or operating results of AVI.

        3.6    Litigation; Compliance with Law.    There is no: (a) action, suit, claim, proceeding or investigation pending or, to AVI's knowledge, threatened against or affecting AVI or any AVI Subsidiary, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (b) arbitration proceeding relating to AVI or any AVI Subsidiary pending under collective bargaining agreements or otherwise or (c) governmental inquiry pending or, to AVI's knowledge, threatened against or affecting AVI or any AVI Subsidiary (including without limitation any inquiry as to the qualification of AVI or any AVI Subsidiary to hold or receive any license or permit), and there is no basis for any of the foregoing. AVI has not received any opinion or memorandum or legal advice from legal counsel to the effect that AVI or any AVI Subsidiary is exposed, from a legal standpoint, to any liability or disadvantage which may have a Material Adverse Effect. Neither AVI nor any AVI Subsidiary is in default with respect to any order, writ, injunction or decree of any court or of any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no action, claim, proceeding, investigation or suit by AVI or any AVI Subsidiary pending or threatened against others. AVI and each AVI Subsidiary have complied with all laws, rules, regulations and orders applicable to its business, operations, properties, assets, products and services. AVI and each AVI Subsidiary has or will obtain prior to becoming necessary all necessary permits, licenses and other authorizations required to conduct its business as conducted and as

10


proposed to be conducted which, if not obtained, would have, either individually or in the aggregate, a Material Adverse Effect. There is no existing law, rule, regulation or order, and AVI is not aware of any proposed law, rule, regulation or order, whether federal or state, which would prohibit or restrict AVI or any AVI Subsidiary from, or otherwise materially adversely affect AVI or any AVI Subsidiary in, conducting its business in any jurisdiction in which it is now conducting business or in which it proposes to conduct business.

        3.7    Proprietary Information of Third Parties.    No third party has claimed or has reason to claim that any person employed by or affiliated with AVI or any AVI Subsidiary has (a) violated or may be violating any of the terms or conditions of his employment, non-competition or nondisclosure agreement with such third party, (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party, or (c) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees. To AVI's knowledge, no third party has requested information from or otherwise communicated with AVI or any AVI Subsidiary which suggests that such a claim might be contemplated. To AVI's knowledge, no person employed by or affiliated with AVI or any AVI Subsidiary has employed or proposes to employ any trade secret or any information or documentation proprietary to any former employer, and to AVI's knowledge, no person employed by or affiliated with AVI or any AVI Subsidiary has violated any confidential relationship which such person may have had with any third party, in connection with the development, manufacture or sale of any product or proposed product or the development or sale of any service or proposed service of AVI or any AVI Subsidiary, and AVI has no reason to believe there will be any such employment or violation.

        3.8    Title to Properties.    AVI or the AVI Subsidiaries have good and marketable title to its properties and assets reflected in the most recent Financial Statements (other than properties and assets disposed of in the ordinary course of business since the date thereof), and all such properties and assets are free and clear of all Liens, except for liens for or current taxes not yet due and payable and minor imperfections of title, if any, not material in nature or amount and not materially detracting from the value or impairing the use of the property or asset subject thereto or impairing the business or proposed business of AVI.

        3.9    Leasehold Interests.    Each lease or agreement to which AVI or any AVI Subsidiary is a party under which it is a lessee of any property, real or personal, is a valid and existing agreement without any default of AVI or any AVI Subsidiary thereunder and, to AVI's knowledge, without any default thereunder of any other party thereto. No event has occurred and is continuing which, with due notice or lapse of time or both, would constitute a default or event of default by AVI or any AVI Subsidiary under any such lease or agreement or, to AVI's knowledge, by any other party thereto. The possession of such property by AVI or such AVI Subsidiary has not been disturbed and, to AVI's knowledge, no claim has been asserted or threatened against AVI or such AVI Subsidiary adverse to its rights in such property.

        3.10    Taxes.    AVI and each AVI Subsidiary has timely filed, or caused to be timely filed, all federal, state and local tax returns for income taxes, franchise taxes, sales taxes, withholding taxes, property taxes and, to AVI's knowledge, all other taxes of every kind whatsoever required by law to be filed, and all such tax returns are complete and accurate and in accordance with all requirements applicable thereto. The tax returns of AVI or any AVI Subsidiary have never been audited by appropriate governmental authorities and AVI does not know of any additional tax liabilities for any periods for which such returns have been filed.

