<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 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 0-22147
ILEX ONCOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2699185
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
11550 I.H. 10 West, Suite 300
San Antonio, Texas 78230
(Address of principal executive offices)
(Zip Code)
(210) 949-8200
(Registrant's 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 (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
------------------------
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
On July 31, 1997, there were outstanding 12,212,998 shares of Common
Stock, $.01 par value, of the registrant.
<PAGE> 2
ILEX ONCOLOGY, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1: Financial Statements
Balance Sheets - December 31, 1996 and June 30, 1997 3-4
Statements of Operations - For the three and six month
periods ended June 30, 1996 and June 30, 1997 5
Statements of Cash Flows - For the six month periods
ended June 30, 1996 and June 30, 1997 6
Notes to Financial Statements 7-8
Item 2: Management's Discussion and Analysis of Financial Condition 9-14
and Results of Operations
PART II. OTHER INFORMATION
Items 1-6: Other Information 15
SIGNATURES 16
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ILEX ONCOLOGY, INC. CONDENSED BALANCE SHEETS
(In Thousands, Except Shares and Per Share Amounts)
<TABLE>
<CAPTION>
June 30,
December 31, 1997
ASSETS 1996 (unaudited)
------ ------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,037 $ 25,692
Investments in marketable securities 5,768 7,728
Accounts receivable, net 2,152 4,270
Prepaid expenses and other 1,047 858
-------- --------
Total current assets 14,004 38,548
-------- --------
NONCURRENT ASSETS:
Investment in joint venture 250 (296)
Investments in marketable securities 12,179 15,110
-------- --------
Total noncurrent assets 12,429 14,814
-------- --------
PROPERTY AND EQUIPMENT, NET:
941 2,407
-------- --------
Total assets $ 27,374 $ 55,769
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
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<PAGE> 4
ILEX ONCOLOGY, INC. CONDENSED BALANCE SHEETS
(In Thousands, Except Shares and Per Share Amounts)
<TABLE>
<CAPTION>
June 30,
December 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 (unaudited)
------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-
Related parties $ 250 $ 64
Other 378 90
Accrued subcontractor costs-
Related parties 345 282
Other 251 885
Accrued liabilities 568 430
Deferred revenue 530 1,347
Total current liabilities 2,322 3,098
-------- --------
OTHER LONG-TERM LIABILITIES 226 354
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock, $0.01 par value;
20,000,000 shares authorized-
Series A; 2,991,477 and none issued and
outstanding in 1996 and 1997, respectively 30 -
Series B; 3,101,448 and none issued and
outstanding in 1996 and 1997, respectively 31 -
Series C; 1,309,424 and none issued and
outstanding in 1996 and 1997, respectively 13 -
Series D; 113,953 and none issued and
outstanding in 1996 and 1997, respectively 1 -
Series E; 475,753 and none issued and
outstanding in 1996 and 1997, respectively 5 -
Common stock, $0.01 par value; 40,000,000 shares
authorized; 1,187,539 and 11,893,942 shares
issued and outstanding in 1996 and 1997, respectively 12 119
Additional paid-in capital 26,218 55,452
Receivables on sale of common stock (111) (88)
Accumulated deficit (1,373) (3,166)
-------- --------
Total stockholders' equity 24,826 52,317
-------- --------
Total liabilities and stockholders' equity $ 27,374 $ 55,769
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
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<PAGE> 5
ILEX ONCOLOGY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Six Months
ended ended
June 30, June 30,
-------------------- --------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Product development $ 823 $ 1,463 $ 1,718 $ 2,834
Contract research services 339 1,583 457 2,827
-------- -------- -------- --------
Total revenue 1,162 3,046 2,175 5,661
OPERATING EXPENSES:
Research and development costs 849 1,810 1,597 3,199
General and administrative 557 1,383 1,065 2,382
Costs of contract research services 263 438 487 990
Subcontractor costs 178 937 255 1,388
Total operating expenses 1,847 4,568 3,404 7,959
OPERATING LOSS $ (685) $ (1,522) $ (1,229) $ (2,298)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Equity in loss in joint venture - (442) - (546)
Interest income 111 639 243 1,051
Interest expense - - (4) -
-------- -------- -------- --------
NET LOSS $ (574) $ (1,325) $ (990) $ (1,793)
======== ======== ======== ========
NET LOSS PER SHARE $ (.07) $ (.11) $ (.12) $ (.15)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS
OUTSTANDING 8,206 12,559 8,213 11,744
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
-5-
<PAGE> 6
ILEX ONCOLOGY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (990) $ (1,793)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 41 146
Equity in loss in joint venture in excess of distributions - 546
Change in assets and liabilities-
(Increase) decrease in assets-
Accounts receivable (224) (2,118)
Prepaid expenses and other 222 189
Increase (decrease) in liabilities-
Accounts payable (169) (474)
Accrued liabilities (50) 433
Deferred revenue 258 817
Other long-term liabilities - 128
-------- --------
Net cash used in operating activities (912) (2,126)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (6,232) (6,111)
Maturities of marketable securities - 1,220
Purchase of property and equipment (210) (1,612)
-------- --------
Net cash used in investing activities (6,442) (6,503)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash - 32,032
Repayments of receivables on sale of common stock 21 23
Stock issuance costs paid - (2,771)
Repayment of advances from related party (305) -
Net cash provided by financing activities (284) 29,284
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,638) $ 20,655
CASH AND CASH EQUIVALENTS, beginning of period 9,636 5,037
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,998 $ 25,692
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 4 -
Income taxes - -
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
-6-
<PAGE> 7
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1997
(Amounts in Thousands, Except Share Information,
Per Share Information or As Otherwise Indicated)
1. BASIS OF PRESENTATION:
The accompanying unaudited financial statements of ILEX Oncology, Inc. ("the
Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In management's opinion, all
adjustments, consisting of normal recurring adjustments, which are necessary
for a fair presentation of financial position and results of operations have
been made. It is recommended that these financial statements be read in
conjunction with the financial statements and notes related thereto included in
the Company's Registration Statement on Form S-1 (File No. 333-17769). Certain
prior period amounts have been reclassified to conform to the current period
presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
establishes standards for computing and presenting earnings per share ("EPS")
for entities with publicly held common stock or potential common stock. SFAS
No. 128 simplifies the standards for computing EPS previously found in
Accounting Principles Board Opinion No. 15, "Earnings Per Share", and makes
them comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS, which excludes dilution. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997, and early adoption
is not permitted. Had SFAS No. 128 been adopted, proforma basic EPS would have
been $(0.16) for the six months ended June 30, 1997, and $(0.83) for the six
months ended June 30, 1996. Proforma June 30, 1996 basic EPS shown excludes
convertible preferred stock which converted to common in the initial public
offering. If this had been included the proforma EPS would have been $(0.14)
per share. Proforma diluted EPS would have been $(0.15) for the six months
ended June 30, 1997 and $(0.12) for the six months ended June 30, 1996.
Management of the Company does not anticipate the adoption of SFAS No. 128 will
have a material impact on the Company's financial position or results of
operation.
In June 1997, the FASB issued SFAS no. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997, and requires
reclassification of comparative financial statements for earlier periods.
Management of the Company does not anticipate the adoption of SFAS No. 130 will
have a material impact on the Company's financial position or results of
operations.
-7-
<PAGE> 8
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", which establishes standards for reporting
information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131
supersedes FASB No. 14, "Financial Reporting for Segments of a Business
Enterprise". Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier periods is to
be restated. Management of the Company does not anticipate the adoption of SFAS
No. 131 will have a material impact on the Company's financial position or
results of operations.
3. STOCKHOLDERS' EQUITY:
In February 1997, the company completed the initial public offering of its
common stock. 2,500,000 shares of stock were sold at a price of $12 per share.
Coincident with the public offering, all classes of convertible preferred stock
converted into common stock.
In March 1997, the underwriters of the initial public offering, exercised their
option to purchase 200,000 additional shares of common stock to meet certain
over allotments.
4. INCOME TAXES:
The availability of the Net Operating Loss carryforward to reduce U.S. federal
taxable income is subject to various limitations under the Internal Revenue
Code of 1986 (the "Code"), as amended, in the event of an ownership change as
defined in Section 382 of the Code. The Company experienced a change in
ownership interest in excess of 50 percent as defined under the Code upon the
consummation of its offering of Series B convertible preferred stock. The
Company does not believe that this change in ownership significantly impacts
the Company's ability to utilize its net operating loss and tax credit
carryforwards as of December 31, 1996, because the amount of the annual
limitation under the Code of such carryforwards is in excess of the total
amount of net operating loss and tax credit carryforwards. The Company did not
experience a change in ownership as defined in Section 382 of the Code as the
result of its initial public offering.
5. COMMITMENTS & CONTINGENCIES:
In May 1997, the Company and Leukosite, Inc. formed a joint venture to license
and develop Campath 1-H. The joint venture agreement contemplates that ILEX will
provide up to $5.0 million in funding over the next 2 years, with the initial
funding to occur in the quarter ending September 30, 1997.
6. SUBSEQUENT EVENT:
In July 1997, the Company entered into a series of collaborative agreements
with Physician Reliance Network, Inc. (PRN) under which ILEX and PRN agree to
jointly market their clinical trial service capabilities. As part of one of
these agreements, ILEX transferred 312,188 shares of ILEX Common Stock to PRN.
ILEX also agreed to issue up to an additional 943,800 shares to PRN over a
three year period and up to an additional 1,255,988 shares over a four year
period based on achievement of certain milestones. Additional shares resulting
from this transaction have not been reflected in results.
-8-
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q,
including statements regarding the anticipated development and expansion of the
Company's business, expenditures, the intent, belief or current expectations of
the Company, its directors or its officers, primarily with respect to the
future operating performance of the Company and other statements contained
herein regarding matters that are not historical facts, are "forward-looking
statements" (as such term is defined in the Private Securities Litigation
Reform Act of 1995). Because such statements include risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, those discussed in other filings including
those contained in the Registration Statement on Form S-1 (File No. 333-17769)
made by the Company with the Securities and Exchange Commission.
GENERAL
ILEX is engaged in the businesses of (i) acquiring rights to
(generally in exchange for the payment of licensing fees and future royalty
payments), and developing for commercialization, drugs for the treatment of
patients with cancer and for the prevention of cancer and (ii) providing
clinical research, development and manufacturing services on a contract basis
to pharmaceutical and biotechnology companies engaged in the development of
oncology products.
During the second quarter of 1997, the Company announced several major
events. In April, ILEX entered into a contract with Eli Lilly and Company
("Lilly") and Physician Reliance Network, Inc. to manage the development of two
drugs for Lilly. In May, the Company announced the creation of a joint venture
with LeukoSite, Inc. to acquire the rights to an additional development
compound, Campath 1-H. In June, the Company presented its work on mitoguazone
("MGBG") to the Oncology Drug Advisory Committee at the Food and Drug
Administration. The committee chose not to recommend mitoguazone for approval.
ILEX has no products available for sale and does not expect to have
any products resulting from its drug development efforts, including its
collaborations with others, commercially available for several years, if at
all. The Company has incurred losses and expects to incur increasing losses for
the foreseeable future as the Company's research and development expenditures
increase. The Company's revenue for the foreseeable future will be limited to
development funding under its collaborative relationships, fee-for-service
revenues pursuant to contracts with its Contract Research Organization ("CRO")
clients, interest income and other miscellaneous income.
The following is a discussion of the financial condition and results
of operations for the Company for the three month and six month periods ended
June 30, 1997 and 1996. It should be read in conjunction with the Interim
Financial Statements of the Company, the Notes thereto and other financial
information included elsewhere in this report.
-9-
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1996
Operating Revenues
Total revenue increased from approximately $1.2 million in the second
quarter of 1996 to $3.0 million in the second quarter of 1997. The increase of
approximately $1.8 million, or 162%, was due to an additional $640,000 of
product development revenues and $1.2 million of contract research revenues.
The $640,000 increase in product development revenues, to $1.5 million,
compares to $823,000 in the second quarter of 1996. The increase reflects
additional revenue from license and development agreements entered into in the
fourth quarter of 1996 relating to Piritrexim and Crisnatol. This increase was
partially offset by a decrease in revenues with respect to the development of
mitoguazone. The $1.2 million increase in contract research services revenues,
to $1.6 million, compared to approximately $339,000 in 1996, reflects an
increase in both the number of contracts underway as well as in the size and
complexity of the contract research projects.
Operating Expenses
Total Operating Expenses. Total operating expenses increased from
approximately $1.8 million in the second quarter of 1996 to $4.6 million in the
second quarter of 1997. This increase of approximately $2.8 million, or 147%,
was due to an increase in research and development costs, general and
administrative costs and subcontractor costs.
Research and Developments Costs. Research and development costs
increased from approximately $849,000 in the second quarter of 1996 to $1.8
million in the second quarter of 1997. This increase of $1.0 million, or 113%,
was primarily attributable to spending approximately $500,000 in connection
with the development of difluoromethylornithine and $200,000 on Campath 1-H.
General and Administrative Costs. General and administrative costs
increased from approximately $557,000 in the second quarter of 1996 to $1.4
million in the second quarter 1997. This increase of $826,000, or 148%, is
primarily attributable to increases in rental expense, business development
activities, legal costs and compensation related to additional administrative
staff.
Costs of Contract Research Services. Contract research services costs
increased from $263,000 in the second quarter of 1996 to $438,000 in the second
quarter of 1997. This increase of $175,000, or 67%, is primarily attributable
to increases in expenditures required to support growth in the number and size
of contract research contracts.
Subcontractor Costs. Subcontractor costs increased from $178,000 in
the second quarter of 1996 to $937,000 in the second quarter of 1997. This
increase of $759,000 is primarily due to increases in expenditures required to
support growth in the Company's contract research services operations.
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<PAGE> 11
Operating Loss
The loss from operations increased from ($685,000) in the second
quarter of 1996 to ($1.5 million) in the second quarter of 1997. This increase
of ($837,000), or 122%, is primarily attributable to increased spending on
ILEX's portfolio products which have not yet been partnered for development,
including increased spending associated with the development of
difluoromethylornithine.
Equity in Loss in Joint Venture
Equity in loss in joint venture was ($442,000) in the second quarter
of 1997. Since this joint venture was not formed until December 1996, there
were no expenses for the comparable three month period in 1996.
Net Interest Income
Net interest income increased from approximately $111,000 in the
second quarter of 1996 to $639,000 in the second quarter of 1997. This increase
of $528,000, or 476%, is attributable to an increase in interest income
resulting from higher average balances of cash, cash equivalents and
investments in marketable securities from proceeds received from ILEX's initial
public offering completed in February 1997, and private placements of the
Company's securities completed in 1996.
Net Income
The net loss increased ($751,000) during the second quarter of 1997,
or 131%, from ($574,000) in the second quarter of 1996 to ($1.3 million) in the
second quarter of 1997.
Earnings Per Share
The net loss increased from ($.07) in the second quarter of 1996 to
($.11) in the second quarter of 1997, a change of ($.04) per share.
-11-
<PAGE> 12
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Operating Revenues
Total revenue increased from approximately $2.2 million in the first
half of 1996 to $5.7 million in the first half of 1997. The increase of
approximately $3.5 million, or 160%, was due to an additional $1.1 million of
product development revenues and $2.4 million of contract research revenues.
The $1.1 million increase in product development revenues, to $2.8 million,
compares to $1.7 million in the first half of 1996. The increase reflects
additional revenue from license and development agreements signed in the fourth
quarter of 1996 relating to Piritrexim and Crisnatol. This increase was
partially offset by a decrease in revenues with respect to the development of
mitoguazone. The $2.4 million increase in contract research services revenues,
to $2.8 million, compared to approximately $457,000 in 1996, reflects an
increase in both the number of contracts underway as well as in the size and
complexity of the contract research projects.
Operating Expenses
Total Operating Expenses. Total operating expenses increased from
approximately $3.4 million in the first half of 1996 to $8.0 million in the
first half of 1997. This increase of approximately $4.6 million, or 134%, was
due to an increase in research and development costs, general and
administrative costs and subcontractor costs.
Research and Developments Costs. Research and development costs
increased from approximately $1.6 million in the first half of 1996 to $3.2
million in the first half of 1997. This increase of $1.6 million, or 100%, was
primarily attributable to spending approximately $1.1 million in connection
with the development of difluoromethylornithine and $200,000 on Campath 1-H.
General and Administrative Costs. General and administrative costs
increased from approximately $1.1 million in the first half of 1996 to $2.4
million in the first half 1997. This increase of $1.3 million, or 124%, is
primarily attributable to increases in rental expense, legal costs, business
development activities and compensation related to additional administrative
staff.
Costs of Contract Research Services. Contract research services costs
increased from $487,000 in the first half of 1996 to $990,000 in the first half
of 1997. This increase of $503,000, or 103%, is primarily attributable to
increases in expenditures required to support growth in the number and size of
contract research contracts.
Subcontractor Costs. Subcontractor costs increased from $255,000 in
the first half of 1996 to $1.4 million in the first half of 1997. This increase
of $1.1 million is primarily due to increases in expenditures required to
support growth in the Company's contract research services operations.
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<PAGE> 13
Operating Loss
The loss from operations increased from ($1.2 million) in the first
half of 1996 to ($2.3 million) in the first half of 1997. This increase of
($1.1 million), or 87%, is primarily attributable to increased spending on
ILEX's portfolio products which have not yet been partnered for development,
including increased spending associated with the development of
difluoromethylornithine.
Equity in Loss in Joint Venture
Equity in loss in joint venture was ($546,000) in the first half of
1997. Since this joint venture was not formed until December 1996, there were
no expenses for the comparable six month period in 1996.
Net Interest Income
Net interest income increased from approximately $239,000 in the first
half of 1996 to $1.1 million in the first half of 1997. This increase of
$812,000, or 340%, is attributable to an increase in interest income resulting
from higher average balances of cash, cash equivalents and investments in
marketable securities from proceeds received from ILEX's initial public
offering completed in February 1997 and private placements of the Company's
securities completed in the second half of 1996.
Net Income
The net loss increased ($803,000) during the first half of 1997, or
81%, from ($990,000) in the first half of 1996 to ($1.8 million) in the first
half of 1997.
Earnings Per Share
The net loss increased from ($.12) in the first half of 1996 to ($.15)
in the first half of 1997, a change of ($.03) per share. This improvement was
primarily attributable to additional dilution from stock sales.
ILEX expects that results of operations in the future will fluctuate
significantly from period to period. Such fluctuations may result from numerous
factors, including the amount and timing of revenues earned under existing or
future collaborative relationships or joint ventures, if any, technological
advances and determinations as to the commercial potential of compounds, the
progress of the Company's drug development programs, the receipt of regulatory
approvals, acquisitions, the timing of start-up expenses for new facilities,
changes in the Company's mix of services, the cost of preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims and other
intellectual property rights, the status of competing products and technologies
and the timing and availability of financing for the Company, including
existing or future strategic alliances and joint ventures with third parties.
In addition, with respect to the Company's contract research services revenues,
fluctuations may result due to a number of factors, including the commencement,
completion or cancellation of large contracts and progress of ongoing
contracts. ILEX believes that comparisons of its quarterly and annual
historical results may not be meaningful and should not be relied upon as an
indication of future performance.
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<PAGE> 14
INCOME TAXES
The availability of the NOL carryforward to reduce U.S. federal taxable
income is subject to various limitations under the Internal Revenue Code of
1986 (the "Code"), as amended, in the event of an ownership change as defined
in Section 382 of the Code. The Company experienced a change in ownership
interest in excess of 50 percent as defined under the Code upon the
consummation of its offering of Series B convertible preferred stock. The
Company does not believe that this change in ownership significantly impacts
the Company's ability to utilize its net operating loss and tax credit
carryforwards as of December 31, 1996, because the amount of the annual
limitation under the Code of such carryforwards is in excess of the total
amount of net operating loss and tax credit carryforwards. The Company did not
experience a change in control under the Code as the result of its initial
public offering.
LIQUIDITY AND CAPITAL RESOURCES
ILEX has financed its operations primarily through the sale of its
capital stock, through development and licensing fee revenues provided by its
collaborative partners under its collaborative agreements and through
fee-for-service or participatory revenues pursuant to contracts with its CRO
clients. The Company receives payments under collaborative agreements primarily
in the form of development funding, milestone payments, if milestones are
achieved, and royalties, if products are commercialized.
To date, the majority of the Company's expenditures have been for
research and development activities. The Company does not expect to receive
royalties or other revenues based upon net sales of drugs that may be developed
for a significant number of years, if at all. ILEX expects research development
expenses to increase significantly for the next several years as its
development programs progress. In addition, general administrative expenses
necessary to support such expanded programs are also expected to increase over
the next several years. As of June 30, 1997, the Company had cash, cash
equivalents and investments in marketable securities of approximately $49.1
million and working capital of approximately $35.5 million. The Company
believes that such amounts will be used primarily to support continued research
and development of its compounds, expand its CRO services business, for general
and administrative expenses and for other general corporate purposes.
As of June 30, 1997, the Company did not have any material commitments
for capital expenditures.
ILEX's future expenditures and capital requirements will depend on
numerous factors, including without limitation, the progress of its research
and development programs, the progress of its preclinical and clinical testing,
the magnitude and scope of these activities, the time and costs involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights, competing
technological and market developments, changes in or termination of existing
collaborative arrangements, the ability of the Company to establish, maintain
and avoid termination of collaborative arrangements and the purchase of capital
equipment and acquisitions of compounds, technologies or businesses. The
Company's cash requirements are expected to continue to increase significantly
each year as it expands its activities and operations. There can be no
assurance that the Company will ever be able to generate product revenue or
achieve or sustain profitability.
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<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: Not Applicable
Item 2. Changes in Securities: Not Applicable
Item 3. Defaults Upon Senior Securities: Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders: Not
Applicable
Item 5. Other Information: Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.1*: Lease Agreement between the Company and N.W.A.
Limited Partnership, dated October 16, 1996
Exhibit 10.2*: First Amendment to Lease Agreement between the
Company and N.W.A. Limited Partnership, dated
March 26, 1997
Exhibit 10.3*: Registration Rights Agreement dated July 9,
1997, between the Company and PRN Research, Inc.
Exhibit 10.4*+: Service Agreement dated June 30, 1997, between
the Company and PRN Research, Inc.
Exhibit 11.1*: Computation of Net Loss Per Share
Exhibit 27.1*: Financial Data Schedule
*Filed herewith
+Confidential treatment has been requested with respect to
certain portions of this Exhibit. Omitted portions have been
filed separately with the Securities and Exchange Commission
(b) Reports on Form 8-K: Not Applicable
-15-
<PAGE> 16
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 authorized.
ILEX ONCOLOGY, INC.
(Registrant)
Dated: August 14, 1997 By: /s/ RICHARD L. LOVE
-------------------------------------
Richard L. Love
President and Chief Executive Officer
(Principal Executive Officer)
Dated: August 14, 1997 By: /s/ JAMES R. KOCH
-------------------------------------
James R. Koch
Vice President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
-16-
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
Exhibit 10.1*: Lease Agreement between the Company and N.W.A.
Limited Partnership, dated October 16, 1996
Exhibit 10.2*: First Amendment to Lease Agreement between the
Company and N.W.A. Limited Partnership, dated
March 26, 1997
Exhibit 10.3*: Registration Rights Agreement dated July 9,
1997, between the Company and PRN Research, Inc.
