<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ _ ] 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____________
SUMMIT MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1545493
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
10900 RED CIRCLE DRIVE
SUITE 100
MINNETONKA, MN 55343
612-939-2200
(Address including zip code, of Registrant's
principal executive offices and telephone
number, including area code)
Indicate by check mark whether the registrant (1) has 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 has been subject to such filing requirements
for the past 90 days. X Yes No
--- ---
The number of shares outstanding of the Registrant's Common Stock on March 31,
1997 was
10,347,696 shares $.01 Par
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated statements of financial position--March 31, 1997 and
December 31, 1996
Consolidated statements of operations -- Three months ended March 31,
1997 and 1996
Consolidated statements of cash flows-- Three months ended March 31,
1997 and 1996
Notes to consolidated financial statements-- March 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Agreement by and between The American College of Cardiology and
Summit Medical Systems, Inc., dated March 10, 1997
10.2 Software Development And License Agreement, dated March 31, 1997,
between American Academy of Orthopedic Surgeons and Summit Medical
Systems, Inc.
*10.3 Registry Development Agreement, dated February 3, 1997, between
Eli Lilly and Company and Summit Medical Systems, Inc.
11.1 Computation of Earnings per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, filed January 14, 1997, and amended on Form 8-K/A, filed
March 14, 1997 and April 25, 1997, (File No. 0-26390) reporting
the acquisition of C.L. McIntosh & Associates, Inc.
________________________
* Confidential treatment requested as to certain portions.
SIGNATURES
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties that may cause the Company's actual
results to differ materially from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to: Summit Medical Systems, Inc.'s (the "Company") dependence on
corporate marketing partners, the history of operating losses and uncertainty of
future profitability, fluctuations in quarterly operating results, the
uncertainty of entrance into new markets and acceptance of new products, the
dependence on database sponsors and control of the national databases, the
integration of recent acquisitions, potential changes in government regulation,
the highly competitive nature of the industry, the dependence on proprietary
technology, the potential loss of key personnel, the recent shareholder
litigation and the investigation by the Securities and Exchange Commission. The
forward-looking statements herein are qualified in their entirety by the
cautions and risk factors set forth in Exhibit 99, under the caption "Cautionary
Statement," to the Company's Annual Report on Form 10-K, as amended pursuant to
amendment on April 4, 1997 and April 30, 1997. A copy of the Form 10-K may be
obtained from the Public Reference Branch of the SEC at 450 Fifth Street NW,
Washington, DC at prescribed rates.
1
<PAGE>
SUMMIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
CURRENT ASSETS 1997 1996
--------------------------------
<S> <C> <C>
Cash and cash equivalents $ 8,580,164 $ 9,386,069
Short-term investments 31,762,314 35,243,624
Accounts receivable (net of allowance of 652,925 at 3,249,083 3,776,351
March 31, 1997; $650,000 at December 31, 1996)
Other current assets 628,285 678,627
--------------------------------
Total current assets 44,219,846 49,084,671
Equipment and fixtures, net 3,121,788 3,203,931
Computer software costs, net 1,104,653 1,198,573
--------------------------------
Total assets $ 48,446,287 $ 53,487,175
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,699,682 $ 3,617,718
Accrued compensation 843,362 1,236,118
Accrued royalties 18,692 375,332
Deferred revenue 2,218,076 1,867,006
Income taxes payable 26,248 7,648
Notes payable and convertible debentures - 100,000
Line of credit - 150,000
Current portion of long-term debt 17,023 23,628
--------------------------------
Total current liabilities 6,823,083 7,377,450
LONG-TERM DEBT 23,553 26,525
SHAREHOLDERS' EQUITY
Common stock, $.01 par value:
Authorized shares - 38,933,333
Issued and outstanding shares - 10,347,696
at March 31, 1997; 10,343,830 at
December 31, 1996 103,477 103,438
Additional paid-in capital 69,714,835 69,700,376
Accumulated deficit (28,218,661) (23,720,614)
--------------------------------
Total shareholders' equity 41,599,651 46,083,200
--------------------------------
Total liabilities and shareholders' equity $ 48,446,287 $ 53,487,175
================================
</TABLE>
Page 1
<PAGE>
SUMMIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------------------
1997 1996
(RESTATED)
--------------------------------------
<S> <C> <C>
REVENUE
Software licenses $ 1,188,187 $1,709,828
Support and service 830,622 1,431,837
Consulting fees 1,994,995 1,546,667
--------------------------------------
TOTAL REVENUE 4,013,804 4,688,332
COST OF SALES
Software licenses 564,258 349,264
Support and service 857,212 580,633
Consulting fees 1,358,005 810,405
-------------------------------------
TOTAL COST OF SALES 2,779,475 1,740,302
GROSS PROFIT 1,234,329 2,948,030
OPERATING EXPENSES
Selling and marketing 1,783,762 1,937,787
Research and development 1,112,268 361,304
General and administrative 3,412,756 1,183,064
-------------------------------------
TOTAL OPERATING EXPENSES 6,308,786 3,482,155
-------------------------------------
LOSS FROM OPERATIONS (5,074,457) (534,125)
Interest income, net 579,346 300,012
-------------------------------------
LOSS BEFORE INCOME TAXES (4,495,111) (234,113)
Income tax expense 2,936 17,291
-------------------------------------
NET LOSS $ (4,498,047) $ (251,404)
=====================================
NET LOSS PER SHARE:
Primary and fully diluted $ (0.43) $ (0.03)
=====================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary and fully diluted 10,347,575 8,503,767
====================================
</TABLE>
Page 2
<PAGE>
SUMMIT MEDICAL SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------------------
1997 1996
(RESTATED)
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(4,498,047) $ (251,405)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation 343,368 140,159
Amortization 96,000 22,923
Accounts receivable (net of allowance of $652,925 and $110,343 527,268 1,231,984
in 1997 and 1996, respectively)
Advances to Officers 40,200
Other current assets 50,342 (416,173)
Accounts payable and accrued expenses 81,964 (462,919)
Accrued compensation (392,756) 282,302
Accrued royalties (356,640) (18,342)
Income tax payable 18,600
Deferred revenue 351,070 (152,955)
-----------------------------------
Net cash provided by ( used in) operating activities (3,778,831) 415,774
INVESTING ACTIVITIES:
Purchase of short-term investments (9,938,505) (9,203,645)
Sales and maturities of short-term investments 13,419,815 9,782,039
Purchases of equipment and fixtures (261,225) (317,113)
Disposal of equipment and fixtures 25,534
Capitalized software cost (2,080)
-----------------------------------
Net cash provided by investing activities 3,218,005 286,815
FINANCING ACTIVITIES:
Proceeds from long-term debt 12,431
Prinicipal payments on long-term debt (9,577) (36,462)
Principal payments on notes payable & convertible debentures (100,000)
Payments on line of credit (150,000) (20,000)
Payments on note payable - officer (17,991)
Net proceeds from exercise of common stock options 14,498 19,966
-----------------------------------
Net cash used in financing activities (245,079) (42,056)
Increase (decrease) in cash and cash equivalents (805,905) 660,533
Cash and cash equivalents at beginning of period 9,386,069 2,202,004
-----------------------------------
Cash and cash equivalents at end of period $ 8,580,164 $ 2,862,537
-----------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 5,352 $ 8,622
</TABLE>
Page 3
<PAGE>
SUMMIT MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instruction to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1997, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1996 included in the Annual Report of the Company.
NOTE B - CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash in excess of current operating needs is invested in highly liquid money
market and/or marketable debt securities in accordance with the Company's
investment policy. Cash equivalents are highly liquid investments with
remaining maturities of 90 days or less at the time of purchase. Other highly
liquid investments with remaining maturities of one year or less at the time of
purchase are considered short-term investments.
Page 4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
- --------
Summit Medical Systems, Inc. (the "Company") is a leading provider of
clinical information systems and consulting services to the healthcare industry.
The Company's database software enables healthcare providers to monitor, manage
and report detailed clinical information on medical procedures, diseases and
patient outcomes. The Company currently offers database products primarily on
two technology platforms, Crescendo! and Vista. The Crescendo! platform is
designed for use in hospital cardiac and cardiovascular surgery programs. In the
second half of 1996, the Company introduced Crescendo! Forte, a client/server,
relational database product for use in high volume cardiac and cardiovascular
surgery centers. The Company is also developing Crescendo! for medium and low
volume centers. The Vista platform is a Windows based, flat file application,
covering a product line of over 40 database software modules that is primarily
used in five medical specialties including: cardiac and thoracic surgery,
cardiology, ophthalmology, urology and orthopedics. The Company also provides a
range of consulting services through its subsidiaries, The BSM Consulting Group
("BSM") and C. L. Mc Intosh & Associates, Inc. ("CLMA"). In late 1996, the
Company introduced registry services designed to evaluate the efficacy of
specific medical devices or drug therapies utilizing Crescendo technology and
on-line data collection through the Internet.
The Company incurred operating losses of $5.1 million in the first quarter
1997, including charges of approximately $2.0 million. These charges included
(i) accounting fees incurred in connectin with the company's restatement of
revenues and (ii) reserves for legal fees expected to be incurred in connection
with various shareholder lawsuits and the investigation by the SEC (iii)
reserves for the expected cost of renegotiating various development contracts
involving certain medical specialties which the Company has concluded are not
central to its near term strategic focus and (iv) severance costs associated
with a downsizing that occurred in March 1997.
The reserve for expected costs for renegotiated contracts relates to the
Company's decision in April 1997 to focus more directly on the cardiology and
cardiovascular medical specialty markets and to reduce significantly its
involvement in a number of other medical specialty markets. The Company
determined that the near-term revenue potential associated with these other
medical specialties, including vascular, electrophysiology (EP), urology and
critical care, did not warrant the related development and marketing expenses.
The Company is currently in negotiations with Boston Scientific Corporation to
revise or terminate commitments made in 1995 and 1996 under development and
support agreements with various subsidiaries of Boston Scientific related to
these specialty markets. The Company expects to partially refund amounts
received under these agreements, including amounts received for contract
development work performed in prior years. These amounts have been reserved at
March 31, 1997.
Page 5
<PAGE>
Certain parties, who received common stock or other equity-based securities
of the Company in connection with acquisitions made during 1995 and 1996, have
expressed concerns to, and are seeking compensation from, the Company. The
Company is currently in discussions regarding these matters with these parties.
No reserves have been established.
Revenues continued to be adversely impacted by (i) a shift in market demand
away from a flat file, PC based solutions such as Vista and towards
client/server, relational database solutions, (ii) the Company's decision in
first quarter 1997 to de-emphasize sales of Vista and to discontinue efforts to
introduce an enhanced version of Vista ("Vista Elite"), in order to focus on
development and introduction of it's client/sever, relational database product
line ("Crescendo!), and (iii) the unavailability of a Crescendo! product
suitable for the medium and low volume cardiac catheterization and
cardiovascular centers.
While the Company introduced Crescendo! Forte in the second half of 1996
for use in a limited number of high volume, hospital cardiac catheterization and
cardiovascular centers, a more broad based, Crescendo! product is not scheduled
to be completed until June 1997. Once introduced to the market, Crescendo! must
achieve market acceptance before it will generate significant revenues.
Accordingly, the Company anticipates that revenues from its Crescendo! product
line will be modest through the first three quarters of 1997 as the sales and
implementation cycle associated with a more complex and higher priced
client/server product is expected to increase, and a lack of referenceable
accounts is expected to further impede sales.
As of May 12, 1997, the Company had received three additional orders for
its new Crescendo! product in 1997, with a total contract value of $317,000 over
three years. This brings the total Cresendo! backlog excluding Crescendo! Forte
to approximately $650,000.
As of March 31, 1997, the Company had not recorded any revenue associated
with four Crescendo! Forte installations that commenced in 1996 and which
represent a total contract value of approximately $900,000 over three years.
While substantial progress on these installations had been made, obligations to
provide additional software modules and interfaces remained as of March 31 1997.
In accordance with its revenue recognition policy, the Company will not record
any revenue on these contracts until all such obligations are substantially
fulfilled. The Company has not received any new orders for its Crescendo! Forte
product beyond these four charter sites.
On the costs side, the dual development of the Crescendo! products and
Vista Elite resulted in greater research and development and marketing expense.
As discussed above, efforts to develop Vista Elite were discontinued in first
quarter 1997. Expenses also increased as the Company added support and
implementation personnel to support the more complex Crescendo! product line. In
March 1997, the Company implemented a cost reduction program to reduce the
workforce throughout the Company, except at BSM and CLMA. Twenty-nine positions
were eliminated as a result, reducing the number of employees from 208 at
December 31, 1996 to 179 following the reduction. Related severance costs were
accrued at March 31, 1997.
The Company anticipates that it will continue to experience operating
losses during 1997.
Page 6
<PAGE>
RESULT OF OPERATIONS
- --------------------
TOTAL REVENUE. Summit's revenue for the first quarter of 1997 was derived
primarily from software licence sales and support and service fees related to
its Vista products and consulting services provided by its BSM and CLMA
subsidiaries. Revenue was $4.0 million for the first quarter of 1997, a
decrease of $674,000, or 14%, as compared with first quarter of 1996 reflecting
a decline in software and service revenue for various reasons as discussed in
the "Overview" section.
SOFTWARE LICENSE REVENUE. The Company's software license revenue primarily
consists of sales of database software licenses, software upgrades and
networking fees. Sales of software licenses were $1.2 million for the first
quarter of 1997, $522,000, or 31%, below the first quarter of 1996 as a result
of the various factors discussed in the "Overview" section including (i) a shift
in market demand away from a flat file, PC based solution and towards client /
server, relational database solutions, (ii) the Company's decision in first
quarter 1997 to de-emphasize sales of Vista and to discontinue efforts to
introduce an enhanced version of Vista ("Vista Elite"), in order to focus on
development and introduction of Crescendo! and (iii) the unavailability of a
Crescendo! product suitable for the medium and low volume cardiac
catheterization and cardiovascular centers.
The Company has recorded no revenues to date related to its Crescendo!
product line. As discussed more fully in the "Overview" section, the Crescendo!
product aimed at the medium and low volume cardiac catheterization and
cardiovascular centers is not scheduled to be completed until June 1997. While
substantial progress has been made on the four Crescendo! Forte installations
under way since 1996, obligations to provide additional software modules and
interfaces remain. The Company will not record any revenues on these contracts
until all such obligations are substantially fulfilled.
In February 1997, the Company entered into an agreement with Eli Lilly and
Company ("Eli Lilly") to participate in a pilot program for a registry to
collect, analyze and report on the use of a platelet aggregation inhibitor
during coronary interventions. This agreement has a contract value of $400,000,
and involves installation of an on-line data capture system at ten pilot
catheterization labs, utilizing Crescendo! technology. As of this time, the
Company has identify and contacted selected labs that are candidates for these
pilot sites. The Company will record revenue under this contract when
installation of the pilot sites is completed, on a pro rata basis. These sites
are expected to be installed in the third quarter 1997.
Software license revenue from sales to marketing partners comprised 17%
total software revenue in first quarter 1997.
SUPPORT AND SERVICE REVENUE. Support and service revenue primarily includes
an annual service fee, training fees, consulting, hardware and module
development fees. Support and service revenue was $0.8 million for the first
quarter of 1997, a 42% decline from 1996 as fewer new Vista sales led to lower
consulting, technical service and training fees.
CONSULTING REVENUE. Consulting revenue consists of fees received by BSM
for providing strategic development, financial analysis and systems planning
services to health care providers
Page 7
<PAGE>
and vendors and fees received by CLMA for regulatory affairs services provided
primarily to manufacturers of new medical device and biologic products in order
to secure FDA approval. CLMA services include regulatory strategy for FDA
submissions, clinical trails and statistical analysis. Consulting revenue was
$2.0 million for the first quarter of 1997, an increase of $448,000 or 29% over
the first quarter of 1996. This increase is partially due to revenue generated
from a newly established biologics division.
TOTAL COST OF SALES. Cost of sales as a percentage of total revenue was
69% in first quarter 1997, compared to 37% in first quarter 1996, reflecting
the impact of fixed personnel costs on a lower revenue base and the addition of
support and implementation personnel to support the more complex Crescendo!
product line. A portion of this increase reflected personnel costs in the
implementation area that were classified as operating expense in first quarter
1996 rather than cost of sales.
COST OF SOFTWARE LICENSE REVENUE. Cost of software license revenue
consists of expenses directly related to sales of software licenses, including
royalties, freight, user guides, diskettes, amortization of capitalized software
and an allocation of costs incurred by the client relations department for
various software related activities. Amortization of capitalized software
amounted to 96,000 in the first quarter of 1997, compared to 22,923 in the first
quarter of 1996. This increase reflects three year amortization of $1.2 million
in capitalized software acquired in connection with the acquisition of 100%
interest in Cordillera L.L.C. ("Cordillera") at December 31, 1996.