        3.11    Patents, Trademarks, Etc.    AVI and each AVI Subsidiary owns or possesses licenses or other rights to use all Intellectual Property necessary to or used in the conduct of its business as conducted and as proposed to be conducted, and no claim is pending or, to AVI's knowledge, threatened to the effect that the operations of AVI or any AVI Subsidiary infringe upon or conflict with the asserted

11


rights of any other person under any Intellectual Property, and to AVI's knowledge there is no basis for any such claim (whether or not pending or threatened). Except as set forth in the SEC Documents, no claim is pending or threatened to the effect that any such Intellectual Property owned or licensed by AVI or any AVI Subsidiary, or which AVI or any AVI Subsidiary otherwise has the right to use, is invalid or unenforceable by AVI or such AVI Subsidiary, and to AVI's knowledge there is no basis for any such claim (whether or not pending or threatened). To AVI's knowledge, all technical information developed by and belonging to AVI or any AVI Subsidiary which has not been patented has been kept confidential. Neither AVI nor any AVI Subsidiary has granted or assigned to any other person or entity any right to develop, manufacture, have manufactured, assemble or sell the products or proposed products or to provide the services or proposed services of AVI or such AVI Subsidiary. AVI has secured valid written assignments from all consultants and employees who contributed to the creation or development of Intellectual Property or the rights to such contributions that AVI does not already own by operation of law. AVI has taken all necessary and appropriate steps to protect and preserve the confidentiality of all Intellectual Property not otherwise protected by patents, patent applications or copyright. AVI has a policy requiring each of its employees and contractors to execute proprietary information and confidentiality agreements substantially in AVI's standard forms and all current and former employees and contractors of AVI and each AVI Subsidiary have executed such an agreement. AVI has provided a true and correct copy of such form to Investor.

        3.12    Loans and Advances.    Except as disclosed in the SEC Documents or Disclosure Schedule, AVI and the AVI Subsidiaries do not have any outstanding loans or advances to any person and are not obligated to make any such loans or advances, except, in each case, for advances to employees of AVI or such AVI Subsidiary in respect of reimbursable business expenses anticipated to be incurred by them in connection with their performance of services for AVI or such AVI Subsidiary.

        3.13    Assumptions, Guaranties, Etc. of Indebtedness of Other Persons.    Except as disclosed in the Financial Statements, neither AVI nor any AVI Subsidiary has assumed, guaranteed, endorsed or otherwise become directly or contingently liable on any indebtedness of any other person (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor, or otherwise to assure the creditor against loss), except for guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business.

        3.14    Governmental Approvals.    Subject to the accuracy of the representations and warranties of Investor set forth in Article 4, no registration or filing with, or consent or approval of or other action by, any federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by AVI of this Agreement, the Transaction Documents, or for the issuance, sale and delivery of the Purchased Securities, other than filings pursuant to state securities laws (all of which filings have been made or will be timely made by AVI) in connection with the sale of the Purchased Securities.

        3.15    Brokers.    AVI has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement.

        3.16    Transactions With Affiliates.    Except as disclosed in the SEC Documents, no director, officer, employee or stockholder of AVI or any AVI Subsidiary, or member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, is a party to any transaction with AVI or any AVI Subsidiary, including any contract, agreement or other arrangement providing for the employment of, furnishing of services by, rental of real or personal property from or otherwise requiring payments to any such person or firm.

12


        3.17    Environmental Matters.    AVI and each AVI Subsidiary has obtained, and is in full compliance with, all permits, licenses or other approvals necessary under the Environmental Laws or Regulations with respect to its business or assets, and is in compliance with all Environmental Laws or Regulations. Neither AVI nor any AVI Subsidiary has taken any action or failed to take any action with respect to its business, assets or the real property presently or formerly used in connection therewith that might result in, nor has AVI, any AVI Subsidiary or their businesses or assets ever been subject to any investigations, administrative proceedings, litigation, regulatory hearings, or other action threatened, proposed or pending that alleged or alleges: (i) actual or threatened violation of or noncompliance with any Environmental Law or Regulation; or (ii) actual or threatened personal injury or property damage or contamination of any kind resulting from a release or threatened release of a Hazardous Substance.

        3.18    Employees.    To AVI's knowledge, no employee of AVI or any AVI Subsidiary is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement with any third party, the terms of which would restrict the right of any such employee to be employed by AVI or any AVI Subsidiary because of the nature of the business conducted or to be conducted by AVI or any AVI Subsidiary or for any other reason or would conflict with such employee's obligation to use his best efforts to promote the interests of AVI, and the continued employment by AVI and the AVI Subsidiaries of their present employees will not result in any such violations. There are no strikes or other labor disputes against AVI or any AVI Subsidiary pending or, to the knowledge of AVI, threatened which could have a Material Adverse Effect. Neither AVI nor any AVI Subsidiary is a party to or bound by any collective bargaining agreement or other labor agreement with any bargaining agent (exclusive or otherwise) of any of its employees.

        3.19    Insurance.    AVI and each AVI Subsidiary maintains (a) insurance on all material assets of a type customarily insured, covering property damage by fire or other casualty; and (b) adequate insurance protection against all liabilities, claims, and risks against which it is customary to insure.