Exhibit 10.4*+: Service Agreement dated June 30, 1997, between
the Company and PRN Research, Inc.
Exhibit 11.1*: Computation of Net Loss Per Share
Exhibit 27.1*: Financial Data Schedule
</TABLE>
*Filed herewith
+Confidential treatment has been requested with respect to
certain portions of this Exhibit. Omitted portions have been
filed separately with the Securities and Exchange Commission
-17-
<PAGE> 1
EXHIBIT 10.1
THIS CONTRACT CONTAINS INDEMNIFICATION PROVISIONS. READ IT CAREFULLY.
OFFICE BUILDING LEASE AGREEMENT
BASIC LEASE INFORMATION
LEASE DATE: OCTOBER 16 , 1996
TENANT: ILEX ONCOLOGY, INC., A DELAWARE CORPORATION
TENANT ADDRESS: 11550 IH 10 WEST, SUITE 300
SAN ANTONIO, TEXAS 78230
CONTACT: JAMES KOCH TELEPHONE: (210) 677-6080
LANDLORD: N.W.A. LIMITED PARTNERSHIP
LANDLORD'S ADDRESS: 11550 IH 10 WEST , SUITE 185
SAN ANTONIO, TEXAS 78230
CONTACT: BUILDING MANAGER TELEPHONE: (210) 694-4024
PREMISES: Suite No. 300 deemed to contain 21,036 square feet
of Rentable Area (as hereinafter defined), the same
being of 18,291 square feet of Usable Area (as
hereinafter defined); and
Effective July 1, 1997, Suite 170 deemed to contain
2,962 square feet of Rentable Area (as hereinafter
defined), the same being of 2,576 square feet of
Usable Area (as hereinafter defined).
Suites 300 and 170 are outlined on the plan attached
to the Lease as Exhibit A, and are located in the
office building (the "Building") located on the land
described as, NCB 17442, BLK 1, LOT 1, NW OFFICE
PARK UT-1, BEXAR COUNTY, TEXAS and known as
NORTHWEST ATRIUM OFFICE BUILDING, 11550 IH- 10 WEST
street (the "Land").
TERM: The period of sixty (60) months commencing JANUARY
1, 1997 (the "Commencement Date") and ending at 5:00
p.m. DECEMBER 31, 2001 subject to adjustment or
earlier termination as provided in the Lease.
Initial ______________
i
<PAGE> 2
BASIC RENTAL: Basic Rental shall be payable in monthly
installments, and subject to escalation's (if any),
as follows:
<TABLE>
<CAPTION>
MONTHLY MONTHLY MONTHLY
PERIOD BASE RENTAL RATE/RSF
-----------------------------------------------------
<S> <C> <C> <C>
1-12
THRU 6/30/97 $21,456.72 $1.02
7/1/97 & THEREAFTER $24,477.96 $1.02
13-24 $25,677.86 $1.07
25-36 $26,877.76 $1.12
37-48 $28.077.66 $1.17
49-60 $29,277.56 $1.22
</TABLE>
EXPENSE STOP: $5.89 per RSF (which is applicable to the
calculation of Excess Oprating Expense [hereinafter
defined] payable by Tenant)
SECURITY DEPOSIT: $27,275.54
RENT: Basic Rental and all other sums that Tenant may owe
to Landlord under the Lease.
PERMITTED USE: GENERAL BUSINESS OFFICES
TENANTS FROM THE COMMENCEMENT DATE THROUGH JUNE 30, 1997:
PROPORTIONATE
SHARE 22.76% which is the percentage obtained by dividing
(i) 21,036 the square feet of Rentable Area in the
Premises by (ii) the total 92,410 square feet of
Rentable Area in the Building.
BEGINNING JULY 1, 1997:
25.97 % which is the percentage obtained by dividing
(i) 23,998 square feet of Rentable Area in the
Premises by (ii) the total 92,410 square feet of
Rentable Area in the Building.
APPURTENANT
FACILITIES: The parking areas, driveways, landscaping,
sidewalks, and other facilities now or hereafter
located on the Land (other that the Building) which
are used in connection with the operation of the
Building.
Initial ______________
ii
<PAGE> 3
BROKER: RFM Commercial, Inc. and Mission City Properties,
Inc.
SPECIAL PROVISIONS: The Parties hereto understand and agree that the
formula specified in other provisions of this lease
would yield a Rentable Area of more than
23,998square feet due to the number of square feet
occupied by the atrium in the Building. Nonetheless,
the parties have agreed that, notwithstanding any
other provisions in this lease to the contrary, the
Rentable Area shall for all purposes, be deemed to
be 21,036 square feet for Suite 300 and 2,962 square
feet for Suite 170 for a total of 23,998 square
feet.
Tenant shall have 30 days from the date of the
execution of the Lease to measure the Usable Area
and the Rentable Area and to check the Tenant's
Proportionate Share. If Tenant does not protest in
writing within 30 days of the date of this Lease the
Usable Area, Rentable Area and/or the Tenant's
Proportionate share, specified in this Lease, then
Tenant has agreed to the same and may not thereafter
raise any issue regarding the correctness of the
same.
Subject to Landlord's approval, Tenant may select
the local exchange supplier to supply its
telecommunication needs. Tenant shall have the right
to install a satellite dish on the existing poles on
the roof of the Building and to employ the
mechanical chases of the Building to the Premises
provided that: (i) the dish shall not exceed
thirty-six inches in diameter; and (ii) the dish
shall be located and screened so as not to be
visible from adjoining properties.
Prior to the Commencement Date, Landlord agrees to
repair and repaint the water- stained area below the
top of the atrium of the Building.
Landlord represents that to the best of its actual
knowledge, the Building is structurally sound.
Initial ______________
iii
<PAGE> 4
THE FOREGOING BASIC LEASE INFORMATION IS INCORPORATED INTO AND MADE A PART OF
THE LEASE, BUT DOES NOT CONSTITUTE THE ENTIRE LEASE. TENANT ACKNOWLEDGES THAT
IT HAS READ ALL OF THE PROVISIONS CONTAINED IN THE ENTIRE LEASE AND ALL
EXHIBITS WHICH ARE A PART THEREOF AND AGREES THAT THIS LEASE , INCLUDING THE
BASIC LEASE INFORMATION AND ALL EXHIBITS, REFLECT THE ENTIRE UNDERSTANDING AND
REASONABLE EXPECTATIONS OF LANDLORD AND TENANT REGARDING THE PREMISES. IN THE
EVENT ANY CONFLICT EXISTS BETWEEN ANY BASIC LEASE INFORMATION AND THE LEASE,
THEN THE LEASE SHALL CONTROl.
N.W.A. LIMITED PARTNERSHIP ILEX ONCOLOGY, INC., a Delaware Corp.
(Landlord) (Tenant)
By: By:
---------------------------------- ---------------------------------
IRIS S. STEWART
VICE PRESIDENT OF ITS ---------------------------------
GENERAL PARTNER Printed Name
GEORGE INVESTMENT GROUP, INC.
---------------------------------
Title
EXHIBITS:
Exhibit "A" Outline of Premises
Exhibit "B" Building Rules and Regulations
Exhibit "C" Workletter for Suite 300
Exhibit "D" Parking Agreement
Exhibit "E" Workletter for Suite 170
Initial ______________
iii
<PAGE> 5
OFFICE BUILDING LEASE AGREEMENT
THIS OFFICE BUILDING LEASE AGREEMENT (the "Lease") is entered
into as of October 16, 1996, between NWA Limited Partnership
("Landlord"), and ILEX Oncology, Inc., a Delaware Corporation
, ("Tenant").
DEFINITIONS
AND BASIC
PROVISIONS 1. a. BASIC LEASE INFORMATION. The definitions and basic
provisions set forth in the Basic Lease Information ( "Basic
Lease Information") executed by Landlord and Tenant
contemporaneously herewith are incorporated herein by
reference for all purposes.
b. RENTABLE AREa. "Rentable Area" refers to the
square footage or areas within the Building determined by
adding the following: (i) the Usable Area (as defined below)
of the area being measured, (ii) the portion of the
Building-Shared Areas (as defined below) allocable to the
area being measured, and (iii) the portion of the
Floor-Shared Areas (as defined below) allocable to the area
being measured.
c. USABLE AREa. "Usable Area" means the square
footage of the areas in the Premises (including areas for the
specific use of "Tenant" and installed at the request of
"Tenant" such as special stairs or elevators) or other areas
held for lease measured from the inside surface of the outer
glass, finished column or exterior wall of the Building
enclosing the Premises (a) to the inside surface of the
opposite outer glass, finished column or exterior wall, or
(b) to the mid-point of the demising walls separating the
Premises from: (i) areas leased to or held for lease to other
tenants, (ii) Building-Shared Areas, (iii) Floor-Shared
Areas, and (iv) Service Areas (as defined below), as the case
may be. No deductions from Usable Area shall be made for
columns or projections necessary to the Building.
d. SERVICE AREAS. "Service Areas" means the square
footage of the areas within (and measured from the mid-point
of the walls enclosing) the Building stairs, fire towers,
elevator shafts, flues, vents, stacks, pipe shafts, vertical
ducts and other vertical penetrations. Areas for the specific
use of a tenant and installed at the request of a tenant such
as special stairs or elevators are not included within the
definition of Service Areas, and such areas will be included
in the Usable Area of the space being measured.
e. BUILDING-SHARED AREAS. "Building-Shared Areas"
means the square footage of the areas within (and measured
from the mid-point of the walls enclosing) the Building
elevator, machine rooms, main mechanical and electrical
rooms, public lobbies, and other areas not leased or held for
lease within the Building and not included in Service Areas
or Floor-Shared Areas, but which are necessary or desirable
for the proper utilization of the Building or to provide
customary services to the Building. The allocation to the
Premises of the Building-Shared Areas shall be equal to the
total Building-Shared Areas within the Building multiplied by
a fraction, the numerator of which is the Usable Area of the
Premises and the denominator of which is the total Usable
Area of the Building.
Initial ______________
1
<PAGE> 6
f. FLOOR-SHARED AREAS. "Floor-Shared Areas" means
the square footage of the areas within (and measured from the
mid-point of the walls enclosing) public corridors, elevator
foyers, rest rooms, mechanical rooms, janitor closets,
telephone and equipment rooms, and other similar facilities
for the use of all tenants on the floor on which the Premises
are located and which are not included in Service Areas or
Usable Area of a particular tenant. In the case of a floor
leased to more than one tenant, the allocation to the
Premises of the Floor-Shared Areas on said floor shall be
equal to the total Floor-Shared Areas on said floor
multiplied by a fraction, the numerator of which is the
Usable Area of the Premises located on said floor and the
denominator of which is the total Usable Area of said floor.
g. STIPULATIONS AS TO AREa. Landlord and Tenant
hereby agree that the Rentable Area of the Premises has been
calculated on the basis of the foregoing definitions to be
the number of square feet of Rentable Area for the Premises
set forth in the Basic Lease information.
LEASE
GRANT 2. Subject to the terms of this Lease, Landlord leases to
Tenant, and Tenant leases from Landlord, the Premises for the
Term (as same may be renewed as set forth herein). In
addition, Tenant shall have the non-exclusive right, along
with Landlord and all other tenants in the Building and their
invitees, to use areas designated by Landlord to be the
common areas in the Building and the Appurtenant Facilities,
except any portions thereof designated for the use of
specific tenants, such as the portion of the corridor on the
northern one-half of the third (3rd) floor that is set aside
for Tenant, as set out in the Plans. Tenant and Landlord
agree that Tenant may establish a card access system to the
corridor on the North Side of the Third Floor and exclude
other tenants and invitees of the Building from such space
without same being deemed a part of the Premises for the
purposes of calculations of rent or of Tenant's Proportionate
Share.
COMMENCEMENT
DATE 3. If the Commencement Date is not the first day of a
calendar month, then the Term shall be extended by the time
between the Commencement Date and the first day of the next
month. In the event Tenant occupies the Premises prior to the
scheduled Commencement Date, the Commencement Date shall be
defined as the date such occupancy commences. If this Lease
is executed before the Premises become vacant or otherwise
available and ready for occupancy by Tenant, or if any
present occupant of the Premises holds over and Landlord
cannot acquire possession of the Premises before the
Commencement Date, then (a) Tenant's obligation to pay Rent
hereunder shall be waived until Landlord tenders possession
of the Premises to Tenant, (b) the Term shall be extended by
the time between the scheduled Commencement Date and the date
on which Landlord tenders possession of the Premises to
Tenant (which date will then be defined as the Commencement
Date), (c) Landlord shall not be in default hereunder or be
liable for damages therefor, and (d) Tenant shall accept
possession of the Premises when Landlord tenders possession
thereof to the Tenant. With the exception of the Temporary
Space, by occupying the Premises, Tenant shall be deemed to
have accepted the Premises in their condition as of the date
of such occupancy, subject to the performance of punch-list
items that remain to be performed by Landlord, if any,
Landlord shall have the right, but not the
Initial ______________
2
<PAGE> 7
obligation, to deliver to Tenant a letter (the "Confirmation
Letter" ) confirming (i) the Commencement Date, (ii) that
Tenant has accepted the Premises, and (iii) that Landlord has
performed all of its obligations, if any, with respect to the
condition of the Premises (except for punch-list items
specified in such Confirmation Letter). All information set
forth in the Confirmation Letter shall be deemed correct and
binding on both Landlord and Tenant, unless Tenant objects to
any such information in writing to Landlord within ten (10)
days of Tenant's receipt of the Confirmation Letter. If
requested by Landlord, Tenant shall execute and deliver to
Landlord, within ten (10) days after Landlord has requested
same, a copy of the Confirmation Letter, although Tenant's
failure to execute or deliver the same shall not limit the
binding nature thereof if Tenant fails to object in writing
to any information set forth therein within the time period
provided in this Section 3.
RENT 4. a. PAYMENT. Tenant shall timely pay to Landlord the
Basic Rental and all additional sums to be paid by Tenant to
Landlord under this Lease, including the amounts set forth in
Section 4b., without notice, demand, counterclaim, set-off or
abatement, at Landlord's Address (or such other address as
Landlord may from time to time designate in writing to
Tenant). Basic Rental, adjusted as herein provided, shall be
payable monthly in advance. The first monthly installment of
Basic Rental shall be payable contemporaneously with the
execution of this Lease, and a like monthly installment of
Basic Rental shall be due on the first day of the second full
calendar month of the Term and continuing thereafter on the
first day of each succeeding calendar month during the Term.
Basic Rental for any fractional month at the beginning of the
Term shall be prorated and shall be due on the Commencement
Date. In the event the Commencement Date is not the first day
of a calendar month, Tenant shall pay as Basic Rental for any
such partial month a prorated rental in an amount equal to
$715.22 for each day remaining in said month. Tenant's
obligation to pay Rent hereunder is an independent covenant.
b. OPERATING EXPENSE ESCALATOR. Tenant shall pay an
amount equal to the excess ("Excess Operating Expense") of
Tenant's Proportionate Share of the actual Operating Expenses
for each calendar year or part thereof during the Term, over
the Expense Stop. Landlord may collect such amount in a lump
sum, to be due within thirty (30) days after Landlord
furnishes to Tenant the annual statement of actual Operating
Expenses. Alternatively, Landlord may make a good faith
estimate of the Excess Operating Expenses to be due by Tenant
for any calendar year or part thereof during the Term, and,
unless Landlord delivers to Tenant a revision of the
estimated Excess Operating Expense, Tenant shall pay to
landlord, on the Commencement Date and on the first day of
calendar month thereafter, an amount equal to the estimated
Excess Operating Expense for such calendar year or part
thereof divided by the number of months in such calendar year
during the Term. From time to time during any calendar year,
Landlord may estimate and re-estimate the Excess Operating
Expense to be due by Tenant for the calendar year and deliver
a copy of the estimate or re-estimate to Tenant. Thereafter,
the monthly installments of Excess Operating Expense payable
by Tenant shall be appropriately adjusted in accordance
Initial ______________
3
<PAGE> 8
with the estimations so that, by the end of the calendar year
in question, Tenant shall have paid all of the Excess
Operating Expense as estimated by Landlord. Any amounts paid
based on such an estimate shall be subject to adjustment
pursuant to Section 4d. when actual Operating Expenses are
available of each calendar year.
c. OPERATING EXPENSES. For the purposes of this
Section 4, the term "Operating Expenses" shall mean all
expenses and disbursements of every kind (subject to the
limitations set forth below) which Landlord incurs, pays or
becomes obligated to pay in connection with the ownership,
operation, and maintenance of the Building and Appurtenant
Facilities, determined in accordance with generally accepted
accounting principles consistently applied, including but not
limited to the following:
(i) The costs (including wages and salaries and the
taxes, insurance and benefits relating thereto) of
those employees of the Building or Landlord who are
engaged in the operation, repair, replacement,
maintenance, and security of the Building and
Appurtenant Facilities, including management fees;
(ii) All tools, equipment, supplies and materials
used in the operation, maintenance, repair,
replacement, and security of the Building and
Appurtenant Facilities;
(iii) Actual cost of all capital improvements made
to the Building and Appurtenant Facilities which
although capital in nature can reasonably be
expected to reduce the normal operating costs of the
Building and Appurtenant Facilities, as well as all
capital improvements made in order to comply with
any law hereafter promulgated by any governmental
authority relating to energy, conservation, public
safety or security. Provided, however, the amount of
such costs that may be included as operating costs
in any one year is limited to the ratio of one
divided by the useful economic life of such
improvements as determined by Landlord in its
reasonable discretion (without regard to the period
over which such improvements may be depreciated or
amortized for federal income tax purposes) times the
cost of the item;
(iv) Cost of all utilities for the Building and
Appurtenant Facilities, including the cost of water,
sewer and power for heating, lighting, air
conditioning and ventilating (excluding those costs
billed to specific tenants);
(v) Cost of any Insurance or Insurance related
expense applicable to the Building and Appurtenant
Facilities and Landlord's personal property used in
connection therewith;
(vi) All taxes and assessments and governmental
charges whether federal, state, county or municipal,
and whether they be by taxing authorities presently
taxing or by others subsequently created or
otherwise, and any other taxes and assessments
Initial ______________
4
<PAGE> 9
directly attributable to the Land, Building,
Appurtenant Facilities or rents from the operation
and leasing thereof, exclusive of Direct Taxes
(defined in 4e, below) federal or state income
taxes, or taxes that are imposed on Landlord by
reason of its form of organization (collectively,
"Taxes"). If the present method of taxation changes
such that in lieu of the whole or any part of ad
valorem taxes, there is imposed on owners of real
property a tax or taxes assessed and levied that
such tax is directly attributable to the Land, the
Building, the Appurtenant Facilities or the rental
from the operation or leasing thereof, the amount of
such tax so attributable shall be included as part
of the Taxes to be included as Operating Expenses to
be reimbursed by the Tenants of the Building.
(vii) Cost of repairs, replacements, and general
maintenance of the Building and Appurtenant
Facilities; and
(viii) Cost of service or maintenance contracts with
independent contractors for the operation,
maintenance, repair, replacement, or security of the
Building and Appurtenant Facilities (including,
without limitation, alarm service, window cleaning,
and elevator maintenance).
There are specifically excluded from the definition of the
term "Operating Expenses" costs (1) for capital improvements
made to the Building, other than capital improvements
described in subparagraph (iii) above and except for items
which, though capital for accounting purposes, are properly
considered maintenance and repair items, such as painting of
common areas, replacement of carpet in elevator lobbies,
corridors and the like; (2) for repair, replacements and
general maintenance paid by proceeds of insurance or by
Tenant or other third parties, and alterations attributable
solely to tenants of the Building other than Tenant; (3) for
interest, amortization or other payments on loans to
Landlord; (4) for depreciation of the Building; (5) for
leasing commissions; (6) for legal fees other than those
incurred for the purpose of reducing Operating Expenses
(e.g., legal fees incurred in contesting the assessment of
Taxes); (7) for renovating or otherwise improving space for
occupants of the Building or vacant space in the Building;
(8) for correcting defects in the construction of the
Building, such as any repairs or modifications arising out of
foundation problems; and (9) for federal income taxes imposed
on or measured by the income of landlord from the operation
of the Building. Tenant, at Tenant's sole cost and expense,
shall have the right to audit Landlord's books and records
relating to Operating Expenses and Landlord agrees to make
available to Tenant, upon at least ten (10) days proper
written notice from Tenant to Landlord, its books and records
relevant to such an audit.
d. ADJUSTMENT. The annual cost statement shall
include a statement of Landlord's actual Operating Expenses
for the previous year. If the annual cost statement reveals
that Tenant paid more for Operating Expenses than the actual
Excess Operating Expense in the year for which such statement
was prepared, then Landlord, shall credit
Initial ______________
5
<PAGE> 10
against future Excess Operating Expenses or, upon notice from
Tenant, Landlord shall reimburse Tenant for such excess;
likewise, if Tenant paid less than the actual Excess
Operating Expense, then Tenant shall pay Landlord such
deficiency either of such payments to be made within thirty
(30) days after delivery of such annual cost statement.
e. DIRECT TAXES. At the same time and in the same
manner as the payment of Basic Rental hereunder, Tenant shall
pay any gross revenue tax, sales tax, excise tax, value-added
tax, privilege tax, or similar tax imposed by any government
or governmental agency upon Tenant on account of the Lease or
the payment of Rent hereunder ("Direct Taxes").
f. SURVIVABILITY OF OBLIGATIONS. All obligations of
Tenant to pay Rent accrued prior to termination of this Lease
shall survive such termination.
DELINQUENT
PAYMENT,
LATE
CHARGES 5. a. All Rent to be paid by Tenant to Landlord shall
be in lawful money of the United States of America and shall
be paid without deduction or offset, prior notice or demand,
at the address set forth in the Basic Lease Information, or
at such other places as may be designated from time to time
by Landlord. In the event a check is submitted by Tenant for
payment, and is returned for insufficient funds, a $25.00
handling fee will be assessed by Landlord. If thereafter a
second check is returned for insufficient funds, another
handling fee in the amount of $25.00 will be assessed, and
all future payments thereafter must be made in cash or by
cashier's or certified check. In the event any Rent is not
received within ten (10) days after its due date for any
reason whatsoever, then in addition to the past due amount
Tenant shall pay to Landlord interest on the Rent then past
due at a rate equal to the lesser of (i) 18% per annum, or
(ii) the maximum contractual rate which could legally be
charged in the event of a loan of such Rent to Tenant, such
interest to accrue continuously on any unpaid balance due to
Landlord by Tenant during the period commencing with the Rent
due date and terminating with the date on which Tenant makes
full payment of all amounts owing to Landlord at the time of
said payment. Any such late charge or interest payment shall
be payable as additional Rent under this Lease and shall be
payable immediately on demand. In no event, however, shall
the charges permitted under this Section 5 or elsewhere in
this Lease, to the extent the same are considered to be
interest under applicable law, exceed the maximum lawful
contract rate of interest.