The following table sets forth, for the periods indicated, the relationship
of cost of software license fees and software license fees and software license
fee revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Software license fee revenue $1,188 $1,710
Cost of software license fees 564 349
Cost of software license fees as a percentage of software
license fee revenues 47% 20%
</TABLE>
The increase in cost of software license fees as a percent of license fee
revenue during first quarter of 1997 primarily reflects a reduction in software
license fee revenue in that quarter as compared to the same period in 1996.
COST OF SUPPORT AND SERVICE REVENUE. Cost of support and service revenue
consists of expenses directly related to sales of support and service, including
royalties, customer service personnel costs, and expenses for training and
clinical data services. The following table sets forth, for the periods
indicated, the relationship of cost of support and services and support and
service revenues:
Page 8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Support and service revenue................................. $ 830 1,432
Cost of support and service................................. 857 581
Cost of support and service as a percentage of support and
service revenues....................................... 103% 41%
</TABLE>
The increase in cost of support and service as a percent of support and
service revenue during first quarter of 1997 reflects a reduction in support and
service revenue in that quarter as compared to the same period in 1996 and to
increased staffing in the implementation and technical services departments as
discussed in "Overview" above. A portion of this increase reflected personnel
costs for eight employees in the implementation and technical services areas
that were classified as operating expense in first quarter 1996 rather than cost
of sales.
COST OF CONSULTING REVENUE. Cost of consulting revenue consists of
personnel costs and related expenses associated with the BSM and CLMA
subsidiaries. The following table sets forth, for the periods indicated, the
relationship of the cost of consulting and consulting revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Consulting revenue................................ $1,995 $1,547
Cost of consulting................................ 1,358 810
Cost of consulting as a percentage of support and
consulting revenues.......................... 68% 52%
</TABLE>
Cost of consulting increased to 68% of consulting revenue in first quarter
1997 from 52% in first quarter 1996 due to increased staffing at the Company's
consulting subsidiaries, CLMA and BSM.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $1.8
million during the first quarter of 1997, a decrease of $154,000 or 8% compared
to the same quarter of 1996 due primarily to personnel costs in the
implementation area that were classified as marketing expense in first quarter
1996 and cost of sales in first quarter 1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expense was
$1.1 million in the first quarter of 1997, an increase of $751,000 or 208%
compared to the first quarter of 1996 as the Company increased its development
staff and its use of outside consultants to develop its Crescendo! product line.
The dual development of the Crescendo! products and Vista Elite also resulted in
greater research and development expense. As discussed in the "Overview"
section, efforts to develop Vista Elite were discontinued in first quarter 1997.
In March 1997, the Company eliminated eight positions in the research and
development department as part of a Company-wide cost reduction program.
Page 9
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and Administrative expense was
$3.4 million for first quarter 1997, an increase of $2.2 million over first
quarter 1996. The increase is due primarily to charges of approximately $2.0
million. These charges included (i) accounting fees incurred in connection with
the Company's restatement of revenues, (ii) reserves for legal fees expected to
be incurred in connection with various shareholder lawsuits and the
investigation by the SEC, (iii) reserves for the expected cost of renegotiating
various development contracts involving certain medical specialities which the
Company has concluded are not central to its near term strategic focus and (iv)
severance costs associated with a downsizing that occurred in March 1997 as
discussed in the "Overview" section.
INTEREST INCOME. Interest income, net, increased to $579,000 in first
quarter 1997 from $300,000 in first quarter 1996 as proceeds in the Company's
July 1996 secondary stock offering were invested in short term securities.
INCOME TAX EXPENSE. To date, the Company has not incurred any substantial
income tax liability because of its historical operating losses. The deferred
tax asset related to operating loss carry forwards generated in the first
quarter of 1997 and 1996 were fully offset by an increase in the valuation
allowance because of the Company's history of operating losses.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the three months ended March 31, 1997, the Company's cash and cash
equivalents decreased by $806,000 reflecting net cash used in operating
activities of $3.8 million, offset by net reduction in investments of $3.2
million.
Cash provided by investing activities was $3.2 million which consists
primarily of the sale or maturity of short-term investments of $13.4 million
partially offset by the purchase of short-term investments in the amount of $9.9
million. Cash used in financing activities of $245,000 represented repayment of
long term debt.
As of March 1, 1997, the Company had net working capital of $37.4 million,
compared to $41.7 million at December 31, 1996. The decrease in working capital
resulted primarily from operating losses of $4.5 million during the first
quarter of 1997, including one time charges amounting to approximately $2.0
million as discussed in the "Overview" section.
The Company is a named defendant in ten civil actions involving alleged
violations of federal securities and other laws. If these actions were to be
decided adversely to the Company, the financial condition of the Company could
be adversely affected. See Part II, Item 1, Legal Proceedings. Certain parties,
who received common stock or other equity based securities of the Company in
connection with acquisitions during 1995 and 1996, have expressed concerns to,
and are seeking compensation from, the Company. The Company is currently in
discussions regarding these matters with these parties.
Page 10
<PAGE>
The Company believes that the continued expenditure of funds will be
necessary to support its future growth, and that cash and short-term investments
of $40.3 million on hand at March 31, 1997 will be sufficient to fund its
operations, capital requirements, potential settlement payments as discussed
above and expansion needs for the foreseeable future.
Page 11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in ten federal court securities
actions venued in the United States District Court, District of Minnesota. Nine
of the ten actions are putative class actions, including: Jong E. Lee v. Summit
----------------------
Medical Systems, Inc., filed on March 10, 1997; Mathias Faue, George E. and
- -------------------- ----------------------------
Patricia E. Faue, Janice McQuiston v. Summit Medical Systems, Inc. et. al.,
- --------------------------------------------------------------------------
filed on March 26, 1997; Judith Anne Jacobson v. Summit Medical Systems, Inc.,
---------------------------------------------------
filed on March 31, 1997; Gordon E. Bennett, Desiree Swan, Randolph G. Sunder,
----------------------------------------------------
Darcie Molitor, and C. William Brown, M.D., trustee on behalf of C. William
- ---------------------------------------------------------------------------
Brown, M.D., v. Summit Medical Systems, Inc. et. al., filed May 7, 1997; Brian
- ----------------------------------------------------- -----
Poffenberger v. Summit Medical Systems, Inc., et al., filed May 8, 1997; Joseph
- ----------------------------------------------------- ------
Cooper, Charles Fisher and Contractor's East, Inc. v. Summit Medical Systems,
- -----------------------------------------------------------------------------
Inc., et al., filed May 9, 1997; Todd M. Adams v. Summit Medical Systems, Inc.
- ------------- ---------------------------------------------
et. al., filed May 9, 1997; Ranjit C. Desai et al. v. Summit Medical Systems,
- -------- -------------------------------------------------
filed May 12, 1997 and Phillip Thomas et al. v. Summit Medical Systems, Inc. et.
---------------------------------------------------------
al., filed May 12, 1997. The remaining action captioned, Teachers' Retirement
- ---- --------------------
System of Louisiana v. Summit Medical Systems, Inc. et. al., was filed on April
- ------------------------------------------------------------
16, 1997 and is not a class action. Each action alleges, in essence, that the
Company made misleading public disclosures relating to its financial statements
and seeks compensatory damages for losses incurred as a result of each alleged
misleading public disclosure. In each of the putative class actions, the
plaintiffs seek declaration that the action be certified as a class. As to
federal securities law claims, each of the actions is subject to the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Certain plaintiffs
have moved to consolidate the putative class actions, to appoint a lead
plaintiff, and to appoint lead counsel. Under the Reform Act, the District Court
may consolidate all the putative class actions into one action and choose a lead
plaintiff, and the Company believes that the District Court is likely to do so.
While the Teachers' Retirement System case may also be consolidated for
---------------------------
discovery purposes, it will likely remain as a separate action because the
plaintiff has stated in the Complaint that it does not wish to participate in
any class action. The Company believes it has meritorious defenses to these
actions and intends to defend against these actions vigorously.
The Company has been informed by the Division of Enforcement of the
Securities and Exchange Commission (the "Commission"), through service of a
subpoena on March 25, 1997, that the Commission is conducting an investigation
of the Company, relating to the Company's restatement of certain financial
statements. The Company is cooperating fully with the Commission and its
investigation.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
10.1 Agreement by and between The American College of Cardiology and
Summit Medical Systems, Inc., dated March 10, 1997
10.2 Software Development And License Agreement, dated March 31, 1997,
between American Academy of Orthopedic Surgeons and Summit
Medical Systems, Inc.
*10.3 Registry Development Agreement, dated February 3, 1997, between
Eli Lilly and Company and Summit Medical Systems, Inc.
11.1 Computation of Earnings per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, filed January 14, 1997, and amended on form 8-K/A,
filed of March 14, 1997 and April 25, 1997 (File No. 0-26390)
reporting the acquisition of C. L. McIntosh & Associates, Inc.
________________________
* Confidential treatment requested as to certain portions.
Page 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly
Summit Medical Systems, Inc.
----------------------------
Date May 15, 1997 /s/ Richard J. Willemin
------------ -------------------------------------
Richard J. Willemin
Interim Chief Financial Officer
Page 13
<PAGE>
Exhibit 10.1
AGREEMENT BY AND BETWEEN
THE AMERICAN COLLEGE OF CARDIOLOGY AND
SUMMIT MEDICAL SYSTEMS, INC.
This agreement is entered into on this 11th day of March, 1997 (the "Effective
Date"), by and between the American College of Cardiology, 9111 Old Georgetown
Road, Bethesda, Maryland 20814, hereafter called ACC, and Summit Medical
Systems, Inc., hereafter called the Vendor.
The goal of the ACC National Cardiovascular Data Registry(TM) (the Registry) is
to facilitate systematic data collection according to uniform professional
standards, provide analyses of each participants' own experience and outcomes
data, to provide a national body of clinical data of the highest quality, to
provide participants with confidential comparisons of their own versus national
data (or regional or other grouped data), and to undertake analyses of these
data to ensure high quality cardiovascular care. To facilitate the collection of
these data, ACC encourages independent software developers to create and license
software in accordance with ACC standards for the collection, management, and
reporting of cardiovascular data to the Registry.
1. Definitions of Terms
This agreement makes reference to terminology that is defined in the
following paragraphs.
1.1 Participants. A participant is an institution or practice (or a
defined and consistent grouping within such an institution or
practice) that is submitting pertinent cardiovascular data to the
Registry (as defined in Paragraph 1.4). The terms of participation
are covered by a separate agreement. Eligibility for participation
is contingent upon several criteria including entering into a
participation agreement with the
<PAGE>
ACC, data entry using ACC Certified Software, and submission of the
data to the Registry according to a prespecified standard format and
data transfer protocol. Use of ACC-Certified Software alone is not a
sufficient condition to guarantee participation in the Registry.
1.2 The Program. Clinical database software program(s) (including all
updates, new versions, releases and derivative works thereof)
licensed by the Vendor to its Customers (defined below in
Paragraph 1.10), which enable Participants to enter patient data
files and transmit these data to the ACC Registry (defined in
Paragraph 1.4 below) in accordance with all cardiovascular reporting
and publishing requirements of the ACC (as defined in Paragraph 2.2
below).
1.3 The Data. Clinical and other information descriptive of
cardiovascular patient care that include the specific data elements
listed in Exhibit A. Data elements that permit the unique
identification of individual patients, clinicians, or institutions
constitute "Confidential Data," and shall be handled with special
procedures that will protect them from unauthorized release.
1.4 The Registry. A central agency of the ACC for the collection of
clinical, laboratory, imaging, administrative, and other data
pertinent to cardiovascular patient care, so organized that the data
can be properly processed, analyzed, and made available for study.
1.5 ACC's Works. All data forms, formats, definitions, codes and
codebooks, file specifications, file transfer protocols, procedural
guides, and all publications and reports developed by ACC in support
of the
-2-
<PAGE>
operations of the Registry, including all updates thereto and
derivative works thereof.
1.6 Vendor's Works. The Program and all associated user and technical
documentation and training materials, all Data Repositories and
related reports which are developed by or for Vendor, including all
updates thereto and derivative works thereof.
1.7 Participant Training Program. Provides instruction to Participants
in the appropriate collection, reporting, and use of Data that are
to be submitted to the Registry.
1.8 Data Repository. An entity engaged in the accumulation and
aggregation of clinical data for the purposes of measuring the
clinical performance of health care practitioners, establishing
normative standards of care, and/or demonstrating the quality of
patient care.
1.9 Customer. Any organization, entity or individual who enters into an
agreement with Vendor to license the Program or to renew or continue
a license to the Program. If a Customer represents multiple
institutions or utilizes the Program at multiple sites, for purposes
of this Agreement each such institution and/or site shall be deemed
a Customer.
1.10 Certified Vendor. A Vendor who is fully in compliance with the terms
of this Agreement.
-3-
<PAGE>
1.11 Certified Software. Versions or upgrades of the Program that are in
compliance with ACC software inspection and audit procedures as
described in Paragraph 5.
1.12 Certified Training Program. Training programs in the use of ACC
Works for the provision of cardiovascular care that have
successfully met the terms of Paragraph 9.1 of this agreement.
2. Creation and Licensing of Software Program
2.1 The Vendor shall create, develop, implement and support, to the
reasonable satisfaction of the ACC, Program(s) that will enable
Participants to submit Data directly to the Registry in an ACC-
approved format. The Program shall accept Data from Participants
using the elements listed in Exhibit A, which are attached hereto
and incorporated herein by reference, and which are further
discussed in Paragraph 2.2 hereof.
2.2 The Data shall be collected in accordance with ACC-specified
definitions, codes, and data edits that are provided in Exhibit B
attached hereto. The Program shall include integrated access to ACC
definitions of terms for all core data elements via context-
sensitive help screens or pull-down menus. The Program shall enable
Participants to extract Data on demand based upon ACC data
transmission specifications provided in Exhibit C attached hereto.
Participants shall be able to provide Data directly to the Registry.
The Vendor will be given six months from the Effective Date of this
Agreement to implement all terms incorporated herein, except as
excused in accordance with Paragraph 24 below. ACC may, on an annual
basis, alter its data
-4-
<PAGE>
element list in Exhibit A and associated specifications to reflect
changes in clinical practice and to improve its data collection
processes. Certified Vendors will be given 30 days notice prior to
the public release of these changes and will be given six months
from such notice to incorporate such changes in their current
version of the Program.
2.3 The Vendor is free to alter and otherwise modify the Program to meet
its Customer's needs. All variants of the Program that make use of
ACC's Works are subject to the royalty provisions of Paragraph 7.2
below.
2.4 The Vendor shall incorporate within the Program data
encryption/decryption routines that comply with ACC specifications
to safeguard Confidential Data (defined in Paragraph 1.3) that shall
be collected by the Program. The Vendor will provide its Customers
with an appropriate means, approved by ACC, for the
encryption/decryption of data files that can be made available to
the Registry to facilitate data transfers between the Customers and
the Registry in conformity with ACC specifications.
3. Development and Maintenance of the Registry
The ACC has formed the Registry for collecting and reporting data on the
processes and outcomes associated with patient care for cardiovascular disease.
The goal of this Registry is to enable cardiovascular specialists to measure
accurately and objectively their own clinical performance and, thereby, enhance
the quality of care provided to their patients. The Registry is led by
cardiovascular practitioners acting on behalf of the profession and, ultimately,
the patient population that they serve,
-5-
<PAGE>
to ensure excellence in patient care. This direct professional involvement is
intended to facilitate both the integrity and the confidentiality of the
reported Data.
The Registry will be responsible for the accumulation, management, analysis, and
reporting of data it receives from Participants. While the Vendor shall be
permitted to provide services similar to the Registry to its Customers who are
also Participants, including the creation of Data Repositories for the
accumulation, management, analysis and reporting of data pertinent to
cardiovascular patient care that Vendor receives from its Customers, the Vendor
shall not require its Customers to use these Vendor-supplied services. Further,
use of these Vendor-supplied services will not waive the Customer's
responsibilities as Participants.
The Vendor shall provide ACC with 45 days prior notice of the commercial release
of cardiovascular Data Repositories that are independent of ACC. The inclusion
of ACC's Works in the development of independent cardiovascular Data
Repositories is subject to copyright restrictions and to the payment of
royalties. Further, the use of ACC's Works in support of such Data Repositories
does not represent ACC's certification or approval of them. The Vendor
recognizes that any efforts on its part to form independent cardiovascular Data
Repositories will not preclude ACC from collecting comparable information
pertinent to the same reporting entities in its Registry, subject to the
Vendor's intellectual property rights in such Data Repositories.