        3.20    Absence of Certain Changes.    Since December 31, 2000, no event has occurred which could have a Material Adverse Effect.

        3.21    Investment Company Status.    AVI is not and upon consummation of the sale of the Purchased Securities will not be an "investment company," a company controlled by an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended.

        3.22    Regulatory Filings.    All documentation, correspondence, reports, data, analysis and certifications relating to or regarding any drugs of AVI, filed or delivered by or on behalf of AVI with any governmental authority, agency or body was true and accurate when so filed or delivered and, to the knowledge of AVI, remains true and accurate except where any changes would not have a Material Adverse Effect. AVI is not aware of any rule making or similar proceedings before the FDA or comparable federal, state, local or foreign government bodies which involve or affect AVI or any AVI Subsidiary which could have a Material Adverse Effect. The descriptions of the results of tests or evaluations contained in SEC Documents or delivered to the Investor are accurate and complete in all material respects, and AVI has no knowledge of any other tests or evaluations, the results of which reasonably call into question descriptions of the results of tests or evaluations referred to in SEC Documents or delivered to the Investor. Neither AVI nor any AVI Subsidiary has received any notices or correspondence from the FDA or any other governmental agency requiring the termination, suspension or modification of any tests or evaluations conducted by or on behalf of AVI or any AVI Subsidiary that are described in SEC Documents or as delivered to the Investor.

        3.23    State Takeover Laws.    The Board of the Company has approved the transactions contemplated by this Agreement and the Transaction Documents such that the provisions of Section 60.835 of the Oregon Business Corporations Act will not apply to this Agreement, the Transaction Documents or any of the transactions contemplated hereby or thereby.

13


        3.24    Nasdaq; Etc.    AVI is in compliance with all applicable Nasdaq continued listing requirements for the Nasdaq Stock Market and is listed in good standing on the Nasdaq Stock Market. There are no proceedings pending or, to AVI's knowledge, threatened against AVI relating to the continued listing of AVI's Common Stock on the Nasdaq National Market and AVI has not received any notice of, nor to the knowledge of AVI is there any basis for, the delisting of the Common Stock from the Nasdaq National Market. AVI has not engaged in the past three (3) months in any discussion with any representative of any corporation or corporations regarding a proposed Change of Control of the Company.

        3.25    Disclosure.    Neither this Agreement, nor any Schedule or Exhibit to this Agreement, contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. None of the statements, documents, certificates or other items prepared or supplied by AVI with respect to the transactions contemplated hereby, including, without limitation, reports, data, analyses and correspondence relating to the Drug, contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained therein not misleading. There is no fact which AVI has not disclosed to Investor and its counsel in writing and of which AVI is aware which could have a Material Adverse Effect.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTOR

        Investor makes the following representations and warranties to AVI:

        4.1    Purchase of Purchased Securities.    Investor is an "accredited investor" within the meaning of Rule 501 under the Securities Act and was not organized for the specific purpose of acquiring the Purchased Securities. Investor has sufficient knowledge and experience in investing in companies similar to AVI in terms of AVI's stage of development so as to be able to evaluate the risks and merits of Investor's investment in AVI and Investor is able financially to bear the risks thereof. Investor has had an opportunity to discuss AVI's business, management and financial affairs with AVI's management. The Purchased Securities are being acquired for Investor's own account for the purpose of investment and not with a present view toward their public sale or distribution; provided, however, that by making the representation herein, Investor does not agree to hold any of the Purchased Securities for any minimum or other specific term, except as set forth in Article 2 of this Agreement or pursuant to the terms of the Registration Rights Agreement, and reserves the right to dispose of the Purchased Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. Investor understands that (i) the Purchased Securities have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated thereunder, (ii) the Purchased Securities must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (iii) the Purchased Securities will bear a legend to such effect and (iv) AVI will make a notation on its transfer books to such effect.

        4.2    Corporate Authority.    The execution, delivery and performance by Investor and Medtronic, as applicable, of this Agreement, the Transaction Documents, and the transactions contemplated hereby and thereby have been duly and validly authorized and approved by all requisite corporate action on the part of Investor and Medtronic, and the execution and the delivery of this Agreement, the Transaction Documents, and consummation of the transactions contemplated hereby and thereby and compliance with and fulfillment of the terms and provisions hereof and thereof will not (i) conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under the Articles of Incorporation or Bylaws of Investor or Medtronic, or (ii) require any affirmative approval, consent, authorization or other order or action of any court, governmental authority, regulatory body, creditor or any other person. Investor and Medtronic have all requisite power and authority to do and perform

14


all acts and things required to be done by it under this Agreement, the Transaction Documents and the agreements contemplated hereby and thereby. Each of this Agreement and the Transaction Documents has been duly executed and delivered by Investor and Medtronic and constitutes the legal, valid and binding obligation of those entities enforceable in accordance with its terms except as may be limited by laws affecting creditors' rights generally or by judicial limitations on the right to specific performance.