SECURITY
DEPOSIT 6. Contemporaneously with the execution of this Lease,
Tenant shall pay to Landlord, in immediately available funds,
the Security Deposit, which shall be held by Landlord without
liability for interest and as security for the performance by
Tenant of its obligations under this Lease. The Security
Deposit is not an advance payment of Rent or a measure or
limit of Landlord's damages upon an Event of Default (defined
below). Landlord shall not be obligated to hold the Security
Deposit as a separate fund, but may commingle it with other
funds. Landlord may, from time to time and without prejudice
to any other remedy, use all or a part of the Security
Deposit to perform any obligation which Tenant was obligated,
but failed, to perform hereunder.
Initial ______________
6
<PAGE> 11
Following any such application of the Security Deposit,
Tenant shall pay to Landlord on demand the amount so applied
in order to restore the Security Deposit to its original
amount. Within a reasonable time after the Term ends,
provided Tenant has performed all of its obligations
hereunder, Landlord shall return to Tenant the balance of the
Security Deposit not applied to satisfy Tenant's obligations.
If Landlord transfers its interest in the Premises, then
Landlord may assign the Security Deposit to the transferee
and Landlord thereafter shall have no further liability for
the return of the Security Deposit.
LANDLORD'S 7. a. SERVICES. Provided no Event of Default exists,
Landlord shall use reasonable efforts OBLIGATIONS to furnish
to Tenant (i) water (hot and cold) at those points of supply
provided for general use of tenants of the Building, as
modified by the work to be performed in accordance with
Tenant's Final Plans; (ii) heated and refrigerated air
conditioning as appropriate, at such times as Landlord
normally furnishes these services to all tenants of the
Building, and at such temperatures and in such amounts as are
reasonably considered by Landlord to be standard; (iii)
janitorial service to the Premises five nights a week except
on Holidays (Landlord reserves the right to bill Tenant
separately for extra janitorial service required for
non-standard installations) and such window washing as may
from time to time in Landlord's judgment be reasonably
required; (iv) elevators for ingress and egress to the floor
on which the Premises are located, in common with other
tenants, provided that Landlord may reasonably limit the
number of elevators to be in operation at times other than
during normal business hours and on holidays; (v) replacement
of Building-standard light bulbs and fluorescent tubes; and
(vi) electrical current during normal business hours other
than for equipment whose electrical energy consumption
exceeds normal office usage, Landlord agrees that the
electrical energy consumption needs depicted on Tenant's
Final Plans does not exceed normal office usage. Landlord
shall maintain the common areas of the Building first quality
condition (Tenant agrees that the Building is in first
quality condition as of the Commencement Date), except for
damage occasioned by Tenant, or its employees, agents or
invitees. Landlord and Tenant disclaim all implied warranties
that the premises are suitable for Tenant's intended
commercial use. If Tenant desires any of the services
specified in this Section 7a. at any time other than times
herein designated (or as specified as normal business hours
in rules and regulations attached hereto), Landlord shall use
reasonable efforts to supply such services to Tenant upon the
written request of Tenant delivered to Landlord before 3:00
p.m. on the business day for which such extra usage is
requested, or before 3:00 p.m. on Fridays for weekend use and
3:00 p.m. on the last business day before Holiday use. Within
ten (10) days after Landlord has delivered an invoice
therefor, Tenant shall pay to Landlord the actual cost
incurred by Landlord for such services.
b. EXCESS UTILITY USE. If Tenant's requirements for
or consumption of electricity exceed the electricity to be
provided by Landlord as described in Section 7a.,
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Landlord shall, at Tenant's expense, make reasonable efforts
to supply such service through the then-existing feeders and
risers serving the Building and the Premises, and Tenant
shall pay to Landlord the cost of such service within ten
(10) days after Landlord has delivered to Tenant an invoice
therefor. Tenant shall not install any electrical equipment
requiring special wiring or requiring voltage in excess of
110 volts or otherwise exceeding Building capacity unless
approved in advance by Landlord. The use of electricity in
the Premises shall not exceed the capacity of existing
feeders and risers to or wiring in the Premises. Any riders
or wiring required to meet Tenant's excess electrical
requirements shall, upon Tenant's written request, be
installed by landlord, at Tenant's cost, if, in Landlord's
sole and absolute judgment, the same are necessary and shall
not cause permanent damage or injury to the Building or the
Premises, cause or create a dangerous or hazardous condition,
entail excessive or unreasonable alterations, repairs, or
expenses, or interfere with or disturb other tenants of the
Building. If Tenant uses machines or equipment in the
Premises which require additional air conditioning capacity
above that provided by the Building standard system, Tenant
shall pay the costs of additional air conditioning
installation and operating costs.
c. DISCONTINUANCE. Landlord's obligation to
furnish utility services under Section 7a. shall be subject
to the rules and regulations of the supplier of such services
and governmental rules and regulations.
d. RESTORATION OF SERVICES; ABATEMENT. Landlord shall
use reasonable efforts to restore any service that becomes
unavailable; however, such unavailability shall not render
Landlord liable for any damages caused thereby, be a
constructive eviction of Tenant, constitute a breach of any
implied warranty, or entitle Tenant to any abatement of
Tenant's obligations hereunder, including but not limited to
Tenant's obligation to pay Rent.
e. Since Suite 170 may experience differential
shifting, Landlord agrees that any cosmetic repairs required
due to shifting will be made by Landlord throughout the Term
of the Lease.
IMPROVEMENTS;
ALTERATIONS;
REPAIRS; 8. a. IMPROVEMENTS; ALTERATIONS. Except as otherwise
specified in this Lease or in any Exhibit hereto,
improvements to the Premises shall be installed at the
expense of Tenant only in accordance with plans and
specifications which have been previously submitted to and
MAINTENANCE approved in writing by Landlord. After the
initial Tenant improvements are made (if any), no alterations
or physical additions in or to the Premises may be made
without Landlord's prior written consent. Tenant shall not
paint or install lighting or decorations, signs, window or
door lettering, or advertising media of any type on or about
the Premises that is visible to the
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common areas of the Building without the prior written
consent of Landlord. All alterations, additions, or
improvements, (whether temporary or permanent in character,
and including without limitation all air-conditioning
equipment and all other equipment that is in any ;manner
connected to the Building's plumbing system) made in or upon
the Premises either by Landlord or Tenant, shall be
Landlord's property at the end of the Term and shall remain
on the Premises without compensation to Tenant; provided,
however, that if Tenant is not then in default hereunder and
Tenant repairs any damage caused by such removal, Tenant may
remove its trade fixtures at the end of the Term. Approval by
Landlord of any of Tenant's drawing and plans and
specifications prepared in connection with any improvements
in the Premises shall not constitute a representation or
warranty of Landlord as to the adequacy or sufficiency of
such drawings, plans and specifications, or the improvements
to which they relate, for any use, purpose, or condition, but
such approval shall merely be the consent of Landlord as
required hereunder. To the best of Landlord's actual
knowledge, the Building is substantially in compliance with
applicable local, state and federal laws, rules, regulations
and decrees.
b. REPAIRS; MAINTENANCE. Tenant shall maintain the
Premises in a clean, safe, operable, attractive condition,
and shall not permit or allow to remain any waste or damage
to any portion of the Premises. Landlord shall, at its own
expense (but subject to Landlord's right to reimbursement for
maintenance expenses constituting Operating Expenses),
maintain the exterior walls and the structure, electrical,
plumbing and mechanical systems of the Building provided that
Tenant shall repair or replace, subject to Landlord's
direction and supervision, any damage to the Building or any
of its systems caused by Tenant or Tenant's agents,
contractors, or invitees. If Tenant fails to make such
repairs or replacements within thirty (30) days after the
occurrence of such damage or if such damage cannot be
repaired within such thirty (30) day period for non-monetary
reasons only, if Tenant does not commence to make such
repairs and thereafter diligently prosecute such repairs
within such thirty (30) day period, then Landlord may make
the same at Tenant's cost. Such cost shall be limited to only
reasonable cost, but which may include an additional fee
equal to 15% of the cost for Landlord's overhead expense if
Landlord serves as the general contractor on such repair, and
shall be payable to Landlord within ten (10) days after
Landlord has delivered to Tenant an invoice therefor.
c. PERFORMANCE OF WORK. All work described in this
Section 8 shall be performed only by Landlord or by
contractors and subcontractors approved in writing by
Landlord. Tenant shall cause all contractors and
subcontractors to procure and maintain insurance coverage
against such risks, in such amounts, and with such companies
as Landlord may reasonably require. In addition, for
contracts for work with a cost of more than $20,000.00, at
Landlord's request,
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Tenant shall cause all contractors and subcontractors to
procure payment and performance bonds reasonably satisfactory
to Landlord covering the cost of the work. All such work
shall be performed in accordance with all legal requirements
and in a good and workmanlike manner so as not to damage the
Premises, the primary structure or structural qualities of
the Building, or plumbing, electrical lines, or other utility
transmission facility.
d. MECHANIC'S LIENS. Tenant shall not permit any
mechanic's liens to be filed against the Premises or the
Building for any work performed, materials furnished, or
obligation incurred by or at the request of Tenant. If such a
lien is filed, then Tenant shall, within ten (10) days after
Landlord has delivered notice of the filing to Tenant, either
pay the amount of the lien or diligently contest such lien
and deliver to Landlord a bond or other security reasonably
satisfactory to Landlord. If Tenant elects to contest such
lien and if a statutory proceeding exists for the release of
the lien by the posting of a bond, Tenant shall immediately
proceed to obtain a release of said lien in accordance with
such statute. If Tenant fails either to timely pay the lien
amount or diligently contest such lien and deliver the
required bond or security, then Landlord may pay the lien
claim without inquiry as to the validity thereof, and any
amounts so paid, including expenses and interest, shall be
paid by Tenant to Landlord within ten (10) days after
Landlord has delivered to Tenant an invoice therefor. Nothing
contained in this Lease will be deemed the consent or
agreement of Landlord, nor shall Tenant be deemed to have any
authority, to subject Landlord's interest in the Premises or
the Building to the imposition of any lien, or otherwise to
liability, under any mechanics' or other lien law.
USE 9. a. PERMITTED USE / COMPLIANCE WITH LAWS. Tenant
shall continuously occupy and use the Premises only for the
Permitted Use and shall comply with all laws, orders, rules,
and regulations relating to the use, condition, and occupancy
of the Premises. Landlord covenants that it will comply with
all laws, rules, regulations, ordinances and decrees of
local, state or federal authorities applicable to the
Building as a whole. Tenant shall comply with any direction
of any governmental authority having jurisdiction over the
Premises, which shall by reason of the nature of Tenant's use
or occupancy of the Premises, impose any duty upon Tenant or
Landlord with respect to the Premises or the occupancy
thereof. Tenant shall not do or permit anything to be done
which would invalidate or increase the cost of any fire,
extended coverage, or any other insurance policy covering the
Building. Notwithstanding the foregoing and without limiting
the remedies of Landlord for a violation of the provisions of
this Section 9a., Tenant shall promptly, upon demand
reimburse Landlord for the full amount of any additional
premium charged for such policy by reason of Tenant's failure
to comply with the provisions of this Section 9a. Tenant
shall not in any way obstruct or interfere with the rights or
other
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tenants or occupants of the Building, or use or allow the
Premises to be used for any improper, immoral or
objectionable purpose nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises.
b. HAZARDOUS MATERIALS. The Premises shall not be
used for any use which is disreputable or creates
extraordinary fire hazards or results in an increased rate of
insurance on the Building or its contents or the storage of
any Hazardous Materials (as defined below). Without limiting
the foregoing, Tenant shall not cause or permit any Hazardous
Material to be brought upon, kept or used in or about the
Premises or Building or Appurtenant Facilities or the Land by
Tenant, its employees, agents, contractors or invitees. As
used herein, the term "Hazardous Materials" shall mean any
hazardous or toxic substance, material or waste, including
but not limited to, those substances, materials and wastes
now or hereafter listed in the United States Department of
Transportation Hazardous Materials Table or by the
Environmental Protection Agency as hazardous substances, or
such substances, materials and wastes that are or become
regulated under any applicable federal, state or local law,
exclusive of solvents and chemicals customarily used and
consumed in an office building. Tenant expressly covenants
that Tenant will advise Landlord immediately upon learning
that any Hazardous Material has been brought upon the
Premises or Building or Appurtenant Facilities or the Land,
whether or not caused or permitted by Tenant and regardless
of who shall have brought such Hazardous Materials thereon.
If Tenant permits any Hazardous Material to be brought upon,
kept or used in or about the Premises or Building or
Appurtenant Facilities or the Land, then Tenant shall take
all steps reasonably necessary to safeguard against their
discharge and Tenant shall indemnify, defend and hold
Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses,
including but not limited to, diminution in value of the
Premises or Building or Appurtenant Facilities or the Land,
damages for loss or restriction on use of rentable or usable
space or of any amenity in the Premises or Building or
Appurtenant Facilities or the Land, damages arising from any
adverse impact on marketing of the Premises or Building or
Appurtenant Facilities or the land, and sums paid in
settlement of claims, attorneys' fees, consulting fees and
expert fees, which arise during or after the Term as a result
of such contamination. This indemnification of Landlord by
Tenant includes but is not limited to costs incurred in
connection with any investigation of sight conditions or
clean-up, remedial removal or restoration work required by
any federal, state or local government agency or political
subdivision because of Hazardous Material present in the
Premises or Building or Appurtenant Facilities or the Land,
or the soil or ground water on which the Building is located.
Without limiting the foregoing, if the presence of any
Hazardous Material on the Premises or Building or Appurtenant
Facilities or the Land caused or permitted by Tenant results
in any contamination of the Premises or Building or
Appurtenant Facilities or the Land, Tenant shall, upon
request by Landlord, promptly take all
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actions at its sole expense that are necessary to return the
Premises or Building or Appurtenant Facilities or the Land to
the condition existing prior to the introduction or exposure
of any Hazardous Material in the Premises or Building or
Appurtenant Facilities or the Land. The indemnity provision
set forth in this Section 9b. shall survive termination or
expiration of this Lease.
ASSIGNMENT
AND
SUBLETTING 10. a. ASSIGNMENT OR SUBLEASE. Except as provided in
paragraph (e) below, without the prior written consent of
Landlord, which will not be unreasonable withheld or delayed,
Tenant shall not assign this Lease or sublet the Premises or
any part thereof. Any attempted assignment or sublease by
Tenant in violation of the terms and conditions of this
paragraph shall be void and of no effect. If Tenant desires
to assign this Lease or sublet the Premises or any part
thereof, Tenant shall deliver to Landlord written notice
thereof (together with all of the terms of the proposed
assignment or sublease, the identify of the proposed
transferee and sufficient financial information regarding the
proposed transferee to permit Landlord to evaluate the
creditworthiness thereof) at lease sixty (60) days in advance
of the date on which Tenant desires to make such assignment
or sublease. Landlord shall have thirty (30) days following
receipt of such notice and information within which to notify
Tenant in writing that Landlord elects either to (i) permit
Tenant to assign this Lease or sublet such space; or (ii)
refuse to consent to such assignment or sublease and to
continue this Lease in full force and effect as to the entire
Premises. If Landlord fails to notify Tenant of its election
within such thirty (30) day period, Landlord shall be deemed
to have elected option (ii) above. Anything to the contrary
notwithstanding, Tenant shall have the right to assign or
sublease the Premises to any legal entity which is a wholly
owned subsidiary, or an affiliate, a successor corporation or
legal entity or which is the surviving entity following a
merger, consolidation or reorganization of its form of
organization (a "Permitted Assignee") without prior consent
of the Landlord, but with thirty (30) days prior written
notice to Landlord so long as such Permitted Assignee assumes
the obligations of Tenant hereunder and Tenant either agrees
to remain liable hereunder or, if Tenant seeks to be released
of its obligations hereunder, provides evidence at the time
it notifies Landlord of its intent to assign or sublet the
Premises that the Permitted Assignee is of equal or greater
creditworthiness.
b. CONSENT. The consent by Landlord to a particular
assignment or sublease shall not be deemed consent to any
other assignment or sublease. If Landlord consents to a
proposed assignment or sublease, then the proposed transferee
shall deliver to Landlord a written agreement whereby it
expressly assumes the Tenant's obligations hereunder;
however, any transferee of less than all of the space in the
Premises shall be liable only for obligations under this
Lease that are properly allocable to the space subject to the
assignment of sublease, and only to the extent of the rent it
has agreed to pay Tenant therefor.
c. ADDITIONAL COMPENSATION. Tenant shall pay
Landlord, immediately upon
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receipt thereof, all compensation received by Tenant for an
assignment or sublease that exceeds the Rent allocable to the
portion of the Premises covered thereby.
d. CONTINUED LIABILITY. Tenant shall, despite any
permitted assignment or sublease, remain directly and
primarily liable for the performance of all of the covenants,
duties, and obligations of Tenant hereunder, and Landlord
shall be permitted to enforce the provisions of this Lease
against Tenant or any assignee or sublessee without demand
upon or proceeding in any way against any other person.
e. TRANSFER OF CONTROLLING INTEREST. So long as
Tenant is a privately held corporation (and except with
respect to: (i) a sublease or assignment to a Permitted
Assignee; or (ii) in connection with (a) an offering of
securities made pursuant to exemption from registration under
federal or state securities laws and rules; (b) an offering
of securities registered in compliance with federal or state
securities law; (c) entry into voting trust or similar
covenants or agreements executed in connection with loan or
other venture capital arrangements or as a result of the
exercise of rights or remedies of the holders or
beneficiaries of such securities, covenants or agreements).,
any change in a majority of the voting rights or other
controlling rights or interests of Tenant shall be deemed an
assignment for the purposes hereof. If Tenant should become a
public company, the shares of which are traded on a
recognized stock exchange in the United States or automated
quotation dealer system or that is required to register its
stock with the United States Securities and Exchange
Commission under Section 12(g) of the Securities and Exchange
Act of 1934, this provision 10e shall no longer be effective.
INSURANCE;
WAIVERS;
SUBROGATION
INDEMNITY. 11. a. INSURANCE. Tenant shall at its expense procure
and maintain throughout the Term the following insurance
policies; (i) comprehensive general liability insurance in
amounts of not less than a combined single limit of
$1,000,000.00 or such other amounts as Landlord may from time
to time (but not more frequently then once per calendar year
and by notice given at least ninety (90) days prior to an
anniversary of the Commencement Date) reasonably require,
insuring Tenant, Landlord, and Landlord's agents against all
liability for injury to or death of a person or persons or
damage to property arising from the use and occupancy of the
Premises, Building, Appurtenant Facilities or Land, and which
shall name Landlord as an additional insured, (ii)
contractual liability insurance coverage in amounts of not
less than a combined single limit of $1,000,000.00 or such
other amounts as Landlord may from time to time reasonably
require to cover Tenant's indemnity obligations hereunder,
(iii) if Tenant operates owned, leased, hired or non-owned
vehicles on the Premises, comprehensive automobile liability
insurance at a limit of liability not less than $1,000,000.00
combined bodily injury and property damages, (iv) insurance
covering the full value of Tenant's property and
improvements, and other property (including property
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of others), in the Premises, and (v) workers compensation
insurance with an endorsement to waive subrogation in favor
of Landlord. Tenant's insurance shall provide primary
coverage to landlord when any policy issued to Landlord
provides duplicate or similar coverage, and in such
circumstance Landlord's policy will be excess over Tenant's
policy. Tenant shall furnish certificates of such insurance
(including all endorsements) and such other evidence
satisfactory to Landlord of the maintenance of all insurance
coverage required hereunder, and Tenant shall obtain a
written obligation on the part of each insurance company to
notify Landlord at least 30 days before cancellation or a
material change of any such insurance. All such insurance
policies shall be in form, and issued by companies licensed
in the State of Texas and rated not lower than A-, Class X,
by Best's rating service. Tenant may carry such insurance
under a blanket policy, provided such insurance has a
landlord's protective liability endorsement attached thereto.
If Tenant fails to procure and maintain said insurance,
Landlord may, but shall not be required to, procure and
maintain same, but at the expense of Tenant. No policy shall
be cancelable or subject to reduction of coverage except
after thirty (30) days prior written notice to Landlord.
b. WAIVER; NO SUBROGATION. LANDLORD SHALL NOT BE
LIABLE TO TENANT OR THOSE CLAIMING BY, THROUGH, OR UNDER
TENANT FOR ANY INJURY TO OR DEATH OF ANY PERSON OR PERSONS OR
THE DAMAGE TO OR THEFT, DESTRUCTION, LOSS, OR LOSS OF USE OF
ANY PROPERTY (A "LOSS") CAUSED BY CASUALTY, THEFT, FIRE, OR
THIRD PARTIES, OR BY ANY OTHER MATTER BEYOND THE REASONABLE
CONTROL OF LANDLORD, OR FOR ANY INJURY OR DAMAGE OR
INCONVENIENCE WHICH MAY ARISE THROUGH REPAIR OR ALTERATION OF
ANY PART OF THE BUILDING, OR FAILURE TO MAKE REPAIRS, OR FROM
ANY OTHER CAUSE, EXCEPT IF SUCH LOSS IS CAUSED BY LANDLORD'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. TENANT WAIVES ANY
CLAIM IT MIGHT HAVE AGAINST LANDLORD FOR ANY DAMAGE TO OR
THEFT, DESTRUCTION, LOSS, OR LOSS OF USE OF ANY PROPERTY, TO
THE EXTENT THE SAME IS INSURED AGAINST UNDER ANY INSURANCE
POLICY THAT COVERS THE BUILDING, THE PREMISES, LANDLORD'S OR
TENANT FIXTURES, PERSONAL PROPERTY, LEASEHOLD IMPROVEMENTS,
OR BUSINESS, OR IS REQUIRED TO BE INSURED AGAINST UNDER THE
TERMS HEREOF, REGARDLESS OF WHETHER THE NEGLIGENCE OR FAULT
OF THE OTHER PARTY CAUSED SUCH LOSS. Landlord and Tenant
shall cause their property and casualty insurance carrier to
endorse all applicable policies waiving the carrier's rights
of recovery under subrogation or otherwise against the other.
c. INDEMNITY. Subject to Section 11b., Tenant shall
defend, indemnify, and hold harmless Landlord and its agents
from and against all claims, demands, liabilities, causes of
action, suits, judgments, and expenses (including attorney's
fees) for any Loss arising from any occurrence on the
Premises, Building, Appurtenant Facilities or Land, or from
Tenant's failure to perform its obligations under this Lease
(other than a Loss arising from the sole or gross negligence
of Landlord or its agents), even though caused or alleged to
be
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caused by the joint, comparative, or concurrent negligence or
fault of Landlord or its agents, and even though any such
claim, cause of action, or suit is based upon or alleged to
be based upon the strict liability of Landlord or its agents.
This indemnity provision is intended to indemnify Landlord
and its agents against the consequences of their own
negligence or fault as provided above when Landlord or its
agents are jointly, comparatively, or concurrently negligent
with Tenant. This indemnity provision shall survive
termination or expiration of this Lease. The indemnity
obligations in this paragraph 11(c) are limited to the extent
of the greater of (i) the coverage and dollar limits of
insurance which Tenant has obtained or (ii) the coverage and
dollar limits of insurance which Tenant is obligated to
obtain pursuant to the provisions of this Lease.