4. National Database Reports
The Registry will provide the Participants with periodic national summary
reports and with confidential Participant-specific reports that compare
individual Participant performance with national benchmarks according to terms
specified under a separate agreement with each Participant. The Registry shall
also prepare
-6-
<PAGE>
special reports and analyses based upon information from its databases. The
Registry shall provide the Vendor with single copies of all national summary
reports at the same time such reports are provided to Participants.
5. Testing and Acceptance
5.1 Within four (4) months of signing this Agreement, the Vendor shall
demonstrate, to the reasonable satisfaction of the ACC, that the
Program is operating in accordance with the provisions of this
Agreement and that the Program is ready for distribution to
Participants. ACC will indicate its satisfaction in writing within
30 days of this demonstration or itemize deficiencies in the
Program. The Vendor will be given an additional 60 days to correct
any identified deficiencies in the Program. After this period of
time has elapsed, if the ACC reasonably determines that the Vendor
has failed to demonstrate the successful development and operation
of the Program, then the ACC may notify the Vendor in writing of its
rejection of the Program. In such case, the ACC shall have no
further obligation to the Vendor, ACC withdraws the use of its name
and logo for promotional purposes, and this Agreement shall be
deemed terminated per the terms specified in Paragraph 14. If the
ACC fails to notify the Vendor of its rejection of the Program, then
the ACC shall be deemed to have accepted the Program. Such
acceptance shall not evidence the ACC's waiver of any rights to
which it may be entitled if it later should determine that it is
dissatisfied with the Program due to changes that ACC requires,
which are discussed in Paragraph 5.3 below.
5.2 Vendor will license royalty-free to ACC, pursuant to a separate
standard license agreement, one (1) up-to-date copy of the Program
for
-7-
<PAGE>
installation and use in the ACC Department of Research and
Information Management, solely for ACC's internal use and training.
Vendor will also provide training in the use of the Program for ACC
staff that is equivalent to that provided to Vendor's Customers. The
Program shall be used solely to support the ongoing quality control
activities of the Registry, and to serve as a demonstration for any
interested guests to the ACC. The results of any quality control
audits will be kept strictly confidential.
5.3 Annually, there shall be a review and audit of the Program to
address any required changes (due to modifications made by ACC in
accordance with Paragraph 2.2), previously known deficiencies in the
Program, or deficiencies arising as the result of Vendor-initiated
changes. These will be identified and implemented or corrected
within a reasonable time period after notice from ACC. If the
implementation and corrections do not meet the satisfaction of the
ACC, the ACC may terminate this agreement per the terms of
Paragraph 14.
5.4 Only those Programs and related software (including versions and/or
upgrades of the Program) that have been ACC approved, as a result of
the annual audit referenced in Paragraph 5.3, may be denominated and
promoted as ACC Certified Software. No vendor may hold itself out as
a Certified Vendor unless its Program and related software have been
ACC certified pursuant to Paragraph 5.3. Previously Certified
Vendors that create new versions and/or upgrades of the Program and
related software and that have initiated the audit process under
Paragraph 5.3 for such new versions and/or upgrades, may indicate
that ACC approval/certification is "pending" for such new versions
and/or
-8-
<PAGE>
upgrades until the ACC has completed the audit process for those new
versions and/or upgrades.
6. Benefits to Certified Vendors
Certified Vendors are eligible for the following benefits: (1) use of the ACC
trademark in promotional materials related to the Program; (2) use of "ACC-
certified" designation in promotional materials and packaging related to the
Program; (3) listing in the ACC Annual Scientific Session official program as a
Certified Vendor; (4) inclusion on a listing of Certified Vendors that will be
publicly available from the ACC; (5) direct access to ACC technical support
personnel for any and all purposes related to the Registry and the Program; (6)
access to all national summary publications of the Registry; and (7) thirty (30)
days notice prior to the public release of any annual changes the ACC proposes
to make to the data elements list in Exhibit A and associated specifications to
reflect changes in clinical practice and to improve its data collection
processes (discussed in Paragraph 2.2 above).
7. ACC Trademark, License, and Royalty
7.1 The ACC hereby grants to the Vendor a license to use the ACC's name
and logo for the sole purpose of promoting the Program and the
benefits associated with qualifying as a Certified Vendor; provided,
however, that the Certified Vendor's use of the ACC's name and logo
shall be subject to the instructions of the ACC that are specified
in Exhibit D attached hereto, and shall be used in such a manner, or
as part of art and copy, that is approved in advance by the ACC, and
conforming to the standards and specifications of the ACC. The logo
should be clearly associated with the Program or the activities of
the
-9-
<PAGE>
Registry, and not used to reflect a global approval of a particular
line of software products or services.
7.2 In consideration for the license granted in Paragraph 7.1, the right
to use the ACC Works as provided herein, and for the rights and
privileges of being designated as a Certified Vendor, the Vendor
shall pay to the ACC an annual royalty of five hundred ($500.00) for
each Customer who licenses, continues or renews a license, or
otherwise obtains the Program from the Vendor. The Vendor shall make
royalty payments to the ACC on or before the thirtieth (30th) day of
the first month of each calendar quarter with respect to Customers
who licensed, renewed, or continued a license, or otherwise obtained
the Program from the Vendor during the previous calendar quarter.
7.3 The Vendor shall also pay to ACC an annual certification fee of
$4,000 for each Participant Training Program as described in
paragraph 9.1.
7.4 The Vendor shall also pay to the ACC an annual software audit fee of
$5,000 to verify that its Program and related software complies with
ACC specifications and may be denominated as Certified Software.
Audits will be conducted annually pursuant to Paragraph 5.3 of this
Agreement. The Vendor shall pay an annual audit fee on the execution
of this Agreement and upon each subsequent anniversary date of this
Agreement while it remains in effect. If a Vendor requests an audit
of a new version and/or upgrade of the Program and its related
software in between the normal due dates for the annual audit
required under Paragraph 5.3 and such audit is performed, the Vendor
will pay an additional audit fee of $5,000 for such audit within
thirty
-10-
<PAGE>
(30) days of the completion of the audit. Audit fees will be waived
for noncommercial Vendors as defined in Paragraph 25.
7.5 The Vendor shall provide ACC with a continuously updated list of
Customers, which shall be deemed Confidential Information subject to
the requirements of Paragraph 11 below. If the Customer represents
multiple institutions or sites, each institution or site must be
separately identified. The identities of Customers shall be provided
to ACC within 15 business days of their purchase, upgrade or renewal
of a license to the Program.
7.6 With each quarterly royalty payment, the Vendor shall provide the
ACC with an itemized written statement showing the following:
(a) the number of newly granted and continuing licenses to the
Program during the prior quarter, including the name, address,
and physician-contact of such Customers:
(b) a listing of Customers terminating their licenses to the
Program during the prior quarter, including the name, address,
and physician-contact of such Customers;
(c) a listing of Customers holding licenses to the Program during
the prior quarter, including the name, address, and physician-
contact of such Customers;
(d) the total number of licenses then-currently granted to the
Program by Vendor to its Customers;
-11-
<PAGE>
(e) the total royalty to which the ACC is entitled for the prior
quarter.
7.7 At the ACC's reasonable request, and no more than once in any twelve
(12) month period, the Vendor shall allow the ACC, or an independent
third-party auditor who executes a written confidentiality agreement
that is acceptable to Vendor, to inspect the Vendor's books and
records related to the performance of this Agreement.
8. Ownership
8.1 The parties hereby agree that as between ACC and the Vendor, Vendor
shall be deemed the owner of all rights, including copyrights, in
and to the Vendor's Works and all related software, documentation,
derivative works thereof and other materials that it creates or has
created; provided, however, that as between the Vendor and ACC, the
ACC shall be deemed the owner of all rights, including copyrights,
to the Registry, any and all reports based thereon, the ACC's Works
and any derivative works thereof it creates or has created. In
accordance with the foregoing rights of the parties, the Vendor
shall cause an appropriate copyright notice to be affixed to each
copy of the works owned by the respective parties. Such copyright
notices shall reflect the copyright ownership of the Vendor or the
ACC as appropriate. Each party shall assist the other in protecting
and enforcing its copyright and other intellectual property
interests under this Agreement, including but not limited to giving
assistance in the form of executing appropriate documents or giving
testimony; provided, however, that all such assistance shall be
given at the expense of the requesting party.
-12-
<PAGE>
8.2 The ACC shall be deemed the owner of all rights in the Registry.
8.3 The provisions of this Paragraph 8 shall survive any termination of
this Agreement.
9. Training, Support and Service
9.1 Any training program offered by the Vendor to its customers on the
collection and use of the Data or their reporting to the Registry
must be annually certified by the ACC for the Vendor to be fully
compliant with this Agreement. The training provided in such
programs will be distinct from that required to use the Program. ACC
evaluation and certification or recertification of Participant
Training Programs as described above will be required on an annual
basis and will be based on an annual review of the outline of the
planned course of study, written course materials and instruction
guides, and periodic (annual or as needed to ensure that training
problems are promptly rectified) site visits by ACC-designated
evaluators.
9.2 The Vendor shall be responsible for all technical support and
assistance required by its Customers in relation to the operations
and performance of the Program. The ACC will be responsible for all
technical support and assistance required by Participants in
relation to the Data and the Registry. The Vendor shall screen all
support requests it receives from Participants to ensure that all
those related to the Program are fulfilled by the Vendor, and that
only those related to the Data or the Registry are referred to the
ACC.
-13-
<PAGE>
10. Promotion
The Vendor shall include a Registry brochure and postage paid mailer with
documentation and materials related to the Program that it delivers to its
Customers. The Vendor shall also provide space for displaying a Registry
brochure at the Vendor's booth, if they choose to have one, during the annual
meetings of the ACC, the American Heart Association, and the Society of Thoracic
Surgeons. The ACC shall promote the Registry and Certified Vendors in
appropriate publications of the ACC and as discussed in Paragraph 6.
11. Confidentiality
11.1 All Confidential Information shall be deemed confidential and
proprietary to the party disclosing such information hereunder. Each
party may use the Confidential Information of the other party during
the term of this Agreement only as permitted or required for the
receiving party's performance hereunder. The receiving party shall
not disclose or provide any Confidential Information to any third
party, use or allow any third party to use the Confidential
Information to their benefit (financial or otherwise), and shall
take reasonable measures to prevent any unauthorized disclosure by
its employees, agents, contractors or consultants during the term
hereof including appropriate individual nondisclosure agreements.
The foregoing duty shall survive any termination or expiration of
this Agreement.
11.2 As used in this Agreement, the term "Confidential Information" shall
mean all information designated by a party as confidential and which
is disclosed by Vendor to ACC, is disclosed by ACC to Vendor, is
embodied in the Program or Registry, or is Confidential Data,
-14-
<PAGE>
regardless of the form in which it is disclosed, relating to markets,
customer lists, customers, products and proposed products, patents,
inventions, procedures, methods, designs, strategies, plans, assets,
liabilities, prices, costs, revenues, profits, organization,
employees, agents, resellers or business in general, or, in the case
of Vendor, the algorithms, programs, user interfaces and organization
of the Program.
11.3 The following shall not be considered Confidential Information for
purposes of this Article 11:
(a) Information which is or becomes in the public domain through no
fault or act of the receiving party;
(b) Information which was independently developed by the receiving
party without the use of or reliance on the disclosing party's
Confidential Information;
(c) Information which was provided to receiving party by a third party
under no duty or confidentiality to the disclosing party; or
(d) Information which is required to be disclosed by law, provided,
however, prompt prior notice thereof shall be given to the party
whose Confidential Information is involved.
12. Warranties
12.1 The Vendor covenants, warrants, and represents that the Program is an
original work; that the Program does not and will not violate any
copyright, or rights of others; that the Vendor has not previously in
-15-
<PAGE>
any matter disposed of any of the rights herein granted to the ACC nor
previously granted any rights adverse thereto or inconsistent
therewith; that there are no rights outstanding which would diminish,
encumber, or impair the full enjoyment or exercise of the rights
granted to the ACC herein.
12.2 ACC covenants, warrants, and represents to Vendor that the Registry
and ACC's Works are an original work; that the Registry, ACC's Works
and their use by Vendor as permitted or required hereunder do not and
will not violate any copyright, or rights of others; that the ACC has
not previously in any matter disposed of any of the rights herein
granted to Vendor nor previously granted any rights adverse thereto or
inconsistent therewith; that there are no rights outstanding which
would diminish, encumber, or impair the full enjoyment or exercise of
the rights granted to Vendor herein. The provisions of this Paragraph
12 shall survive any termination of this Agreement.
13. Indemnification
13.1 The Vendor shall indemnify, save, and hold harmless the ACC, its
officers, directors, agents, employees, and each of them, from and
against any and all claims, costs and expenses (including attorneys'
fees and expenses), demands, actions, and liabilities of every kind
and character whatsoever arising from (a) any wrongful act or omission
on the part of the Vendor with respect to the duties that it owes to
the ACC under this Agreement, or (b) any defects or malfunctions
associated with or related to the Vendor's Works or the Program, or
(c) the inaccuracy or breach of any of the covenants, representations
and
-16-
<PAGE>
warranties made by Vendor in Paragraph 12.1 and elsewhere in this
Agreement.
13.2 ACC shall indemnify, save, and hold harmless the Vendor, its officers,
directors, agents, employees, and each of them, from and against any
and all claims, costs and expenses (including attorneys' fees and
expenses), demands, actions, and liabilities of every kind and
character whatsoever arising from (a) any wrongful act or omission on
the part of the ACC with respect to the duties that it owes to Vendor
under this Agreement, (b) any defects or malfunctions associated with
or related to the Registry or ACC's Works, or (c) the inaccuracy or
breach of any of the covenants, representations and warranties made by
ACC in Paragraph 12.2 and elsewhere in this Agreement. The provisions
of this Paragraph 13 shall survive any termination of this Agreement.
14. Term and Termination
14.1 This Agreement shall become effective on the Effective Date and shall
terminate on January 4, 1999, unless terminated earlier as provided
below. Either party may terminate this Agreement upon the other's
failure to cure a material breach of this Agreement within sixty (60)
days after receipt of written notice of such breach from the other
party.
14.2 Upon any termination of this Agreement, each party shall return the
other party's Confidential Information to the other party, the
licenses granted under Paragraphs 4, 5.2 and 7.1 shall immediately
terminate, and Vendor shall no longer be deemed a Certified Vendor.
-17-
<PAGE>
15. Negotiation and Extension of Agreement
Absent the prior termination of this Agreement, and at the ACC's request, the
Vendor shall conduct good faith negotiations with the ACC, beginning no later
than July 1, 1998, to enter into a new agreement to become effective upon the
expiration of this Agreement. If such negotiations extend beyond the term of
this Agreement and the parties continue to perform their respective obligations
as described herein, this Agreement shall continue during the time of such
negotiations.
16. Notices
All notices and demands of any kind or nature which either party to this
Agreement may be required or may desire to serve upon the other in connection
with this Agreement shall be in writing, and may be served personally, by
registered or certified United States mail, or by overnight courier (e.g.,
Federal Express, DHL, or UPS) to the following addresses:
If to the Vendor: Kevin Green
President and Chief Executive Officer
Summit Medical Systems, Inc.
10900 Red Circle Drive
Minnetonka, MN 55343-9106
with a copy to: Nelson G. Dong, Esquire
Dorsey & Whitney LLP
Pillsbury Center South
222 South Sixth Street
Minneapolis, MN 55402
If to the ACC: David J. Feild
Executive Vice President
American College of Cardiology
9111 Old Georgetown Road
Bethesda, Maryland 20814
-18-
<PAGE>
with a copy to: Frank M. Northam, Esquire
Webster, Chamberlain & Bean
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Service of such notice or demand so made shall be deemed complete on the day of
actual delivery. Any party hereto may, from time to time, by notice in writing
served upon the other party as aforesaid, designate a different mailing address
or a different person to which all further notices or demands shall thereafter
be addressed.
17. Headings
The headings of the various paragraphs hereof are intended solely for the
convenience of reference and are not intended for any purpose whatsoever to
explain, modify, or place any construction upon any of the provisions of this
Agreement.
18. Assignment
This Agreement may not be assigned by either party without the express written
approval of the other party.
19. Relationship of Parties
The relationship of the parties to this Agreement is that of independent
contractors and not that of master and servant, principal and agent, employer
and employee, or partners or joint venturers.
-19-
<PAGE>
20. Counterparts
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which taken together shall constitute one and
the same instrument.
