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Reorganization Agreement Dated 12/31/96

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Sectors: Biotechnology / Pharmaceuticals
Governing Law: Minnesota, View Minnesota State Laws
Effective Date: December 31, 1996
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Exhibit 10.32


REORGANIZATION AGREEMENT


This Reorganization Agreement ("Agreement") is made and entered into as of the 31st day of December, 1996 (the "Effective Date"), by and between Summit Medical Systems, Inc., a Minnesota corporation ("Summit"), DR Ware LLC, a North Carolina limited liability company ("DR Ware"), Duke University, a North Carolina not-for-profit corporation ("Duke"), and Cordillera LLC, a Delaware limited liability company ("Cordillera").


WHEREAS, Summit and DR Ware entered into a Limited Liability Company Agreement dated December 29, 1995 ("Cordillera Agreement"), pursuant to which the parties became the sole members of Cordillera, with Summit as the record and beneficial owner of 202,000 Member Units (as that term is defined in the Cordillera Agreement) and DR Ware as the record and beneficial owner of 2,000 Member Units;


WHEREAS, Duke was also granted an option ("Option") to purchase up to 200,000 Member Units in exchange for a stated Capital Contribution under the Cordillera Agreement, which Option Duke has not exercised, assigned or otherwise transferred as of the Effective Date;


WHEREAS, Summit desires to purchase the Member Units owned by DR Ware, and extinguish Duke's Option, in order to become the owner of all currently outstanding and available Member Units in Cordillera, so that Summit may wind-up and transfer the business of Cordillera to Summit (the "Reorganization"), and the other parties so agree subject to the terms and conditions of this Agreement;


WHEREAS, Summit also desires to obtain the services of certain employees of, and consultants to, Cordillera under the terms of an employment agreement and consulting agreements, as applicable, as a condition to closing the Reorganization; and


WHEREAS, Summit and Duke also desire to modify certain terms of the License Agreement between Duke University and Summit Medical Systems, Inc. dated December 29, 1995 (the "License Agreement"), to which Cordillera is a third party beneficiary, as a condition to closing the Reorganization.


NOW, THEREFORE, for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:


1. CLOSING AND PURCHASE OF MEMBERSHIP UNITS.
----------------------------------------


1.1 CLOSING. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Dorsey & Whitney LLP, in Minneapolis, Minnesota, on the 31st day of December, 1996 at 3:00 P.M. Minneapolis time (the "Closing Date").


1.2 PURCHASE OF DR WARE'S MEMBER UNITS. Subject to the terms and
---------------------------------- condition of this Agreement, on the Closing Date DR Ware shall sell to Summit, and Summit hereby agrees to purchase from DR Ware, 2,000 Member Units in Cordillera. In exchange for the Member Units, Summit shall pay to DR Ware compensation equal to One Hundred Dollars ($100.00) at the Closing.


2. CANCELLATION OF DUKE'S OPTION AND EXISTING WARRANT.
--------------------------------------------------


2.1 CANCELLATION OF OPTION AND EXISTING WARRANT. Subject to the terms and conditions of this Agreement, as of the Closing Date Duke consents to the cancellation of (a) its Option granted pursuant to Section 4.2 of the Cordillera Agreement, and (b) that certain Warrant to subscribe for and purchase up to 200,000 shares of common stock of Summit, dated December 29, 1995 (the "Existing Warrant"), which was granted to Duke pursuant to Section 3.1 of the License Agreement. Duke warrants and represents to Summit that it has not, as of the Effective Date, exercised, assigned or otherwise transferred the Option or Existing Warrant, in whole or in part, nor will it do so prior to or on the Closing Date.


2.2 ISSUANCE OF WARRANTS. On the Closing Date, Summit shall issue to Duke two (2) separate warrants (singly, "New Warrant" or collectively, "New Warrants") to subscribe for and purchase common stock of Summit up to the aggregate amount of 200,000 shares (the "Duke Shares"), subject to (a) the terms and conditions of the Investment and Registration Rights Agreement between Summit and Duke dated the Closing Date, and (b) the particular terms and conditions contained in each of the New Warrants.