ARTICLE 5
COVENANTS

        5.1    Best Efforts.    AVI will use its best efforts to satisfy in a timely fashion each of the conditions to be satisfied under Article 6 of this Agreement.

        5.2    Reporting Status; Eligibility to Use Form S-3.    AVI's Common Stock is registered under Section 12 of the Exchange Act. Throughout the Registration Period (as defined in the Registration Rights Agreement), AVI will timely file all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under the reporting requirements of the Exchange Act, and AVI will not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. AVI currently meets, and will take all reasonably necessary action to continue to meet, the "registrant eligibility" requirements set forth in the general instructions to Form S-3 (or any successor registration form thereto) to enable the registration of the Registrable Shares (as defined in the Registration Rights Agreement).

        5.3    Listing of Additional Shares.    AVI will file with the NASDAQ National Market a Notification Form for Listing of Additional Shares for an amount of shares of Common Stock equal to at least the amount of the Purchased Shares as required by the NASDAQ National Market regulatory requirements. AVI will also comply with all applicable Nasdaq continued listing requirements for the Nasdaq Stock Market and shall remain in good standing on the Nasdaq Stock Market.

        5.4    No Integration.    AVI will not make any offers or sales of any security (other than the Purchased Securities) under circumstances that would cause the offering of the Purchased Securities to be integrated with any other offering of securities by AVI (a) for the purpose of any stockholder approval provision applicable to AVI or its securities or (b) for purposes of any registration requirement under the Securities Act.

        5.5    Regulatory Approvals.    

15

        5.6    Exclusivity.    AVI agrees that for a period commencing upon execution of this Agreement until the earlier of the First Closing or termination of this Agreement in accordance with Article 9, AVI will not 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 the Drug.

        5.7    Reserve for Shares; Authorized Shares.    AVI shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock such number of its duly authorized shares of Common Stock to comply with the terms of this Agreement and the Warrant. If at any time the number of shares of authorized but unissued Common Stock shall not be sufficient to comply with the terms of this Agreement and the Warrant, AVI will promptly take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares of Common Stock as shall be sufficient for such purpose. AVI will obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable securities laws in connection with the issuance of any shares issued by it in order to comply with the terms of this Agreement and the Warrant.

        5.8    Corporate Existence.    So long as Investor beneficially owns any of the Purchased Securities, AVI shall maintain its corporate existence, except in the event of a merger, consolidation or sale of all or substantially all of AVI's assets, as long as the surviving or successor entity in such transaction (a) assumes AVI's obligations hereunder and under the other Transaction Documents; (b) has no legal, contractual or other restrictions on its ability to perform the obligations of AVI hereunder and under the Transaction Documents; and (c) is a publicly traded corporation whose common stock and the shares of capital stock issuable upon exercise of the Warrants are (or would be upon issuance thereof) listed for trading on the Nasdaq Stock Market, New York Stock Exchange or American Stock Exchange.

ARTICLE 6
CONDITIONS TO CLOSING

        6.1    Conditions to Investor's Obligations.    The obligations of Investor to purchase and pay for the Purchased Shares and to accept the Warrant pursuant to Section 2.1 at the First Closing, and, subject to further compliance with the provisions of subsections (m) and (n) below, to purchase and pay for the Purchased Shares being purchased by Investor pursuant to Section 2.2 at the Second Closing Date, pursuant to Section 2.3 at the Third Closing Date, and pursuant to Section 2.4 at the Fourth Closing

16

Date, are subject to the satisfaction or waiver, on each such respective Closing Date, of the conditions set forth below:

17

18

19

        6.2    Conditions to AVI's Obligations.    The obligations of AVI to issue, sell and deliver certificates representing the Purchased Shares and the Warrant pursuant to Article 2 are subject to the satisfaction or waiver, on or before the respective Closing Date of the conditions set forth below:

ARTICLE 7
INDEMNIFICATION

        7.1    Indemnification of Medtronic.    AVI shall indemnify, defend and hold harmless Investor, Medtronic and each of its Affiliates, and their respective officers, directors and stockholders (Investor, Medtronic and such other indemnities referred to in this Article 7 as "Medtronic") 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) ("Indemnifiable Losses"), resulting from, arising out of, or imposed upon or incurred by any person to be indemnified hereunder by reason of any breach of any representation, warranty, covenant or agreement of AVI contained in this Agreement, the Transaction Documents, or any agreement, certificate or document executed and delivered by AVI pursuant hereto or in connection with any of the transactions contemplated by this Agreement.