21. Waiver
A waiver by either party to this Agreement of any of its items or conditions in
any one instance shall not be deemed or construed to be a general waiver of such
term or condition or a waiver of any subsequent breach.
22. Governing Law
This Agreement shall be construed and enforced in accordance with federal law
and the law of the State of Maryland.
23. Severability
All provisions of this Agreement are severable. If any provision or portion
hereof is determined to be unenforceable by a court of competent jurisdiction,
then the rest of the Agreement shall remain in full effect, provided that its
general purposes remain reasonably capable of being effected.
24. Existing Agreements
The ACC will immediately seek to terminate prior agreements, in the event that
they exist, with all current Participants who have previously entered into
Participation Agreements with the ACC and the Vendor. The ACC will endeavor
-20-
<PAGE>
to enter into new Participation Agreements with such Participants that will
provide comparable terms regarding operations of the Registry and the provision
of summary reports. The ACC will continue to honor the Participation Agreements
of those Participants who do not wish to terminate their agreements. However,
ACC will no longer consent to the automatic annual renewal of such prior
Participation Agreements. Notwithstanding any contrary provisions in this
Agreement, if any Participant declines to terminate its prior Participation
Agreement, during the time such prior Participation Agreement is still in
effect, Vendor shall not be required to perform any of its obligations under
this Agreement which would conflict with the express terms of such prior
Participation Agreement.
25. Terms of Vendor Agreements
The ACC shall ensure that, at all times during the term of this Agreement, no
third party shall be a Vendor or Certified Vendor on terms substantially more
favorable than those contained in this Agreement, unless ACC offers those same
terms to Vendor by a written modification of this Agreement. These provisions
shall not apply to terms ACC offers to medical professional associations that
are categorized as 501 (c)(3) under the U.S. Tax Code or would qualify as
similar type organizations under the laws of the country in which the enterprise
is established.
26. Entire Agreement
This Agreement (a) constitutes the entire Agreement between the parties hereto
with respect to the subject matter hereof, (b) supersedes and replaces all prior
Agreements, oral or written, between the parties relating to the subject matter
hereof, and (c) except as otherwise indicated herein, may not be modified or
otherwise changed in any manner except by a written instrument executed by both
parties.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement by
their authorized representatives.
For the American College of Cardiology: For the Vendor:
/s/David J. Feild /s/Kevin Green
- ----------------------------------- ----------------------------------
David J. Feild Kevin Green
Executive Vice President President and Chief Executive Officer
3/13/97 3/13/97
- ----------------------------------- -------------------------------
Date Date
-22-
<PAGE>
Exhibit 10.2
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT
This SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT is entered into as of the
date set forth on the signature page between AMERICAN ACADEMY OF ORTHOPAEDIC
SURGEONS, an educational organization having its principal place of business at
6300 N. River Road, Rosemont, Illinois 60018 ("AAOS"), individually and on
behalf of its Task Force on Data Management (hereinafter "MODEMS Task Force"),
and Summit Medical, having its principal place of business at 10900 Red Circle
Drive, Minnetonka, MN 55343 ("Developer").
WHEREAS, AAOS formed the MODEMS Task Force, comprised of representatives of
the AMERICAN ACADEMY OF ORTHOPAEDIC SURGEONS (AAOS), the COUNCIL OF
MUSCULOSKELETAL SPECIALTY SOCIETIES (COMSS) of the AAOS, and the COUNCIL OF
SPINE SOCIETIES (COSS), for the purposes of the development of the MODEMS
(Musculoskeletal Outcomes Data Evaluation and Management System) system and
questionnaires; and
WHEREAS, AAOS, on behalf of the MODEMS Task Force, owns or is the joint
owner of copyright rights in certain Patient Outcomes Questionnaires identified
in Schedule A attached hereto ("the Questionnaires"); and
WHEREAS, AAOS owns all rights, interest, and goodwill in the name and
collective service mark AMERICAN ACADEMY OF ORTHOPAEDIC SURGEONS and owns the
exclusive rights in the collective service marks identified in Schedule B
attached hereto, including MODEMS for the uses identified therein ("the Marks");
and
WHEREAS, AAOS desires to have Developer develop, market, and support a
computer software program which will enable orthopaedic surgeons and other
practitioners to gather patient outcomes information and submit the information
to the MODEMS Outcomes Study Database as provided herein ("the Software"); and
WHEREAS, Developer desires to develop the Software;
NOW, THEREFORE, AAOS and Developer agree as follows:
COPYRIGHT AND TRADEMARK LICENSE
- -------------------------------
1. AAOS, on behalf of the MODEMS Task Force, hereby grants Developer a
non-exclusive license (1) to utilize the Questionnaires and the contents thereof
for use in the Software, and to prepare derivative works therefrom, and (2) to
develop and sell Software that allows end-users to collect and submit patient
outcomes data to the MODEMS database developed and owned by AAOS, provided that:
<PAGE>
a. Developer satisfies the Certification Requirements set forth in
Schedule C below and pays the administrative and/or license fees as
required by paragraphs 23, 24, and 25.
b. Developer advises AAOS on a biweekly basis of the progress of its
design and development activities.
c. Developer shall not use the Questionnaires or any part thereof in
connection with the development of any computer software program other than
the program authorized herein, and shall not use the Questionnaires or any
part thereof in connection with the development of any database software or
system for any other organization or entity without the express written
consent of AAOS. Provided, however, that nothing in this Agreement shall
prohibit and Developer is free to develop its own outcomes questionnaires
or database independently; provided that it may not contain or be based
upon the MODEMS questionnaires or database, and Developer obtains separate
permission to use any third party questionnaires or structure.
d. Developer shall not copy or provide copies of the Questionnaires
or any data resulting from the use of the Software to any third party
without the express written permission of AAOS. Provided, however, that
i. This limitation does not apply to individual questions and
portions of the Questionnaires which Developer has separate permission
to use unless data for these individual questions was collected via
MODEMS questionnaires; and
ii. Developer may distribute copies of the Questionnaires which
it obtains from AAOS to prospective customers for their evaluation as
part of Developer's marketing efforts.
Further provided, however, that Developer may not continue to use any
portions of the Questionnaire owned by AAOS without the written permission of
AAOS or pursuant to a subsequent agreement.
e. Developer shall be permitted to offer, sell, or distribute the
Software only to end-users who are members of the AAOS or members of a
society belonging to COMSS or COSS.
f. Developer shall not make its program source code for the Software
available to any party other than AAOS for review, copying, or
dissemination without the prior written approval of the MODEMS Task Force.
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 2
---------------------------------------------------
<PAGE>
g. Developer agrees to and does hereby assign to the AAOS all
copyright in that portion of computer code in the Software which contains
or embodies the Questionnaires.
2. Developer agrees that all proprietary rights in the Questionnaires,
including but not limited to all copyright rights, are and shall remain in the
AAOS.
3. Developer agrees that it shall not make any changes in the structure,
text, or contents of the Questionnaires without the prior written consent of the
AAOS. In the event that the AAOS consents to and Developer makes any such
changes or revisions, Developer agrees to and hereby assigns any and all rights
in such modifications and in any derivative works it may create therefrom,
including all computer code, to AAOS, including but not limited to all copyright
rights.
4. Notwithstanding the provisions of paragraph 3, AAOS agrees that all
copyright rights in the Software shall remain the sole property of Developer
except as provided in this Agreement. Furthermore, AAOS acknowledges that its
copyright in the Questionnaires extends only over the original text of questions
it and its joint authors have developed and the selection, organization, and
revised wording of the Questionnaires, but not over pre-existing sections apart
from the Questionnaires which were created by third parties, and that Developer
may obtain independently the right to use these pre-existing sections from the
copyright owners.
5. AAOS will only provide Developers with this license to use the
Questionnaires, to develop and sell software which enables end-users to
contribute to the MODEMS database, and to use the Marks if they meet the
Certification requirements set forth in Schedule C attached hereto and pay the
administrative fee and license fee set forth in paragraphs 23 and 24. However,
after January 1, 1997, AAOS may license other software developers to use the
Questionnaires to develop software for intra-office use without obtaining
Certification, provided that such software may not enable end-users to
contribute to the MODEM database and such licensees may not use the Marks in
connection with their goods.
6. AAOS hereby grants Developer a non-exclusive right to use the Marks in
connection with the offering and sale of the Software. Provided, however, that
Developer must include on any of its packaging, advertising, and Software in
which AAOS or the MODEMS questionnaires are referred to documentation the
following statement:
VISTA [Software product name] has been certified by the MODEMS Task Force
of the American Academy of Orthopaedic Surgeons as acceptable for obtaining
and submitting MODEMS(TM) patient outcomes information as part of the
MODEMS Program. However, the licensing and use of this Software
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 3
---------------------------------------------------
<PAGE>
does not automatically qualify practitioners for participation in this
Program. Practitioners may only participate in or subscribe to the
information generated by the MODEMS(TM) database by contacting the MODEMS
Task Force directly. Eligibility for participation will be subject to the
requirements of the MODEMS Task Force.
The MODEMS Task Force warrants only that Certified Software will permit
practitioners to enter and transmit outcomes questionnaire information to
the MODEMS(TM) database. The MODEMS Task Force specifically disclaims any
other warranty of any kind as to said software, including but not limited
to any warranty as to the fitness of said software for any other purpose,
quality, or accuracy of said software.
7. AAOS will provide the Developer with a copy of the AAOS membership
mailing list for the purpose of marketing the Software, provided that the
Developer may not use the mailing list for any other purpose or for sending any
information, advertising, or proposals other than those dealing with the
offering or sale of the Software. Breach of this limitation shall be considered
a material breach of this agreement and shall result in the automatic
termination of this License Agreement.
DEVELOPMENT OF PRACTITIONER SOFTWARE
- ------------------------------------
8. Software to be Developed. In accordance with this Agreement,
------------------------
Developer shall use commercially reasonable efforts to design and develop the
Software, or enhance Developer's existing software to function in accordance
with the specifications, descriptions, and requirements set forth in Schedule E
and G attached hereto, and to modify the Software as required by Paragraph 18.
AAOS shall provide Developer with copies of the scoring algorithms required for
development of the Software upon receipt by AAOS of the $10,000 administrative
fee set forth in paragraph 23.
9. User's Manual. Developer will prepare a User's Manual for use by end-
-------------
users and AAOS personnel in operating the Software.
10. Completion Date of the Software. The Software shall be designed,
-------------------------------
developed, and delivered to AAOS for certification review within thirty (30)
days of the execution of this Agreement for review and approval.
CERTIFICATION PROCESS
- ---------------------
11. AAOS Certification Required. The License set forth herein will only
---------------------------
be effective after Developer has obtained certification of the Software from the
-----
AAOS.
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 4
---------------------------------------------------
<PAGE>
12. Submission of Materials for Certification. Developer must submit the
-----------------------------------------
following materials for review by the AAOS:
a. Developer shall submit to AAOS two (2) copies of the Software in
a machine readable format along with one (1) copy of the User Manual for
review. These materials must either be accompanied by, or Developer must
have previously submitted to the AAOS a check in the amount set forth in
subsection b below.
b. Developer must pay to AAOS a non-refundable administrative fee of
$10,000, as set forth in paragraph 23, upon execution of this Agreement.
c. Developer must identify a particular representative, officer, or
employee as liaison whom the AAOS may contact with any questions concerning
the Software or Certification process.
13. Requirements For Certification. In order for the Software to be
------------------------------
granted Certification by AAOS, it must meet the Certification Requirements set
forth in Schedule C attached hereto.
14. Certification Procedures. AAOS shall cooperate with Developer in
------------------------
reviewing the use and testing the Software to ensure that the Software operates,
meets, or continues to meet the Certification Requirements set forth in Schedule
C and the specifications and requirements set forth in Schedule E. For this
purpose, AAOS will identify a person who will serve as liaison between AAOS and
Developer. AAOS will approve the Software or provide Developer with a written
statement setting forth any required changes, modifications, or additions. Such
required changes will be limited to ensure that the Software complies with the
functions set forth in Schedule E and herein, and will expressly not include any
new functions or functionality.
15. Effect of Certification. Upon certification of the Software by the
-----------------------
AAOS, the certification requirement of this License Agreement shall be
considered fully satisfied and the license contained herein fully granted,
provided the other terms, including the payment of the license fee, are
satisfied. In addition, upon certification of the Software and consistent with
any requirements that may be promulgated from time to time by the AAOS, AAOS
shall permit Developer to use the MODEMS trademark and the MODEMS certified
vender service mark during such period as the Software shall remain certified by
the AAOS. Further, Developer may not announce, offer, market, or sell the
Software before receiving certification from AAOS, or, as modified by Paragraph
17, after it receives notice that the Software is no longer certified by the
AAOS. Provided further that AAOS expressly disclaims any and all responsibility
for the development, marketing, sale, or use of
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 5
---------------------------------------------------
<PAGE>
the Software except that AAOS has certified that the Software as reviewed by
AAOS may be used to collect and submit data to the MODEMS database.
16. Effect of Premature Marketing. In the event Developer announces,
-----------------------------
offers, markets, or sells the Software before receiving certification from AAOS,
Developer shall be required to pay to AAOS a penalty of $2,000, payable
immediately to AAOS, regardless of whether or not Developer receives
certification.
17. Effect of Non-Certification. In the event Developer or the Software
---------------------------
fails to satisfy the requirements for certification or is otherwise refused
certification, Developer may not offer or sell any Software which includes a
code developed using the Questionnaires. Provided, however, that in such case
Developer may enter into a separate agreement with AAOS for the offering and
sale of Software which permits use of the Questionnaires to compile a local,
individual practice outcomes study database for which Developer will be required
to pay to AAOS an annual fee and royalties.
POST-DEVELOPMENT RESPONSIBILITIES AND RIGHTS
- --------------------------------------------
18. Modifications To Questionnaires, Specifications and Software: AAOS
------------------------------------------------------------------
Ongoing Right to Assess Quality. In the event AAOS makes any changes in the
- -------------------------------
questionnaires or the database or Software specifications, it will advise the
Developer of such changes. These changes shall be incorporated by Developer in
all copies of the Software licensed by Developer after the modifications to the
Software are approved pursuant to an additional certification review pursuant to
paragraph 14 above. Developer shall advise AAOS of the completion of said
modifications and their incorporation in the Software within thirty (30) days
after its receipt of notice of the modifications. AAOS expressly maintains its
on-going right to assess the quality of all services and Software Developer is
providing to end-users.
19. Failure To Make Modifications. If Developer fails to incorporate
-----------------------------
changes in the Questionnaires in the Software, fails to make changes required to
meet modified specifications, or fails to advise AAOS of the completion of said
modifications within a reasonable time, AAOS may terminate this license upon ten
(10) days written notice.
20. Ownership. All title to and all rights and interest in the Software
---------
and User's Manual, all versions thereof, any copies thereof, and any
modifications, customizations, revisions, or upgrades thereto are and shall
remain the sole property of Developer, except that all rights in the
Questionnaires, including any modifications or revisions thereto, and in all
code embodying said Questionnaires are and shall remain the sole property of
AAOS. The parties agree that all modifications and customization made to the
Software constitute derivative works (as defined by Section 101 of the U.S.
Copyright Act), all rights in which shall also be
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 6
---------------------------------------------------
<PAGE>
owned by the owner of the copyright in the Software or Questionnaires,
respectively.
21. Registration and Protection of Rights. AAOS agrees to provide
-------------------------------------
Developer with assistance and documents necessary to enable Developer to perfect
and protect its rights in the Software, the User's Manual, and any derivative
works, including registration of copyright therein and any trademark used for
the Software. AAOS and Developer shall each pay its own expenses in connection
with these activities.
22. Registration and Protection of Rights. Developer agrees to provide
-------------------------------------
AAOS with assistance and documents necessary to enable AAOS to perfect and
protect its rights in the Questionnaires and the computer code incorporating the
Questionnaires, and any derivative works, including registration of copyright
therein. AAOS and Developer shall each pay its own expenses in connection with
these activities.
23. Administrative Fee. Developer shall pay to AAOS a nonrefundable
------------------
administrative fee of $10,000 immediately upon signing this Agreement. The
administrative fee will be used for reviewing vendor's software, manuals,
documentation, etc., pursuant to Schedule C. Changes to MODEMS(TM) requiring
software review will also require payment of an additional administrative fee of
$10,000. AAOS will advise Developer of any required changes which require an
additional administrative fee and the procedure and timing for obtaining
additional certification.
24. License Fee. Upon certification of the Software by AAOS, Developer
-----------
shall pay to AAOS the license fee set forth in Schedule F attached hereto.
