CROSS LICENSE AGREEMENT

THIS CROSS LICENSE AGREEMENT (the “Agreement”) is made and is effective as of the 8th day of January, 2007 (the “Effective Date”) by and between AVI BioPharma, Inc., an Oregon corporation with its principal place of business at One SW Columbia, Suite 1105, Portland, Oregon 97258 (“AVI”), and Eleos, Inc., a Delaware corporation with its principal place of business at One Valmont Plaza; Suite 301, Omaha, Nebraska 68154 (“Eleos”) (with each of AVI and Eleos referred to as a “Party” and jointly, the “Parties”).

RECITALS

WHEREAS , each of the Parties owns, controls or otherwise has rights with regard to its respective Intellectual Property related to technologies and products for regulation of p53 protein, with Eleos controlling intellectual property related to uses of antisense p53 sequences and specific antisense p53 sequences that have superior properties compared to other p53 target sequences, and with AVI owning intellectual property relating to phosphorodiamidate morpholino oligomer (“PMO”) chemistry and its uses expected to lead to antisense drugs directed against p53 that have superior pharmaceutical properties for some purposes compared with drugs based on other antisense chemistries, identified as AVI Intellectual Property on attached Exhibit A and Eleos Intellectual Property on attached Exhibit B;

WHEREAS, Eleos and AVI wish to pursue their own development and joint development opportunities resulting from the combination of Eleos’ p53 technology and AVI’s PMO technology;

WHEREAS , Eleos’ main field of interest in p53-PMO technology is as a therapeutic target for the treatment of cancer, including protection of non-malignant or normal cells and tissues from the effects of chemotherapy and radiation, AVI’s main field of interest in p53-PMO technology is as a potential target for antiviral therapies, and the Parties wish to cooperate in the development and commercialization of therapies using p53-PMO technology in other fields;

WHEREAS , the Parties wish to obtain from each other and make available to each other certain rights for the development and clinical and commercial manufacture, use and sale of products using the AVI Intellectual Property and Eleos Intellectual Property on the terms and conditions set forth in this Agreement.

NOW THEREFORE , the Parties agree as follows:

1.                                        Definitions

All definitions below or elsewhere in this Agreement apply to both their singular and plural forms, as the context may require.  “Herein,” “hereunder,” and “hereof” and other similar expressions refer to this Agreement.  “Section” refers to sections in this Agreement.  “Including” means “including without limitation.” “Days” means “calendar days,” unless otherwise stated.

1.1           “Affiliate” means any corporation or business entity that directly or indirectly controls, is controlled by, or is under common control with Eleos or AVI to the extent of at least 50 percent of the outstanding stock or other voting rights entitled to elect directors.

1.2           “API” means the active pharmaceutical ingredient for a Licensed Product.

1.3           “AVI Confidential Information” is Confidential Information of AVI.

1.4           “AVI Field” means the treatment of all viral diseases except for those related to human immunodeficiency virus (HIV) infection.

1.5           “AVI Improvements” means any change, modification, enhancement or addition which is an improvement to or further development of the AVI Intellectual Property, whether or not patentable or copyrightable and whether created by AVI or Eleos acting alone or by AVI and Eleos acting jointly.

1.6           “AVI Intellectual Property” means the intellectual property listed in Exhibit A and rights under any other Intellectual Property of AVI developed or acquired by AVI subsequent to execution of this Agreement which, absent the license to Eleos hereunder, would be infringed by Eleos in the development or commercialization of products in the Eleos Field.