        7.2    Third-Party Claims.    If a claim by a third party is made against Medtronic and if Medtronic intends to seek indemnity with respect thereto under this Article 7, Medtronic shall promptly notify AVI of such claim; provided, however, that failure to give timely notice shall not affect the rights of Medtronic so long as the failure to give timely notice does not materially and adversely affect AVI's ability to defend such claim against a third party. Medtronic shall not settle such claim without the consent of AVI, which consent shall not be unreasonably withheld or delayed. If AVI acknowledges in writing its indemnity obligations for Indemnifiable Losses resulting therefrom, AVI may participate at its own cost and expense in the settlement or defense of any claim for which indemnification is sought; provided that such settlement or defense shall be controlled by Medtronic.

        7.3    Cooperation as to Indemnified Liability.    Each party hereto shall cooperate fully with the other parties with respect to access to books, records, or other documentation within such party's control, if deemed reasonably necessary or appropriate by any party in the defense of any claim which may give rise to indemnification hereunder.

        7.4    Brokerage.    AVI will indemnify and hold harmless Medtronic against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby, based in any way on agreements, arrangements or understandings made or claimed to have been made by AVI with any third party.

        7.5    Limitation on Certain Claims.    To the extent Medtronic wishes to make a claim for indemnification under Section 7.1 with respect to Purchased Securities purchased at a Closing and the breach of the Company's representations and warranties deemed made as of the Closing Date applicable thereto, such claim for indemnification shall be made within two (2) years after such Closing

20


Date applicable to such purchase. However, the foregoing two (2) year limitation shall not apply to any claim for indemnification arising out of any third party claim made against Medtronic, nor to the breach of any representation or warranty made in Sections 3.1, 3.2, 3.3, 3.4, 3.11 or 3.23.

ARTICLE 8
CLOSING

        8.1    First Closing.    The consummation of the purchase and sale of the Purchased Shares and the issuance of the Warrant pursuant to Section 2.1 (the "First Closing") shall, subject to the satisfaction of the conditions set forth in Article 6, occur not later than thirty (30) days after the date hereof, as specified in writing by Investor (the "First Closing Date"). At the First Closing, the parties shall also execute the Transaction Documents.

        8.2    Second Closing.    The consummation of the purchase and sale of the Purchased Shares pursuant to Section 2.2 (the "Second Closing") shall, subject to the satisfaction of the conditions set forth in Article 6, take place within thirty (30) days after the written notice referenced in such Section regarding the occurrence of the Second Closing Milestone, as specified in writing by Investor, or on such other date as the parties may agree (the "Second Closing Date").

        8.3    Third Closing.    The consummation of the purchase and sale of the Purchased Shares pursuant to Section 2.3 (the "Third Closing") shall, subject to the satisfaction of the conditions set forth in Article 6, take place within thirty (30) days after the written notice referenced in such Section regarding the occurrence of the Third Closing Milestone, as specified in writing by Investor, or on such other date as the parties may agree (the "Third Closing Date").

        8.4    Fourth Closing.    The consummation of the purchase and sale of the Purchased Shares pursuant to Section 2.4 (the "Fourth Closing") shall, subject to the satisfaction of the conditions set forth in Article 6, take place within thirty (30) days after the written notice referenced in such Section regarding the occurrence of the Fourth Closing Milestone, as specified in writing by Investor, or on such other date as the parties may agree (the "Fourth Closing Date").

        8.5    Closings.    Each of the Closings shall take place at the offices of Medtronic in Minneapolis, Minnesota, or by telecopy exchange of signature pages with originals to follow by overnight delivery, or in such other manner or at such place as the parties hereto may agree.

ARTICLE 9
TERMINATION AND DEFAULT

        9.1    Termination.    The obligation of the parties hereto to consummate the remaining transactions contemplated hereby may be terminated and abandoned at any time at or before the First Closing, Second Closing, Third Closing or Fourth Closing if any of the following events occurs:

21

        9.2    Effect.    Termination of this Agreement by a party shall not relieve the other parties hereto of any liability for breach of representation, warranty, covenant or agreement by such other parties including liability for monetary damages and/or specific performance. Investor's or Medtronic's rights pursuant to the Transaction Documents shall survive any termination of this Agreement.

ARTICLE 10
OTHER PROVISIONS

        10.1    Further Assurances.    At such time and from time to time on and after the Closing Date, upon request by the other party, Investor and AVI will execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances that may be required for the better conveying, transferring, assigning, delivering, assuring and confirming to Investor, or to its respective successors and assigns, all of the Purchased Shares or to otherwise carry out the purposes of this Agreement.

        10.2    Complete Agreement.    This Agreement and the Transaction Documents (including all schedules and exhibits hereto and thereto) constitute 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 3 and 4 of this Agreement shall survive each Closing and remain in full force and effect. No independent investigation of AVI by Investor, 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

22


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. This Agreement may be amended by AVI and Investor, by mutual action approved by their respective Boards of Directors or their respective officers authorized by such Board of Directors, at any time. Any amendment to this Agreement shall be in writing and signed by AVI and Investor.