25. License Fee for Renewal Years. In the event Developer renews this
-----------------------------
License in future years pursuant to paragraph 51 below, Developer shall pay to
AAOS a license fee royalty in an amount to be determined of all moneys received
by Developer for sales and licensing of the Software, and a percentage to be
determined of all moneys received by Developer for service and/or maintenance
fees for the Software. Said royalties shall be payable quarterly within ten
(10) working days of the close of each quarter, said payment to be accompanied
by copies of Developer's fee schedule and an accounting of all moneys received
by Developer for the Software and any service and/or maintenance fees related
thereto.
SOFTWARE LICENSE
- ----------------
26. Software License. Developer hereby grants to AAOS, and the AAOS
----------------
accepts, subject to the terms and conditions of this Agreement, a non-exclusive,
non-transferable license to use and make a sufficient number of copies of the
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 7
---------------------------------------------------
<PAGE>
Software to enable AAOS to test and review the Software for certification and to
retain one full copy for archival purposes.
27. Personal to AAOS. The License granted hereunder is personal to the
----------------
AAOS, including its successors in interest. AAOS may not under any
circumstances assign this License, make any copies of or offer the software or
any portion thereof for sublicense, sale, lease or use by another person or
company; or sell, give, disclose, lend, or otherwise distribute the Software in
any form, to any other person or company. Provided, AAOS may assign its rights
in and obligations under this License to its successor in interest.
SOFTWARE MAINTENANCE, SUPPORT, AND UPGRADES
- -------------------------------------------
28. Software Maintenance. Developer will use commercially reasonable
--------------------
efforts to correct errors in the Software within a reasonable time after being
notified of the existence thereof by facsimile or certified letter. All error
corrections are to be considered part of the Software, are subject to all terms,
covenants, and conditions of this Agreement and the applicable end-user license
agreement. Ownership of such error corrections shall be determined in
accordance with paragraph 4 above.
29. Software Support. Developer will provide to AAOS and end-users of the
----------------
Software support via telephone or facsimile transmission during normal business
hours (i.e., 9:00 am. to 5:00 p.m. CST/CDT) to identify sources of problems, to
help solve problems, or to assist the MODEMS Task Force and end-users to obtain
help to solve problems with the Software at the following numbers:
(a) Telephone support:
(b) Facsimile support:
30. Software Upgrades. Developer will promptly notify AAOS of any changes
-----------------
or updates to the Software made by Developer, and will provide AAOS with a copy
of the modified Software and information concerning the nature of these changes.
Developer shall also place the modified Software into Escrow pursuant to
paragraph 32.
31. Training and Consulting. Developer will provide training in the use
-----------------------
of the Software and each version thereof to AAOS and end-users by means of
instructions and/or tutorial lessons contained in the User's Manual or in a
tutorial computer program provided therewith. AAOS will provide Developer with
a videotape and training material which must be included in Developer's training
materials to be provided to end-users.
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 8
---------------------------------------------------
<PAGE>
32. Escrow Agreement. Developer agrees to take the following steps:
----------------
(a) Within thirty (30) days of the execution of the Software
Development and License Agreement by AAOS, Developer shall enter into an
Escrow Agreement with and place one copy of the machine operable program
source code, a print-out of the complete source code, and, to the extent
available, programmer's notes ("the code and documentation") for the
Software in the keeping of an independent third party to be agreed upon by
both parties hereto to be held pursuant to an Escrow Agreement.
(b) In the event any changes are made in the Software, Developer shall
provide updated or revised copies to Escrow.
(c) Developer grants to AAOS a contingent license to use the code and
documentation for the purpose of maintaining the Software for AAOS's
internal use and archival purposes. This contingent license shall be free
of any royalties, but shall become effective only if Developer, either
during the term of the Software Development and License Agreement or during
the term of any Maintenance Agreement that may exist between Developer and
AAOS 1) becomes bankrupt; 2) ceases doing business, unless Developer sells
or assigns its continues to do business under another name, as a subsidiary
or division of another company, or under another form, in which case the
contingent license shall not be effective; 3) is sold to a third-party who
does not support the software; 4) refuses to support the Software for a
period of sixty (60) days following notice from AAOS; or 5) AAOS denies the
Developer re-certification. In the event of the occurrence of any of the
foregoing events, the Escrow Agent will be directed to deliver said code
and documentation to AAOS.
(d) Developer's obligation of depositing new or revised source code
and documentation in escrow shall terminate only if AAOS no longer has a
license to use the Software. Provided, however, Developer shall maintain
an escrow agreement for the Software for the period of ten years. In the
event the escrow terminates, Developer shall regain sole possession of the
source code.
ADVERTISING AND SOFTWARE PACKAGING
- ----------------------------------
33. Developer shall provide as part of the documentation provided with
each copy of the Software a copy of any MODEMS database participation and
subscription information and enrollment forms developed by AAOS.
34. Developer shall require end-users of the Software to register their
copies of the Software with Developer, and shall provide cards or forms for this
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 9
---------------------------------------------------
<PAGE>
purpose with the Software. Developer shall maintain a list of registered end-
users of Software, including the name and address of each registered end-user
and the date on which each end-user participated in training, and shall provide
AAOS with a printed list of all registered end-users including all the aforesaid
information within sixty (60) days of each calendar quarter. Developer shall
permit AAOS to review its books and records relating to the Software upon
reasonable notice at a time and place to be agreed by the parties. AAOS shall
also permit the Developer to review its list of MODEMS participants upon
reasonable notice.
35. Developer shall provide to AAOS prior to publication or distribution
all advertising, promotion, and packaging materials for the Software which
contain or refer to AAOS or any of its trademarks or service marks, or refer to
the MODEMS Questionnaires or Database for review, and shall not publish or
distribute said materials without the prior written approval of AAOS. AAOS
shall review these materials solely to ensure that all use of copyright and
trademark notices, trademarks, and other proprietary materials comply with the
provisions of this Agreement. AAOS shall notify Developer of its approval of
the materials or of any matters which require revision, correction, or
modification within ten (10) working days after receipt of the materials for
review.
MISCELLANEOUS PROVISIONS
- ------------------------
36. Confidential Information. Developer acknowledges that the
------------------------
Questionnaires and any modifications thereof may contain proprietary trade
secrets which are the property of AAOS ("Confidential Information").
37. Confidential Information. AAOS acknowledges that in the course of
------------------------
working with Developer, Developer may need to reveal to it proprietary
information or trade secrets relating to the Software which is the property of
Developer. ("Confidential Information").
38. Agreement to Maintain Confidentiality. Developer and AAOS agree to
-------------------------------------
use reasonable efforts to maintain the confidential nature of the Confidential
Information identified as such in writing by the party making the information
available, and not to disclose it to any third parties unless such Confidential
Information:
(a) was already known by the receiving party at the time it was
received;
(b) is or becomes part of the public domain through a source other
than the receiving party;
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 10
----------------------------------------------------
<PAGE>
(c) is made known to the receiving party by a third person who does
not impose any obligation of confidence on the receiving party with respect
to such information;
(d) is approved for disclosure by prior written consent of the
disclosing party;
(e) is required to be disclosed pursuant to governmental authority,
law, regulation, duly authorized subpoena, or court order, whereupon the
receiving party shall provide notice to the disclosing prior to such
disclosure; or
(f) is independently developed by the receiving party without
reference to the disclosing party's Confidential Information.
Provided, the aforesaid third parties shall not include partners, employees,
advisors, or agents of the receiving party who require and are hereby permitted
access to the Confidential Information as contemplated under this Agreement.
Further provided, however, that this Agreement supersedes any other
Confidentiality agreement.
39. Limitations on Use of Confidential Information. Except as may be
----------------------------------------------
otherwise permitted by this Agreement, the receiving party shall not copy,
duplicate, distribute, or otherwise reproduce or convey to others any of the
other party's Confidential Information, nor attempt to do any of the foregoing,
without the prior written consent of the disclosing party.
40. Limitations on Use of Questionnaires. Except as may be otherwise
------------------------------------
permitted by this Agreement, Developer shall not copy, duplicate, distribute, or
otherwise reproduce any part of the Questionnaires or any versions thereof
without the prior written consent of AAOS.
41. Proprietary Rights Notices. Developer shall include in the Software,
--------------------------
User's manual, and any documentation the following notices and such proprietary
rights notices, including copyright or trademark notices, as AAOS may reasonably
require it to include from time to time:
MODEMS Outcomes Questions(C) 1996 AMERICAN ACADEMY OF ORTHOPAEDIC SURGEONS,
COUNCIL OF MUSCULOSKELETAL SPECIALTY SOCIETIES, COUNCIL OF SPINE SOCIETIES,
and [other participating organizations identified in Schedule D attached
hereto as co-authors of the particular questionnaire]. All Rights
Reserved.
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 11
----------------------------------------------------
<PAGE>
The name and mark AMERICAN ACADEMY OF ORTHOPAEDIC SURGEONS is the
collective service mark for this organization, and the marks MODEMS and
MUSCULOSKELETAL OUTCOMES DATA EVALUATION AND MANAGEMENT SYSTEM are the
trademarks of and are used with the consent of the Academy. Use of these
marks does not indicate any endorsement of this software product.
42. Trademarks. Developer acknowledges and agrees that AAOS and the
----------
MODEMS Task Force are the sole owners of their respective trademarks.
43. Third Party Infringement of Proprietary Rights. Developer shall
----------------------------------------------
promptly notify AAOS of any unauthorized copying, use, or possession of the
Software or any portion thereof by others that it becomes aware of, and
Developer shall promptly notify AAOS upon learning of any potential infringement
by any third party of any of AAOS's trademarks, copyrights, or other
exclusionary rights of AAOS in the questionnaires. Each party's obligation
under this paragraph shall survive termination of this Agreement.
44. Litigation. AAOS shall be in charge of any litigation against or by
----------
and settlement with any third party infringers of AAOS's intellectual property
rights, including copyright, trademark, trade secret, or patent rights, in the
questionnaires or trademarks. Similarly, Developer shall be in charge of any
litigation against or by and settlement with any third party infringers of
Developer's rights in its Software, including copyright, trademark, trade
secret, or patent rights.
45. Agreement to Cooperate in Litigation. The parties hereto shall
------------------------------------
reasonably cooperate with each other as requested in connection with any action
taken by either party against any such infringer or potential infringer of
AAOS's or Developer's rights, or in defense of any action against AAOS or
Developer related to the Questionnaires or Software covered by this Agreement,
provided:
(a) Such reasonable cooperation shall include without limitation
providing personnel to appear as witnesses at depositions or in court,
furnishing documents and information, and executing all necessary
documents.
(b) The cost of any litigation or other action against potential
infringers shall be borne entirely by the party asserting its rights. That
party shall reimburse the other within thirty days after request from the
other party for any travel expenses, photocopying expenses, and attorneys
fees incurred by it at the litigating party's request in connection with
any such infringement action.
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 12
----------------------------------------------------
<PAGE>
46. AAOS Warranty. AAOS represents and warrants that it is the creator or
-------------
joint author of the Questionnaires and all versions thereof, jointly owns
copyright therein, and has the right to grant the license granted herein.
47. Developer Warranty. Developer represents and warrants that it is the
------------------
creator of the Software and all versions thereof, owns copyright therein, and
has the right to grant the license granted herein. Developer further warrants
that for the period of one (1) year after purchase of the Software by any end-
user, that the Software will be free from material errors, if properly used.
Developer does not warrant that the Software will be bug free. During the
warranty period:
(a) Any material error discovered by Developer or reported by AAOS or
any end-user will be corrected by Developer and released to end-users
within a reasonable time.
(b) Developer's sole and exclusive liability, and AAOS's sole and
exclusive remedy under this limited warranty shall be for Developer to
provide an updated copy of the Software correcting the error.
(c) Developer will provide support to the software user in accordance
with the User's Manual.
48. Disclaimer of Warranties. OTHER THAN THE LIMITED WARRANTY SET FORTH
------------------------
IN PARAGRAPH 46, AAOS MAKES NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF FITNESS FOR PARTICULAR
PURPOSE OR OF MERCHANTABILITY, OR OF RESULTS OBTAINED FROM DEVELOPER'S USE OF
THE QUESTIONNAIRES, NOR SHALL AAOS BE LIABLE TO DEVELOPER FOR ANY INDIRECT,
SPECIAL, OR CONSEQUENTIAL DAMAGES, SUCH AS LOSS OF PROFITS OR INABILITY TO USE
THE SOFTWARE.
49. Indemnification.
---------------
(a) AAOS agrees to indemnify, defend, and hold Developer harmless from
and against any third party claims against Developer arising out of AAOS's
alleged negligent acts or omissions or wrongful misconduct or claims of
copyright or trademark infringement arising out of AAOS's performance of
services or use of the Questionnaires, including any and all costs,
expenses, damages, and reasonable attorneys' fees; Provided that prompt
notice of any such claims must be given to AAOS by Developer, that
Developer must cooperate in the defense of any such claim, and that the
right to defend or settle such claims is assigned by Developer to AAOS.
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 13
----------------------------------------------------
<PAGE>
(b) Developer agrees to indemnify, defend, and hold the AAOS harmless
from and against any third party claims against AAOS arising out of
Developer's alleged negligent acts or omissions or wrongful misconduct or
claims of copyright or trademark infringement arising out of Developer's
performance of services or use of the Software, including any and all
costs, expenses, damages, and reasonable attorney's fees; Provided that
prompt notice of any such claims must be given to Developer by AAOS, that
AAOS must cooperate in the defense of any such claim, and that the right to
defend or settle such claims is assigned by AAOS to Developer.
(c) Developer agrees to indemnify, defend, and hold harmless the AAOS
against any third party claims or threats of claims against it or Developer
arising from the alleged infringement by any modifications to the Software
prepared by AAOS or prepared for Developer by another software consultant
or developer other than AAOS pursuant to this Agreement of any United
States copyright, patent, or trademark, trade secret, or other proprietary
rights of that third party, including any and all costs, expenses, damages,
and reasonable attorneys fees; provided that prompt notice of any such
claims must be given to Developer by AAOS, that AAOS must cooperate in the
defense of any such claim, and that the right to defend or settle such
claims must be assigned by AAOS to Developer.
(d) Pursuant to this Agreement, neither Developer nor AAOS is required
to indemnify for acts or omissions of the other or of a third party except
those hired or retained by the other pursuant to this Agreement.
50. Limitation on Liability. AAOS AND DEVELOPER HEREBY ACKNOWLEDGE AND
-----------------------
AGREE THAT, EXCEPT AS SET FORTH ABOVE, THEIR TOTAL AGGREGATE LIABILITY TO EACH
OTHER FOR ANY COST, LOSS, DAMAGE, OR OTHER POTENTIAL OR ACTUAL EXPENSE WHICH IS
IN ANY WAY RELATED TO THE EXECUTION, PERFORMANCE, OR SUBJECT MATTER OF THIS
AGREEMENT SHALL NOT EXCEED THE AMOUNT OF THE LICENSE FEE PAID BY DEVELOPER TO
AAOS HEREUNDER, REGARDLESS OF THE FORM OF THE ACTION EMPLOYED.
51. Initial Term: Succeeding Terms. This Agreement and the license
------------------------------
granted herein to Developer by AAOS will be effective as of the last date of
signing hereof and will continue until April 30, 1997; provided, however, that
at the end of this period this License may be renewed for a one-year period
pursuant to the following paragraph.
52. Renewal of License. At the end of the initial term, if no changes
------------------
have been made by the AAOS in its policies or questionnaires, this Agreement
shall be renewed for one (1) additional one-year term. At the end of this one
year term if no
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 14
----------------------------------------------------
<PAGE>
changes have been made by AAOS, this Agreement shall be renewed for an
additional one-year term. This agreement may be so renewed a total of nine (9)
times.
53. Recertification Of Vendors. The Software shall be reviewed by AAOS on
--------------------------
an annual basis to determine if it continues to meet the certification
requirements and the other requirements contained in this Agreement. In the
event AAOS makes any changes in the software requirements or the content or
structure of the Questionnaires, or adds any new questionnaires during the term
of this License, the Developer must revise its Software and submit it to the
same Certification process as required in paragraphs 11 through 17, and pay the
administrative fee required in paragraph 23 above.