1.7           “AVI Net Sales” means the total of the gross sales of Licensed Eleos IP Products sold or transferred by AVI and AVI’s Affiliates and sublicensees, less the following actual and customary third-party wholesaler and or distributor deductions as applicable: reasonable and customary wholesaler or distributor sales commissions (for clarity, commissions and other compensation paid to sales and marketing personnel of AVI or its marketing partner(s) are not deductible); allowances or credits to purchasers for rejections, returns, withdrawals or recalls; cash, trade or quantity discounts; sales rebates or chargebacks; third party distribution fees; sales, use, excise or other taxes imposed on sales; import and export duties; and shipping charges.  To the extent AVI has deducted amounts as permitted by the preceding sentence and AVI later receives a refund against the amount deducted, the refunded amount shall be included as part of AVI Net Sales.  Payments shall be made only upon sales or transfers between unrelated third parties and shall be based on arms-length consideration.  In the event AVI or any of its Affiliates makes a transfer of a Licensed Eleos IP Product to a third party for other than monetary consideration or for less than fair market value, such transfer shall be considered a sale hereunder to be calculated at a fair market value for accounting and royalty purposes.  A Licensed Eleos IP Product shall be deemed sold or transferred at the time the entity making the transaction on which the royalty is based bills, invoices, ships, or receives payment for such Licensed Eleos IP Product, whichever occurs first.  For sales of a Licensed Eleos IP Product which constitutes a Combination Product, AVI Net Sales will be calculated based on a reasonable allocation between the Combination Product Components and the remainder of the Licensed Eleos IP Product.

1.8           “Combination Product” means a combined product that contains or uses a Licensed Product and at least one other therapeutic product (a “Combination Product Component”), where such Combination Product Component is not a Licensed Product; such Combination Product Component and such Licensed Product are usually sold separately; and the market price of such combined product is higher than the market price for such Licensed Product (if sold separately) as a result of such combined product containing or using such Combination Product Component.

1.9           “Confidential Information” means any commercially sensitive information of a Party in its broadest context, whether in writing (including any computer files or records), oral form or available by observation, not generally known to the public, and includes all (i) matters of a technical nature such as trade secret processes or devices, techniques, data, formulas, inventions (whether or not patentable), specifications and characteristics of products planned or being developed, research subjects, methods and results, regulatory strategies, and patent prosecution documents with regard to a Party’s Intellectual Property; (ii) matters of a business nature such as information about costs, margins, pricing policies, markets, sales, suppliers, customers, product plans, marketing plans or strategies and any other financial information; and (iii) the specific terms of this Agreement and any Statement of Work.

1.10         “Effective Date” means the date first written above.

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1.11         “Eleos Confidential Information” is Confidential Information of Eleos.

1.12         “Eleos Field” means the treatment of cancer, including the protection of non-malignant or normal cells and tissues from the effects of chemotherapy and radiation.

1.13         “Eleos Improvements” means any change, modification, enhancement or addition which is an improvement to or further development of the Eleos Intellectual Property, whether or not patentable or copyrightable and whether created by AVI or Eleos acting alone or by AVI and Eleos acting jointly.

1.14         “Eleos Intellectual Property” means the Intellectual Property listed in Exhibit B, and rights under any other Intellectual Property of Eleos developed or acquired by Eleos subsequent to execution of this Agreement which, absent the license to AVI hereunder, would be infringed by AVI in the development or commercialization of products in the AVI Field.

1.15         “Eleos Net Sales” means the total of all sales of Licensed AVI IP Products sold or transferred by Eleos and Eleos’ Affiliates and sublicensees, less the following actual and customary third-party wholesaler and distributor deductions as applicable: reasonable and customary wholesaler or distributor sales commissions (for clarity, commissions and other compensation paid to sales and marketing personnel of Eleos or its marketing partner(s) are not deductible); allowances or credits to purchasers for rejections, returns, withdrawals or recalls; cash, trade or quantity discounts; sales rebates or chargebacks; third party distribution fees; sales, use, excise or other taxes imposed on sales; import and export duties; and shipping charges.  To the extent Eleos has deducted amounts as permitted by the preceding sentence and Eleos later receives a refund against the amount deducted, the refunded amount shall be included as part of Eleos Net Sales.  Payments shall be made only upon sales or transfers between unrelated third parties and shall be based on arms-length consideration.  In the event Eleos or any of its Affiliates makes a transfer of a Licensed AVI IP Product to a third party for other than monetary consideration or for less than fair market value, such transfer shall be considered a sale hereunder to be calculated at a fair market value for accounting and royalty purposes.  A Licensed AVI IP Product shall be deemed sold or transferred at the time the entity making the transaction on which the royalty is based bills, invoices, ships, or receives payment for such Licensed AVI IP Product, whichever occurs first.  For sales of a Licensed AVI IP Product which constitutes a Combination Product, Eleos Net Sales will be calculated based on a reasonable allocation between the Combination Product Components and the remainder of the Licensed AVI IP Product.