        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 Investor or 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 AVI to:

 
 
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

23


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.

        10.7    Expenses.    AVI and Investor 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 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, if arbitration is sought by Investor, such arbitration shall be in Multnomah County, Oregon; and, if sought by AVI, such arbitration shall be in Hennepin County, Minnesota; and in each such case, the parties hereto hereby submit to the exclusive jurisdiction of the United States federal and state courts located in such county 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 E 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    Non-Disclosure.    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 or under the Transaction Documents) any Confidential Information of the other party obtained during the term of this Agreement until the expiration of three (3) years after the earlier of the First Closing or the termination 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 such term

24


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

    AVI BIOPHARMA, INC.

 
 
By:
 
/s/  DENIS BURGER      

 
 
Its:
 
CEO

 
 
MEDTRONIC ASSET MANAGEMENT, INC.

 
 
By:
 
/s/  MICHAEL D. ELLWEIN      

 
 
Its:
 
VP

Exhibits and Schedules:

Exhibit A—Warrant
Exhibit B—License and Development Agreement
Exhibit C—Supply Agreement
Exhibit D—Registration Rights agreement
Exhibit E—Alternative Dispute Resolution
AVI Disclosure Schedule

25

EXHIBIT E

ALTERNATIVE DISPUTE RESOLUTION

        1)    Negotiations.    If any dispute arises between AVI and Investor with respect to the Investment Agreement or the Registration Rights 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:

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 Investor 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

 
 
 
 
 

1


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 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:

2

3



QuickLinks


QuickLinks -- Click here to rapidly navigate through this document


Exhibit 10.39

[  *  ] Confidential portions omitted and filed separately

LICENSE AND DEVELOPMENT AGREEMENT

        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.

        "Agreement" means this Agreement and all Exhibits and Schedules hereto.

        "Collaboration Agreement" means the Collaboration Agreement dated [  *  ] by and between AVI and [  *  ], as amended from time to time.

1

        "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 bulk drug substance known as AVI 4126) 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 six (6) months from the date that written notice is given by AVI pursuant to Section 4.4(a).

        [  *  ] means [  *  ] and any successors and assignees thereto under the Collaboration Agreement.

        "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 only in conjunction with the use of a (i) stent, (ii) balloon, (iii) catheter or (iv) any other medical device (other than a medical device providing for systemic application). The parties acknowledge that the "Field" does not include the treatment of hypertension or congestive heart failure except as may occur through the treatment of restenosis or atherosclerosis.

        "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

2


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 the amounts that Medtronic or any Affiliate of Medtronic receives from third parties (eliminating transactions among Affiliates of Medtronic and/or Medtronic) for net sales (excluding sales for use in clinical trials for which Medtronic receives no revenue or other scientific testing, but including post-approval clinicals, market research studies, and the like) of Royalty Products during such period, excluding sales, use, occupation or excise taxes, freight, duty or transportation insurance included therein, returns, discounts, and allowances, credits or repayments due to rejections, defects or returns, and net of amounts previously included in Net Sales of Royalty Products that were written-off by Medtronic during such period as uncollectible; provided that if Medtronic or any Affiliate of Medtronic sells at a single price or rate a packaged combination of products, not all of which if sold individually would be Royalty Products, then Net Sales of Royalty Products with respect to such sales of packaged products shall equal the number of units of Royalty Products sold as part of such packaged products (less rejections, defects and returns) multiplied by either (i) the respective average net selling price during such period of the same type of Royalty Products sold individually, or (ii) the average net selling price during such period for a comparable product determined by Medtronic (if the same type of Royalty Product is not sold individually), in either case excluding sales, use or excise tax, freight, duty or transportation insurance, returns, discounts, etc. and any allocated discount on the Royalty Product for such packaged combination.

        "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.

        "PHS License" means the Patent License Agreement-Exclusive by and between the National Institutes of Health, the Center for Disease Control and the Food and Drug Administration, agencies of the United States Public Health Service within the Department of Health and Human Services, on the one hand, as licensor, and AVI (as assignee), as licensee, on the other, dated September 17, 1996, as amended from time to time, covering certain patents involving the "Inhibition of Cell Proliferation using Anti-Sense Oligonucleotides".

        "Restenosis" means a reduction greater than or equal to [  *  ] in the minimum lumen diameter compared to the reference vessel minimum lumen diameter based upon a binary angiographic follow-up at such period of time following the deployment of the stent as may be required by the FDA to permit Medtronic to make a labeling claim with respect thereto.

3


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

        "Royalty Product" means the Drug and the portion of the medical device that directly provides for the application of the Drug to the tissue to be treated; provided that the Drug, in the country of its manufacture or sale, is covered by a Valid Claim of any Unexpired patent that is included within the Patents. For example, if the Drug is applied to the affected tissue by means of a coated stent inserted by means of a guidewire and balloon-catheter system, the Royalty Product would be the Drug and the stent. 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.    