54. Termination of License. This License may be renewed for up to ten
----------------------
(10) times after which time it will automatically terminate and a new License
Agreement must be entered into. This License may also be terminated by AAOS at
the end of any period if the Developer fails to make the changes required by
paragraphs 18 and 19 above or fails to make any license fee payment required by
paragraphs 24 and 25. In addition, AAOS will have the right to immediately
terminate this Agreement by delivering written notice thereof to Developer at
any time after the occurrence of any of the following events of default:
(a) the failure of Developer to perform or observe any of its
obligations under this Agreement or under any ancillary agreement between
the parties hereto relating to the subject matter hereof, if such failure
shall continue for ten (10) days after written notice thereof;
(b) the filing of a voluntary petition in bankruptcy by Developer; the
institution of any bankruptcy, reorganization or insolvency proceeding
against Developer, Developer's execution of an assignment for the benefit
of creditors; Developer's admission in writing of its inability to pay its
debts as they mature; or the appointment of a trustee or receiver for a
substantial part of Developer's property; or
(c) the liquidation or dissolution of AAOS; the discontinuation of the
business conducted by AAOS relating to the subject matter of this license.
55. Termination of Agreement by Developer. Developer may also terminate
-------------------------------------
this Agreement on thirty (30) days written notice in the event AAOS breaches any
term of this Agreement or fails to perform any of its duties under this
Agreement; provided, however, that upon receipt of notice from Developer, AAOS
shall have the right to cure any such breach or failure or breach within
fourteen (14) days of receipt of Developer's written notice and, if AAOS does so
the Agreement shall continue in full force and effect.
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 15
----------------------------------------------------
<PAGE>
56. Actions Upon Termination. Upon expiration or termination of this
------------------------
Agreement, the licenses granted herein will automatically terminate, and all
materials delivered by AAOS, or generated by AAOS in connection with the
Questionnaires will be returned to AAOS, or destroyed by Developer if so
directed by the AAOS; and all Software, materials, and copies thereof developed
and/or supplied by Developer shall be returned to Developer if so directed by
Developer, provided, however, that AAOS may retain one copy each of the Software
and any documentation therefor in its archives. Developer shall also assign all
rights in the Software and all responsibilities under this Agreement to another
approved Developer of a certified Software program.
57. Entire Agreement. This Agreement, including all the Schedules
----------------
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and all prior proposals, discussions, and writings by
and between the parties relating to the subject matter hereof are superseded
hereby.
58. Non-Waiver of Provisions. None of the terms of this Agreement shall
------------------------
be deemed to be waived or amended by either party unless such waiver or
amendment is in writing signed by both parties and recites specifically that it
is a waiver of or amendment to the terms of this Agreement.
59. Non-Waiver of Provisions. The failure of Developer or AAOS in any one
------------------------
or more instances to insist upon strict performance of any of the terms or
provisions of this Agreement shall not be construed as a waiver or
relinquishment, to any extent, of Developer's or AAOS's right to assert or rely
upon any such terms or provisions on any future occasion.
60. Severability. In the event that a court of competent jurisdiction
------------
holds that any particular provision or requirement of this Agreement is invalid
or in violation of any applicable law, each such provision or requirement shall
be enforced only to the extent it is not in violation of such law or is not
otherwise unenforceable, and all other provisions and requirements of this
Agreement shall remain in full force and effect.
61. Survival. The termination of this Agreement shall not terminate any
--------
obligation or liability accrued at the time of such termination, nor shall it
terminate the covenants and obligations of confidentiality, ownership,
warranties, indemnification, or limitations of liability contained herein.
62. Relationship of the Parties. The Parties are independent contractors,
---------------------------
and no partnership or joint venture is intended to be created by this Agreement,
nor any principal-agent or employer-employee relationship. Neither party shall
have control over the manner, method, or means of performance of the other party
under this Agreement except as provided herein.
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 16
----------------------------------------------------
<PAGE>
63. No Assignment. Neither this Agreement nor any rights or obligations
-------------
contained herein may be assigned or otherwise transferred without the prior
written consent of both parties; provided, however, that either party may assign
this agreement without obtaining the other party's consent along with all of its
rights and obligations to an affiliate or in the event of a merger or
acquisition or sale of substantially all of the party's assets to which this
Agreement relates. Any assignee or transferee so permitted shall be required to
sign this Agreement and to accept the rights and obligations hereof before any
such assignment or transfer shall be valid.
64. Survival. This Agreement shall be binding upon and shall inure to the
--------
benefit of the Parties and their successors and assigns permitted by this
Agreement.
65. Choice of Law. This agreement shall be governed, construed, and
-------------
enforced in accordance with the laws of the State of Illinois and, to the extent
applicable, the copyright and trademark laws of the United States of America.
66. Notice. Any notice required by this Agreement shall be directed to
------
the respective parties by delivery of said notice to the parties at the
following addresses:
Developer
---------
Summit Medical Systems, Inc.
10900 Red Circle Drive
Minnetonka, MN 55343
Attention: Dave Teckman
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 17
----------------------------------------------------
<PAGE>
AAOS
----
AMERICAN ACADEMY OF ORTHOPAEDIC SURGEONS
6300 N. River Road
Rosemont, Illinois 60018
Attention: Lawrence E. Rosenthal, Ph.D.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
31st day of March, 1996.
AMERICAN ACADEMY
OF ORTHOPAEDIC SURGEONS Summit Medical Systems, Inc.
Developer
By: /s/William W. Tipton By: /s/David R. Teckman
----------------------------- -----------------------------
Name: William W. Tipton M.D. Name: David R. Teckman
Title: Executive Vice President Title: Vice President
Dated: March 17, 1997 Dated: March 31, 1997
-------------------------- --------------------------
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT - PAGE 18
----------------------------------------------------
<PAGE>
AMENDMENT
This Agreement amends the Agreement entered into on 3/31/97 by and
------------
between the American Academy of Orthopaedic Surgeons, an educational
organization having its principal place of business at 6300 N. River road,
Rosemont, IL 60018 ("AAOS"), individually and on behalf of its Task Force on
Data Management, and Summit Medical Systems, Inc., a Minnesota corporation with
its principal place of business at 10900 Red Circle Drive, Suite 100,
Minnetonka, MN 55343 ("Developer").
In consideration of the following mutual covenants and conditions, the
Parties agree as follows:
1. Paragraph l.c of the Article entitled COPYRIGHT AND TRADEMARK LICENSE
(page 2) shall be eliminated and shall be replaced by the following language:
c. Except as otherwise provided in this Agreement, Developer shall not use
the Questionnaires or any part thereof in connection with the development
of any computer software program other than the program authorized herein,
and shall not use the Questionnaires or any part thereof in connection with
the development of any database software or system for any organization or
entity without the express written consent of AAOS.
Notwithstanding the foregoing, AAOS and Developer acknowledge that
Developer is developing, marketing and maintaining its own database of
orthopaedic outcomes data, and that Developer's questionnaires have certain
data elements in common with the MODEMS(TM) questionnaire, which
specifically shall include the Current Health Assessment, SF 36 and SF 12,
the Arthritis Modules and Physician and Patient Identifiers. Furthermore,
the parties may from time to time jointly designate in writing additional
common data elements that may be used in both the MODEMS(TM) and the
Developer's questionnaires. AAOS hereby agrees that Developer shall have
the right to use such designated common data elements in the Developer's
own questionnaires and to harvest and aggregate data from such elements
into Developer's databases. The parties acknowledge and agree that
Developer's orthopaedic outcomes database may include such common data
elements but shall not otherwise be identical to the MODEMS(TM) database.
Nothing in this Agreement shall prohibit Developer from developing its own
orthopaedic outcomes questionnaires or databases.
Developer agrees to disclose in writing in its agreements with subscribers
which data elements will be provided to AAOS alone, Developer alone, or to
both AAOS and Developer. The Developer shall provide AAOS with a copy of
the executed agreement between the Developer and subscriber.
<PAGE>
2. The following paragraph shall be added after Paragraph 32 of the
Article entitled SOFTWARE MAINTENANCE, SUPPORT AND UPGRADES and before Paragraph
33 of the Article entitled ADVERTISING AND SOFTWARE PACKAGING (page 9) and shall
be considered a part of the latter Article:
32b. Prospect List: New Prospect: Upgrades. AAOS shall provide Developer
---- -------------- ------------- --------
with a list of prospects who are candidates to become subscribers in the
MODEMS(TM) program. Developer shall include MODEMS(TM) in all Developer
orthopaedic outcomes packages distributed to new customers or to any
customers seeking software upgrades. If Developer has entered into
agreements with any of the Developer's end-users who do not wish to have
their software upgraded, Developer shall encourage but shall not require
such end-users to become subscribers in the MODEMS(TM) program.
In agreement hereto, the parties below have executed this Amendment upon
the dates appearing below their signatures.
American Academy of Orthopaedic Summit Medical Systems, Inc.
Surgeons
By /s/William W. Tipton By /s/David R. Teckman
---------------------------- ---------------------------------
William W. Tipton, Jr., MD
Executive Vice President
Date 3/17/97 Date 3/31/97
-------------------------- -----------------------------------
<PAGE>
Exhibit 10.3
REGISTRY DEVELOPMENT AGREEMENT
THIS AGREEMENT is entered into on February 3, 1997 (the "Effective Date"),
by and between SUMMIT MEDICAL SYSTEMS, INC., a Minnesota corporation whose
principal office is located at 10900 Red Circle Drive, Suite 100, Minnetonka,
Minnesota 55434-1906 ("Summit") and ELI LILLY AND COMPANY, an Indiana
corporation whose principal office is located at Lilly Corporate Center,
Indianapolis, Indiana 46285 ("Lilly").
RECITALS
A. Summit designs, develops and markets clinical outcomes database
software products and collects, aggregates, reports and manages national
database programs for providers, manufacturers and medical societies within the
healthcare industry.
B. Lilly is a research-based corporation that develops, manufactures
and/or markets pharmaceuticals.
C. Summit desires to develop, manage and provide ongoing support for an
atherosclerosis revascularization therapies outcomes registry ("ART Registry"),
more fully described below, which will supply health care providers with
clinical data and which will supply Lilly with timely information, data analysis
and reporting regarding interventional cardiology procedures and outcomes.
D. Lilly desires to sponsor the development of a ReoPro/(R)/ outcomes
database ("ROD") as part of the ART Registry, and Summit so agrees, subject to
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following words, terms and phrases
shall have the following meanings:
1.1 "Adverse Event" means any serious and unexpected event possibly
-----------
related to the use of ReoPro and reportable under 21 CFR (S) 314.
1.2 "Advisory Team" means a panel of up to ten (10) physicians, nurses
and/or payor representatives selected by Lilly, who will meet periodically
during the term of this Agreement to advise the parties on issues related to the
development of ROD and its functionality.
<PAGE>
1.3 "ART Registry" means the compilation of data related to interventional
cardiology, including certain portions of the ReoPro Outcomes Database, Summit
Software and other data collected by Summit from third parties during the Pilot
Project.
1.4 "Development Schedule" means the Development Schedule attached hereto
as Exhibit A.
---------
1.5 "Participant" means any end-user licensee of the Summit Software
pursuant to a Participant Agreement, who is participating in the Pilot Project.
1.6 "Participant's Data" means a Participant's own specific patient data
submitted to ROD.
1.7 "Participation Agreement" means a written agreement (in a form
substantially similar to the agreement attached hereto as Exhibit B) between
---------
Summit and a Participant that provides for the licensing of the Summit Software
and the Participant's participation in the Pilot Project.
1.8 "Pilot Project" means the project to design and implement ROD at ten
(10) sites, as more fully described in Section 3 below.
1.9 "Proprietary Information" means such information which is disclosed by
one party to the other orally, electronically, visually or in a document or
other tangible form, which is either identified as or should reasonably be
understood in the circumstances of its disclosure to be confidential and/or
proprietary. Proprietary Information may include the property of third parties.
1.10 "ReoPro Outcomes Database" or "ROD" means the outcomes database
developed through the Pilot Project that contains specific data elements related
to ReoPro and its use in a clinical setting and other data pertaining to
interventional cardiology procedures of a Participant whether or not ReoPro was
administered.
1.11 "Reports" means all reports distributed or made available to Lilly by
Summit, which consist of data and analysis of data from the ART Registry and
ROD.
1.12 "Summit Databases" means any and all databases developed by or for
Summit prior to, during or after the term of this Agreement, excluding ROD.
1.13 "Summit Software" means all software, algorithms, interfaces,
documentation and other materials created by Summit or its affiliated companies
prior to the Effective Date or pursuant to this Agreement, which will be used to
collect, aggregate and harvest Participant's Data, including, but not limited
to, the Crescendo! software product that is proprietary to Summit.
-2-
<PAGE>
1.14 "Web Site" means a specific location(s) on the World Wide Web that
Participants and the parties will be able to access in order to participate in
the Pilot Project.
2. DEVELOPMENT OF ROD
2.1 Purpose. ROD will be designed to accomplish the following three major
-------
objectives: (a) provide a neutral, respected outcomes database that offers
timely information, comprehensive data analysis and timely reports to
Participants and Lilly about interventional cardiology procedures and outcomes
with a focus on the clinical use of ReoPro in a clinical setting; and (b)
provide a flexible system that permits Participant's Data to be entered through
the Web Site on-line either manually or through a download from other standard
data collection systems of a Participant, such as hemodynamic equipment.
2.2 Development of ROD and Summit Software. Summit will create ROD as a
--------------------------------------
sub-database of the ART Registry and any Summit Software necessary to implement
ROD at the Participants' sites. Lilly and the Advisory Team shall identify the
specific data elements required to be included in ROD and Summit shall ensure
the proper systems are in place to permit the collection and processing of those
data elements. Changes to data elements of ROD during the Pilot Project shall
be made only upon the mutual agreement of Lilly and Summit, which agreement
shall not be unreasonably withheld by either party. Summit will develop the
Summit Software as required hereunder to enable the Participants to input
Participant's Data into ROD.
2.3 Development of Web Site. Summit will create, with design input from
-----------------------
Lilly and the Advisory Team, the Web Site. The Web Site will be stored at
Summit's facilities and Summit shall establish and register its domain name.
Summit shall own all right, title and interest, including copyrights, in and to
the Web Site.
2.4 Collection and Security of Participant's Data. Collection of the
---------------------------------------------
Participant's Data to be included in ROD from Participants will be done on-line
through the Web Site, using the Summit Software. Summit will use commercially
reasonably efforts to ensure the confidentiality of all data collected through
the Web Site by use of digital signatures and encryption software. Summit will
maintain ROD at its facilities, and will use commercially reasonably efforts to
ensure that ROD is held at the C2 security level required for all secure
government systems. The parties acknowledge that the level of security Summit
can implement may be restricted by applicable export restrictions of the United
States.
2.5 Data Harvests and Reports. The data contained in ROD will be
-------------------------
harvested on a monthly basis and analyzed by Summit to produce the Reports,
-3-
<PAGE>
which will be distributed in a timely manner to Lilly, but at least monthly.
-----
Summit and Lilly will define, with assistance from the Advisory Team as
described herein, the format, layout and required content for the Reports.
Lilly and the Advisory Team will work with Summit to identify the specific data
and required analysis to be included in the Reports. In addition, at Lilly's
request, Summit will prepare or have prepared any special reports containing
multi-variable regression data analysis or other advanced analysis and reporting
not provided for in the Reports ("Special Reports"). Special Reports may be
prepared at additional expense to Lilly, charged at Summit's then current fees.
All Lilly Reports shall be provided in a non-editable format, such as Adobe
Acrobat, as well as in Word for Windows format. Additionally, for audit and
documentation purposes, Summit shall be able to demonstrate how any analysis was
produced and the source of the information contained in that analysis (e.g.,
source datasets and programs used to produce the analysis); provided however,
----------------
Summit shall not be required to provide any proprietary information of a third
party (e.g. proprietary algorithms). Summit must be able to demonstrate that
reporting programs have undergone testing to ensure accurate output from the
programs. Other reports pertinent to Participants' sites will be generated for
Participants, as provided in the Participation Agreement. Standard reports,
those which do not fall within the above definition of a Special Report, shall
be prepared for Participants on a monthly basis at no additional cost to Lilly
or Participants. Special Reports requested by Participants shall be prepared
only upon approval by Lilly and at the expense of the requesting Participant.
2.6 Adverse Event Reporting. Summit will design ROD to include an Adverse
-----------------------
Event reporting system reasonably acceptable to Lilly, that provides Lilly
notification of Adverse Events related to ReoPro within forty-eight (48) hours
after such event is entered in ROD by a Participant. Summit shall contractually
obligate through the Participation Agreement and train the Participants to
immediately report to Summit all Adverse Events including, without limitation,
(i) those which involve Subject deaths, (ii) those which involve non-elective
hospitalization or extension of hospitalization of Subjects, (iii) those which
are life threatening, (iv) those which are permanently disabling, (v) a
congenital abnormality, (vi) cancer, and (vii) a drug overdose. Summit shall
capture such Adverse Events as part of ROD. Additionally, Summit shall notify
Lilly of any and all Adverse Events which meet the referenced criteria above, by
(1) telephone, immediately upon first receiving notification; and (2) facsimile,
including all relevant available data, within forty-eight (48) hours of first
receiving notification. Notwithstanding the foregoing, this reporting system
will not, and is not intended to, be a substitute for any required reporting of
Adverse Events to governmental agencies by Lilly or the Participants, and Summit
shall not assume any such responsibility on behalf of Lilly or any third party
by including the reporting system in ROD.