2.3 ENDOWMENTS. As further consideration for Duke's consent to the cancellation of the Option and Existing Warrant, Summit shall deliver to Duke on the Closing Date the total amount of Two Million Dollars ($2,000,000), which shall be used by Duke to endow a Chair and a Fellowship at Duke University in accordance with the terms contained in the forms attached hereto as Exhibit K.


3. AMENDMENT TO SUBLICENSE AND DISTRIBUTION AGREEMENT. Subject to the terms
-------------------------------------------------- and conditions of this Agreement, Duke hereby waives its right to determine (in conjunction with Summit and Cordillera), pursuant to Section 9.3(f) of the Sublicense and Distribution Agreement between Summit and Cordillera dated December 29, 1995 (the "Sublicense Agreement"), the disposition of the residual


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rights and duties Cordillera has or may have with respect to the IP Rights (as defined in the Sublicense Agreement) as of the Closing Date and all times thereafter.


4. CONDITIONS TO OBLIGATION TO CLOSE.
---------------------------------


4.1 CONDITIONS TO OBLIGATION OF SUMMIT. The obligations of Summit to consummate the transactions to be performed in connection with the Closing is subject to satisfaction of the conditions set forth below:


(a) Receipt of the Existing Warrant from Duke prior to or at the Closing;


(b) Receipt of an executed Amendment to the License Agreement from Duke
prior to or at the Closing, a copy of which is attached hereto as
Exhibit A;


(c) Receipt of an executed Investment and Registration Rights Agreement
from Duke prior to or at the Closing, a copy of which is attached
hereto as Exhibit B;


(d) Receipt of a copy of the Employment Agreement between Summit and Dr.
Donald Fortin, executed by Dr. Fortin, prior to or at the Closing, a
copy of which is attached hereto as Exhibit C;


(e) Receipt of a copy of the Nonstatutory Stock Option Agreement between
Summit and Dr. Donald Fortin, executed by Dr. Fortin, prior to or at
the Closing, a copy of which is attached hereto as Exhibit D;


(f) Receipt of a copy of the Consulting Agreement between Summit and Dr.
Robert Califf, executed by Califf, prior to or at the Closing, a copy
of which is attached hereto as Exhibit E;


(g) Receipt of a copy of the Nonstatutory Stock Option Agreement between
Summit and Dr. Robert Califf, executed by Dr. Califf, prior to or at
the Closing, a copy of which is attached hereto as Exhibit F;


(h) Receipt of a copy of the Consulting Agreement between Summit and Dr.
Harry Phillips, executed by Dr. Phillips, prior to or at the Closing,
a copy of which is attached hereto as Exhibit G;


(i) Receipt of a copy of the Nonstatutory Stock Option Agreement between
Summit and Dr. Harry Phillips, executed by Dr. Phillips, prior to or
at the Closing, a copy of which is attached hereto as Exhibit H;


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(j) Written approval of the Managers of Cordillera to all transactions
necessary to effectuate the Reorganization, including (a) an executed
Amendment to the Cordillera Agreement, which shall permit the
purchase of DR Ware's Member Units by Summit and make other changes
to reflect Summit's sole ownership of Member Units in Cordillera, a
copy of which is attached hereto as Exhibit I; (b) approval of the
dissolution, winding up, and distribution of assets of Cordillera to
Summit in accordance with the Delaware Limited Liability Company Act.


(k) Receipt of a certificate from DR Ware at the Closing stating that its
representations and warranties in Section 6 of this Agreement are
true, complete and accurate as of the Closing Date;


(l) Receipt of a certificate from Duke at the Closing stating that its
representations and warranties in Section 8 of this Agreement are
true, complete and accurate as of the Closing Date; and


(m) Receipt of a certificate from Cordillera at the Closing stating that
its representations and warranties in Section 9 of this Agreement are
true, complete and accurate as of the Closing Date.


4.2 CONDITIONS TO OBLIGATION OF DR WARE. The obligation of DR Ware to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:


(a) Receipt of the compensation due from Summit for the Member Units, as
provided in Section 1.2 above, at the Closing;


(b) Receipt of a certificate from Summit at the Closing stating that its
representations and warranties in Section 7 of this Agreement are
true, complete and accurate as of the Closing Date;


(c) Receipt of a certificate from Duke at the Closing stating that its
representations and warranties in Section 8 of this Agreement are
true, complete and accurate as of the Closing Date; and


(d) Receipt of a certificate from Cordillera at the Closing stating that
its representations and warranties in Section 9 of this Agreement are
true, complete and accurate as of the Closing Date.