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

1.17         “Intellectual Property” means patents, patent applications, utility models, industrial designs, certificates of inventions, trademarks, copyrights, trade secrets, know how, and any other Intellectual Property rights in any country of the world, including all related filings, substitutions, extensions, reissues, renewals, continuations and continuations in part, all registrations and the like.

1.18         “Joint Development Proposal” has the meaning set forth in Section 7.2.

1.19         “Joint Field” means the treatment of all diseases and conditions outside the AVI Field and the Eleos Field

1.20         “Jointly Owned Intellectual Property” means Newly Created Intellectual Property that is owned by both parties in accordance with the terms of this Agreement.

1.21         “Joint p53-PMO Item” means any material, product, service, process, or procedure, which combines Eleos Intellectual Property related to p53 and AVI Intellectual Property related to PMO,

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whether such Intellectual Property exists as of the Effective Date or is developed or acquired subsequent to execution of this Agreement, for treatment of diseases with currently existing or novel morpholino compounds that target the p53 gene, or p53 RNA or intentionally target proteins encoded by the p53 gene in order to achieve a therapeutic effect.

1.22         “Licensed AVI IP Method” means any process, method, or use that is covered by AVI Intellectual Property or the use or practice of which would constitute, but for the license granted to Eleos pursuant to this Agreement, an infringement of the AVI Intellectual Property.

1.23         “Licensed AVI IP Product” means any material, product, service, process, or procedure that (i) is covered by AVI Intellectual Property or whose discovery, development, registration, manufacture, use, or sale would constitute, but for the license granted to Eleos pursuant to this Agreement, an infringement of any claim within the AVI Intellectual Property or (ii) is discovered, developed, made, sold, registered, or practiced using AVI Intellectual Property or a Licensed AVI IP Method or (iii) is used to practice the Licensed AVI IP Method, in whole or in part.

1.24         “Licensed Eleos IP Method” means any process, method, or use that is covered by Eleos Intellectual Property or the use or practice of which would constitute, but for the license granted to AVI pursuant to this Agreement, an infringement of the Eleos Intellectual Property.

1.25         “Licensed Eleos IP Product” means any material, product, service, process, or procedure that (i) is covered by Eleos Intellectual Property or whose discovery, development, registration, manufacture, use, or sale would constitute, but for the license granted to AVI pursuant to this Agreement, an infringement of any claim within the Eleos Intellectual Property or (ii) is discovered, developed, made, sold, registered, or practiced using Eleos Intellectual Property or a Licensed Eleos IP Method or (iii) is used to practice the Licensed Eleos IP Method, in whole or in part.

1.26         “Licensed Product” means a Licensed AVI IP Product or Licensed Eleos IP Product, as applicable according to the context.

1.27         “Net Sales” means AVI Net Sales or Eleos Net Sales, as applicable according to the context.

1.28         “Newly Created Intellectual Property” means Intellectual Property created during the term of this Agreement by one or both of the Parties hereto and in furtherance of performance under this Agreement.

1.29         “Statement of Work” has the meaning set forth in Section 7.1.

1.30         “Sublicensing Income” means amounts received by a Party and its successors, assigns and Affiliates from unaffiliated third parties attributable to a sublicense of rights licensed under this Agreement.

1.31         “Third Party Licensors” means *****, *****, *****, and any other unrelated third-party patent licensor to which Eleos or AVI pays patent licensing fees or royalties to make, use or sell a Licensed Product.  “Unrelated third-party patent licensor” refers to entities having no relationship to Eleos or AVI other than to claim patent royalties and expressly excludes developers, suppliers, contractors, employees and consultants engaged by Eleos or AVI.

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2.                                        License Grants .

2.1           By AVI to Eleos .

(a)           Exclusive .  Subject to the limitations set forth in this Agreement, AVI hereby grants to Eleos and its Affiliates, so long as they remain Affiliates of Eleos, an exclusive, worldwide license, with the right to sublicense (subject to Section 3 below), to AVI Intellectual Property that relates to a Joint p53-PMO Item, solely in the Eleos Field, to research, develop, make, have made, subject to the terms of Article 9, use, import, put into use, modify, distribute, offer for sale, sell and have sold Licensed AVI IP Products and to practice Licensed AVI IP Methods during the term of this Agreement.  As used in this Section 2.1, “exclusive” means that AVI may not grant to any third party a license of the AVI Intellectual Property, in whole or in part, within the Eleos Field and may not itself practice the AVI Intellectual Property within the Eleos Field.