2.7 Use of Names and Trademarks. Neither party shall use the names and/or
---------------------------
trademarks of the other party for any purpose, including, without limitation,
-4-
<PAGE>
advertising, press releases, or third party communication, without prior written
approval, unless otherwise agreed in writing. Summit shall be entitled to
identify Lilly as a client in client lists.
3. PILOT PROJECT
3.1 Scope. The Pilot Project will provide for the development and
-----
implementation of ROD in accordance with the Development Schedule. A total of
ten (10) Participants located in the U.S. will be involved in the Pilot Project.
All Participants in the Pilot Project will be selected by mutual agreement of
Summit and Lilly, with input from the Advisory Team.
3.2 Duration. The Pilot Project will begin on the Effective Date and
--------
shall continue until (****) of ROD data from ten (10) Participants, whichever is
later. Notwithstanding the duration of the Pilot Project, the parties shall meet
during 1997 to evaluate the possible expansion and/or continuation of ROD beyond
the term of this Agreement, under separate terms and conditions to be agreed
upon.
3.3 Fees. As compensation for the Pilot Project, Lilly shall pay to
----
Summit a total fee, including, without limitation, out-of-pocket and travel
---------
expenses (except as otherwise expressly provided herein), of Four Hundred
Thousand Dollars ($400,000.00) in accordance with the payment schedule attached
hereto as Exhibit C.
---------
4. USE OF DATA AND OWNERSHIP
4.1 Ownership of Databases. Summit shall own all right, title and
----------------------
interest, including the copyrights, in and to the ART Registry, except that
portion related to ROD. Subject to the license granted to Summit in Section 4.2
below, Lilly shall own all right, title and interest, including copyrights, in
and to ROD.
4.2 Use of Certain ROD Data by Summit. Lilly hereby grants to Summit a
---------------------------------
perpetual, nonexclusive royalty-free worldwide license to use, copy, distribute
and publicly display the non-ReoPro-specific data contained within ROD into the
ART Registry and any other Summit Databases at Summit's discretion. Upon
completion of the design of ROD during the Pilot Project, the parties shall
negotiate in good faith which, if any, data elements of ROD are ReoPro-specific
and, therefore, not subject to the foregoing license.
4.3 Publication Rights. Summit and its affiliated companies shall have no
------------------
right to publish the findings related to ReoPro and its use that result from
ROD, without the prior written permission of Lilly.
**** Confidential Treatment Requested
-5-
<PAGE>
5. ADDITIONAL RESPONSIBILITIES OF SUMMIT
5.1 Licensing and Installation of Summit Software. For the Participants
---------------------------------------------
in the Pilot Project, Summit shall, at no charge to the Participant, (a) license
the Summit Software to such Participants for their use in accordance with the
terms of the applicable Participation Agreement, and (b) install the Summit
Software at such Participants' locations.
5.2 Participation Agreements. Upon initial agreement between Lilly and
------------------------
Summit concerning the identity of the Participants, Summit shall enter into a
written Participation Agreement with each site which is substantially similar in
content to the template agreement attached hereto as Exhibit D.
---------
5.3 Training. During the Pilot Project, Summit shall provide, at no cost
--------
to a Participant, training in the use of the Registry for designated employees
of Participant at one (1) location of such Participant. In addition, Summit
shall also provide training in the use of the Registry to designated Lilly
representatives at one (1) location mutually selected by Summit and Lilly, at no
cost to Lilly except the travel expenses of its representatives. If requested
by Lilly, additional training during the Pilot Project will be provided to
Participants and to Lilly representatives at the cost of (****) per person
trained, plus travel expenses.
5.4 Ongoing Support. Summit shall maintain a toll-free number at its
---------------
principal place of business for the purpose of servicing Participants and Lilly.
Summit will provide dedicated personnel experienced in the operation of ROD and
the ART Registry to answer questions regarding its use from 8:00 a.m. until 6:00
p.m. (Central Time) on weekdays, excluding any holidays.
5.5 Meetings. If requested by Lilly, Summit shall participate in bi-
--------
weekly meetings and/or telephone conferences with Lilly to discuss the status,
progress and interim results of the Pilot Project.
5.6 Data Processing Activities by Summit.
------------------------------------
(a) Data Collection and Entry. Summit shall create ROD and any
-------------------------
corresponding entry, editing and processing system ("System") for the Pilot
Project in a manner that follows a documented methodology that incorporates
the concepts of computer system validation. This methodology should
include:
(1) a system of change control for both software and data;
**** Confidential Treatment Requested
-6-
<PAGE>
(2) development of appropriate hardware and software security
measures to ensure the integrity and accuracy of the system data and
software;
(3) a testing process that ensures the system's ability to meet
the pre-defined system requirements;
(4) a process for creation of key systems documentation,
including:
(i) a system validation plan;
(ii) system requirements and specifications listings;
(iii)system logical and physical design documents;
(iv) system testing documentation and test results;
(v) system backup and recovery and business continuity
plans;
(vi) user's and operator's guides or manuals;
(vii)relevant systems training documentation for both
software users and systems support personnel;
(5) a process for retaining the critical systems records and
documentation, listed in 5.6(a)(4) above; and
(6) a review and approval process for systems development
activities, system acceptance, and ongoing systems reviews.
Summit shall not subcontract any aspect of the development of the System
without the knowledge and consent of Lilly. Summit shall also allow a review of
any and all of the above-mentioned documentation by representatives from Lilly
or applicable regulatory authorities.
(b) Archiving. Summit shall archive all data and evidence of its
---------
conformance to each of the above systems requirements for fifteen (15)
years after completion or termination of the Pilot Project.
6. ADDITIONAL RESPONSIBILITIES OF LILLY
6.1 Creation of Advisory Team. Lilly shall coordinate an Advisory Team
-------------------------
for the Pilot Project and shall determine the size, and the appointment of
individuals to, the Advisory Team, with input from Summit. Unless the parties
agree otherwise, Lilly shall cause the Advisory Team to meet as needed during
the term of this Agreement to provide input into the development and composition
of ROD, and to evaluate the performance of the ROD. The costs associated with
-7-
<PAGE>
the formation and meetings of the Advisory Team, including, but not limited to
honorariums, travel expenses and the like, shall be borne by Lilly.
7. RESPONSIBILITIES OF PARTICIPANTS
7.1 Site Preparation and Maintenance. Participants shall be responsible
--------------------------------
for preparing and maintaining their locations for installation of the Summit
Software, including dedicated phone lines, communication links and third party
software. Participants shall also be required to do minimal, routine systems
maintenance on those systems on which the Summit Software is installed.
7.2 Data Entry. Participants shall be responsible for entering, and
----------
verifying the accuracy of, their Participant's Data entered into ROD via the Web
Site. Intra and/or inter field validation will be incorporated into the Summit
Software by Summit to facilitate this process.
7.3 Feedback. Participants involved in the Pilot Project shall be
--------
required to participate in user group meetings and to provide ongoing feedback
to Summit regarding ROD and the ART Registry, its functionality, implementation
and training.
7.4 Required Consents. Summit shall include in the Participation
-----------------
Agreement a contractual requirement that Participants (i) obtain all consents
required by law from its patients to enable the data related to such patients to
be included in and used in ROD and the ART Registry, and (ii) indemnify and hold
harmless Summit and Lilly from any failure by Participants to do so.
8. CONFIDENTIALITY
8.1 Non-Disclosure of Data. Except as otherwise provided in Section 4,
----------------------
Summit will hold and maintain as confidential and shall not disclose to third
parties the actual data contained in ROD or the Reports, and will protect such
data from use for any purpose other than the design, development, implementation
and maintenance of ROD and the Reports as contemplated hereunder or as expressly
permitted in this Agreement. ROD will be maintained in an access-controlled
computer system, with access limited to employees or agents of Summit who are
directly involved in the management and/or analysis of the data contained
therein.
8.2 Non-Disclosure of Summit Software. Lilly shall not, during the term
---------------------------------
of this Agreement or after termination hereof for any reason, disclose or
directly or indirectly make available to any third party the Summit Software,
without Summit's express prior written approval, and shall not use such Summit
Software except as expressly contemplated hereunder. Lilly shall maintain in
confidence the
-8-
<PAGE>
Summit Software by using at least the same physical and other security measures
as are used for its own confidential proprietary information and documentation.
8.3 Non-Use and Non-Disclosure of Proprietary Information. In addition to
-----------------------------------------------------
the parties' respective obligations under Sections 8.1 and 8.2, all Proprietary
Information shall be deemed confidential and proprietary to the party disclosing
such information hereunder. Each party may use the Proprietary Information of
the other party during the term of this Agreement only as permitted or required
for the receiving party's performance hereunder. The receiving party shall not
disclose or provide any Proprietary Information to any third party and shall
take reasonable measures to prevent any unauthorized disclosure by its
employees, agents, contractors or consultants during the term hereof including
appropriate individual nondisclosure agreements. All software, algorithms,
interfaces, protocols and other information related to the collection of data
via the Internet, and the development, design, and implementation of databases
or registries (such as the ART Registry), or the like, shall be Proprietary
Information of Summit; provided, however, that Lilly shall have the right to use
-------- -------
such Proprietary Information for Lilly or its affiliates' research purposes.
8.4 Exclusions. The following shall not be considered Proprietary
----------
Information for purposes of this Agreement:
(a) Information which is or becomes in the public domain through no
fault or act of the receiving party;
(b) Information which was independently developed by the receiving
party without the use of or reliance on the disclosing party's Proprietary
Information;
(c) Information which was provided to receiving party by a third party
under no duty of confidentiality to the disclosing party; or
(d) Information which is required to be disclosed by law, provided,
--------
however, prompt prior notice thereof shall be given to the party whose
-------
Proprietary Information is involved.
8.5 Survival. Except as otherwise indicated, the provisions of this
--------
Section 8 shall survive any termination of this Agreement.
9. INVENTIONS
If as a result of the Pilot Project, Summit conceives or actually reduces
to practice any new invention or use involving ReoPro, Summit will promptly
notify Lilly, and such new invention or use shall be the sole property of and
shall be
-9-
<PAGE>
assigned to Lilly. Notwithstanding the foregoing, Lilly shall not own any
rights, and hereby assigns to Summit all rights (including copyrights) it may
have, in any computer software, algorithms, interfaces, protocols, information
related to development of databases, registries (i.e. the ART Registry) or the
collection of data via the Internet, or the like, developed in connection with
the Pilot Project whether by Summit alone or in conjunction with Lilly or any
other party, and all such inventions and information shall be owned by Summit;
provided, however, that Lilly shall have a right to use such inventions or
- -------- -------
information for Lilly or its affiliates' research purposes.
10. INDEMNIFICATION
Summit shall indemnity, defend and hold harmless Lilly from and against
loss, damage, cost and expense of claims and suits (including reasonable
attorneys fees) resulting from the provision, use or application of information
to or from ROD or the ART Registry by Participants and/or Summit. Summit's
obligations of indemnification shall not extend to any loss, damage or expense
arising from the misconduct by Lilly. Lilly shall indemnify, defend and hold
Summit harmless from and against any and all Claims resulting from or arising
out of the use or inclusion of data, or the release of such data from ROD or the
ART Registry by Lilly, provided that such Claim results from or arises solely
from Lilly's willful misconduct.
11. WARRANTIES AND LIMITATION OF LIABILITY
11.1 Warranties.
----------
(a) Use and Development. Summit will warrant the Summit Software to
-------------------
Participants in accordance with Summit's then standard end user warranties.
Summit also warrants to Lilly that the Summit Software and ROD shall be
developed and implemented in accordance with prevailing professional
standards and using current state-of-the-art technology and security
systems.
(b) Rights. Summit represents and warrants that it has the right to
------
grant Participants a license to use the Summit Software as set forth in
this Agreement without violating the rights of any third party, and there
is no actual or, to the best of its knowledge, threatened suit by any such
third party based on alleged violation of such rights by Summit. To the
extent Summit incorporates third party software into the Summit Software,
Summit shall have obtained the rights from those third parties to vest in
or grant to Participants the various license rights necessary under this
Agreement.
(c) Media. Summit represents and warrants that any media upon which
-----
the Summit Software is delivered to Participants shall be free from all
-10-
<PAGE>
defects) provided that the sole remedy for any defective media shall be
that it is promptly replaced by Summit at no expense to Lilly or
Participants.
(d) Content of the Summit Software. Summit represents and warrants to
------------------------------
Lilly that all delivered components of the Summit Software will be the
latest available releases, and that future releases and engineering changes
to the Summit Software or its components will not degrade performance or
remove functionality. Summit represents and warrants that the Summit
Software as delivered to Participants neither contains nor shall contain
any "Disabling Code," "Unauthorized Code," or "Marketing Code." As used in
this paragraph the term "Disabling Code" means any code, routine, or
procedure that has the effect of terminating or disabling execution of the
Summit Software. As used in this paragraph, the term "Unauthorized Code"
means any virus, Trojan horse, worm, or other code, routine, or procedure
that (i) permits unauthorized access to data, software, or systems; or (ii)
disables, erases, or otherwise damages software, hardware, or data. As
used in this paragraph, "Marketing Code" means any code, routine, or
procedure not expressly authorized by Lilly that has the effect of
promoting or advertising any goods or services of Summit or other third
parties; provided however, that Internet hyperlinks shall not be deemed MC.
----------------
11.2 Disclaimer of Warranties. EXCEPT AS PROVIDED IN SECTION 11.1, SUMMIT
------------------------
MAKES NO WARRANTIES OF ANY KIND WHATSOEVER WITH RESPECT TO THE SUMMIT SOFTWARE
OR THE ART REGISTRY, EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SUMMIT
DOES NOT WARRANT THAT OPERATION OF THE SUMMIT SOFTWARE OR THE ART REGISTRY WILL
BE UNINTERRUPTED OR ERROR- FREE.
11.3 Limitation on Liability. IN NO EVENT SHALL SUMMIT OR LILLY BE LIABLE
-----------------------
FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES UNDER THIS
AGREEMENT, INCLUDING LOSS OF PROFITS, REVENUE, DATA, OR USE, INCURRED BY THE
OTHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR
BASED ON A WARRANTY, WHETHER OR NOT THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
11.4 Survival. The provisions of this Section 11 will survive any
--------
termination of this Agreement.
-11-
<PAGE>
12. TERMINATION
12.1 Method of Termination. Lilly may terminate this Agreement at any time
---------------------
upon (****) written notice to Summit. Summit may terminate this Agreement in the
event Lilly:
(a) files a petition of any type as to its bankruptcy, is declared
bankrupt, becomes insolvent, makes an assignment for the benefit of
creditors, goes into liquidation or receivership, or otherwise loses legal
control of its business involuntarily, effective immediately upon written
notice to the bankruptcy party; or
(b) is in material breach of this Agreement and has failed to cure
such breach within thirty (30) days of receipt of written notice thereof
from Summit.
12.2 Effect of Termination. In the event of termination or expiration of
---------------------
this Agreement for reasons other than breach by Summit, (****). Additionally,
within thirty (30) days of the effective date of termination, Summit shall
deliver to Lilly a complete copy of the ReoPro-specific data in ROD in an ASCII
comma delimited data file format suitable for processing under commercially
reasonable standards with other (non-Summit) commercially available database
software with relevant open standards for database creation (so that the data is
susceptible of query) plus a human-readable copy of the same.
12.3 Survival. The parties' respective rights and obligations under
--------
Sections 4 [Use of Data and Ownership], 8 [Confidentiality], 11 [Summit's
Warranties], 13 [Dispute Resolution] and 14 [Miscellaneous] shall survive
termination or expiration of this Agreement.
13. DISPUTE RESOLUTION
13.1 Dispute Resolution. Summit and Lilly shall each use its best efforts
------------------
to resolve any dispute between them promptly and amicably and without resort to
any legal process if feasible within thirty (30) days of receipt of a written
notice by one party to the other party of the existence of such dispute. No
further action may be taken under this Section 13 unless and until authorized
representatives of Summit and Lilly have met in good faith to discuss and settle
such dispute. The foregoing requirement in this Section 13.1 shall be without
prejudice to either party's rights, if applicable, to terminate this Agreement
under Section 12 above.