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

4


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.    

        3.2    Fee Based on Clinical Study Restenosis Rate.    

        3.3    Earned Royalty.    

5

        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 three (3) years 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 Section 8.01 of the PHS License).

        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 Section 8.01 of the PHS License), 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 six (6) months following completion of such examination or audit made pursuant to this Section 3.6. The right to audit shall extend for three (3) years (or such longer period of time as may be necessary for AVI to comply with its reporting requirements under Section 8.01 of the PHS License) 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 10% of royalties due 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.    

6

        4.2    Nonexclusive Conversion.    In the event that the Third Closing Milestone has not occurred on or before the [  *  ] anniversary of the date of this Agreement, 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 the [  *  ] anniversary of the date of this Agreement 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 the [  *  ] anniversary date of this Agreement, 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 from exclusive to nonexclusive. Notwithstanding the foregoing, if at any

7

time the regulatory process necessary or required to obtain FDA Approval consists of the Investigational New Drug/New Drug Application process followed by or preceded by the Investigational Device Exemption/Premarket Approval process, then AVI shall not have the foregoing right and MAMI shall not be required to give the Waiver Notice until the [  *  ] anniversary of the date of this Agreement. In order to exercise suchright, AVI must provide Medtronic with written notice of such conversion within thirty (30) days of the [  *  ] anniversary of the date of this Agreement or the [  *  ] anniversary of the date of this Agreement, as the case may be. Upon the exercise of such option by AVI, the royalty rate in Section 3.3(a) hereof shall be reduced to [  *  ] 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 reduced to [  *  ] 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 anniversary date of the Third Milestone under Section 4.2 and the applicable anniversary 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.    

8

9

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 PHS 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 PHS License.    AVI agrees not to modify, waive or amend any provision of the PHS 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 Section 6.03 of the PHS License as a result of a reduction of (a) the earned royalty offset set forth in Section 6.03 of the PHS License relating to sales of Combined Products or (b) the earned royalty offset set forth in Appendix C to the PHS License relating to patents belonging to third parties that, in either case, is in effect as of the date hereof.

        5.5    Collaboration Agreement.    

10

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.

11


        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.    

12

ARTICLE 7
REPRESENTATIONS AND WARRANTIES

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

13

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

14

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 $10,000,000.00 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 $10,000,000.00 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

15


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 such time as all Patents have Expired, 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 thirty (30) days 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 thirty (30) day period. Each

16


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.

        9.3    Effect of Termination.    

17

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

 
 
 
 
 

18


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.

19


        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    PHS License.    Medtronic agrees to be bound by the provisions of the Paragraphs 5.01-5.04, 8.01, 10.01, 10.02, 12.05 and 13.07-13.09 (copies of which are attached hereto as Exhibit D) of the PHS License as if Medtronic were a party to the PHS License.

20


        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.

 
 
By:
 
/s/  DENIS BURGER      
Denis Burger

 
 
Its:
 
CEO

 
 
MEDTRONIC, INC.

 
 
By:
 
/s/  MICHAEL D. ELLWEIN      
Michael D. Ellwein

 
 
Its:
 
VP

21


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 [  *  ]

22


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

23


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:

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

 
 
 
 
 

24


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:

25

26


Exhibit D

        Paragraphs 5.01 - 5.04, 8.01, 10.01, 12.05 and 13.07 - 13.09 of the PHS License.

27



QuickLinks

EXHIBIT A
EXHIBIT B
Exhibit C Arbitration Procedures
Exhibit D

QuickLinks -- Click here to rapidly navigate through this document


Exhibit 10.40

[  *  ] Confidential portions omitted and filed separately.

SUPPLY AGREEMENT

        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

        "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 Supplier's actual cost of (a) raw materials (including the 4 genetic sub-units), (b) direct labor plus (c) Factory Overhead, in each case, used in manufacturing the Products plus a pro-rata allocation of administrative, supervisory and support personnel expenses (if such expenses are primarily related to the supply hereunder of the Product). Such costs and expenses shall be consistently applied and shall be determined and allocated in a manner consistent with generally accepted accounting principles in effect in the United States from time to time. Raw materials and direct labor are the actual cost of materials and labor consumed to manufacture the Products. "Factory Overhead" includes an allocation of building and equipment depreciation and rent and utilities. Further, Manufacturing Cost shall exclude any cost or expenses paid by Medtronic and expenses related to (i) research and development, (ii) marketing and sales and, (iii) finance, legal and other general corporate overhead. Manufacturing Cost shall be determined in accordance with, and shall be subject to, Exhibit B.

        "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

2


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.    

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.    

3

        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:

4

        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 six-month 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 six (6) months prior to the date of anticipated first commercial release of the Product, a rolling twelve-month forecast of Medtronic's purchase of such Product from Supplier, specifying quantities and shipping dates. Such forecast shall be updated by Medtronic on a semi-annual basis which updated forecast must be received by Supplier no later than sixty (60) days prior to the first day of each succeeding twelve-month 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.