(b)           Semi-Exclusive .  Effective as of the effective date of any Statement(s) of Work executed by the Parties under which the Parties agree to engage in joint development activities, and subject to the specific terms and conditions of such Statement(s) of Work, AVI shall grant to Eleos and its Affiliates, so long as they remain Affiliates of Eleos, a semi-exclusive, worldwide license to AVI Intellectual Property that relates to a Joint p53-PMO Item, solely in the Joint Field and within the context of such joint development activities with AVI, to research, develop, make, have made, subject to the terms of Article 9, use, import, put into use, modify, distribute, offer for sale, sell and have sold Licensed AVI IP Products and to practice Licensed AVI IP Methods during the term of this Agreement.  Nothing herein will limit the right of AVI or its Affiliates to practice any claim encompassed within the foregoing within the Joint Field.

2.2           By Eleos to AVI .

(a)           Exclusive .  Subject to the limitations set forth in this Agreement, Eleos hereby grants to AVI and its Affiliates, so long as they remain Affiliates of AVI, an exclusive, worldwide license (or sublicense as the case may be), with the right to sublicense (subject to Section 3 below), to Eleos Intellectual Property that relates to a Joint p53-PMO Item, solely in the AVI Field, to research, develop, make, have made, use, import, put into use, modify, distribute, offer for sale, sell and have sold Licensed Eleos IP Products and to practice Licensed Eleos IP Methods during the term of this Agreement.  As used in this Section 2.2, “exclusive” means that Eleos may not grant to any third party a license of the Eleos Intellectual Property, in whole or in part, within the AVI Field and may not itself practice the Eleos Intellectual Property within the AVI Field.

(b)           Semi-Exclusive .  Effective as of the effective date of any Statement(s) of Work executed by the Parties under which the Parties agree to engage in joint development activities, and subject to the specific terms and conditions of such Statement(s) of Work, Eleos shall grant to AVI and its Affiliates, so long as they remain Affiliates of AVI, a semi-exclusive, worldwide license to Eleos Intellectual Property that relates to a Joint p53-PMO Item, solely in the Joint Field and within the context of such joint development activities with Eleos, to research, develop, make, have made, use, import, put into use, modify, distribute, offer for sale, sell and have sold Licensed Eleos IP Products and to practice Licensed Eleos IP Methods during the term of this Agreement.  Nothing herein will limit the right of Eleos or its Affiliates to practice any claim encompassed within the foregoing within the Joint Field.

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2.3           Improvements .  Each Party will promptly advise the other of AVI Improvements or Eleos Improvements made by it and its Affiliates during the term of this Agreement, to the extent lawfully able to be disclosed.  AVI Improvements will automatically be included within the definition of “AVI Intellectual Property,” and Eleos Improvements will automatically be included within the definition of “Eleos Intellectual Property,” subject to the terms contained herein.

2.4           c-myc Conflicts with AVI Intellectual Property .  If in the future a patent is granted to Eleos or an Affiliate of Eleos related to c-myc, the claims of which would cause an AVI product actually or potentially to infringe such claims, Eleos will grant to AVI a non-exclusive license to such claims in so far as they apply to the infringing or potentially infringing AVI product at nominal cost to AVI, e.g. , $1.00 plus reimbursement of Eleos’ legal costs to finalize the license agreement, and no other cost.  If in the future Eleos or an Affiliate of Eleos gains rights via a license agreement to patents related to c-myc, the claims of which would cause an AVI product actually or potentially to infringe such claims, Eleos will grant to AVI a non-exclusive sublicense to such claims in so far as they apply to the infringing or potentially infringing AVI product at nominal cost to AVI, e.g. , $1.00 plus reimbursement of Eleos’ legal costs to finalize the sublicense agreement, and no other cost.  If Eleos has a royalty obligation to such third party licensor for such c-myc patent claims, the sublicense to AVI will include the same royalty obligation as a pass-through without any mark up.