**** Confidential Treatment Requested
-12-
<PAGE>
13.2 Litigation Rights Reserved. If any dispute arises with regard to the
--------------------------
unauthorized use, disclosure or infringement of Proprietary Information by the
either party, the other party may seek any available remedy at law or in equity
from a court of competent jurisdiction.
14. MISCELLANEOUS
14.1 Notices. All notice and demands of any kind or nature which either
-------
party to this Agreement may be required or may desire to serve upon the other in
connection with this Agreement will be in writing and may be served personally,
by registered or United States mail, or by overnight courier (e.g., Federal
Express or DHL) to the following addresses:
If to Summit: Kevin R. Green
President and Chief Executive Officer
Summit Medical Systems, Inc.
10900 Red Circle Drive, Suite 100,
Minnetonka, Minnesota 55434-1906
with a copy to: Nelson Dong, Esq.
Dorsey & Whitney
220 South Sixth Street
Minneapolis, Minnesota 55402
If to Lilly: Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Attention: Lee Bowman
Neal Fowler
Service of such notice or demand so made will be deemed complete on the day
of the actual delivery. Any party hereto may, from time to time, by notice in
writing served upon the other party as aforesaid, designate a different mailing
address or a different person to which all further notices or demands will
thereafter be addressed.
14.2 Headings. The headings of the various Sections hereof are intended
--------
solely for the convenience of reference and are not intended for any purpose
whatsoever to explain, modify, or place any construction upon any of the
provisions of this Agreement.
14.3 Assignment. This Agreement may not be assigned by either party
----------
without the express written approval of the other party; provided, however, that
-------- -------
Summit may assign its rights or obligations hereunder without such consent to
any
-13-
<PAGE>
affiliated company or in the event of a merger, acquisition or sale of
substantially all of its assets.
14.4 Relationship of Parties. The relationship of the parties to this
-----------------------
Agreement is that of independent contractors and not that of a master and
servant, principal and agent, employer and employee, or partners or joint
venturers.
14.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each which will be deemed an original and all of which taken
together will constitute one and the same instrument.
14.6 Waiver. A waiver, by either party to this Agreement, of any of its
------
items or conditions in any one instance will not be deemed or construed to be a
general waiver of such term or condition or a waiver of any subsequent breach.
14.7 Severability. All provisions of this Agreement are severable. If any
------------
provision or portion hereof is determined to be unenforceable by a court of
competent jurisdiction, then the rest of the Agreement will remain in full
effect, provided that its general purposes remain reasonably capable of being
effected.
14.8 Entire Agreement, Amendments. This Agreement constitutes the entire
----------------------------
agreement of the parties with respect to the subject matter hereof and
supersedes all proposals, oral or written, and all negotiations, conversations,
discussions, or agreements heretofore between the parties. No modification or
amendment of this Agreement shall be effective unless in writing duly executed
by both parties and indicating on its face that it is intended to be an
amendment to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the Effective Date.
ELI LILLY AND COMPANY SUMMIT MEDICAL SYSTEMS, INC.
By: /s/Alan S. Clark By:/s/Dave Teckman
---------------- ---------------
Alan S. Clark, Dave Teckman,
President Vice President
U.S. Operations Sales and Marketing
-14-
<PAGE>
EXHIBIT A
DEVELOPMENT SCHEDULE
FOR THE PILOT PROJECT
<TABLE>
<CAPTION>
Target Date Benchmark
- ----------- ---------
<S> <C>
(****) Establish the Advisory Team (Lilly, with input from Summit)
(****) Design the ReoPro Outcomes Database and Web Site
(****) Design the Adverse Event Reporting Mechanism into the Registry
(****) Implement the ART Registry at the locations of the 10
Participants in the Pilot Project
(****) Complete the training program for the Participants in the
Pilot Project and appropriate Lilly representatives
(****) Aggregate the Participant's Data into the Registry
(****) Provide Reports on a monthly basis
(****) Identify additional reports desired upon completion of the
Pilot Project
</TABLE>
**** Confidential Treatment Requested
<PAGE>
EXHIBIT B
---------
REOPRO OUTCOME DATABASE
PARTICIPATION AGREEMENT
-----------------------
DATABASE:
THIS AGREEMENT is effective as of the ____day of _________________, 199__
by and between SUMMIT MEDICAL SYSTEMS, INC., a Minnesota corporation with its
principal place of business at 10900 Red Circle Drive, Minnetonka, MN 55343-9106
("Summit") and ______________ ("Participant") an individual cardiologist or
group of cardiologists whose members are identified in Schedule A of the Summit
License Agreement between Summit and Participant, dated ____________ ("License
Agreement") and whose business address is at: __________________________________
IT IS AGREED:
1. Participation.
-------------
1.1 Participant hereby agrees to participate in the ReoPro Outcomes
Database ("ROD") sponsored by Eli Lilly and Company ("Lilly") in accordance with
this Agreement. Unless otherwise provided in the License Agreement, Participant
will provide Summit with the Patient Information required for the ROD via the
Summit Web Site on a monthly basis. Participant will use reasonable efforts to
ensure that data is entered into ROD within 30 days of a patients' procedure or
visit PARTICIPANT WARRANTS THAT ALL PATENT INFORMATION SHALL BE ACCURATE AND
COMPLETE, AND THAT PARTICIPANT HAS RECEIVED ALL PERMISSIONS OR LICENSES REQUIRED
IN ORDER FOR SUMMIT TO USE SUCH PATIENT INFORMATION AS PROVIDED IN THIS
AGREEMENT AND TO SUPPLY AGGREGATE DATABASE REPORTS FROM ROD TO LILLY AND/OR
THIRD PARTIES. PARTICIPANT FURTHER WARRANTS THAT DATA PERTAINING TO ADVERSE
EVENTS WILL BE PROVIDED AS OUTLINED IN SECTION 2 OF THIS AGREEMENT. Any Data
Collection Forms provided in conjunction with ROD shall be used by Participant
only for collecting the Patient Information.
1.2. Summit will collect Participant's Patient Information on-line through
the Summit Web Site, using Summit Software. Summit will use commercially
reasonable efforts to ensure the confidentiality of the Participant's Patient
Information collected through the Web Site, and ensure that such individual data
are held at the C2 security level required for all government systems, by use of
digital signatures, and encryption software as commercially reasonable under
burdens imposed by applicable governmental export licensing restrictions.
1.3 Summit will review the Patient Information received from Participant
for completeness by performing key field data analyses. If Summit reasonably
<PAGE>
concludes that the Patient Information is incomplete, then Summit shall request
additional data, and Participant shall provide the data to Summit within fifteen
(15) days. If Participant does not supply complete Patient Information for any
three consecutive calendar months, then Summit may withhold any and all reports
to which Participant is otherwise entitled pursuant to this Paragraph 4, and may
terminate this Agreement as provided in Paragraph 5. Upon Summit's receipt of
complete Patient Information, it shall merge that information into ROD, as
applicable.
1.4 Summit will provide the Participant with standard reports from ROD on
a monthly basis. The Participant agrees to use these reports and the aggregate
data from ROD only for Participant's internal purposes, unless Participant
receives Summit's prior written consent to otherwise use such data. Special
reports including multi-variable regression analysis not included in the
standard report package may be purchased by the Participant.
1.5 Participant understands and agrees that Participant's data in
aggregate are being collected as part of larger databases which shall be owned
by Summit and/or Lilly and used by any or all of the following: Summit, Lilly,
third parties or other Participants for the study of cardiology and/or cardiac
surgery.
2. Adverse Event Reporting. ROD and the collection of data for ROD is a
-----------------------
prospective data collection project. Treatment and care of patients are within
the sole control and discretion of the investigator/physician. Accordingly when
addressing safety concerns, if any, that arise during the collection of data for
ROD, Participants and other physicians should use whatever methods of care are
usual and customary in their practices. The collection of data for ROD is not
intended to in any way affect or interfere with the Participant's/physician's
standard treatment or care of patients.
Because this project involves a marketed drug, only serious and unexpected
adverse events possibly associated with the use of ReoPro should be reported via
the Web Site to Lilly.
A serious adverse event would include an event that:
. Results in death
. Results in initial or prolonged inpatient hospitalization
. Is life-threatening
. Results in severe or permanent disability
. Results in cancer
. Results in a congenital anomaly
. Results in a drug overdose
. Is significant for any other reason
<PAGE>
An unexpected event would include those events which are not listed in the
product labeling or package insert. Notwithstanding the foregoing, adverse
reporting using ROD or the Summit Web Site will not, and is not intended to, be
a substitute for any reporting of Adverse Events to governmental agencies by the
Participants (or Lilly) and Summit shall not assume any such responsibility on
behalf of Lilly or any third party by including the reporting system in ROD.
3. Confidentiality. Summit will hold and maintain as confidential and
---------------
shall not disclose to third parties the individual Patient Information contained
in ROD or the Reports, and will protect such data from use for any purpose other
than the design, development, implementation and maintenance of ROD and larger
databases and the reports thereon or as expressly permitted in this Agreement.
Patient and physician identifying information ("Identifiers") within the Patient
Information will not be incorporated into the Databases. ROD will be maintained
in an access-controlled computer system, with access limited to employees or
agents of Summit who are directly involved in the management and/or analysis of
the data contained therein.
Participant shall hold and maintain as confidential, and not use or
disclose except as expressly permitted hereunder, any of the following: the
software, algorithms, interfaces, protocols, user documentation, data collection
forms and other information related to the collection of data via ROD and the
Internet. All software, algorithms, interfaces, protocols and other information
related to the collection of data via the Internet, and the development, design;
and implementation of ROD or the like, shall be proprietary information of
Summit.
This provision shall not apply to information which (i) is or becomes a
part of the public domain through no act or omission of the other party; (ii)
was in the other party's lawful possession prior to such access to or the
disclosure of same and had not been obtained by such other party either directly
or indirectly from the party hereto granting such access or making such
disclosure; (iii) is lawfully disclosed to the other party by a third party
having a legal right to so disclose without restriction on such disclosure.
Except as otherwise indicated, the provisions of this Paragraph 3 shall survive
any termination of this Agreement.
4. Data and Copyright Ownership.
----------------------------
Participant shall be deemed the owner with respect to all individual
Patient Information provided to Summit by Participant hereunder prior to its
inclusion in ROD or other larger databases. Pursuant to Section 1.5,
Participant hereby grants permission for Participant's Patient Information (with
the exception of patient and physician identifying information) to be
incorporated into ROD and larger databases and all reports based thereon. The
Participant shall have no rights whatsoever with respect to ROD and the larger
databases or to the software, documentation, and other materials created or
supplied pursuant to this Agreement, including all associated source code and
Web Site designs.
<PAGE>
5. Access to Records. For audit and documentation purposes, Summit may
-----------------
provide access to source data sets and programs used to produce reports in order
to demonstrate how any report was produced and the source of the information
contained in that report; unless such information is proprietary information of
a third party (e.g. a proprietary algorithm.) Summit may provide access to data
pertaining to adverse events to the Federal Food and Drug Administration upon
their request or upon the request of Lilly. Digital signatures and encryption
will be maintained throughout any review.
6. Limitation of Liability. Participant acknowledges that Lilly is a
-----------------------
only a sponsor of ROD and is not responsible for the operation or management of
ROD, and hereby waives, and covenants not to sue Lilly for, any and all possible
claims that it might have against Lilly arising out of, or resulting from, any
aspect of this Agreement. Moreover, in no event shall Summit be liable for any
indirect, incidental, special or consequential damages under this Agreement,
whether in an action in contract or tort or based on a warranty, whether or not
Summit or any other person has been advised of the possibility of such damages.
Summit's liability for damages under this agreement shall in no event exceed the
amount of the fee paid by Participant under this Agreement, and if such damages
result from Participant's use of the Web Site or other Summit products, such
liability shall be limited to the fee paid during such year. Some states and
jurisdictions outside of the United States do not allow the limitation or
exclusion of implied warranties, or liability for incidental or consequential
damages, so the above limitation or exclusion may not apply. The provisions of
this paragraph 3 shall survive any termination of this agreement.
7. Notices. All notices and demands of any kind in connection with this
-------
Agreement shall be in writing to the addresses appearing at the preamble to this
Agreement, and, in the case of Summit directed to the attention of its
Contracting Officer. Service of such notice or demand shall be deemed complete
on the day of actual delivery. A party may designate a different mailing
address or a different person to which all further notice or demands shall
thereafter be addressed with written notice to the other party.
8. Price. Pricing, terms and conditions are outlined in the License
-----
Agreement; provided, however, that there will be no charge to Participant
throughout the term of the Pilot Study except for any Special Reports requested
by the Participant.
9. Term and Termination. This Agreement is effective during the time
--------------------
period listed in the License Agreement.
10. Assignment. This Agreement may not be assigned by Participant without
----------
the express written consent of Summit. Any attempted assignment without such
consent shall be void. Any permitted assignment or transfer of this
<PAGE>
Agreement shall be binding upon, and inure to the benefit of, the successors,
executors, heirs.
11. Relationships of Parties. The relationships of the parties to this
------------------------
Agreement are those of independent contractors and not those of master and
servant, principal and agent, employer and employee, or partners or joint
ventures.
12. Waiver. A waiver by either party of any of the terms or conditions of
------
this Agreement in any one instance shall not be deemed or construed to be a
general waiver of such term or condition or a waiver of any subsequent breach.
13. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with federal law and the laws of the State of Minnesota (excluding
its choice of law rules and the U.N. Convention on the International Sale of
Goods).
14. Severability. If any provision or portion hereof is determined to be
------------
unenforceable by a court or competent jurisdiction, then the rest of the
Agreement shall remain in full effect, provided that its general purposes remain
reasonably capable of being effected.
15. Authority. If participant is a group of cardiologists, then the
---------
individual executing this Agreement on behalf of Participant below presents and
warrants that he or she has been expressly authorized to bind each member of the
group identified in Schedule A attached hereto to the terms and conditions of
this Agreement, and that he or she shall be so authorized with respect to each
new member of Participant to whom any benefits of this Agreement are provided in
the future.
16. Survival. The provisions of Paragraphs 1.5, 3, 4, 5 and 6 shall
--------
survive this Agreement.
17. Entire Agreement. This Agreement (a) constitutes the entire Agreement
----------------
between the parties hereto with respect to the subject matter hereof, (b)
supersedes and replaces all prior Agreements, oral or written, between the
parties relating to the subject matter hereof, and (c) except as otherwise
indicated herein, may not be modified, amended or otherwise changed in any
manner except by a written instrument executed by the party against whom
enforcement is sought.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date and year first above written.
SUMMIT MEDICAL SYSTEMS, INC. PARTICIPANT
By By
Title Title
Date Date
<PAGE>
EXHIBIT C
SPONSORSHIP FEE
PAYMENT SCHEDULE
Lilly shall pay to Summit a Fee for the Pilot Study of $400,000 payable as
--------
follows:
(****) Upon the Effective Date of the Definitive Agreement
To begin Software, Database and Web-Site Design
(****) Upon completion of Software, Database and Web-Site Design
(****) Upon implementation of ROD in 10 Pilot Sites
(****) Upon aggregation of Participants' Data and initial report
generation to Lilly and Participants
**** Confidential Treatment Requested
<PAGE>
SUMMIT MEDICAL SYSTEMS, INC. EXHIBIT 11.1
Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
(RESTATED)
- -------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average shares outstanding 10,347,575 8,503,767
Net effect of dilutive stock options--based
on the treasury stock method - -
------------------------
10,347,575 8,503,767
========================
Net loss $(4,498,047) $ (251,404)
========================
Net loss per share $ (0.43) $ (0.03)
========================
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 10,347,575 8,503,767
Net effect of dilutive stock options--based
on the treasury stock method - -
------------------------
10,347,575 8,503,767
========================
Net loss $(4,498,047) $ (251,404)
========================
Net loss per share $ (0.43) $ (0.03)
========================
</TABLE>
Page 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,580,164
<SECURITIES> 31,762,314
<RECEIVABLES> 3,902,008
<ALLOWANCES> (652,925)
<INVENTORY> 121,504
<CURRENT-ASSETS> 506,781
<PP&E> 5,547,797
<DEPRECIATION> (2,426,009)
<TOTAL-ASSETS> 48,446,287
<CURRENT-LIABILITIES> 6,823,083
<BONDS> 0
0
0
<COMMON> 103,477
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,446,287
<SALES> 0
<TOTAL-REVENUES> 4,013,804
<CGS> 2,779,475
<TOTAL-COSTS> 9,088,261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,495,111)
<INCOME-TAX> 2,936
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,498,047)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