5

        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 seventy-five (75) days 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 10% more or less 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 fifteen (15) days 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 fifteen (15) business days after such 15th 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.    

6

        4.2    Payment Terms.    Payments made by Medtronic for Products purchased hereunder shall be due and payable in full within 30 days after the date of invoice by Supplier.

        4.3    Taxes.    The Transfer Price does not include any sales, use, value added or similar taxes, customs, duties, or tariffs imposed by any governmental authority or agency on Products or any components thereof that are imported by Medtronic into any country (other than taxes on the net income of Supplier), and Medtronic shall bear all such taxes and duties. Supplier shall be required to take appropriate steps to minimize imposition of such taxes by filing sales exemption certificates and taking similar actions where applicable to the Supplier. When Supplier has the legal obligation to collect and/or pay such taxes, the appropriate amount shall be added to Medtronic's invoice and paid by Medtronic, unless Medtronic provides Supplier with a valid tax exemption certificate authorized by the appropriate taxing authority. Notwithstanding the foregoing, Medtronic shall not be obligated to pay or reimburse Supplier for taxes, duties or tariffs that are not imposed on the sale of Product to Medtronic or taxes related to the net income of the Supplier.

ARTICLE 5
WARRANTY AND SERVICE

        5.1    Warranty.    

        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

7

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 45 days 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 45-day 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.    

8

ARTICLE 7
INDEMNIFICATION

        7.1    Supplier's Liability.    

        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,

9


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 termination of the License and Development Agreement (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:

10

        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:

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.    

11

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 during the term of this Agreement until the expiration of five years after the receiving party's receipt of such Confidential Information, but in no event prior to the termination of this Agreement. 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

12


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.

13


        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:

14

[  *  ] Confidential portions omitted and filed separately.


EXHIBIT A

Specifications

[  *  ] Confidential portions omitted and filed separately.


EXHIBIT B

Pricing

        1.    Supplier shall use commercially reasonable efforts to minimize its Manufacturing Cost while maintaining quality and preserving its production capacity. Supplier agrees to provide Medtronic, to the extent practicable, at least six (6) months prior to the date of anticipated first commercial release of the Product, the initial Manufacturing Cost accompanied by a reasonably detailed report on the computation thereof. Thereafter, Supplier shall update the Manufacturing Cost by June 30th and December 31st of each year during the term, which notice shall be accompanied by a reasonably detailed report regarding the computation thereof. The Manufacturing Cost as so updated shall be effective for each six-month period commencing as of August 31st and March 31st following such update. However, in no event shall the Manufacturing Cost of the Supplier for the Product that targets the c-myc gene exceed [  *  ] per stent (assuming [  *  ] milligrams or less per stent) or an equivalent amount for the applicable medical device. For example, if the amount of such Product required to coat a stent is half the amount that is required for application utilizing a balloon without a stent, then the Manufacturing Cost of the Supplier shall not exceed [  *  ] per balloon. In no event shall any increases in the Manufacturing Cost exceed the rate of [  *  ] per annum.

        2.    Supplier agrees to keep accurate written records sufficient in detail to enable the Manufacturing Cost to be determined and verified. Supplier shall retain such records for a period of not less than three years (or such longer period of time as may be required by FDA GMP requirements or other applicable requirements). Upon reasonable notice and during regular business hours, Supplier shall from time to time (but no more frequently than once annually) make available such records for audit at Medtronic's expense by independent representatives selected by Medtronic and reasonably acceptable to Supplier to verify the accuracy of the Manufacturing Cost reported. Such representatives shall execute a suitable confidentiality agreement reasonably acceptable to Supplier prior to conducting such audit. Such representatives may disclose to Medtronic only their conclusions regarding the actual Manufacturing Cost, and shall not disclose Supplier's information to Medtronic without the prior written consent of Supplier. No claim may be asserted by Medtronic against Supplier for any errors unless made within six (6) months following completion of such examination or audit made pursuant to this Section 2. The right to audit shall extend for two (2) years from delivery of any report of the Manufacturing Cost and thereafter any report shall be deemed complete and accurate. Each Manufacturing Cost report shall be subject to only one such examination and audit. If a discrepancy is found, then the party benefiting from such discrepancy will promptly pay such discrepancy to the other. If a discrepancy is found which is greater than 10% of Manufacturing Cost paid in any quarter and Medtronic is the benefiting party, then Supplier shall pay all reasonable audit costs for the related audit and for the next succeeding annual audit.

B-1



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:

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.

C-1

        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:

C-2

C-3



QuickLinks

EXHIBIT A
EXHIBIT B
EXHIBIT C ALTERNATIVE DISPUTE RESOLUTION