3.                                        Sublicenses

3.1           Sublicenses Granted By Eleos .

(a)      AVI grants to Eleos the right to grant sublicenses to third parties under the licenses granted in Section 2.1, provided that (i) Eleos has current exclusive rights to the AVI Intellectual Property that relates to a Joint p53-PMO Item in the relevant field under this Agreement at the time it exercises a right of sublicense, (ii) Eleos obtains the written consent of AVI, and (iii) the sublicense results from a written agreement entered into by Eleos and the sublicensee.  Within fourteen (14) days after execution of any sublicense agreement, Eleos shall provide AVI with a copy of such agreement, and shall thereafter summarize and deliver all reports due to AVI relating to the sublicensees.  If Eleos is in material compliance with its duties under this Agreement, AVI shall not contact any such sublicensee.

3.2           Sublicenses Granted By AVI .

(a)      Eleos grants to AVI the right to grant sublicenses to third parties under the licenses (or sublicenses as the case may be) granted in Section 2.2, provided that (i) AVI has current exclusive rights to the Eleos Intellectual Property that relates to a Joint p53-PMO Item in the relevant field under this Agreement at the time it exercises a right of sublicense, (ii) AVI obtains the written consent of Eleos, and (iii) the sublicense results from a written agreement entered into by AVI and the sublicensee.  Within fourteen (14) days after execution of any sublicense agreement, AVI shall provide Eleos with a copy of such agreement, and shall thereafter summarize and deliver all reports due to Eleos relating to the sublicensees.  If AVI is in material compliance with its duties under this Agreement, Eleos shall not contact any such sublicensee.

4.                                        License Fees and Royalties .

4.1           Initial License Fee .  Within three (3) business days of the Effective Date, Eleos will pay AVI Five Hundred Thousand Dollars ($500,000.00) according to wire transfer instructions provided by AVI.

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4.2           Eleos Milestone Payments .  Eleos shall make the following one-time payments to AVI upon achieving the milestones set forth below with regard to a Licensed AVI IP Product:

                As a clarifying example with respect to Sections 4.2 and 4.4, if a Party achieves the first filing of a New Drug Application for more than one Licensed Product, the ***** payment amount by that Party will only be payable the first time that that milestone is achieved and no payment will be due for the subsequent times that that milestone is achieved.

Eleos shall pay all milestone payments hereunder within thirty (30) days following the date on which the milestone is achieved.

4.3           Earned Royalties - Eleos .

(a)     Eleos will pay AVI earned royalties of *****% of Eleos Net Sales received with regard to Licensed AVI IP Products which are not manufactured by AVI, less any royalty payments payable to Third Party Licensors, provided that in no instance shall the royalty payable under this Section 4.3(a) to AVI after reduction for payments to the Third Party Licensors equal less than *****% of Eleos Net Sales.

(b)     Eleos will pay AVI earned royalties of *****% of Eleos Net Sales received with regard to Licensed AVI IP Products which are manufactured by AVI, less any royalty payments payable to Third Party Licensors, provided that in no instance shall the royalty payable under this Section 4.3(b) to AVI after reduction for payments to the Third Party Licensors equal less than *****% of Eleos Net Sales.

(c)     In the event that royalties cease to be payable to any Third Party Licensor, the royalties payable by Eleos to AVI under this Section 4.3 will be adjusted such that Eleos and AVI share equally in the financial benefit of the expiration or termination of the obligation to pay such royalties to the Third Party Licensor.

4.4           AVI Milestone Payments .  AVI shall make the following one-time payments to Eleos upon achieving the milestones set forth below with regard to a Licensed Eleos IP Product:

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                AVI shall pay all milestone payments hereunder within thirty (30) days following the date on which the milestone is achieved.

4.5           Earned Royalties - AVI .

(a)      AVI will pay Eleos earned royalties of *****% of AVI Net Sales, less any royalty payments payable to Third Party Licensors, provided that in no instance shall the royalty payable under this Section 4.5(a) to Eleos after reduction for payments to Third Party Licensors equal less than *****% of AVI Net Sales.

(b)      In the event that royalties cease to be payable to any Third Party Licensor, the royalties payable by AVI to AVI under this Section 4.5 will be adjusted such that AVI and AVI share equally in the financial benefit of the expiration or termination of the obligation to pay such royalties to the Party Licensor.