4.3 CONDITIONS TO OBLIGATION OF DUKE. The obligation of Duke to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:


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(a) Receipt of the New Warrants representing the Duke Shares from Summit
at the Closing, a copy of such New Warrants being attached hereto as
Exhibit J;


(b) Receipt of a certificate from DR Ware at the Closing stating that its
representations and warranties in Section 6 of this Agreement are
true, complete and accurate as of the Closing Date; and


(c) Receipt of a certificate from Summit at the Closing stating that its
representations and warranties in Section 7 of this Agreement are
true, complete and accurate as of the Closing Date; and


(d) Receipt of a certificate from Cordillera at the Closing stating that
its representations and warranties in Section 9 of this Agreement are
true, complete and accurate as of the Closing Date.


5. WIND-UP AND TRANSFER OF CORDILLERA'S BUSINESS. To effectuate the
--------------------------------------------- Reorganization, Summit may, at any time after the Closing Date, take any action (including executing and delivering any documents) in the name and on behalf of either Summit or Cordillera, and Cordillera hereby consents to Summit taking such actions, in order to carry out and effectuate the transactions contemplated by this Agreement. Duke and DR Ware shall require their respective Managers of Cordillera to vote for approval of all such actions by Summit or Cordillera, including approving Exhibit I hereto.


6. REPRESENTATIONS AND WARRANTIES BY DR WARE. DR Ware hereby represents and
----------------------------------------- warrants to the parties hereto that:


6.1 OWNERSHIP. DR Ware is the record and beneficial owner of 2,000 Member Units;


6.2 ACTS AND PROCEEDINGS. This Agreement, and all actions taken by DR Ware as required hereunder, which DR Ware represents have been taken, have been duly authorized by all necessary action on the part of DR Ware, and this Agreement has been duly executed and delivered by DR Ware so that it is a valid and binding agreement of DR Ware;


6.3 LIENS, ENCUMBRANCES ETC. The Member Units are not subject to, and will be delivered to Summit on the Closing Date free and clear of, any liens, encumbrances or other restrictions of any kind or nature, other than restrictions on transferability that are imposed by the federal Securities Act of 1933 (the "Securities Act") and applicable state securities laws;


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6.4 NO BROKERS OR FINDERS. No person, firm or corporation has or will have, as a result of any act or omission by DR Ware, any right, interest or valid claim against Cordillera or Summit for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement; and


6.5 NO CONFLICT. The execution, delivery and performance of this Agreement will not result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i) any provision of any judgment, decree, order or ordinance to which DR Ware is a party or by which DR Ware is bound, (ii) any material contract, agreement, note, mortgage, indenture, lease instrument, permit, franchise, license, obligation or commitment to which DR Ware is party or by which DR Ware, or any of its properties or assets may be bound or affected, or (iii) any statute, rule or governmental application applicable to DR Ware.


7. REPRESENTATIONS OF SUMMIT. Summit represents and warrants to the parties
------------------------- hereto that:


7.1 ACTS AND PROCEEDINGS. This Agreement, and all actions taken by Summit as required hereunder, which Summit represents have been taken, have been duly authorized by all necessary action on the part of Summit, and this Agreement has been duly executed and delivered by Summit so that it is a valid and binding agreement of Summit;


7.2 NO BROKERS OR FINDERS. No person, firm or corporation has or will have, as a result of any act or omission by Summit, any right, interest or valid claim against Cordillera or Summit for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement;


7.3 NO CONFLICT. The execution, delivery and performance of this Agreement will not result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i) any provision of any judgment, decree, order or ordinance to which Summit is a party or by which Summit is bound, (ii) any material contract, agreement, note, mortgage, indenture, lease instrument, permit, franchise, license, obligation or commitment to which Summit is party or by which Summit, or any of its properties or assets may be bound or affected, or (iii) any statute, rule or governmental application applicable to Summit; and


7.4 ACCESS TO INFORMATION. Summit has made available to Duke at a reasonable time prior to the execution of this Agreement any additional information (which Summit possesses or can acquire without unreasonable effort


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or expense) as Duke has requested to verify the accuracy of information furnished to Duke in connection with this Agreement and the Duke Shares. There is no material fact not disclosed to Duke of which any officer or director of Summit is aware which materially affects adversely, or could reasonably be anticipated to materially affect adversely, Summit's business, including its operating results, assets, customer relations, employee relations and business prospects.