SUBORDINATION
ATTORNMENT;
NOTICE TO 12. a. SUBORDINATION. This Lease shall be and is hereby
made subordinate to any deed of trust, mortgage, or other
security instrument (a "Mortgage"), or any ground lease,
master lease, LANDLORD'S or primary lease (a "Primary
Lease"), that now or hereafter covers all or any part of the
MORTGAGEE Premises (the mortgagee under any Mortgage or the
lessor under any Primary Lease is referred to herein as
"Landlord's Mortgagee").
b. ATTORNMENT. Tenant shall attorn to any party
succeeding to Landlord's interest in the Premises, whether by
purchase, foreclosure, deed in lieu of foreclosure, power of
sale, termination of lease, or otherwise, upon such party's
request, and shall execute such agreements confirming such
Attornment as such party may reasonably request provided that
in such agreement the succeeding party agrees not to disturb
Tenant's right to possession of the Premises so long as
Tenant is not in default hereunder. In the event of such
request upon Tenant's Attornment as aforesaid, Tenant will
automatically become the tenant of the successor to
Landlord's interest without change in the terms or provisions
of this Lease; provided, however, that such successor to
Landlord's interest shall not be bound by (a) any payment of
Rent for more than one month in advance (except prepayments
for security deposits, if any), (b) any amendments or
modifications of this Lease made without the prior written
consent of Landlord's Mortgagee if Tenant was advised of the
interest of the same, or (c) any credits, offsets, defenses
or claims which Tenant may have against Landlord.
c. NOTICE TO LANDLORD'S MORTGAGEE. Tenant shall not
seek to enforce any remedy it may have for any default on the
part of the Landlord without first giving written notice by
certified mail, return receipt requested, specifying the
default in reasonable detail, to any Landlord's Mortgagee
whose address has been given to Tenant, and affording such
Landlord's Mortgagee a reasonable opportunity to perform
Landlord's obligations hereunder.
d. CERTIFICATES REQUESTED BY LANDLORD'S MORTGAGEE.
From time to time, Tenant shall furnish to any Landlord's
Mortgagee, within 10 days after a request therefor, such
estoppel certificates, non-disturbance and attornment
agreements, or other certificates as Landlord's Mortgagee may
reasonably request, so long as the same are accurate.
RULES AND
REGULATIONS 13. Tenant shall comply with the rules and regulations of
the Building which are attached hereto as Exhibit b. Landlord
may, from time to time, change such rules and regulations for
the safety, care, or cleanliness of the Building and related
facilities, provided that such changes are generally
applicable to all tenants of the Building and will not
unreasonably interfere with Tenant's use of the Premises.
Tenant shall be responsible for the compliance with such
rules and regulations by its employees, agents, and invitees.
Landlord shall not be responsible to Tenant for the failure
or refusal by any tenant or other
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person in the Building or Appurtenant Facilities to comply
with the rules and regulations established by Landlord.
CONDEMNATION
14. If all or substantially all of the Premises and/or
parking area shall be taken by condemnation or conveyed in
lieu thereof (hereafter for the purposes of this provision, a
"taking"), this Lease shall terminate as of the date
possession is taken by the condemning authority and all rent
and other charges payable by Tenant shall be prorated as of
such date. All compensation paid for such taking (other than
amounts specifically paid for Tenant's leasehold
improvements) shall be the property of Landlord. Any amounts
specifically awarded for Tenant's leasehold improvements
shall be Tenant's property. If a portion of the Premises
and/or parking area is taken, but Tenant is still able,
reasonably, to use the remainder for the purposes for which
the same is leased pursuant to this Lease, then this Lease
shall remain in full force and effect, but rent shall be
equitably adjusted based upon the portion of the Premises
taken and the loss of utility thereof. If such a substantial
portion of the Premises and/or parking area is taken such
that Tenant may not reasonably use the Premises for the
purposes for which they are leased, then this Lease shall
terminate as provided above. For the purposes of this
paragraph, Landlord and Tenant agree that (i) a taking of
12.5% or more of the Premises or (ii) a taking which results
in a 12.5% or more reduction in the number of parking spaces
which Landlord can provide to Tenant on the Land or in close
proximity to the Land, will result in Tenant not being able
to reasonably use the Premises for the purposes for which
they are leased.
FIRE OR 15. a. REPAIR ESTIMATE. If the Premises or the Building
OTHER are damaged by fire or other casualty (a "Casualty"),
Landlord shall, within thirty (30) days after such Casualty,
deliver CASUALTY to Tenant a good faith estimate (the "Damage
Notice") of the time needed to repair the damage caused by
such Casualty (such estimate shall take into consideration
the estimated time to resolve any insurance claim and to
obtain the approval of Landlord's Mortgagee to the
application of insurance proceeds to the reconstruction of
the Building and Premises) and whether Landlord has
alternative space that might be occupied by Tenant during
reconstruction.
b. LANDLORD'S AND TENANT'S RIGHTS. If a material portion of
the Premises or the Building are damaged by Casualty such
that Tenant is prevented from conducting its business in the
Premises in a manner reasonably comparable to that conducted
immediately before such Casualty, the Damage Notice which the
Landlord delivers to Tenant shall include the Landlord's
statement that either (a) the Lease is terminated if, in
Landlord's judgment, any one or more of the following is
true: (i) the damage cannot be repaired within 180 days after
the date of the casualty, (ii) the expected insurance
settlement, together with other money the Landlord is willing
to commit to the rebuilding is insufficient to accomplish the
restoration of the building, or (iii) the Landlord's
mortgagee is unwilling to permit Landlord to use the
insurance proceeds for the restoration and the Landlord is
unwilling or unable to provide other funds for that purpose,
or (b) Landlord intends to continue the Lease if one or more
of the
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following is true: (i) Landlord has alternate space within
the building sufficient to provide for the Tenant's needs and
agrees that Tenant can occupy this space for the longer of
the time required for restoration or the balance of the then
term or renewal term of this Lease; or (ii) the repairs can
reasonably be expected to be accomplished within 180 days
after the date of the casualty based on the estimate of a
reputable contractor , the Landlord has received reasonable
assurance from its insurance carrier that the casualty claim
will be timely processed for payment and either Landlord's
mortgagee has agreed to the application of the insurance
proceeds to the restoration of the building or Landlord has
other funds available . Within fifteen days of the Damage
Notice Tenant may terminate the Lease only if; (i) as to a
Landlord notice described in b(ii) above, Tenant reasonably
believes the repairs cannot be completed within 180 days
after the date of the Casualty, or (ii) as to a Landlord
notice described in b(i) above, Tenant has reasonably
concluded that the alternate space is not reasonably
acceptable to Tenant. If the Lease is terminated, the rent
and other charges shall be abated as of the date of the
Casualty. If alternate space is to be provided, the rental
for same should be equitably adjusted and paid in lieu of
rent on the Premises.
c. REPAIR OBLIGATION. If neither party elects to
terminate this Lease following a Casualty, then Landlord
shall, within a reasonable time after such Casualty, commence
to repair the Building and the Premises and shall proceed
with reasonable diligence to restore the Building and
Premises to substantially the same condition as they existed
immediately before such Casualty; however, Landlord shall not
be required to repair or replace any part of the furniture,
equipment, fixtures, and other improvements which may have
been placed by, or at the request of, Tenant or other
occupants in the Building or the Premises, and Landlord's
obligation to repair or restore the Building or Premises
shall be limited to the extent of the insurance proceeds
actually received by Landlord for the Casualty in question.
TAXES 16. Tenant shall be liable for all taxes levied and assessed
against personal property, furniture, or fixtures, or above
Building standard tenant improvements, placed by Tenant in
the Premises following the work to be performed pursuant to
Tenant's Final Plans attached, and all taxes relating to the
operation of Tenant's business in the Premises including,
without limitation, all withholding taxes and sales and use
taxes. If any taxes for which Tenant is liable are levied or
assessed against Landlord or Landlord's property and Landlord
elects to pay the same, or if the assessed value of
Landlord's property is increased by inclusion of such
personal property, furniture or fixtures, or above Building
standard tenant improvements, and Landlord elects to pay the
taxes based on such increase, then Tenant shall pay to
Landlord, upon demand, that part of such taxes for which
Tenant is primarily liable hereunder.
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EVENTS OF
DEFAULT 17. Each of the following occurrences shall constitute an
"Event of Default":
a. Tenant's failure to pay Rent to Landlord under
the Lease when due; provided that Landlord shall not exercise
any remedies with respect to such Event of Default unless the
same remains uncured for a period of five (5) days after
Landlord has delivered written notice thereof; provided
further, however, that Landlord may exercise any such
remedies without any obligation of Landlord to give any
notice if Landlord has given Tenant written notice under this
Section 17a. on more than two (2) occasions during the
12-month interval preceding such failure by Tenant;
b. Tenant's failure to perform, comply with, or
observe any other agreement or obligation of Tenant under
this Lease; provided that Landlord shall not exercise any
remedies with respect to such Event of Default unless the
same remains uncured for a period of twenty (20) days after
Landlord delivers to Tenant written notice thereof or, if
such non-monetary default is of a type that cannot be cured
within such twenty (20) day period, and Tenant fails to
commence to cure such default within such twenty (20) day
period and thereafter diligently prosecute the cure of such
default;
c. The filing of a petition by or against Tenant
(the term "Tenant" shall include, for the purpose of this
Section 17c, any guarantor of the Tenant's obligations
hereunder) (i) in any bankruptcy or other insolvency
proceeding; (ii) seeking any relief under any state or
federal debtor relief law; (iii) for the appointment of a
liquidator or receiver for all or substantially all of
Tenant's property or for Tenant's interest in this Lease; or
(iv) for the reorganization or modification of Tenant's
capital structure; provided, however, if such petition is
filed against Tenant, then such filing shall not be an Event
of Default unless Tenant fails to have the proceedings
initiated by such petition dismissed within sixty (60) days
after the filing thereof; and provided further, however, that
an event described in this Section 17c. shall not constitute
an Event of Default if applicable law provides that such
event cannot be the basis of default hereunder;
d. Tenant shall vacate or abandon any portion of the
Premises and discontinue the payment of Basic Rental therefor;
e. The admission by Tenant that it cannot meet its
obligations as they become due or the making by Tenant of an
assignment for the benefit of its creditors; or
f. Any representation or warranty made by Tenant, or
made by any guarantor of Tenant's obligations hereunder, was
materially false or inaccurate when made.
REMEDIES 18. Upon any Event of Default, Landlord may, in addition to
all other rights and remedies afforded Landlord hereunder or
by law or equity, take any of the following actions:
a. Terminate this Lease by giving Tenant written
notice thereof, in which event,
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Tenant shall pay to Landlord the sum of (i) all Rent accrued
hereunder through the date of termination, (ii) all amounts
due under Section 19a., and (iii) an amount equal to (a) the
total Rent that Tenant would have been required to pay for
the remainder of the Term discounted to present value at a
per annum rate equal to the "Prime Rate" as published on the
date this Lease is terminated by The Wall Street Journal in
its listing of "Money Rates", minus (b) the then present fair
rental value of the Premises for such period, similarly
discounted; or
b. Terminate Tenant's right to possession of the
Premises without terminating this Lease by giving written
notice thereof to Tenant, in which event Tenant shall pay to
Landlord (i) all Rent and other amounts accrued hereunder to
the date of termination of possession, (ii) all amounts due
from time to time under Section 19a., and (iii) all Rent and
other sums required hereunder to be paid by Tenant during the
remainder of the Term, diminished by any net sums thereafter
received by Landlord through reletting the Premises during
such period. To the extent required by law, Landlord shall
use reasonable efforts to relet the Premises on such terms
and conditions as Landlord in its sole discretion may
determine (including a term different from the Term,
reasonable rental concessions, and reasonable alterations to,
and reasonable improvement of, the Premises); however,
Landlord shall not be obligated to relet or attempt to relet
the Premises before leasing other portions of the Building.
Landlord shall not be liable for, nor shall Tenant's
obligations hereunder be diminished because of, Landlord's
failure to relet the Premises or to collect rent due for such
reletting. Tenant shall not be entitled to the excess of any
consideration obtained by reletting over the Rent due
hereunder. Reentry by Landlord in the Premises shall not
affect Tenant's obligations hereunder for the unexpired Term;
rather, Landlord may, from time to time, bring action against
Tenant to collect amounts due by Tenant, without the
necessity of Landlord's waiting until the expiration of the
Term. Unless Landlord delivers written notice to Tenant
expressly stating that it has elected to terminate this
Lease, all actions taken by Landlord to exclude or dispossess
Tenant of the Premises shall be deemed to be taken under this
Section 18b. If Landlord elects to proceed under this Section
18b., it may at any time elect to terminate this Lease under
Section 18a.
c. Additionally, unless otherwise required by
applicable law, Landlord may, without notice, enter upon the
Premises and alter locks or other security devices at the
Premises to deprive Tenant, its officers, employees, agents,
invitees, licensees and all other occupants, of access
thereto. If Landlord or its agent changes the door lock of
Tenant following a default in the payment of rent, Landlord
or its agent shall place a written notice on the Tenant's
front door stating the name and the address or telephone
number of the individual or company from which the new key
may be obtained. The new key is required to be provided only
during the Tenant's regular business hours and only if Tenant
pays the delinquent rent plus late fees.
PAYMENT BY
TENANT;
NON-WAIVER 19. a. PAYMENT BY TENANT. Upon any Event of Default,
Tenant shall pay to Landlord all costs incurred Landlord
(including court costs at all trial and appellate levels
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<PAGE> 24
and reasonable attorneys' fees and expenses, regardless of
whether suit is filed) in (i) obtaining possession of the
Premises, (ii) removing and storing Tenant's or any other
occupant's property, (iii) repairing, restoring, altering,
remodeling, or otherwise putting the Premises into condition
acceptable to a new tenant, (iv) if Tenant is dispossessed of
the Premises and this Lease is not terminated, reletting all
or any part of the Premises (including brokerage commissions,
cost of tenant finish work, and other costs incidental to
such reletting), (v) performing Tenant's obligations which
Tenant failed to perform, and (vi) enforcing, or obtaining
advice of, its rights, remedies, and recourses arising out of
the Event of Default.
b. NO WAIVER. Landlord's acceptance of Rent
following an Event of Default shall not waive Landlord's
rights regarding such Event of Default. No waiver by either
party of any violation or breach of any of the terms
contained herein shall waive either party's rights regarding
any future violation of such term or violation of any other
term.
LANDLORD'S LIEN 20. This paragraph is intentionally left blank.
SURRENDER OF
PREMISES 21. No act by Landlord shall be deemed an acceptance of a
surrender of the Premises, and no agreement to accept a
surrender of the Premises shall be valid unless the same is
made in writing and signed by Landlord. At the
expiration or termination of this Lease, Tenant shall deliver
to Landlord the Premises with all improvements located
thereon in good repair and condition, reasonable wear and
tear (and condemnation and fire or other casualty damage not
caused by Tenant, as to which Sections 14 and 15 shall
control) excepted, and shall deliver to Landlord all keys to
the Premises. Provided that Tenant has performed all of its
obligations hereunder, Tenant may remove all trade fixtures
and all unattached furniture and personal property placed in
the Premises by Tenant (but Tenant shall not remove any such
item which was paid for, in whole or in part, by Landlord),
and shall remove such alterations, additions, improvements,
trade fixtures, equipment, and furniture as Landlord may
request. Tenant shall repair all damage caused by such
removal. All items not so removed shall be deemed to have
been abandoned by Tenant and may be appropriated, sold,
stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant and without any obligation to
account for such items. The provisions of this Section 21
shall survive the end of the Term.
HOLDING OVER 22. If Tenant fails to vacate the Premises at the end of
the Term, then Tenant shall be a tenant at will and, in
addition to all other damages and remedies to which Landlord
may be entitled for such holding over, Tenant shall pay, in
addition to the other Rent, a daily Basic Rental equal to the
greater of (a) 150% of the daily Basic Rental payable during
the last month of the Term, OR (b) the prevailing rental rate
in the Building for similar space. In the event of any
unauthorized holding over, Tenant shall be liable to Landlord
for all damages which Landlord suffers as a result thereof
and Tenant shall indemnify Landlord against all claims made
by any other tenant or prospective tenant against Landlord
resulting from delay by Landlord in delivering possession of
the Premises to such other tenant or prospective tenant.
CERTAIN RIGHTS
RESERVED BY
LANDLORD 23. Landlord shall have the following rights:
a. To decorate and to make inspections, repairs,
alterations, additions, changes, or improvements, whether
structural or otherwise, in and about the Building, or any
part thereof; for such purposes, to enter upon the Premises
and, during the continuance of any such work, to temporarily
close doors, entryways, public space, and corridors in the
Building; to interrupt or temporarily suspend Building
services and facilities; and to change the arrangement and
location of entrances or passageways, doors, and doorways,
corridors, elevators, stairs, restrooms, or other public
parts of the Building. In its exercise of its rights,
Landlord
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<PAGE> 25
agrees to use reasonable efforts under the circumstances to
provide advance notice of the interruption of services and to
attempt to minimize the disruption of the operation of the
tenants of the Building. In connection with changing the
arrangement of entranceways, passageways and other common
areas of the Building, Landlord agrees not to materially
alter the Premises or the access thereto;
b. To take such reasonable measures as Landlord
deems advisable for the security of the Building and its
occupants, including without limitation searching all persons
entering or leaving the Building; evacuating the Building for
cause, suspected cause, or for drill purposes; temporarily
denying access to the Building; and closing the Building
after normal business hours and on Saturdays, Sundays, and
holidays, subject, however, to Tenant's right to enter when
the Building is closed after normal business hours under such
reasonable regulations as Landlord may prescribe from time to
time which may include by way of example, but not of
limitation, that persons entering or leaving the Building,
whether or not during normal business hours, identify
themselves to a security officer by registration or otherwise
and that such persons establish their right to enter or leave
the Building;
c. To change the name by which the Building is
designated; and
d. To enter the Premises at all reasonable hours to
inspect same to assure Tenant's compliance with its
obligations hereunder or show the Premises to prospective
purchasers, lenders, or tenants and to perform all services,
maintenance and repairs required to be performed by Landlord
hereunder.
e. At Tenant's request, Landlord will require any
janitorial service or prospective tenant for the Building or
proposed purchaser of the Building to execute a reasonable
confidentiality agreement agreeing not to disclose to any
third party trade secrets or intellectual property of Tenant
or medical information of patients obtained by means of
access to the Premises.
MISCELLANEOUS 24. a. LANDLORD TRANSFER. Landlord may transfer, in
whole or in part, the Building and any of its rights under
this Lease. If Landlord assigns its rights under this Lease,
then Landlord shall thereby be released from any further
obligations hereunder occurring after the date of such
transfer, provided that the assignee assumes Landlord's
obligations hereunder occurring after the date of such
transfer in writing except that such assignee shall not be
bound by, or assume any liability with respect to, (a) any
payment of Rent for more than one month in advance (except
prepayments for security deposits, if any), (b) any
amendments or modifications of this Lease made without the
prior written consent of Landlord's Mortgagee if Tenant was
advised on the interest of the same, or (c) any credits,
offsets, defenses or claims which Tenant may have against
Landlord.
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<PAGE> 26
b. LANDLORD'S DEFAULT AND LIABILITY. If Landlord
fails to perform any of its obligations under this Lease,
Landlord shall not be in default hereunder and Tenant shall
not have any rights or remedies growing out of such failure
unless Tenant gives Landlord written notice thereof setting
forth in reasonable detail the nature and extent of such
failure and such failure by Landlord is not cured within a
thirty (30) day period following delivery of such notice or
such longer period provided elsewhere in this Lease. If such
failure cannot reasonably be cured within such thirty (30)
day period, the length of such period shall be extended for
the period reasonably required therefore if Landlord
commences curing such failure within such thirty (30) day
period and continues to take action to cure such failure with
reasonable diligence and continuity. The liability of
Landlord to Tenant for any default by Landlord under the
terms of this Lease shall be limited to Tenant's actual
direct, but not consequential, damages therefor and shall be
recoverable only from the interest of Landlord in the
Building and the Land, and Landlord shall not be personally
liable for any deficiency.
c. FORCE MAJEURE. Other than for Tenant's monetary
obligations under this Lease, whenever a period of time is
herein prescribed for action to be taken by either party
hereto, such party shall not be liable or responsible for,
and there shall be excluded from the computation for any such
period of time, any delays due to strikes, riots, acts of
God, shortages of labor or materials, war, governmental laws,
regulations, or restrictions, or any other causes of any kind
whatsoever which are beyond the control of such party. Any
elimination or shutting off of light, air, or view by any
structure which may be erected on lands adjacent to the
Building shall in no way affect this Lease or impose any
liability on Landlord.
d. CRIMINAL ACTS OF THIRD PARTIES. Any security
guards or security services provided by Landlord for the
Building, Appurtenant Facilities or Land are provided for the
protection of Landlord's property. Tenant shall be
responsible for the protection of Tenant and Tenant's
employees, agents, contractors, invitees and licensees and
their property against criminal acts of third parties.
Landlord shall not be liable to Tenant or any other party for
criminal acts of third parties whether or not such acts are
foreseeable. Tenant shall contact the local police and rely
on the local police for protection against criminal acts.
e. BROKERAGE. Landlord and Tenant each warrant to
the other that it has not dealt with any broker or agent in
connection with the negotiation or execution of this Lease
other than the Broker (if any) and Landlord's property
manager. Tenant and Landlord shall each indemnify the other
against all costs, expenses, attorneys' fees, and other
liability for commissions or other compensation claimed by
any broker or agent other than the Broker (if any) and the
property manager claiming the same by, through, or under the
indemnifying party.
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<PAGE> 27
f. ESTOPPEL CERTIFICATES. From time to time, Tenant
shall furnish to any party designated by Landlord, within ten
(10) days after Landlord has made a request therefor, a
certificate signed by Tenant confirming and containing such
factual certifications and representations as to this Lease
as Landlord may reasonably request.
g. NOTICES. All notices and other communications
given pursuant to this Lease shall be in writing and shall be
(i) mailed by first class, United States Mail (or Canada
Mail, as appropriate), postage prepaid, certified, with
return receipt requested, and addressed to the parties hereto
at the address specified in the Basic Lease information, (ii)
hand delivered to the intended address, or (iii) sent by
prepaid telegram, cable, facsimile transmission, or telex
followed by a confirmatory letter. Notice sent by certified
mail, postage prepaid, shall be effective three (3) business
days after being deposited in the United States mail (or
Canada Mail, as appropriate); all other notices shall be
effective upon delivery to the address of the addressee. The
parties hereto may change their addresses by giving notice
thereof to the other in conformity with this provision.
h. SEVERABILITY. If any clause or provision of this
Lease is illegal, invalid, or unenforceable under present or
future laws, then the remainder of this Lease shall not be
affected thereby and in lieu of such clause or provision,
there shall be added as a part of this Lease a clause or
provision as similar in terms to such illegal, invalid, or
unenforceable clause or provision as may be possible and be
legal, valid, and enforceable.
i. AMENDMENTS; AND BINDING EFFECT. This Lease
(including all Exhibits hereto) constitutes the entire
agreement between Landlord and Tenant and supersedes all
prior discussions and agreements of the parties relating to
the Premises and the Building. This Lease may not be amended
except by instrument in writing signed by Landlord and
Tenant. Whenever any approval or consent of the Landlord is
required, such approval or consent shall not be binding on
Landlord unless expressed in writing and executed by an
authorized representative of Landlord. No provision of this
Lease shall be deemed to have been waived by Landlord unless
such waiver is in writing signed by Landlord, and no custom
or practice which may evolve between the parties in the
administration of the terms hereof shall waive or diminish
the right of Landlord to insist upon the performance by
Tenant in strict accordance with the terms hereof. The terms
and conditions contained in this Lease shall inure to the
benefit of and be binding upon the parties hereto, and upon
their respective successors in interest and legal
representatives, except as otherwise herein expressly
provided. This Lease is for the sole benefit of Landlord and
Tenant, and, other than Landlord's Mortgagee, no third party
shall be deemed a third party beneficiary hereof.
j. QUIET ENJOYMENT. Provided Tenant has performed
all of the terms and conditions of this Lease to be performed
by Tenant, Tenant shall peaceably and quietly hold and enjoy
the Premises for the Term, without hindrance from Landlord or
any party claiming by, through, or under Landlord, subject to
the terms and conditions of this Lease.