4.6           Timing of Royalty Payments, Currency, Taxes and Fees .

(a)      Royalties payable to AVI or Eleos shall be paid quarterly on or before sixty (60) days following the end of each calendar quarter: March 31, June 30, September 30 and December 31.  Each such payment will be for unpaid royalties that accrued within or prior to the most recently completed calendar quarter.  For example, within 60 days after March 31, each Party shall pay royalties for the calendar quarter ending March 31 and any unpaid royalties accrued prior to such calendar quarter.

(b)      All amounts due under this Agreement shall be payable in United States dollars.  When Licensed Eleos IP Products or Licensed AVI IP Products are sold for currency other than United States dollars, the earned royalties will first be determined in the foreign currency of the country in which such products were sold and then converted into equivalent United States dollars.  The exchange rate will be the United States dollar buying rate quoted in the Wall Street Journal on the last day of the reporting period.

(c)      The Party paying royalties hereunder shall be responsible for all taxes, fees or other charges imposed by the government of any country outside the United States on

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the remittance of royalty income for sales occurring in any such country and for all bank transfer charges on such payments.

(d)      If at any time legal restrictions prevent the acquisition or prompt remittance of United States dollars by a Party owing royalties hereunder with respect to any country where a Licensed Eleos IP Product or Licensed AVI IP Product is sold, the Party owing such royalties shall make payment from its other sources of United States dollars.

4.7           Expiration or Invalidity of Patent .  In the event that (i) any patent or any claim thereof included within the AVI Intellectual Property or Eleos Intellectual Property shall be held invalid in a final decision by a court of competent jurisdiction and last resort in any country from which no appeal has or can be taken or (ii) if the local patent authority within such country determines that no patent may issue in a final decision from which no appeal has or can be taken, and hence there is no valid patent claim within the relevant Intellectual Property in such country, all obligation to pay royalties based on such patent or claim shall cease as of the date of such final decision with respect to such country.  The Party liable for royalties in such a case shall not, however, be relieved from paying any royalties that accrued before such decision or that are based on another patent or claim not involved in such decision, or that are based on non-patent Intellectual Property of the other Party.

5.                                        Diligence .

5.1           By Eleos .

(a)      Eleos, commencing upon the Effective Date, shall use commercially reasonable efforts to develop, test, obtain any required governmental approvals, manufacture, market and sell Licensed AVI IP Products.

(b)      Within one year after the Effective Date, Eleos shall prepare and provide to AVI a formal commercially reasonable market analysis and development plan (hereinafter the “Eleos Plan”).  Eleos shall follow the timelines set forth in the Eleos Plan in terms of products to be commercialized within the timelines outlined in the Eleos Plan.  Recognizing the uncertainties that will be inherent in the Eleos Plan, Eleos shall have the right to amend the Eleos Plan with the consent with AVI, such consent not to be unreasonably withheld.

(c)      Within three months of receiving all required government approvals necessary for marketing a Licensed AVI IP Product in any country, such as marketing authorization and government pricing and reimbursement approvals, Eleos shall commence commercial marketing of such product in such country; and shall thereafter use commercially reasonable efforts to meet the market demand for such products in such country at all times during the exclusive period of this Agreement.

(d)      If Eleos materially fails to perform any of its obligations under this Section 5 in a timely manner, except by reason of force majeure, then AVI shall have the right to terminate this Agreement in accordance with Section 13.

5.2           By AVI .

(a)     AVI, commencing upon the Effective Date, shall use commercially reasonable efforts to develop, test, obtain any required governmental approvals, manufacture, market and sell Licensed Eleos IP Products.

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(b)     Within one year after the Effective Date, AVI shall prepare and provide to Eleos a formal commercially reasonable market analysis and development plan (hereinafter the “AVI Plan”).  AVI shall follow the timelines set forth in the AVI Plan in terms of products to be commercialized within the timelines outlined in the AVI Plan.  Recognizing the uncertainties that will be inherent in the AVI Plan, AVI shall have the right to amend the AVI Plan with the consent of Eleos, such consent not to be unreasonably withheld.

(c)     Within three months of receiving all required government approvals necessary for marketing a Licensed Eleos IP Product in any country, such as marketing authorization and government pricing and reimbursement approvals, AVI shall commence commercial marketing of such product in such country; and shall thereafter use commercially reasonable efforts to meet the market demand for such products in such country at all times during the exclusive period of this Agreement.