7.5 CAPITAL STOCK. The authorized capital stock of Summit consists of 40,533,333 shares of capital stock, $.01 par value, of which 1,600,000 shares are designated as Series A Convertible Preferred Stock. As of the date hereof, 9,342,545 shares of Summit common stock, and no shares of Series A Convertible Preferred Stock, are issued and outstanding. All such outstanding shares of Summit common stock have been duly authorized and are validly issued, fully paid and nonassessable.


8. REPRESENTATIONS OF DUKE. Duke represents and warrants to the parties
------------------------ hereto that:


8.1 OWNERSHIP. Duke has not exercised, transferred or assigned, in whole or in part, its rights granted under the Option or Existing Warrant;


8.2 ACTS AND PROCEEDINGS. This Agreement, and all actions taken by Duke as required hereunder, which Duke represents have been taken, have been duly authorized by all necessary action on the part of Duke, and this Agreement has been duly executed and delivered by Duke so that it is a valid and binding agreement of Duke;


8.3 LIENS, ENCUMBRANCES ETC. The Option and Existing Warrant are not subject to, and will be delivered to Summit on the Closing Date free and clear of, any liens, encumbrances or other restrictions of any kind or nature, other than restrictions on transferability that are imposed by the Securities Act and applicable state securities laws;


8.4 NO BROKERS OR FINDERS. No person, firm or corporation has or will have, as a result of any act or omission by Duke, any right, interest or valid claim against Cordillera or Summit for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement;


8.5 NO CONFLICT. The execution, delivery and performance of this Agreement will not result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i) any provision of any judgment, decree, order or ordinance to which Duke is a party or by which Duke is bound, (ii) any material contract, agreement, note, mortgage,


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indenture, lease instrument, permit, franchise, license, obligation or commitment to which Duke is party or by which Duke, or any of its properties or assets may be bound or affected, or (iii) any statute, rule or governmental application applicable to Duke; and


8.6 ACCESS TO INFORMATION. Duke acknowledges that Summit has made available to Duke at a reasonable time prior to the execution of this Agreement the opportunity to ask questions and receive answers concerning the terms and conditions of this Agreement and to obtain any additional information (which Summit possesses or can acquire without unreasonable effort or expense) as may be necessary to verify the accuracy of information furnished to Duke in connection with the Duke Shares; and Duke has fully provided Summit with all information that Summit has requested from Duke.


9. REPRESENTATIONS OF CORDILLERA. Cordillera represents and warrants to the
----------------------------- parties hereto that:


9.1 ACTS AND PROCEEDINGS. This Agreement, and all actions taken by Cordillera as required hereunder, which Cordillera represents have been taken, have been duly authorized by all necessary action on the part of Cordillera, and this Agreement has been duly executed and delivered by Cordillera so that it is a valid and binding agreement of Cordillera;


9.2 NO BROKERS OR FINDERS. No person, firm or corporation has or will have, as a result of any act or omission by Cordillera, any right, interest or valid claim against Cordillera or Summit for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement;


9.3 NO CONFLICT. The execution, delivery and performance of this Agreement will not result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i) any provision of any judgment, decree, order or ordinance to which Cordillera is a party or by which Cordillera is bound, (ii) any material contract, agreement, note, mortgage, indenture, lease instrument, permit, franchise, license, obligation or commitment to which Cordillera is party or by which Cordillera, or any of its properties or assets may be bound or affected, or (iii) any statute, rule or governmental application applicable to Cordillera.


10. MISCELLANEOUS.
-------------


10.1 AMENDMENTS. WAIVERS. ETC. Neither this Agreement nor any provision hereof may be amended, waived, discharged or terminated orally, but only in writing signed by all the parties.


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10.2 ASSIGNMENT. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties to this Agreement and their respective successors and assigns. No party may assign this Agreement or any of its rights or obligations hereunder, in whole or in part, without the prior written approval of the other parties.