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<PAGE> 28
k. JOINT AND SEVERAL LIABILITY. If there is more
than one Tenant, then the obligations hereunder imposed upon
Tenant shall be joint and several. If there is a guarantor of
Tenant's obligations hereunder, then the obligations
hereunder imposed upon Tenant shall be the joint and several
obligations of Tenant and such guarantor, and Landlord need
not first proceed against Tenant before proceeding against
such guarantor nor shall any such guarantor be released from
its guaranty for any reason whatsoever.
l. CAPTIONS. The captions contained in this Lease
are for convenience of reference only, and do not limit or
enlarge the terms and conditions of this Lease.
m. NO MERGER. There shall be no merger of the
leasehold estate hereby created with the fee estate in the
Premises or any part thereof if the same person acquires or
holds, directly or indirectly, this Lease or any interest in
this Lease and the fee estate in the leasehold Premises or
any interest in such fee estate.
n. NO OFFER. The submission of this Lease to Tenant
shall not be construed as an offer, nor shall Tenant have any
rights under this Lease unless Landlord executes a copy of
this Lease and delivers it to Tenant.
o. NO RIGHTS TO USE OF BUILDING NAME. Tenant shall
have no interest in, or rights to, the name of the Building.
Landlord will have the right, exercisable upon written notice
and without liability to any tenant, to change the name and
street address of the Building. Tenant shall not engage in
any advertising mentioning the Building without the prior
written consent of Landlord. Landlord shall have the right to
prohibit any advertising by Tenant mentioning the Building
that, in Landlord's opinion, tends to impair the reputation
of the Building or its desirability as a building for
offices, and upon written notice from Landlord, Tenant will
refrain from or discontinue such advertising. Tenant has the
option to use or refrain from using the name of the Building
on its stationery.
p. TIME OF ESSENCE. Except as provided in Section
24c. hereof, time is of the essence of this Lease and each
and all of its provisions in which performance is a factor.
q. AUTHORITY OF PARTIES. If Tenant is a corporation,
limited partnership, partnership, trust or other entity, each
person executing this Lease on behalf of said entity
represents and warrants to Landlord that such person is duly
authorized to execute and deliver this Lease on behalf of
said entity and that this Lease is binding upon said entity
in accordance with its terms.
r. GOVERNING LAW. This Lease shall be governed by
the laws of the state in which the Premises are located.
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s. EXHIBITS. All exhibits and attachments attached
hereto are incorporated herein by this reference.
Exhibit A - Outline of Premises
Exhibit B - Building Rules and Regulations
Exhibit C - Workletter for Suite #300
Exhibit D - Parking Agreement
Exhibit E - Workletter for Suite #170
SPECIAL
PROVISIONS 25. a.RENEWAL OPTION: Tenant has two (2) option(s) (as to
each, an "Option") to renew and extend the Term of this Lease
for sixty (60) months each (the "Renewal Term"), which
Option(s) shall follow consecutively on the expiration of the
Term (or Renewal Term, as appropriate,) of this Lease,
provided that at the time that the Option to renew is
exercised, this Lease is in full force and effect, Tenant has
not vacated the Premises, and Tenant is not in default
hereunder. The Option shall be exercised by Tenant's giving
to Landlord written notice of its intention to renew and
extend the Term of this Lease at least six (6) months before
the expiration date of the initial Term (or Renewal Term, as
appropriate,) of this Lease. The renewal and extension of
this Lease for the Renewal Term shall be on and under the
same covenants, agreements, terms, provisions, and conditions
as are contained herein for the initial Term of this Lease,
including those providing for adjustments to the rent;
provided, however, that the Leasehold Improvements to be
provided by Landlord for the Renewal Term will be sufficient
to cover the costs of repainting and recarpeting the Premises
and provided, further, that the rent for the Renewal Term
shall be established as follows: on or before nine (9) months
prior to the expiration date of the initial Term (or Renewal
Term as appropriate) of this Lease, Tenant shall give
Landlord written notice of its preliminary intention to renew
and extend the Term of this Lease. The parties shall attempt
to reach agreement on the rental, which is to be 95% of the
market rental for new leases in comparable buildings in the
I-10 corridor in suburban San Antonio, Texas for the Renewal
Term for which the option is being exercised (the "Renewal
Rental"). If the parties agree on the Renewal Rental, Tenant
must give written notice of the exercise of its right to
renew the Term of this Lease on or before six months prior to
the expiration of the prior Term or Renewal Term as
applicable. If the parties are unable to reach agreement as
to the rental for the applicable Renewal Term within thirty
(30) days after Tenant's preliminary notice of its intention
to renew the Term of the Lease, each party shall appoint and
pay the fees and expense for the services of a licensed real
estate broker who specializes in office leasing in the San
Antonio, Texas market of buildings of comparable type, size
and quality and who has at least two (2) years of experience
in the local market. The two (2) brokers selected shall
attempt to reach agreement acceptable to Landlord and Tenant
as to an amount equal to 95% of the market rental for the
space taking into account leases in buildings of comparable
type, size and quality including leases made within the
Building within the prior year. Should such leasing agents
fail to reach agreement, the parties shall have the option of
attempting to mediate the dispute. In the event of the
exercise of renewal option, the Base Year for purposes of
determining the amount of Operating Expense Reimbursement
shall be adjusted to be the first year of the Renewal Term
for which the option is then being exercised Any assignment
or subletting by Tenant in violation or breach of Section 10
of this Lease shall terminate the Option(s) of Tenant set
forth herein.
Any termination of this Lease during the initial Term or
Renewal Term shall terminate any further rights of renewal
and extension set forth in this provision.
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<PAGE> 30
At any time during the forty-five (45)-day period immediately
preceding the date by which Tenant is required to exercise a
renewal Option, Tenant may request in writing a quote from
Landlord of the rent that will be applicable for the next
Renewal Term. Landlord shall respond to a timely written
request by providing Tenant a written quote of the rent
within five (5) business days after Landlord's receipt of
Tenant's request.
b. NON-DISTURBANCE: Landlord shall provide
non-disturbance and attornment agreements from all current
lenders and will work in good faith to provide such
agreements from any future lenders, all of such agreements to
be in form reasonably satisfactory to Tenant and the lender
in question. .
c. EXPANSION SPACE: Tenant shall have the option to
lease additional office space (the "First Expansion Option")
containing approximately 11,090 RSF on the first (1st) floor
of the Building (the "First Expansion Space") as more
particularly depicted on Exhibit "A" attached hereto as of
July 1, 1998. To exercise the First Expansion Option Tenant
shall give written notice to Landlord by December 31, 1997
and within seven (7) days of Landlord's delivery of an
amendment to the Lease documenting the leasing of the First
Expansion Space, Tenant shall return same fully executed to
Landlord. Such First Expansion Option shall provide Tenant
with the ability to lease all or a part of this area at
Tenant's sole discretion, but in no event less than 5,000 RSF
and subject to fire and Building code restrictions and so
long as the remaining space not leased by Tenant under this
option is left in a relettable condition, in Landlord's
reasonable discretion.
Tenant shall have the option to lease additional office space
(the "Second Expansion Option") out of the area of the
Building containing approximately 18,937 RSF on the second
(2nd) floor of the Building (the "Second Expansion Space") as
more particularly depicted on Exhibit "A" attached hereto as
of October 1, 1998. The Second Expansion Option shall only be
effective in the event the tenant currently occupying the
Second Expansion Space as of the date of this Lease (E-Med)
its affiliates, subsidiaries or successor in interest,
vacates or reduces the office space it presently occupies. In
the event said space is made available at that time, Tenant
may exercise the Second Expansion Option by providing written
notice to Landlord by March 31, 1998 and within seven (7)
days of Landlord's delivery of an amendment to the Lease
documenting the leasing of the Second Expansion Space, Tenant
shall return same fully executed. Such Second Expansion
Option shall provide Tenant with the ability to lease this
entire area at Tenant's sole discretion, but in no event less
than 3,000 RSF and subject to fire and Building code
restrictions and so long as the remaining space not leased by
Tenant under this option is left in a relettable
configuration, in Landlord's reasonable discretion. Landlord
shall deliver said amendment to Lease to Tenant for execution
only in the event such Second Expansion Space becomes
available. In the event Second Expansion Space does not
become available, Landlord shall inform Tenant within ten
(10) days of such event, and shall agree
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<PAGE> 31
to work in good faith with Tenant to find additional office
space elsewhere in the Building to meet Tenant's space
requirements.
Landlord shall not be liable for any damages resulting from
the unauthorized holding over of any existing tenant of
either such expansion space and any such spaces leased shall
be leased at the market rate for new leases in comparable
buildings. All expansion space shall be leased with
additional surface parking in a ratio of one (1) space for
every additional 300 RSF leased.
If Tenant exercises an option or options to lease additional
office space as provided in this paragraph: (i) Tenants
Proportionate Share will be adjusted to reflect the
additional space being leased by Tenant (ii) the lease terms
for the additional space will be coterminous with the Term of
this Lease (iii) the Leasehold Improvements allowance of
$9.94 per square foot will be adjusted to reflect the shorter
lease term for the additional space and (iv) the Basic Rental
for the additional space will be 95% of the market rental for
new leases in comparable buildings in the I-10 corridor in
San Antonio, Texas for comparable lease terms.
d. NOTICE OF AVAILABILITY. Landlord shall provide Tenant
with a Notice of Availability indicating the RSF of each
space in the Building (other than the expansion spaces) as
they become available for leasing, provided no other tenant
has a preferential right to lease such space. The purpose of
this Notice of Availability is to merely provide Tenant with
a means to plan for Tenant's anticipated office space needs
and shall in no way be deemed to provide Tenant a right of
first refusal to lease any such areas and Landlord shall at
all times retain the right to enter into a lease with any
tenant for any such space.
e. EXTERIOR SIGNAGE: Tenant shall have the right, at its
sole cost and expense, to install exterior signage on the
Building in the approximate location formerly occupied by
Datarace, Inc.. Landlord shall have the right to approve all
aspects of such signage to include, but not be limited to,
specific location, size, materials, orientation, color, style
and method of installation. Tenant shall also have the
obligation to maintain said signage throughout the Term of
the Lease in a manner acceptable to Landlord. Tenant shall
remove such signage and return the site to its original
condition at Tenant's sole cost and expense within fourteen
(14) days of Tenant's vacating of the Premises.
f. TEMPORARY PREMISES: Effective upon the full execution
of this Lease, Tenant shall have the right to use and occupy
approximately 3,250 RSF of the Premises (the "Temporary
Premises") on the third (3rd) floor of the Building in the
location indicated on Exhibit "A" until the Commencement Date
referenced in Section 3 of the Lease. All of the provisions
of this Lease shall be in full force and effect, except that
the Temporary Premises shall be leased on a rent free basis
and the Term of the Lease shall be extended to include the
number of days Tenant uses and occupies the Temporary
Premises prior to the Commencement Date. Landlord shall have
no obligation to make any repairs or perform any improvements
in the Temporary Premises prior to Tenant's occupancy of the
same, provided however, Landlord shall re-key the Temporary
Premises, clean the Temporary Premises, replace missing
ceiling tiles
Initial ______________
26
<PAGE> 32
throughout the Temporary Premises and ensure that all lights
are in working order. To enable Landlord's contractor to
complete construction in that portion of the Premises
identified as the Temporary Premises on Exhibit "A" attached
hereto, Tenant shall have the option of relocating, at
Tenant's sole cost and expense, the Temporary Premises during
Landlord's construction and prior to the Commencement Date to
another portion of the Premises (to be identified on Tenant's
Final Plans) where Landlord's contractor will have
substantially completed the work outlined in Exhibit "C"
attached hereto (in which case Basic Rental for the Temporary
Premises shall remain rent free), or waiting until the
Premises is substantially complete except for the area
covered by the Temporary Premises (in which case the Basic
Rental for the entire Premises shall commence unabated). The
parties agree to cooperate to avoid invalidation of the
contractor's or Landlord's insurance by reason of such
occupancy.
EXECUTED effective as of the Lease Date set forth in the
Basic Lease Information.
LANDLORD:
DATE OF EXECUTION: N.W.A. LIMITED PARTNERSHIP
BY:
-------------------------------------
IRIS S. STEWART
VICE PRESIDENT OF ITS
GENERAL PARTNER
GEORGE INVESTMENT GROUP, INC.
TENANT:
DATE OF EXECUTION: ILEX ONCOLOGY, INC., A DELAWARE CORPORATION.
BY:
-------------------------------------
-------------------------------------
Printed Name
-------------------------------------
Title
Initial ______________
27
<PAGE> 1
EXHIBIT 10.2
AMENDMENT OF LEASE
WHEREAS, N.W.A. Limited Partnership ("Landlord") and ILEX Oncology, Inc.
("Tenant") entered into a Lease dated October 16, 1996 covering certain
Premises in the Northwest Atrium Building (the"Building"); and
WHEREAS, Tenant wishes to lease additional space in the Building;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant agree as follows:
1. PREMISES as defined in the Lease are amended to read as follows:
Suite No. 300 deemed to contain 21,036 square feet of Rentable
Area (as hereinafter defined), the same being 18,291 square feet of
Usable Area (as hereinafter defined); and
Effective July 1, 1997, Suite 170 deemed to contain 4,810 square
feet of Rentable Area (as hereinafter defined), the same being 4,183
square feet of Usable Area (as hereinafter defined).
Suites 300 and 170 are outlined on the plan attached to this
Amendment as Exhibit A, and are located in the office building (the
"Building") located on the land described as, NCB 17442, BLK 1, LOT 1,
NW Office Park UT-1, Bexar County, Texas and known as Northwest Atrium
Office Building, 11550 IH010 West (the "Land").
2. TERM is amended to read as follows:
The period of sixty (60) months commencing February 1, 1997 (the
"Commencement Date") and ending at 5:00 p.m. January 31, 2002 subject to
adjustment or earlier termination as provided in the Lease.
3. BASIC RENTAL is amended to read as follows:
<TABLE>
<CAPTION>
MONTHLY MONTHLY MONTHLY
PERIOD BASE RENTAL RATE/RSF
-----------------------------------------------------------------
<S> <C> <C>
1-12
Thru 6/30/97 $21,456.72 $1.02
7/1/97 - 1/31/98 $26,362.92 $1.02
13-24 $27,655.22 $1.07
25-36 $28,947.52 $1.12
37-48 $30,239.82 $1.17
49-60 $31,532.12 $1.22
</TABLE>
<PAGE> 2
4. TENANT'S PROPORTIONATE SHARE is amended to read as follows:
FROM THE COMMENCEMENT DATE THROUGH JUNE 30, 1997:
22.76% which is the percentage obtained by dividing (I) 21,036
square feet of Rentable Area in the Premises by (ii) the total 92,410
square feet of Rentable Area in the Building.
BEGINNING JULY 1, 1997:
27.96% which is the percentage obtained by dividing (I) 25,846
square feet of Rentable Area in the Premises by (ii) the total 92,410
square feet of Rentable Area in the Building.
5. All other terms and conditions of the Lease remain the same.
Executed this ____ day of _________, 1997.
LANDLORD:
N.W.A. LIMITED PARTNERSHIP
By:
----------------------------------
M. Richard Stewart
Vice President of its
General Partner
George Investment Group, Inc.
TENANT:
ILEX Oncology, Inc.
By:
----------------------------------
Richard L. Love
President and Chief Executive
Officer
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement dated as of July 9, 1997 (this
"Agreement"), among ILEX ONCOLOGY, INC., a Delaware corporation (the
"Company"), and PRN Research, Inc., a Texas corporation ("PRN").
PRELIMINARY STATEMENT
The Company and certain holders of its securities (the "Holders", or
if singular, a "Holder") are parties to the Fourth Amended and Restated
Registration Rights Agreement dated December 11, 1996 (the "Prior Agreement").
The Company and PRN are parties to a Service Agreement dated effective June 30,
1997 (the "Service Agreement") and an Assignment Agreement dated effective June
30, 1997 (the "Assignment Agreement"), pursuant to which PRN shall be issued
shares of Common (as defined herein). The Company desires to grant certain
registration rights to PRN in connection with such issuance of shares.
Therefore, in consideration of the mutual representations and agreements set
forth in this Agreement, the Company and PRN agree as follows:
AGREEMENT
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" means any entity controlling, controlled by or under
common control with a designated Person. For the purposes of this definition,
"control" shall have the meaning specified as of the date of this Agreement for
that word in Rule 405 promulgated by the Commission under the Securities Act.
"Board" means the Board of Directors of the Company.
"Commission" means the Securities and Exchange Commission, and any
successor thereto.
"Common" means the Company's Common Stock, $.01 par value per share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Immediate Family" shall mean spouses, descendants (including adopted
children) and spouses of descendants.
"Person" means an individual, partnership, corporation, business
trust, limited liability company, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
"Registrable Stock" means any shares of Common acquired by PRN
pursuant to the terms and provisions of the Service Agreement and the
Assignment
<PAGE> 2
Agreement and any and all shares of Common or other securities issued with
respect to such shares by way of stock splits, stock combinations and similar
events affecting the Registrable Stock. As to any particular Registrable Stock,
such securities will cease to be Registrable Stock when they shall have been
(x) effectively registered under the Securities Act and sold by the holder
thereof in accordance with such registration, or (y) sold to the public
pursuant to Rule 144 or Rule 701 of the Commission, or any successor rules.
"Rule 144" means Rule 144 promulgated by the Commission under the
Securities Act, as such rule may be amended from time to time, or any successor
rule thereto.
"Rule 701" means Rule 701 promulgated by the Commission under the
Securities Act, as such rule may be amended from time to time, or any successor
rule thereto.
"Securities" means any debt or equity securities of the Company,
whether now or hereafter authorized, and any instrument convertible into, or
exercisable or exchangeable for, Securities or a Security.
"Securities Act" means the Securities Act of 1933, as amended prior to
or after the date of this Agreement, or any federal statute or statutes which
shall be enacted to take the place of such Act, together with all rules and
regulations promulgated thereunder.
SECTION 2. DEMAND REGISTRATIONS.
2.1 PRN shall be entitled to five (5) demand registrations (a
"Demand Registration") between March 1, 1998, and September 15, 2003, by
providing a written notice to the Company requesting that the Company register
any eligible Registrable Stock specified in the notice, under the Securities
Act and under other relevant securities laws, for disposition in accordance
with methods stated in the notice.
2.2 When it receives a registration notice under SECTION 2.1
above, the Company shall use its best efforts to effect the Demand Registration
under the Securities Act of Registrable Stock specified in the registration
notice under SECTION 2.1 to the extent requisite to permit disposition by PRN
in accordance with the intended methods of disposition described in the
registration notice.
2.3 The Company shall use its best efforts to qualify for
registration on Form S-3 or any comparable or successor form or forms.
SECTION 3. INCIDENTAL/PIGGYBACK REGISTRATION. Each time the
Company proposes to register any of its Securities under the Securities Act for
its own account or for the account of other Security holders or both, it will
give at least 30 days advance written notice of its intention to do so to PRN.
PRN may then specify, by written notice to the Company within 25 days of the
date of the Company's notice, the number of shares of Registrable Stock held by
it that it wishes to include in the
-2-
<PAGE> 3
Company's proposed registration (a "Piggyback Registration"). Subject to the
market cutback limitations of SECTION 8 of this Agreement, the Company will use
its best efforts to effect the Piggyback Registration under the Securities Act
of Registrable Stock specified by PRN under this SECTION 3.
SECTION 4. LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding
any contrary provision of this Agreement:
(a) the Company shall not be required to effect (i) any
Demand Registration that seeks to register and offer less than
$500,000 aggregate amount of Registrable Stock, and (ii) per each
twelve (12) month period, more than one Demand Registration; provided
however, that a demand for a Demand Registration shall not count as a
registration under this SECTION 4(A) if the registration statement
filed with respect to such registration covering all shares of
Registrable Stock specified in notices received as aforesaid (subject
to the provisions of SECTION 8.1), for sale in accordance with the
method of disposition specified by PRN, is not declared effective by
the Commission and kept effective by the Company in accordance with
the planned distribution thereunder, subject to SECTION 5.2, (unless,
except as provided in SECTION 14(B), such Demand Registration has not
become effective due solely to the fault of PRN and PRN fails to bear
all Registration Expenses in connection therewith, in which case such
registration shall count as a Demand Registration), and the last or
any subsequent Demand Registration will not count as one of the
permitted Demand Registrations unless PRN is able to register and sell
at least 90% of the shares of the Registrable Stock requested to be
included in such registration; and
(b) The Company will not be obligated to effect any
Demand Registration within ninety (90) days after the effective date
of a Demand Registration or a registration in which PRN was given
piggyback rights pursuant to SECTION 3, provided in either case all
shares of Registrable Stock requested to be included were sold in such
registration. The Company may postpone for up to ninety (90) days the
filing or the effectiveness of a registration statement for a Demand
Registration if the Company, in its sole discretion, determines that
such registration would reasonably be expected to have an adverse
effect (i) on any proposal or plan by the Company or any of its
subsidiaries to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender
offer or similar transaction, or (ii) any material corporate
development; provided that in such event, PRN will be entitled to
withdraw such request and, if such request is withdrawn, such
registration will not count as one of the permitted Demand
Registrations and the Company will pay all Registration Expenses (as
defined in SECTION 6 hereof) in connection with such registration.
(c) SECTION 3 of this Agreement shall not apply to a
registration effected solely to offer securities for sale pursuant to,
or in connection with, (i) an employee benefit plan or (ii) a
transaction subject to Rule 145 under the Securities Act or in an
exchange offer registered on Form S-4 or any successor
-3-
<PAGE> 4
form to Form S-4, or to any registration on a form which does not
permit inclusion of Registrable Stock pursuant to Commission rule or
practice.
SECTION 5. REGISTRATION PROCEDURES.