(d)     If AVI materially fails to perform any of its obligations under this Section 5 in a timely manner, except by reason of force majeure, then Eleos shall have the right to terminate this Agreement in accordance with Section 13.

6.                                        Progress and Royalty Reports .

6.1           Progress Reports .  At the end of the first full calendar half-year after the Effective Date, and semi-annually thereafter, each Party shall submit to the other Party a progress report covering its activities related to the development and testing of Licensed AVI IP Products or Licensed Eleos IP Products, as the case may be, and the obtaining of the U.S. and foreign governmental approvals necessary for their marketing.  These progress reports shall be made for each such product in development.

6.2           Contents .  The progress reports submitted under Section 6.1 shall include sufficient information to enable the other Party to determine the submitting Party’s progress in fulfilling its obligations under Section 5, including, but not limited to, the following topics:

(a)     summary of work completed;

(b)     summary of work in progress, including product development and testing and progress in obtaining government approvals;

(c)     schedule of anticipated events or milestones;

(d)     market plans for introduction of Licensed Products in each region (U.S., EU, Japan) where such products have not been introduced; and

(e)     activities in obtaining sublicensees and activities of sublicensees.

6.3           Meetings .  On or about each anniversary of the Effective Date, each Party shall have the right to call for a half-day, detailed review meeting during which the Parties and representatives of their sublicensees, to the extent required under the Parties’ sublicense agreements, shall discuss the progress reports submitted under Section 6.1.  These meetings shall be held under appropriate conditions of confidentiality, and each Party will cause its scientists and other staff to provide full and detailed information to enable the other Party to evaluate the progress reports submitted under this Section 6 and to evaluate proposed amendments to the Eleos Plan and AVI Plan as described in Section 5.

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6.4           Report of First Sales .  Each Party shall report to the other Party in its immediately subsequent progress and royalty report the date of first commercial sales of each Licensed Product in each country.

6.5           Royalty Reports .  After the first sale of each Licensed Product anywhere in the world, the selling Party will make quarterly royalty reports to the other Party on or before sixty (60) days after March 31, June 30, September 30 and December 31 of each year.  Each such royalty report will cover the reporting Party’s most recently completed calendar quarter and will show (a) the units sold, gross sales, deductions listed by type and Net Sales of each type of Licensed Product sold by the reporting Party and its Affiliates on which royalties have not been paid, country by country; (b) the amount of royalties and fees and other consideration, in U.S. dollars, payable hereunder; (c) any other factor used to calculate the royalty or any amount due hereunder; (d) the currency exchange rates used, if any; and (e) any other information relating to the foregoing reasonably requested by the Party receiving the report.

6.6           Disclosure of Improvements .  If and to the extent that a Party makes any AVI Improvements or Eleos Improvements or becomes aware of technical developments that would be relevant to the other Party during the term of this Agreement, it shall promptly disclose and report the same to the other Party, as provided in Section 2.3 above, so that the Licensed Products may be designed, manufactured and sold with the latest and most effective technology available.

7.                                        Product Development .

7.1           In the Eleos Field .  AVI, from time to time during the term of this Agreement as requested by Eleos, agrees to use its commercially reasonable efforts to provide development services to Eleos in the Eleos Field.  Examples of such services may include manufacturing p53-targeted PMOs for preclinical and clinical evaluation and conducting pilot toxicology and pharmacokinetic studies.  All such development activities under this Section 7.1 shall be in accordance with the terms and conditions contained in statements of work (a “Statement of Work”) executed by the Parties in accordance with Section 7.3.  The Parties expect that Eleos will compensate AVI for its services under this Section 7.1 on a monthly basis in amounts equal to AVI’s fully-burdened costs in providing such services, as further provided in the applicable Statements of Work.  AVI will define “fully-burdened costs” and provide full detail of this cost structure in the Statement of Work.

7.2           In the Joint Field .

(a)      If a Party (the “Proposing Party”) wishes to pursue an opportunity to develop and commercialize AVI Intellectual Property, Eleos Intellectual Property and/or products embodying such Intellectual Property in the Joint Field, it shall prepa