10.3 SEVERABILITY. Any term or provision of this Agreement that is found to be invalid or unenforceable by a court of competent jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof.


10.4 HEADINGS. The headings of the articles and sections of this Agreement have been inserted for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement or constitute a part of this Agreement.


10.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State or Minnesota, excluding its choice or law rules.


10.6 COUNTERPARTS. This Agreement may be executed concurrently in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.


10.7 ENTIRE AGREEMENT. This Agreement (including all attached Exhibits and the documents referred to herein) constitutes the entire agreement between the parties and supersedes any prior understandings, agreements or representations between the parties, whether written or oral, to the extent they relate in any way to the subject matter hereof.


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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives, as of the Effective Date.


DR WARE LLC DUKE UNIVERSITY


By__________________________________ By_________________________________


Name________________________________ Name_______________________________


Title_______________________________ Title______________________________


CORDILLERA LLC SUMMIT MEDICAL SYSTEMS, INC.


By__________________________________ By_________________________________


Name________________________________ Name_______________________________


Title_______________________________ Title______________________________


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EXHIBIT A


AMENDMENT

THIS AMENDMENT is made and entered into as of December 31, 1996 (the "Effective Date"), by and between DUKE UNIVERSITY ("Duke"), a North Carolina not-for-profit corporation, having its principal office at Durham, North Carolina 27708, and SUMMIT MEDICAL SYSTEMS, INC. ("Summit"), a Minnesota corporation, having its principal offices at 10900 Red Circle Drive, Suite 100, Minneapolis, Minnesota 55343-9106.


Recitals
--------


WHEREAS, Duke and Summit entered into a License Agreement dated December 29, 1995 (the "License Agreement"), pursuant to which Summit was granted an exclusive license to the Software and Derivative Works (as defined in the License Agreement), with a requirement to grant a sublicense to Cordillera LLC, a Delaware limited liability corporation ("Cordillera");


WHEREAS, Summit has agreed to acquire Cordillera pursuant to a Reorganization Agreement of even date herewith (the "Reorganization Agreement"), by and among Summit, Cordillera, DR Ware L.L.C. and Duke, which provides for Summit's purchase of all other parties' member units, and options for member units, in Cordillera, and the wind-up and transfer of Cordillera's business to Summit (the "Reorganization");


WHEREAS, as a result of the Reorganization, certain modifications to the License Agreement are required; and


WHEREAS, Duke, Summit and the other parties to the Reorganization Agreement have agreed that execution of this Amendment by Summit and Duke is a condition of closing the Reorganization.


NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, the parties do hereby agree:


1. License Grant. The first sentence of Section 2.1 of the License Agreement
------------- is modified by substituting the words "fully-paid" for "royalty-bearing".


2. Sublicenses. The second sentence of Section 2.2 of the License Agreement
----------- is deleted in its entirety. In addition, at the beginning of the third sentence of Section 2.2 in the License Agreement, the following clauses are deleted: "In addition, subject to the prior written consent of the Joint Venture,".


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3. Right of First Negotiation. The right of first negotiation to New
-------------------------- Technology granted to Summit pursuant to Section 2.7 of the License Agreement shall not extend to any data or databases collected with such New Technology; provided, however, that Duke acknowledges that Summit's license to the Duke Databank discussed in Section 2.6 of the License Agreement shall not in any way be affected by the foregoing.


4. Running Royalties. Duke and Summit acknowledge that, as of the Closing
----------------- Date (as that term is defined in the Reorganization Agreement), the license to the Software and Derivative Works granted to Summit in Section 2.1 of the Agreement is fully-paid and that no additional running royalties are due or payable to Duke, Cordillera or any other third party therefor. Accordingly, Sections 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8 and 3.10 of the License Agreement are deleted in their entirety.


5. Infringement by Licensed Software. The second sentence of Section 5.4 of
--------------------------------- the License Agreement is deleted in its entirety and replaced by the following:


However, in the event there are no running royalties owed to Duke at
the time of such a Legal Action, within a reasonable time Duke shall
have the option of paying any sum owed to the third party due to such
indemnification or, in lieu of such cash payment, of transferring to
Summit the equivalent fair market value therefor in the form of (i)
the New Warrants (issued pursuant to Section 2.2 of the Reorganization
Agreement dated December 31, 1996 by and between
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