5.1 Whenever the Company is required by this Agreement to
use its best efforts to effect the registration of any Registrable
Stock under the Securities Act, the Company will, as expeditiously as
possible:
(a) in the case of a Demand Registration, engage the
underwriters as provided in SECTION 12;
(b) before filing each registration statement or
prospectus or amendment or supplement thereto with the Commission,
furnish counsel for PRN with copies of all such documents proposed to
be filed, which shall be subject to the reasonable approval of such
counsel;
(c) prepare and file with the Commission a registration
statement with respect to such Registrable Stock (which, in the case
of an underwritten public offering, shall be on Form S-1 or other form
of general applicability satisfactory to the managing underwriter
selected as therein provided) with respect to such securities
including executing an undertaking to file post-effective amendments
and use its best efforts to cause such registration statement to
become and remain effective for the period of distribution
contemplated thereby (subject to SECTION 5.2 below);
(d) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective for the period of distribution contemplated
thereby (subject to SECTION 5.2 below) and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all Registrable Stock covered by such registration
statement in accordance with the sellers' intended methods of
disposition set forth in such registration statement for such period;
(e) promptly prepare and file with the Commission, and
notify PRN immediately after the filing of, such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, during such
periods as a prospectus relating to such Securities is required to be
delivered under the Securities Act, any event shall have occurred as
the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made,
not misleading, and notify PRN and underwriter immediately after its
discovery of such event;
-4-
<PAGE> 5
(f) furnish to the underwriters and PRN such numbers of
copies of such registration statement, each amendment and supplement
thereto (in each case, including all exhibits), the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as such underwriters or PRN may
reasonably request in order to facilitate the disposition of the
Registrable Stock in accordance with such registration statement;
(g) use its best efforts to register or qualify any
Registrable Stock covered by such registration statement under the
securities or blue sky laws of such jurisdictions within the United
States of America as PRN or the underwriters reasonably request, and
to take any other acts which a seller or the underwriters may
reasonably request under such securities or blue sky laws to enable
the consummation of the disposition in such jurisdictions of such
Registrable Stock (provided, however, that the Company shall not be
required under this Agreement (i) to qualify generally to do business
as a foreign corporation in any jurisdiction in which it would not
otherwise be required to qualify, or (ii) to consent to general
service of process in any such jurisdiction unless the Company is
already subject to service in such jurisdiction);
(h) provide a transfer agent and registrar for all
Registrable Stock sold under the registration statement not later than
the effective date of the registration statement;
(i) use its best efforts to cause all Registrable Stock
sold under the registration statement to be listed on each securities
exchange or to be qualified and eligible for trading in any automated
quotation system, if any, on which similar Securities issued by the
Company are then listed or traded or, if no such listing or
qualification has then occurred, to use its best efforts to cause such
Securities to be so listed or qualified on an exchange or in a trading
system that is reasonably acceptable to the Company and the Holders of
such Registrable Stock;
(j) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other
actions as the underwriters, if any, or PRN may reasonably request in
order to expedite or facilitate the disposition of such Registrable
Stock (including, without limitation, effecting a stock split or a
combination of shares);
(k) advise PRN, immediately after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for such purpose
and promptly use reasonable efforts to prevent the issuance of any
stop order or to obtain its withdrawal if such stop order should be
issued;
(l) make available for inspection by PRN, any underwriter
participating in any disposition pursuant to such registration
statement, and
-5-
<PAGE> 6
any attorney, accountant or other agent retained by PRN or
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply
all information reasonably requested by any such seller or underwriter
in connection with such registration statement, all subject to such
limitations as the Company reasonably deems appropriate in order to
protect the Company's confidential or proprietary information;
(m) comply with all applicable rules and regulations
under the Securities Act and Exchange Act;
(n) if the offering is underwritten and at the request of
PRN, use its best efforts to furnish on the date that Registrable
Stock are delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel representing
the Company for the purposes of such registration, addressed to the
underwriters to such effects as reasonably may be requested by counsel
for the underwriters and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to
the underwriters stating that they are independent public accountants
within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in
the registration statement or the prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters
(including information as to the period ending no more than five (5)
business days prior to the date of such letter) with respect to such
registration as such underwriters reasonably may request;
(o) make available for inspection by PRN, any underwriter
participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by PRN
or underwriter, reasonable access to all financial and other records,
pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers,
directors and employees to supply all information reasonably requested
by PRN, underwriter, attorney, accountant or agent in connection with
such registration statement;
(p) cooperate with PRN and the managing underwriter, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Stock to be sold, such certificates to be in
such denominations and registered in such names as PRN or the managing
underwriter may request at least two (2) business days prior to any
sale of Registrable Stock; and
(q) permit PRN, if, in the sole and exclusive good faith
judgment of the Company, PRN might be deemed to be a controlling
person of the Company, to participate in good faith in the preparation
of such registration statement.
-6-
<PAGE> 7
5.2 For purposes of this Agreement, the period of distribution of
Registrable Stock in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable Stock
in any other registration shall be deemed to extend until the earlier of the
sale of all Registrable Stock covered thereby or 180 days after the effective
date thereof, provided, however, in the case of any registration of Registrable
Stock on Form S-3 or a comparable or successor form which are intended to be
offered on a continuous or delayed basis, such 180-day period shall be
extended, if necessary, to keep the registration statement effective until all
such Registrable Stock are sold, provided that Rule 415, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment, permit, in lieu of filing a
post-effective amendment which (y) includes any prospectus required by Section
10(a)(3) of the Securities Act or (z) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be
included in (y) and (z) above contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement.
SECTION 6. EXPENSES. The Company will pay all Registration
Expenses (as defined below) in connection with each Demand Registration or
Piggyback Registration of Registrable Stock permitted pursuant to SECTIONS 2
and 3 of this Agreement; provided, however, that the aggregate maximum
Registration Expenses for legal fees and disbursements, accounting fees and
disbursements and filing fees payable by the Company to third parties in
connection with all Demand Registrations shall be $100,000 and any such
expenses payable to third parties in excess of $100,000 shall be borne pro rata
by the selling stockholders and the Company. For purposes of this SECTION 6,
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with SECTIONS 2 and 3 of this Agreement,
including, without limitation, all registration, filing and National
Association of Securities Dealers, Inc. fees, all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating
and printing expenses, messenger and delivery expenses, the reasonable fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, the
reasonable fees and disbursements of one law firm retained by the holders of
Registrable Stock being registered, premiums and other costs of policies of
insurance obtained by the Company against liabilities arising out of the public
offering of the Registrable Stock being registered but excluding all agency
fees and commissions, underwriting discounts and commissions and transfer
taxes, if any.
SECTION 7. INDEMNIFICATION.
7.1 In the event of any registration of any of its Registrable
Stock under the Securities Act pursuant to this Agreement, the Company agrees,
to the extent permitted by law, to indemnify and hold harmless PRN, and each
officer, partner,
-7-
<PAGE> 8
director and Affiliate of such seller, against any losses, claims, damages or
liabilities, joint or several, arising out of or based upon:
(a) any untrue statement or alleged untrue statement of
any material fact contained, on the effective date thereof, in any
registration statement under which such Securities were registered
under the Securities Act, any preliminary prospectus or final
prospectus contained in any registration statement, or any other
materials deemed to be a prospectus pursuant to the Securities Act, or
any Securities being registered, or any amendment or supplement
thereto, or any blue sky application or other document executed by the
Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Registrable Stock
under the securities laws thereof (any such application, document or
information herein called a "Blue Sky Application"), or
(b) any omission or any alleged omission to state in any
such document a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
(c) any violation by the Company or its agents (other
than by the indemnitee claiming indemnification hereunder) of the
Securities Act or any rule or regulation promulgated under the
Securities Act applicable to the Company or its agents (other than by
the indemnitee claiming indemnification hereunder) and relating to
action or inaction required of the Company in connection with such
registration,
except insofar as any such loss, claim, damage or liability is:
(i) caused by or contained in any information
furnished in writing to the Company by PRN expressly for use
in connection with such registration; or
(ii) caused by PRN's failure to deliver a copy of
the registration statement or prospectus or any amendment or
supplement thereto as required by the Securities Act or the
rules or regulations thereunder to be delivered by such
seller, if such delivery would have cured the defect giving
rise to such loss, claim, damage or liability; or
(iii) caused by the delivery by PRN of a prospectus
or preliminary prospectus or any amendment or supplement
thereto after receipt of notice from the Company that it
should no longer be used.
In connection with an underwritten offering, the Company will
indemnify such underwriters, their officers and directors and each
Person who controls (within the meaning of the Securities Act) such
underwriters to the same extent as provided above with respect to PRN.
The Company shall reimburse each Person indemnified pursuant to this
SECTION 7.1 for any reasonable legal or other expenses incurred in
connection with investigating or defending any
-8-
<PAGE> 9
loss, claim, damage, liability or action indemnified against. The
reimbursements required by this SECTION 7.1 shall be made by periodic
payments during the course of the investigation or defense, as and
when bills are received or expenses incurred. The indemnities provided
pursuant to this SECTION 7.1 shall remain in force and effect
regardless of any investigation made by or on behalf of the
indemnified party and shall survive any transfer of Registrable Stock
by PRN.
7.2 In the event of any registration of any Registrable Stock
under the Securities Act pursuant to this Agreement, PRN agrees to furnish to
the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any registration statement,
prospectus and any amendment or supplement thereto in connection with the
registration.
7.3 To the fullest extent permitted by law, and subject to the
limitation set forth in the last sentence of this SECTION 7.3, PRN agrees to
indemnify and hold harmless the Company, its directors and officers, and each
Affiliate of the Company, against:
(a) any losses, claims, damages or liabilities, joint or
several, arising out of or based upon:
(i) any alleged untrue statement of any material
fact contained on the effective date thereof, in any
registration statement under which such Securities were
registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any
summary prospectus contained therein, or any amendment or
supplement thereto, or
(ii) any alleged omission to state in any such
document a material fact required to be stated therein or
necessary to make the statements therein not misleading,
but only insofar as any such loss, claim, damage or liability is
caused by any information furnished in writing to the Company by PRN
expressly for use in connection with such registration, and excluding
any such loss, claim, damage or liability which is caused by such
statements, or caused by such omissions, based upon the authority of
an expert as defined in the Securities Act (but only if PRN had no
grounds to believe, and did not believe, that the statements made on
the authority of an expert were untrue or that there was an omission
to state a material fact); and
(b) any losses, claims, damages or liabilities, joint or
several, arising out of or based upon any failure by PRN to deliver a
copy of the registration statement or prospectus or any amendment or
supplement thereto if required by the Securities Act or the rules or
regulations thereunder to be delivered by PRN, if such delivery would
have cured the defect giving rise to such loss, claim, damage or
liability. In connection with an underwritten offering, PRN will
indemnify such underwriters, their officers and directors and each
Person
-9-
<PAGE> 10
who controls (within the meaning of the Securities Act) such
underwriters to the same extent as provided above with respect to the
Company and other sellers. PRN shall reimburse each Person indemnified
pursuant to this SECTION 7.3 in connection with investigating or
defending any loss, claim, damage, liability or action indemnified
against. The reimbursements required by this SECTION 7.3 shall be made
by periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred. The
indemnities provided pursuant to this SECTION 7.3 shall remain in
force and effect regardless of any investigation made by or on behalf
of the indemnified party and shall survive any transfer of Registrable
Stock by PRN. Notwithstanding any contrary provision of this
Agreement, however, the liability under this SECTION 7 of PRN shall be
limited in the aggregate, with respect to the claims of all
indemnified Persons taken as a whole, to the amount of proceeds
received by PRN from the sale of the Registrable Stock sold by PRN
pursuant to such registration statement.
7.4 Each party entitled to indemnification under this SECTION 7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld, denied or delayed) and the
Indemnified Party may participate in such defense at such party's expense other
than reasonable costs of investigation and of liaison with counsel so selected
(unless the Indemnified Party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the Indemnifying Party or that the interests of the
Indemnified Party reasonably may be deemed to conflict with the interests of
the Indemnifying Party, in which case the Indemnified Party shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other reasonable expenses
related to such participation to be reimbursed by the Indemnifying Party as
incurred), and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this SECTION 7 unless and to the extent the Indemnifying
Party is materially prejudiced thereby. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
7.5 If the indemnification provided for in this SECTION 7 is held
by a court of competent jurisdiction (by the entry of a final judgment or
decree by such court
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<PAGE> 11
and the expiration of time to appeal or the denial of the last right of appeal)
to be unavailable to an Indemnified Party with respect to any loss, liability,
claim, damage or expense referred to herein, then the Indemnifying Party, in
lieu of indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or omissions
which resulted in such loss, liability, claim, damage or expense, as well as
any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the Indemnifying Party or by the Indemnified Party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Notwithstanding
any contrary provision of this Agreement, however, the liability under this
SECTION 7.5 of each Holder which is a seller of Registrable Stock shall be
limited in the aggregate, with respect to the claims of all indemnified Persons
taken as a whole, to the amount of proceeds received by the indemnifying seller
from the sale of the Registrable Stock sold by the indemnifying seller pursuant
to such registration statement
7.6 Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with any underwritten public offering
contemplated by this Agreement are in conflict with the foregoing provisions,
the provisions in such underwriting agreement shall be controlling. Not in
limitation of the foregoing, it is understood and agreed that the
indemnification obligations of PRN pursuant to any underwriting agreement
entered into in connection herewith shall be limited to the obligations
contained in this SECTION 7.
7.7 The foregoing indemnity agreement of the Company and PRN is
subject to the condition that, insofar as they relate to any loss, claim,
liability or damage made in a preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
underwriter if a copy of the Final Prospectus was furnished to the underwriter
and was not sent or furnished to the person if required by law so to have been
delivered asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Securities Act, and if the Final Prospectus
would have cured the defect giving rise to such loss, liability, claim or
damage.
7.8 The indemnities and obligations provided in this SECTION 7
shall survive the transfer of any Registrable Stock by PRN.
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SECTION 8. MARKETING RESTRICTIONS.
8.1 Notwithstanding any other provision of this Agreement, if:
(a) two or more Holders of Common simultaneously seek to
make a Demand Registration pursuant to a registration notice under
SECTION 2 of this Agreement or under the Prior Agreement, and
(b) the offering proposed to be made by the Holders of
Common for whom such registration is to be made is to be an
underwritten public offering, and
(c) the managing underwriter or underwriters of such
public offering furnish a written opinion to the Company and PRN that
the total amount of Securities to be included in such offering would
exceed the maximum number of shares of Common (as specified in such
opinion) which can be marketed at a price reasonably related to the
current market value of such Common and without otherwise materially
and adversely affecting such offering (the "Underwriter Maximum"),
then the rights of all holders of Securities having the right to include Common
in such registration, to participate in such offering shall be in the following
order of priority:
(i) FIRST, the number of shares of Investor
Registrable Stock (as such term is defined in the Prior
Agreement) requested to be included therein up to the
Underwriter Maximum allocated pro rata among the Holders of
such Investor Registrable Stock on the basis of the number of
shares of Investor Registrable Stock owned by such Holders
shall be entitled to participate, with further successive pro
rata allocations among the Holders of Investor Registrable
Stock if any such Holder of Investor Registrable Stock has
requested the registration of fewer than all of such shares of
Investor Registrable Stock that it is entitled to register;
(ii) SECOND, the number of shares of CTRC
Registrable Stock (as such term is defined in the Prior
Agreement) requested to be included therein, up to the
Underwriter Maximum (after taking into account the number of
shares of Investor Registrable Stock to be sold pursuant to
(i) above) allocated pro rata among the Holders of such CTRC
Registrable Stock on the basis of the number of shares of CTRC
Registrable Stock owned by such Holders shall be entitled to
participate, with further successive pro rata allocations
among the Holders of CTRC Registrable Stock if any such Holder
of CTRC Registrable Stock has requested the registration of
fewer than all of such shares of CTRC Registrable Stock it is
entitled to register;
(iii) THIRD, the number of shares of Management
Registrable Stock (as such term is defined in the Prior
Agreement) requested to be
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<PAGE> 13
included therein, up to the Underwriter Maximum (after taking
into account the number of shares of Investor Registrable Stock
and CTRC Registrable Stock to be sold pursuant to (i) and (ii)
above) allocated pro rata among the Holders of such Management
Registrable Stock on the basis of the number of shares of
Management Registrable Stock owned by such Holders shall be
entitled to participate, with further successive pro rata
allocations among the Holders of Management Registrable Stock
if any such Holder has requested the registration of fewer than
all of such shares of Management Registrable Stock it is
entitled to register;
(iv) FOURTH, the number of shares of Registrable
Stock requested to be included therein, up to the Underwriter
Maximum (after taking into account the number of shares of
Investor Registrable Stock, CTRC Registrable Stock and
Management Registrable Stock to be sold pursuant to clauses
(i), (ii) and (iii) above) allocated pro rata among the
Holders of such Registrable Stock on the basis of the number
of shares of Registrable Stock owned by such Holders shall be
entitled to participate, with further successive pro rata
allocations among the Holders of Registrable Stock if any such
Holder has requested the registration of fewer than all of
such shares of Registrable Stock it is entitled to register;
and
(v) FIFTH, other securities requested to be
included in such registration up to the Underwriter Maximum
(after taking into account the Investor Registrable Stock,
CTRC Registrable Stock, Management Registrable Stock and
Registrable Stock to be sold pursuant to clauses (i) through
(iv) above) shall be entitled to participate.
8.2 If:
(a) any Holder requests registration of Common under
SECTION 3 of this Agreement, and
(b) the offering proposed to be made is to be an
underwritten public offering, and
(c) the managing underwriters of such public offering
furnish a written opinion that the total amount of Securities to be
included in such offering would exceed the Underwriter Maximum,
then the rights of the Holders, of the holders of other Securities having the
right to include such Securities in such registration and of the Company to
participate in such offering shall be in the following order of priority:
(i) FIRST, (1) if such registration was not
initiated by the Company as a primary registration, then the
Person or Persons requesting such registration pursuant to a
Demand Registration of such Person or Persons shall be
entitled to participate in accordance with
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<PAGE> 14
the relative priorities, if any, that shall exist among them,
subject to the limitation that a number of shares of Investor
Registrable Stock equal to 35% of the Underwriter Maximum
shall also be entitled to participate therein, with such
shares of Investor Registrable Stock being allocated pro rata
among the Holders of Investor Registrable Stock owned by such
Holders, and (2) if the Company has initiated such
registration as a primary registration, then the Company shall
be entitled to participate up to the full number of shares of
stock which the Company deems necessary or advisable to
fulfill its strategic capital requirements;
(ii) SECOND, the number of shares of Investor
Registrable Stock requested to be included therein, up to the
remainder of such Underwriter Maximum (after taking into
account the number of shares to be sold pursuant to clause (i)
above) allocated pro rata among the Holders of such Investor
Registrable Stock on the basis of the number of shares of
Investor Registrable Stock owned by such Holders, with further
successive pro rata allocations among the Holders of Investor
Registrable Stock if any such Holder of Investor Registrable
Stock has requested the registration of fewer than all of such
shares of Investor Registrable Stock it is entitled to
register;
(iii) THIRD, the number of shares of CTRC
Registrable Stock requested to be included therein, up to such
Underwriter Maximum (after taking into account the number of
shares to be sold pursuant to clauses (i) and (ii) above)
allocated pro rata among the Holders of such CTRC Registrable
Stock on the basis of the number of shares of CTRC Registrable
Stock owned by such Holders, with further successive pro rata
allocations among the Holders of CTRC Registrable Stock if any
such Holder of CTRC Registrable Stock has requested the
registration of fewer than all of such shares of CTRC
Registrable Stock it is entitled to register
(iv) FOURTH, the number of shares of Management
Registrable Stock and Vector Registrable Stock (as such term
is defined in the Prior Agreement) requested to be included
therein, up to such Underwriter Maximum (after taking into
account the number of shares of securities to be sold pursuant
to clauses (i), (ii) and (iii) above) allocated pro rata among
the Holders of such Management Registrable Stock and Vector
Registrable Stock on the basis of the number of shares of
Management Registrable Stock and Vector Registrable Stock
owned by such Holders, with further successive pro rata
allocations among the Holders of Management Registrable Stock
and Vector Registrable Stock if any such Holder has requested
the registration of fewer than all of such shares of
Management Registrable Stock or Vector Registrable Stock he is
entitled to register;
(v) FIFTH, the number of shares of Registrable
Stock requested to be included therein, up to the Underwriter
Maximum (after taking
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<PAGE> 15
into account the number of shares of securities to be sold
pursuant to clauses (i), (ii), (iii) and (iv) above) allocated
pro rata among the Holders of such Registrable Stock on the
basis of the number of shares of Registrable Stock owned by
such Holders shall be entitled to participate, with further
successive pro rata allocations among the Holders of
Registrable Stock if any such Holder has requested the
registration of fewer than all of such shares of Registrable
Stock it is entitled to register; and
(vi) FIFTH, other securities requested to be
included in such registration up to the Underwriter Maximum
(after taking into account the securities to be sold pursuant
to clauses (i), (ii), (iii), (iv) and (v) above).
8.3 In connection with any offering involving an underwriting of
Registrable Stock pursuant to SECTION 3 of this Agreement, the Company shall
not be required to include any of the Registrable Stock of a Holder in such
offering unless such Holder agrees to the terms of the underwriting agreed to
between the Company and the underwriter or underwriters selected by the
Company.
SECTION 9. LOCKUP AGREEMENT. PRN agrees in connection with the
registration of any Registrable Stock in a public offering that, upon the
request of the Company or the underwriters managing such underwritten offering
of the Company's Securities, it will not sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Securities of
the Company (other than the securities included in the registration and other
than a transfer by PRN to an Affiliate of PRN) without the prior written
consent of the Company or such underwriters, as the case may be, for such
period of time (not to exceed 120 days) from the effective date of such
registration as the Company or the underwriters may specify, subject to the
Company obtaining similar agreements from the Company's executive officers and
directors, any holders of five (5) percent or more of the Company's then issued
and outstanding Common, and any other holders of Securities participating in
such registration.
SECTION 10. COMPLIANCE WITH RULE 144. With a view to making
available the benefits of certain rules and regulations of the Commission which
may permit the sale of restricted securities to the public without
registration, the Company agrees to:
(a) make and keep public information available as those
terms are understood and defined in Rule 144, at all times from and
after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an
offering of its Securities to the general public and for so long as
the Company is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company
under the
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<PAGE> 16
Securities Act and the Exchange Act at any time after it has become
subject to such reporting requirements; and
(c) so long as PRN owns any Securities, and is not
eligible to sell all such Securities under paragraph (k) of Rule 144,
furnish to PRN upon request, a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety (90) days following the effective date of
the first registration statement filed by the Company for an offering
of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed
as PRN may reasonably request in availing itself of any rule or
regulation of the Commission allowing PRN to sell any such securities
without registration.
SECTION 11. ASSIGNABILITY OF REGISTRATION RIGHTS. The rights set
forth in this Agreement shall accrue to each subsequent holder of Registrable
Stock who (i) shall have executed a written consent agreeing to be bound by the
terms and conditions of this Agreement, and (ii) owns greater than 12,500
shares of Registrable Stock (subject to appropriate adjustment for stock
splits, stock combinations and similar events affecting the Registrable Stock).
SECTION 12. DESIGNATION OF UNDERWRITER. In the case of any Demand
Registration effected pursuant to this Agreement, the managing underwriter(s)
and any other investment banking advisers to the Company shall be selected by
the Company. The Company shall select the managing underwriter(s) and all other
investment banking advisers to the Company for all other registrations that may
be effected from time to time by the Company.
SECTION 13. HOLDBACK AGREEMENTS. The Company agrees (i) not to
effect any public sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the period commencing on the earlier of the notice requesting the Demand
Registration, if applicable or seven days prior to, and continuing during the
90-day period beginning on, the effective date of any underwritten Demand
Registration pursuant to SECTION 2 hereof or any underwritten Piggyback
Registration pursuant to SECTION 3 hereof (except as part of such underwritten
registration or pursuant to registrations on Form S-8 or any successor form),
unless the underwriters managing the registered public offering otherwise
agree, and (ii) to cause each holder of its Common, or any securities
convertible into or exchangeable or exercisable for Common, purchased from the
Company at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
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<PAGE> 17
SECTION 14. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
(a) No Person may participate in any registration
hereunder which is underwritten unless such Person (i) agrees to sell
such Person's securities on the basis provided in any underwriting
arrangements approved by the Person or Persons entitled hereunder to
approve such arrangements (including, without limitation, pursuant to
the terms of any overallotment or "green shoe" option requested by the
managing underwriter(s)), (ii) furnishes to the Company such
information regarding such Person, the Registrable Stock of such
Person to be registered and the intended method of disposition of such
Registrable Stock, and (iii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of
such underwriting arrangements.
(b) If PRN disapproves of the terms of the underwriting,
PRN may elect to withdraw therefrom by written notice to the Company
and the managing underwriter; provided that if PRN withdraws, then
subject to SECTION 4(A) hereof, (i) if such withdrawal occurs prior to
the registration statement being filed with the Commission, PRN shall
not be responsible for the Registration Expenses in connection with
such registration, and (ii) if such withdrawal occurs subsequent to
the filing of the registration statement with the Commission, then at
the option of PRN, either PRN shall be responsible for the
Registration Expenses incurred in connection with such registration,
or such withdrawn registration shall count as a Demand Registration;
provided, however, that if at the time of such withdrawal, PRN has
learned of a material adverse change in the conditions, business or
prospects of the Company from that known to them at the time of their
request, then PRN shall not be required to pay any of such expenses or
to count such registration as a Demand Registration.
(c) Each Person that is participating in any registration
hereunder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in SECTION 5.1(E)
above, such Person will forthwith discontinue the disposition of its
Registrable Stock pursuant to the registration statement until such
Person's receipt of the copies of a supplemented or amended prospectus
as contemplated by such SECTION 5.1(E).
SECTION 15. MISCELLANEOUS.
15.1 Modifications; Amendment. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated unless
effected by a writing executed and delivered by the Company and PRN.
15.2 Severability. In the event that any court or any governmental
authority or agency declares all or any part of any Section of this Agreement
to be unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any other Section of this Agreement, and in the event that only a
portion of any Section is so declared to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate the balance of such
Section.
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<PAGE> 18
15.3 Successors and Assigns. Subject to SECTION 11, this Agreement
is binding upon and inures to the benefit of the Company, its successors and
assigns, and PRN, its successors and assigns, and legal representatives.
15.4 Notices. All communications in connection with this Agreement
shall be in writing and shall be deemed properly given if hand delivered or
sent by telecopier or overnight courier with adequate evidence of delivery or
sent by registered or certified mail, return receipt requested, and, if to PRN,
at PRN's address as shown on the books of the Company or its transfer agent,
and if to the Company, at its offices at:
ILEX ONCOLOGY, INC.
11550 I.H. 10 West, Suite 300
San Antonio, TX 78230
Attention: President
Any notice called for hereunder shall be deemed given when received.
15.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
agreements between Texas residents entered into and to be performed entirely
within Texas.
15.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same instrument. A written consent executed
pursuant to SECTION 11 of this Agreement shall be deemed to be part of, and
constitute a counterpart of, this Agreement.
15.7 Headings. The headings used herein are solely for the
convenience of the parties and shall not serve to modify or interpret the text
of the Sections at the beginning of which they appear.
15.8 Entire Agreement. This Agreement embodies the entire agreement
and understanding among the Company and PRN and supersedes all prior oral and
written agreements and understandings relating to the subject matter hereof.
15.9 Waiver. Any waiver or consent under this Agreement shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent except as
specifically set forth in such waiver or consent. The election of any remedy by
a party hereto shall not constitute a waiver of the right of such party to
pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
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<PAGE> 19
15.10 Specific Performance. The Company recognizes that the rights
of the PRN under this Agreement are unique and, accordingly, PRN shall, in
addition to such other remedies as may be available to them at law or in
equity, have the right to enforce their rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law.
15.11 Grant of Registration Rights. The Company shall not hereafter
grant to any third party any registration rights more favorable than, or in any
way conflicting with, any of those contained herein, so long as any of the
registration rights under this Agreement remain in effect, provided, in any
event, (i) any grant of demand or required registration rights shall provide
that PRN has incidental or "piggyback" registration rights with respect thereto
in accordance with the provisions of SECTION 3 hereof, (ii) such rights shall
not become effective prior to the rights of PRN hereunder, and (iii) the
recipients of such rights shall be subject to provisions comparable to those
set forth in SECTION 9 hereof.
[signatures on following page]
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day first above written.
The Company:
ILEX ONCOLOGY, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
PRN:
PRN RESEARCH, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 1
[Confidential treatment has been requested for portions of this
exhibit. The confidential portions have been redacted and are denoted by [**].
The confidential portions have been separately filed with the Securities and
Exchange Commission.]
EXHIBIT 10.4
SERVICE AGREEMENT
THIS AGREEMENT (the "Agreement") is effective this 30th day of June,
1997 (the "Effective Date"), by and between ILEX ONCOLOGY, INC., a Delaware
corporation with its principal office located at 11550 I.H. 10 West, Suite 300,
San Antonio, Bexar County, Texas 78230 ("ILEX") and PRN RESEARCH, INC., a Texas
corporation with its principal office located at 5420 LBJ Freeway, Suite 900,
Dallas, Dallas County, Texas 75240 ("PRN").
Recitals
A. ILEX is in the business of, among other things, providing CRO
Services (as defined hereinafter).
B. PRN is in the business of providing Site Services (as defined
hereinafter).
C. ILEX and PRN desire to establish a relationship pursuant to
which they will provide services for and to each other, and they shall jointly
provide services to third parties.
Agreements
In consideration of the mutual promises and covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Parties agree as follows:
1. Definitions. The following terms shall have the meanings
provided below unless otherwise provided herein or unless the context otherwise
requires:
"Affiliate(s)" of a party shall mean any person, corporate or
otherwise, controlled by or under common control as such party. For
purposes of this definition, "control" means the ownership, beneficial
or otherwise, of greater than 50% of the ownership interests of a
person.
"CRO" shall mean an entity providing CRO Services.
"CRO Revenue" shall mean the total gross revenues earned by
ILEX and its Affiliates from providing CRO Services, less discounts,
sales taxes and bad debts written off, as determined according to
generally accepted accounting principals and historical accounting
practices of ILEX, consistently applied; provided, however, that (i)
if ILEX or any of its Affiliates sponsors a clinical trial or has a
royalty, ownership or other equity interest in the compound subject to
a clinical trial, then for purposes of determining CRO Revenue, the
total gross revenues from providing CRO Services shall be deemed to
include an amount for conducting such clinical trials equal to the
then normal or customary fees charged by ILEX for similar services in
clinical trials in which neither ILEX nor any of its Affiliates has a
royalty or ownership interest in the compound subject to such clinical
trial, and (ii) in the event ILEX merges with or otherwise
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<PAGE> 2
acquires the assets or operations of another CRO (the "Acquired CRO"),
then there shall thereafter be deducted from CRO Revenue during each
Milestone Year (as defined hereinafter), or pro rata portion thereof,
the revenues from CRO Services of the Acquired CRO for the fiscal year
of the Acquired CRO immediately preceding such merger or acquisition.
"CRO Services" shall mean the following services in connection
with managing and sponsoring oncology clinical research trials: (i)
site selection and management, (ii) data collection, (iii) study
monitoring, (iv) pharmacoeconomic assistance, (v) medical writing,
(vi) statistical programming and analysis, and (vii) preparation of
regulatory documents.
"Site Services" shall mean the following services provided for
pharmaceutical and biotechnology companies and CRO's: obtaining
physicians to conduct oncology clinical research trials and enroll
patients in such trials, providing support personnel for such trials
and collecting data from such trials.
"Subsidiary" means, for any person (the "Parent"), any
corporation or other entity (including, without limitation, any
partnership or joint venture) of which at least a majority of the
securities or other ownership interests having by the terms thereof
ordinary voting power to elect a majority of the board of directors or
other persons having similar powers and/or performing similar
functions of such corporation or other entity (irrespective of whether
or not at any time securities or other ownership interests of any
class or classes of such corporation or other entity shall have or
might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by such
person or one or more Subsidiaries of such person.
"TMO" shall mean a trial management organization which
contracts with pharmaceutical and biotechnology companies and CROs to
provide Site Services and certain administrative services to clinical
trial sites who have an affiliation with such organization.
2. Services To Be Offered By PRN. PRN agrees to and shall provide
the following services to ILEX and/or third parties, as the context so
indicates:
a. PRN shall be available at its own cost and expense to
provide Site Services for all oncology clinical research trials for
which CRO Services are provided by ILEX and which are approved by the
Scientific Advisory Board of PRN;
b. PRN shall use reasonable efforts, at the request of
ILEX, to market or promote to pharmaceutical and biotechnology
companies and other third parties the services jointly provided by
ILEX (CRO Services) and PRN (Site Services); and in connection with
such marketing and promotion, PRN shall refer pharmaceutical and
biotechnology companies and other third parties seeking CRO Services
to ILEX exclusively, and PRN shall cause its officers to use their
respective reasonable efforts to identify exclusively to ILEX
pharmaceutical and biotechnology companies and/or other third parties
needing
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and/or seeking CRO Services and other therapeutic developmental
projects. In all events, the determination of whether ILEX will enter
into any agreement with other third parties shall be within the sole
discretion of ILEX, and PRN shall have no authority to enter into
contracts on behalf of or otherwise bind ILEX with respect thereto.
The marketing services of PRN referred to in this Section 2(b) are to
be provided only in connection with PRN's normal marketing of its Site
Services, and PRN shall not be required to spend additional funds in
excess of its normal expenditures on promotional and marketing
activities for clinical research. PRN has and shall retain the right
to independently market or promote its Site Services; and
c. PRN shall provide scientific review services to ILEX
to evaluate the desirability of proposed clinical trials and potential
physician interest in particular oncology compounds for which ILEX
seeks to provide CRO Services.
3. Services To Be Provided By ILEX. ILEX agrees to and shall
provide the following services to PRN and/or third parties, as the context so
indicates:
a. ILEX shall use reasonable efforts to promote, market
and perform its CRO Services and to promote and market PRN's provision
of Site Services in connection with ILEX's CRO Services;
b. PRN shall be a preferred vendor as a clinical trial
site on all ILEX therapeutic development projects (including all CRO
projects);
c. ILEX shall offer to PRN a right of first refusal to
participate to the maximum extent possible in all trials and projects
managed or sponsored by ILEX;
d. ILEX shall use reasonable efforts to follow up on all
leads provided to it by PRN pursuant to Section 2(b) above in an
appropriate manner;
e. ILEX shall use reasonable efforts to market and
promote to pharmaceutical and biotechnology companies and other third
parties the services jointly provided by ILEX (CRO Services) and PRN
(Site Services); and
f. ILEX agrees to and shall conduct, at its own expense,
such marketing, advertising and promotional activities as it deems
reasonable to further increase CRO Revenue.
4. Marketing Standard. Such marketing and promotional
obligations above of each of ILEX and PRN shall be undertaken by each in a
professional manner consistent with the reputation of the other and shall be in
compliance with all applicable laws and regulations, including without
limitation those laws and regulations regulating advertising by the medical
profession.
5. Data Entry Interface. Subject to the terms and conditions set
forth in this Agreement, PRN agrees to allow ILEX to install and maintain data
entry interface systems at PRN's trial sites for the purpose of interfacing
between ILEX's data entry
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confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the Securities and
Exchange Commission]
system and PRN's data management systems to collect and access data for ILEX's
clinical trials for which PRN is providing Site Services. Such systems shall be
installed at ILEX's own cost and expense, shall be comprised of such equipment
as ILEX in its sole discretion deems necessary, and shall be removed by ILEX at
its expense upon termination of this Agreement for any reason. Any other
provision of this section to the contrary notwithstanding, PRN shall have the
right to take all reasonable measures at ILEX's expense to ensure that patient
confidentiality is protected, and PRN shall have the right to prohibit the
installation of any equipment or the interface between ILEX's data entry system
and PRN's data management systems at any time that PRN reasonably believes that
the interface between such systems could cause any potential security issues
with respect to PRN's data management systems or any degradation of or other
adverse effect on the operations of PRN's data management systems. ILEX hereby
indemnifies and holds harmless PRN and its Affiliates and their respective
officers, directors, employees, agents and representatives against and from any
and all costs, claims, damages and expenses, including without limitation
attorneys' fees and court costs, arising out of or in any way related to ILEX's
interface of its data entry systems with PRN's data management systems.
6. Establishment of TMO. Any other provision of this Agreement to
the contrary notwithstanding, PRN may own an interest in or otherwise
participate in a TMO, provided that PRN shall continue to be bound by the terms
of this Agreement and further provided that, in the event such TMO engages in
any activity which, if taken by either PRN or its Affiliates, would constitute
a breach by PRN of this Agreement, then PRN shall not thereafter provide Site
Services to or through such TMO.
7. Fees. ILEX shall compensate and reimburse PRN and all
PRN-affiliated physicians for time spent performing services for any ILEX
managed trial in the following manner:
a. In the event that the trial is subject to a
pass-through fee arrangement based on the cost of providing Site
Services, ILEX shall pay to PRN its normal and customary fees, and, in
the event a third party refuses to pay or disputes such fees, ILEX
agrees to and shall allow PRN to negotiate with such third party to
resolve such dispute;
b. In the event that the trial is subject to a fixed-fee
arrangement for Site Services, ILEX will pay to PRN a fee equal to
PRN's direct costs plus [**] of its costs; and
c. For all scientific review services provided by PRN or
PRN-affiliated physicians pursuant to Section 2(c) above, ILEX shall
pay to PRN the normal and customary consulting fees of PRN and
PRN-affiliated physicians.
d. For so long as PRN has not committed a Warranty
Breach resulting in a termination of this Agreement in accordance with
Section 18(d) hereof, ILEX shall issue to PRN 314,600 shares of Common
Stock (as adjusted in accordance with Section 8(g) below) on each of
the following dates, subject to the
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confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the Securities and
Exchange Commission]
provisions of this Section 7 and provided PRN is in compliance with
the provisions of Section 17 hereof on such date:
i. July 1, 1998;
ii. July 1, 1999; and
iii. July 1, 2000.
e. In the event ILEX has provided notice to PRN of a
Warranty Breach in accordance with the provisions of Section 18(d)
hereof, ILEX shall not, and shall not be required to, issue any shares
of Common Stock pursuant to the provisions of this Section 7 unless
and until the earlier of the following shall occur:
i. such Warranty Breach shall have been cured by
PRN in accordance with the provisions of Section 18(d) hereof;
ii. such Warranty Breach is waived by ILEX in
accordance with the provisions of Section 9(d) hereof; or
iii. an arbitrator determines, in accordance with
the provisions of Section 20 and Annex A hereof, that PRN is
entitled to be issued such shares of Common Stock.
f. In the event ILEX breaches this Agreement and such
breach results in termination of this Agreement, then ILEX will issue
to PRN all unissued shares of Common Stock to be issued pursuant to
the provisions of this Section 7.
g. The parties shall each have the same rights with
respect to the shares of Common Stock to be issued pursuant to this
Section 7 as each of the parties has pursuant to Sections 8(f) and
8(g) hereof with respect to the shares covered by the Earn-Out.
8. Earn-Out Right. As additional consideration under this
Agreement and subject to the terms and conditions set forth herein, ILEX agrees
to and shall issue to PRN, up to, but not exceeding in the aggregate, 1,255,988
shares of common stock, $.01 par value, of ILEX ("Common Stock"), as adjusted
in accordance with Section 8(g) below, based upon CRO Revenue determined as of
the end of each twelve-month period (a "Milestone Year") commencing July 1,
1997, and ending June 30, 2001 (the right of PRN to receive such shares is
hereinafter called the "Earn-Out").
a. PRN shall receive 313,997 shares of Common Stock (as
adjusted in accordance with Section 8(g) below) or part thereof as
determined in accordance with this Agreement for each Milestone Year
if the CRO Revenue for each Milestone Year is equal to or exceeds the
appropriate amount set forth below:
(i) for the first Milestone Year ending June 30,
1998, $[**].
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confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the Securities and
Exchange Commission]
(ii) for the second Milestone Year ending June 30,
1999, $[**].
(iii) for the third Milestone Year ending June 30,
2000, $[**].
(iv) for the fourth Milestone Year ending June 30,
2001, $[**].
b. Adjustment. In the event that CRO Revenue does not
reach the levels set out above in Section 8(a) in any single respective
twelve month period (the "Milestone"), but CRO Revenue does reach at
least [**] of the Milestone, then shares of Common Stock (as adjusted
in accordance with Section 8(g) below) will be earned by PRN on the
following basis: (1) if CRO Revenue reaches [**] of the Milestone, PRN
shall receive [**] shares of Common Stock; (2) for additional CRO
Revenue achieved toward the Milestone between the levels of [**] and
[**] of the Milestone, PRN shall earn additional shares of Common Stock
at the rate of [**] shares of Common Stock per percentage point of CRO
Revenue toward the Milestone, prorated for any fractional percentage
point; (3) for additional CRO Revenue achieved toward the Milestone
between the levels of [**] and [**] of the Milestone, PRN shall earn
additional shares of Common Stock at the rate of [**] shares of Common
Stock per percentage point of CRO Revenue toward the Milestone,
prorated for any fractional percentage point; and (4) for additional
CRO Revenue achieved toward the Milestone between the levels of [**]
and [**] of the Milestone, PRN shall earn additional shares of Common
Stock at the rate of [**] shares of Common Stock per percentage point
of CRO Revenue toward the Milestone, prorated for any fractional
percentage point; provided, however, the maximum number of shares
earned by PRN for each twelve month period shall be 313,997 (as
adjusted in accordance with Section 8(g) below).
c. In the event that CRO Revenue is less than the
respective levels set out in Section 8(a) above for any single twelve
month period (in such event, such year shall be referred to as a
"Deficient Year"), and in the event that CRO Revenue is in excess of
the respective level set out in Section 8(a) above for any single
twelve month period, including as calculated according to this Section
8(c) (in such event, such year shall be referred to as an "Excess
Year"), then the amount of such excess CRO Revenue in any Excess Year
shall be added to the amount of CRO Revenue in any Deficient Year
chosen by PRN within the most recent two years. The Earn-Out will then
be payable in accordance with the recalculated CRO Revenue for any and
all Deficient Years, with appropriate credit given for all shares
previously issued for any Deficient Year.
d. Payment of Earn-Out.
i. As soon as is practicable after the end of
each Milestone Year, ILEX shall direct its independent
certified public accountant to determine the amount of CRO
Revenue for that Milestone Year. Upon receipt from its
independent certified public accountant of the amount of
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CRO Revenue for that Milestone Year, ILEX shall deliver or cause to be
delivered to PRN certificates representing the number of shares of
Common Stock earned by PRN pursuant to the Earn-Out, including any
adjustments made pursuant to Section 8(c) above. Such certificates
shall be delivered no later than 100 days from the end of any such
Milestone Year.
ii. Within 45 days following the end of each
calendar quarter during the term of this Earn-Out, ILEX shall
provide PRN with a report detailing the amount of CRO Revenue
ILEX has earned during such quarter and year-to-date. Such
reports shall be in form and substance reasonably acceptable
to PRN. ILEX will keep complete, true and accurate books of
account and records for the purpose of showing the derivation
and calculation of CRO Revenue. Such books and records will be
kept at ILEX's principal place of business for at least three
years following the end of the calendar quarter to which they
pertain, and will be made available at reasonable times for
inspection by a representative of PRN for the purpose of
verifying CRO Revenue; provided, however, that ILEX shall not
be obligated to submit to more than two such inspections by
PRN in any calendar year. PRN and the representative agree to
and will be obliged to treat as confidential all Confidential
Information. Confidential Information shall mean all
information contained in the books, records and reports of
ILEX, except for:
(1) information already in the public
domain at the time the representative received it;
(2) information which although was
confidential when disclosed to the representative is later
disseminated by ILEX into the public domain;
(3) information which although was
confidential when received by the representative is
subsequently disseminated into public domain by a third party
who has not breached any duty to any other party in
disseminating such information; and
(4) information which is confidential
when given by ILEX to the representative which representative
or PRN is expressly authorized in writing by ILEX to use or
disclose thereafter.
Such inspection shall be at the expense of PRN unless an error of more
than five percent (5%) in the amount of CRO Revenue is discovered in the course
of any such inspection, whereupon all inspection costs shall be paid by ILEX.
In the event any dispute arises out of or in connection with this Section 8,
such dispute shall be resolved pursuant to the alternative dispute resolution
provisions of Annex A attached hereto.
e. In the event ILEX breaches this Agreement and such
breach results in termination of this Agreement, then ILEX will issue
to PRN all shares of Common Stock capable of being earned by PRN
pursuant to the Earn-Out
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during the remainder of the term of this Agreement. In the event PRN
breaches this Agreement and such breach results in termination of this
Agreement, then ILEX shall not issue to PRN any shares of Common Stock
not yet earned, including any proration thereof, by PRN. In the event
this Agreement is terminated because it has become illegal due to
changes in federal, state or local ordinances, then PRN shall be
entitled to those shares of Common Stock earned pursuant to this
Section 8 up to and through the date of such termination, with the
Milestone for such Milestone Year in which the termination occurs
prorated as of the date of the termination of this Agreement.
f. No Rights as Stockholder. PRN shall not have rights
as a stockholder with respect to shares covered by Earn-Out unless and
until the date of issuance of a stock certificate for such shares;
and, except as otherwise provided in Section 8(g) hereof, no
adjustment for dividends or otherwise shall be made if the record date
therefor is prior to the date of issuance of such certificate;
provided, however, nothing contained in this Section 8(f) is intended
to or shall waive any rights of PRN for damages in the event shares of
Common Stock are not issued to PRN by ILEX when ILEX was obligated to
do so.
g. Changes in the Company's Capital Structure. The
existence of the Earn-Out shall not affect in any way the right or
power of ILEX to make or authorize any or all adjustments,
recapitalization, reorganizations or other changes in ILEX's capital
structure or its business, or any merger or consolidation of ILEX, or
any issuance of bonds, debentures, preferred or prior preference stock
ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of ILEX, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
If ILEX shall effect a subdivision or consolidation of shares or other
capital readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of Common Stock outstanding, without
receiving compensation therefor in money, services or property, then (a) the
number of shares of Common Stock subject to the Earn- Out hereunder shall
thereafter be appropriately adjusted in such a manner as to entitle PRN to
receive the number and class or classes of shares of such stock or other
securities or property to which PRN would have been entitled if, immediately
prior to such subdivision, consolidation or readjustment, PRN had been the
holder of record of a number of shares of Common Stock equal to the number of
shares of Common Stock subject to the Earn-Out; (b) the number of shares then
reserved for issuance under this Earn-Out shall be adjusted by substituting for
the total number of shares of Common Stock then reserved that number of shares
of stock that would have been received by the owner of an equal number of
outstanding shares of Common Stock as the result of the event requiring the
adjustment; and (c) ILEX shall provide PRN with the notice of such subdivision
or consolidation of shares or other capital readjustment, payment of a stock
dividend, or other increase or reduction in the number of shares of Common
Stock outstanding in the same manner and at the same time as ILEX provides
notice to its stockholders of record of such capital adjustment. ILEX agrees to
and shall reserve sufficient shares of Common Stock for issuance to PRN in the
event PRN achieves the Earn-Out.
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[Confidential treatment has been requested for portions of this page. The
confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the Securities and
Exchange Commission]
Except as provided herein, if ILEX is merged or consolidated with
another corporation, and such merger or consolidation results in termination of
this Agreement pursuant to Section 14 below, or if ILEX is liquidated or sells
or otherwise disposes of substantially all its assets, while any portion of the
Earn-Out remains unearned under this Agreement, as of immediately prior to the
effective date of such merger, consolidation, liquidation, sale or other
disposition, as the case may be, PRN shall be entitled, in lieu of shares of
Common Stock, the number and class or classes of shares of such stock or other
securities or property to which PRN would have been entitled if, immediately
prior to such merger, consolidation, liquidation, sale or other disposition,
PRN had been the holder of record of a number of shares of Common Stock equal
to the number of shares as to which PRN would have earned under this Agreement.
Except as hereinbefore expressly provided, the issue by ILEX of shares
of stock of any class, or securities convertible into shares of stock of any
class, for cash or property, or for labor or services either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of ILEX convertible into such shares or
other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number, class or price of shares of Common Stock
then subject to the Earn-Out.
9. PRN Covenants and Warranties. PRN hereby covenants and
warrants that during the term of this Agreement:
a. No less than [**] dollars ($[**]) will be spent in
an calendar year on oncology clinical research activities by PRN, its
Affiliates, or PRN-affiliated physicians, including any financial
support provided by a non-profit community organization or foundation
for PRN oncology clinical research activities;
b. PRN will not breach this Agreement with such breach
resulting in termination of this Agreement; and
c. PRN will have a material participation in greater
than [**] of the Commercially Feasible Clinical Trials (as defined
hereinafter). "Commercially Feasible Clinical Trials" shall mean all
clinical trials offered to PRN by ILEX and not rejected by the
Clinical Research Advisory Board of PRN, or its successor, for one or
more of the following reasons:
i. The clinical trial is of no significant
benefit to patients;
ii. The clinical trial has a poor study design;
iii. Safety concerns;
iv. The operational requirements of the clinical
trial are overly burdensome;
v. PRN is engaged in a competing protocol on
behalf of ILEX;
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vi. PRN is engaged in a competing protocol on
behalf of a third party, but offers to participate in ILEX's
protocol within a 90 day period or such other time frame as
may be mutually acceptable to ILEX and PRN; or
vii. Lack of physician interest.
The above covenants and warranties are hereinafter referred to as the
"PRN Warranties" or, if singular, the "PRN Warranty". Any breach of a PRN
Warranty (a "Warranty Breach") may be waived by ILEX in its sole discretion and
shall be deemed waived by ILEX if ILEX does not terminate this Agreement in
accordance with the provisions of Section 18(d) hereof, but any such waiver of
a single breach or multiple breaches shall not be a waiver of any successive
breach or breaches. In the event PRN commits a Warranty Breach during the first
36 months after the Effective Date, PRN shall not be liable to ILEX for any
damages under this Agreement.
10. Prohibited Activities. During the term, whether such term is
the primary term or any renewal term, of this Agreement, unless earlier
terminated pursuant to the terms of Section 19 hereof, PRN covenants and
warrants that:
a. Neither PRN nor any of its Affiliates will provide
CRO Services;
b. Neither PRN nor any of its Affiliates will promote or
market any CRO other than ILEX;
c. Neither PRN nor any of its Affiliates will provide
its Site Services in connection with any CRO other than ILEX unless
such CRO represents to PRN or such Affiliate that it has an executed
contractual commitment from a pharmaceutical or biotechnology company;
provided, however, such contractual commitment cannot be contingent,
to the best of PRN's, its Parent's or such Affiliate's executive
officer's knowledge, upon said CRO utilizing PRN's Site Services; and
d. To the extent PRN's, its Parent's or Parent of such
Parent's executive officers have knowledge of other CROs either
marketing PRN's services or using PRN's name in connection with any
marketing or promotions, PRN will make to such CRO a written demand
and request of an immediate cessation of such activities.
11. Board Representation.Upon execution of this Agreement, ILEX
agrees to and shall name a nominee of PRN to serve as a director of ILEX until
the next annual meeting or such other meeting in which directors of ILEX are
elected. For the first three years of the term of this Agreement, provided this
Agreement has not been terminated, at each annual meeting or other meeting in
which directors of ILEX are elected, ILEX agrees to and shall cause a nominee
of PRN (a "PRN Nominee") to be nominated for election as director of ILEX. In
the fourth year of the term of this Agreement and until this Agreement is
terminated or expires, for so long as PRN or its Affiliate owns at least
800,000 shares of Common Stock, ILEX shall cause a PRN Nominee to be nominated
for election as director of ILEX. In the event the PRN
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Nominee is not elected as a director of ILEX, ILEX agrees to and shall (i)
allow PRN to have an observer at any meeting of the board of directors of ILEX,
and (ii) provide reasonable notice of any such meeting of the board of
directors of ILEX.
12. Change of Control in PRN Parent. In the event Physician
Reliance Network, Inc., a Texas corporation and the parent company of PRN ("PRN
Parent"), no longer owns at least 80% of the issued and outstanding voting
capital stock of PRN or in the event a "change of control" occurs in PRN
Parent, and ILEX determines that such event is adverse to its interests, then
ILEX may, at its sole option, terminate this Agreement. As used herein, a
"change of control" shall be deemed to have occurred if (i) any "Person" (as
such term is used in Sections 12(d) and 13(d) of the Securities Exchange Act of
1934, as amended [the "Exchange Act"]), hereafter becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of PRN Parent representing more than 40% of the combined voting
power of PRN Parent's then outstanding securities, but only if such Person is
directly or indirectly engaged in the CRO, pharmaceutical or biotechnology
business, or (ii) the stockholders of PRN Parent approve a plan of complete
liquidation of PRN Parent or an agreement of sale or disposition by PRN Parent
of all or substantially all of PRN Parent's assets. In the event PRN Parent
obtains knowledge of any pending "change of control" of PRN Parent, PRN Parent
shall provide notice to ILEX as soon as is practical after obtaining such
knowledge.
13. Change of Control in ILEX. In the event a "change of control"
occurs in ILEX, and PRN determines that such "change in control" is adverse to
its interests, then PRN may, at its sole option, terminate this Agreement. As
used herein, a "change of control" shall be deemed to have occurred if (i) any
"Person" (as such term is used in Sections 12(d) and 13(d) of the Securities
Exchange Act of 1934, as amended [the "Exchange Act"]), is or becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of ILEX representing more than 40% of the combined
voting power of ILEX's then outstanding securities, but only if such Person is
directly or indirectly engaged in the physician's practice management business,
or (ii) the stockholders of ILEX approve a plan of complete liquidation of ILEX
or an agreement of sale or disposition by ILEX of all or substantially all of
ILEX's assets. In the event ILEX obtains knowledge of any pending "change of
control" of ILEX, ILEX shall provide notice to PRN as soon as is practical
after obtaining such knowledge.
14. Remedies. ILEX and PRN each agree neither shall seek, nor
shall either obtain, any such injunctive relief against the other party having
a duration greater than one year. The foregoing shall be without prejudice to
any other rights that ILEX or PRN may have under this Agreement, at law or in
equity, including, without limitation, the right to recover damages in
accordance with the provisions of Annex A attached hereto. All persons subject
to the Agreement expressly agree to WAIVE ANY RIGHT OR CLAIM TO PUNITIVE OR
EXEMPLARY DAMAGES of any kind, whether this right or claim could accrue NOW OR
IN THE FUTURE under applicable law.
15. Third Party Agreements. Subject to ILEX's obligations under
Section 3 of this Agreement, nothing contained herein or in any other agreement
is intended to or shall prohibit ILEX from arranging trial sites at other than
PRN sites. Nothing
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contained herein is intended to or shall prohibit PRN from (i) providing Site
Services for another CRO if such CRO represents to PRN that it has a signed
commitment with respect to such trials from a pharmaceutical company, provided
such commitment is not contingent, to the best of PRN's or its Parent's
executive officer's knowledge, upon PRN providing Site Services, prior to any
agreement or commitment by PRN to conduct such trials, or (ii) providing Site
Services directly to pharmaceutical and biotechnology companies.
16. Assignment. Neither this Agreement nor the rights of the
parties hereto shall be assignable, unless otherwise specifically provided;
provided, however, notwithstanding any other provision of this Agreement, ILEX
or PRN may assign all or part of its rights and obligations contained herein to
any of their respective Subsidiaries; provided however, no such assignment by
either party shall, or shall be deemed to, be a release of the obligations of
such party under this Agreement.
17. Accredited Investor.
a. PRN recognizes that the Common Stock is not being
registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon an exemption from the Securities
Act which is predicated, in part, on the representations and
agreements of PRN set forth in this Agreement. PRN represents and
warrants to ILEX that it is an "accredited investor" as that term is
defined in Rule 501(a) of the Rules and Regulations promulgated
pursuant to the Securities Act, and that it will be an accredited
investor at each time ILEX issues Common Stock to it under the terms
of this Agreement, and that the Common Stock is being acquired solely
for its own account for investment and not with a view to, or for
offer or resale in connection with, a distribution thereof within the
meaning of the Securities Act. PRN understands that the effect of such
representation and warranty is that the Common Stock must be held
indefinitely unless subsequently registered under the Securities Act
or an exemption from such registration is available at the time for
any proposed sale or other transfer thereof. PRN represents that it
has consulted with its counsel in regard to the Securities Act and
that it is fully familiar with the circumstances under which it is
required to hold the Common Stock and the limitations upon the
transfer or other disposition thereof. PRN acknowledges that ILEX is
relying upon the truth and accuracy of the foregoing representations
and warranties in issuing the Common Stock under the Securities Act.
PRN agrees to and shall indemnify and hold ILEX harmless against all
liabilities, costs and expenses, including reasonable attorneys' fees,
incurred by ILEX as a result of any sale, transfer or other
disposition by PRN of all or any part of the Common Stock in violation
of the Securities Act.
b. Legend. The certificates representing the Common
Stock shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD OR
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TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT."
18. Duration and Termination.
a. The primary term of this Agreement shall be for the
period beginning upon the Effective Date and ending December 31, 2007,
unless sooner terminated in accordance with the provisions of this
Agreement. Unless earlier terminated in accordance with the
procedures outlined herein, upon expiration of the primary term and of
each successive renewal term hereunder, this Agreement shall
thereafter be automatically renewed and extended for a term of one (1)
year each, or such other term as may be agreed upon by ILEX and PRN,
effective as of the expiration date of the immediately preceding term
hereunder.
b. Termination of this Agreement may be accomplished by
either party hereto giving written notice to the other party hereto of
its intent to terminate this Agreement not less than 180 days before
the expiration of the primary term or any successive term hereunder.
c. Either party hereto may terminate this Agreement
immediately, without prior notice of any kind, in the event of the
following:
i. except as otherwise provided in Section 17
hereof, if the other party hereto transfers or assigns or
attempts to transfer or assign, whether by operation of law or
otherwise, this Agreement, or any rights hereunder, without
such first party's prior written consent; or
ii. upon the bankruptcy or insolvency of the
other party, or if the other party is unable to pay its debts
as they are currently due, or makes or attempts to make an
assignment of assets, accounts receivable or business for the
benefit of creditors, or if a trustee or receiver is appointed
to administer its business. Each of ILEX and PRN agrees to and
shall immediately notify the other of the happening of the
foregoing events or circumstances.
d. ILEX may terminate this Agreement immediately upon a
Warranty Breach by giving written notice to PRN; provided that (i)
ILEX provides PRN with a written notice of such Warranty Breach; (ii)
PRN does not cure such breach within 30 days after receipt of written
notice of such Warranty Breach, unless such breach is incurable within
30 days, in which event PRN shall be required (A) to make reasonable
efforts, in form and substance acceptable to ILEX, to cure such
breach, and (B) to complete said cure within 180 days after receipt of
written notice of such Warranty Breach; and (iii) such written
termination notice is given within 60 days after any applicable cure
period.
e. In the event of a breach of this Agreement other than
a Warranty Breach, either party hereto may terminate this Agreement
upon 30 days written notice in the event the other party materially
breaches this Agreement and does
-13-
<PAGE> 14
not cure such breach within 30 days receipt of written notice of
breach, unless such breach is incurable within 30 days, in which event
such party attempting to cure shall be required to make reasonable
efforts to cure such breach. Notwithstanding any other provision
contained herein, in the event either party hereto breaches their
obligations under Sections 2 and 3 of this Agreement, then the parties
agree to use dispute resolution procedures as set out in Annex A
attached hereto. Once a resolution settling any such dispute is
adopted by the parties or issued by the arbitrator(s), then if either
party breaches such resolution, then the other party may terminate
this Agreement upon 30 days written notice.
19. Legal Relationship and Indemnification.
a. Relationship. The relationship of ILEX and PRN shall
be that of independent contractors. Accordingly, each party hereto,
and its agents or employees shall under no circumstances be considered
agents or employees of the other party hereto. Each party hereto shall
be solely responsible for any claims, damages or lawsuits arising out
of its acts or those of its employees, servants or agents, or any of
them. Neither party hereto shall have the right or authority, nor
shall either party attempt, to enter into contracts or commitments in
the name, or on behalf, of the other party hereto, or to bind the
other party hereto in any manner or respect whatsoever.
b. Indemnification by PRN. PRN hereby agrees to PROTECT,
INDEMNIFY AND HOLD ILEX HARMLESS from any and all claims, suits,
actions, penalties, assessments, damages or losses of any kind or
description, for damages or injuries to person or property (including
that of ILEX) received or sustained through or on account of any act,
omission or representation of PRN, its agents, third party sales
representatives, servants or employees, or any breach, default or
omission under or in connection with this Agreement by PRN, its
agents, third party sales representatives, servants or employees, and
to reimburse any expenses, penalties or costs incurred by ILEX in
defending any such claim, suit or action.
c. Indemnification by ILEX. ILEX hereby agrees to
PROTECT, INDEMNIFY AND HOLD PRN HARMLESS from any and all claims,
suits, actions, penalties, assessments, damages or losses of any kind
or description, for damages or injuries to person or property
(including that of PRN) received or sustained through or on account of
any act, omission or representation of ILEX, its agents, third party
sales representatives, servants or employees, or any breach, default
or omission under or in connection with this Agreement by ILEX, its
agents, third party sales representatives, servants or employees, and
to reimburse any expenses, penalties or costs incurred by PRN in
defending any such claim, suit or action.
d. Other Rights and Remedies Not Affected. The
indemnification rights of the Parties under this Agreement are
independent of and in addition to such rights and remedies as the
Parties may have at law or in equity or otherwise for any
misrepresentations, breach of warranty or failure to fulfill any
-14-
<PAGE> 15
agreement or covenant hereunder on the part of any party hereto,
including without limitation the right to seek specific performance,
rescission or restitution, none of which rights or remedies shall be
affected or diminished hereby.
20. Arbitration. Except as otherwise provided herein, any claim,
dispute or controversy of any nature whatsoever, including but not limited to
tort claims and contract disputes between the parties to this Agreement arising
out of or related to the terms and conditions of this Agreement, including the
implementation, applicability or interpretation thereof, shall be resolved in
accordance with the dispute resolution procedures set forth in Annex A attached
hereto.
21. Force Majeure.
a. Neither party hereto shall be responsible for any
loss or damage to the other party hereto in case such first party is
unable to fulfill the whole or any part of its obligations hereunder,
or is prevented or delayed from fulfilling the same, due to act of
God, war or hostilities (whether war be declared or not), invasion,
act of foreign enemies, rebellion, revolution, insurrection, military
usurpation of power, civil war or riot, the unavailability of labor or
materials, strike, lockout, commotion, disorder, flood, tempest,
earthquake or other case beyond the reasonable control of such party.
b. The parties agree that all rights and obligations
contained herein are subject to limitations which may be imposed by
regulatory agencies, customer requirements, or industry standards (the
"Limitations"). ILEX and PRN each shall use their respective
reasonable efforts to avoid or limit any and all Limitations on their
respective full performance of this Agreement, but in the event
Limitations are imposed, the neither party shall be deemed to be in
breach of this Agreement to the extent such breach is a result of the
imposition of Limitations.
c. Upon the occurrence of any event or circumstance
described in subsection (a) or (b) of this Section 21, the party whose
performance hereunder is affected thereby shall notify the other party
hereto immediately. The rights and obligations of either party under
this Agreement shall be suspended only for the duration and extent of
such event or circumstance and at the time that such event or
circumstance shall cease to exist, the rights and obligations of the
parties hereto shall continue in full force and effect.
22. Governing Law. ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF
ILEX AND ANY STOCKHOLDER OF ILEX WILL BE GOVERNED BY THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL
LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS.
-15-
<PAGE> 16
23. Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be effective (a) upon receipt
if by personal delivery, (b) one day after timely prepaid deposit with a
reputable overnight courier service, or (c) upon completion of a telephone call
confirming receipt of transmission by facsimile, addressed as follows:
If to ILEX:
ILEX Oncology, Inc.
11550 I.H. 10 West, Suite 300
San Antonio, Texas 78230-1064
Telephone: 210-949-8212
Facsimile: 210-949-8227
Attention: President
If to PRN:
Physician Reliance Network, Inc.
Two Lincoln Center
5420 LBJ Freeway, Suite 900
Dallas, Texas 75240
Telephone: 972-392-8700
Facsimile: 972-387-0563
Attention: General Counsel
24. Intellectual Property. The parties each acknowledge that
ownership and/or control, as applicable, of any and all patents, techniques,
processes, methods and other know-how developed, invented or created by either
party shall be the sole and exclusive property of such party.
25. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement, a provision as similar in its
terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.
26. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and any respective successors and assigns.
27. Amendment. This Agreement may not be amended or modified
unless such amendment or modification is in writing and signed by the parties.
[signatures on following page]
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple original counterparts effective as of June 30, 1997.
ILEX ONCOLOGY, INC.
a Delaware corporation
By:
------------------------------
James R. Koch, Vice President
and Chief Financial Officer
PRN RESEARCH, INC.
a Texas corporation
By:
------------------------------
Name:
----------------------------
Its:
-----------------------------
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<PAGE> 18
ANNEX A
ALTERNATIVE DISPUTE RESOLUTION
All disputes between the parties relating to this Agreement shall be
settled among the parties by the following procedures. For purposes hereof, the
parties shall mean ILEX Oncology, Inc. (and its Affiliates and permitted
successors and assigns), on one side, and PRN Research, Inc. (and its
Affiliates and permitted successors and assigns), on the other:
1. NEGOTIATION
1.1 Within thirty (30) days of the incurred acts,
occurrences and/or omissions giving rise to the dispute, the aggrieved party
shall give detailed written notice to the other party of the aggrieved party's
specific complaint including the amount of actual damages and expenses,
including attorneys' fees, claimed or incurred by the aggrieved party. The
aggrieved party shall include copies of all documents which support its claims.
1.2 Within thirty (30) days after receipt of the notice,
the party receiving the notice shall tender to the other party a written
response, including an offer of settlement, if appropriate. Any offer of
settlement not accepted with thirty (30) days of receipt by the aggrieved party
shall be deemed to have been rejected.
1.3 The tender of an offer of settlement is not an
admission of engaging in an unlawful act or practice or of liability.
1.4 In the event the parties are unable to settle their
disputes after following the procedures set forth above, with fifteen (15) days
thereafter, the parties shall submit their disputes to mediation.
2. MEDIATION
2.1 Consent to Mediator. Both parties shall share equally
in the naming of the mediator. The mediator shall act as an advocate for
resolution and shall use his or her best efforts to assist the parties in
reaching a mutually acceptable settlement.
2.2 Conditions Precedent to Serving as Mediator. The
mediator shall not serve as a mediator in any dispute in which he or she has
any financial or personal interest in the result of the mediation. Prior to
accepting an appointment, the mediator shall disclose any circumstance likely
to create a presumption of bias or prevent a prompt meeting with the parties.
In the event that the parties disagree as to whether the mediator shall serve,
the mediator shall not serve.
2.3 Authority of Mediator. The mediator does not have the
authority to decide any issue for the parties, but will attempt to facilitate
the voluntary resolution
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<PAGE> 19
of the dispute by the parties. The mediator is authorized to conduct joint and
separate meetings with the parties and to offer suggestions to assist the
parties in achieving settlement. If necessary, the mediator may also obtain
expert advice concerning technical aspects of the dispute, provided that the
parties agree and assume the expenses of obtaining such advice. Arrangements
for obtaining such advice shall be made by the mediator or the parties, as the
mediator shall determine. Likewise, the mediator may request the limited
production of documents from both parties in defense of their respective
claims. The mediator shall not disclose the parties in defense of their
respective claims. The mediator shall not disclose the actual documents without
the consent of the offering party. However, in his or her discussions with the
respective parties after first obtaining the consent of the disclosing party,
the mediator will be permitted to share with the other party summary oral
information from any such documents.
2.4 Length of Mediation. Mediation proceedings shall not
extend beyond two (2) days, without the consent of the parties.
2.5 Commitment to Participate in Good Faith. The parties
further agree that at any time following the mediation process but prior to the
initiation of binding arbitration, the president or a senior level executive of
the respective companies shall meet or confer telephonically in one last effort
to resolve the dispute. During each phase of the alternative dispute evaluation
process, the parties agree to act in good faith to settle the dispute, if
possible.
3. ARBITRATION.
3.1 All claims, disputes, controversies and other matters
in question arising out of or relating to the Agreement or to the alleged
breach thereof shall be settled by Negotiation between the parties as described
in Section 1 of this Annex A or by Mediation between the parties as described
in Section 2 of this Annex A. If such negotiation and mediation are
unsuccessful, the parties agree to submit to binding arbitration. The parties
agree the arbitration shall be administered by the American Arbitration
Association ("AAA") and conducted in accordance with its Commercial Arbitration
Rules (the "Rules"), except as otherwise provided in accordance with procedures
set forth in Sections 3.2 through 3.3 (xiii) of this Annex A or as the parties
may otherwise agree.
3.2 Notice. Notice of demand for binding arbitration
shall be given in writing to the other party pursuant to the Agreement.
3.3 Binding Arbitration. Upon filing of a notice of
demand for binding arbitration by either party, arbitration shall be commenced
and conducted as follows:
(i) Arbitrator. All claims, disputes,
controversies, and other matters (collectively "matters") in question shall be
referred to and decided and settled by an arbitrator that has been found
acceptable by the parties. Selection of the arbitrator shall be made within ten
(10) business days after the date of filing of a demand for arbitration. In the
event the parties cannot agree on the selection of the arbitrator within ten
(10) business days of delivery of the written notice invoking
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<PAGE> 20
arbitration, then each party shall select an arbitrator, and the two
arbitrators shall have ten (10) business days following their selection to
select an arbitrator. In the event the two arbitrators can not select a third
arbitrator within ten (10) business days, then the arbitrator shall be selected
pursuant to the Rules.
(ii) Cost of Arbitration. The cost of arbitration
proceedings, including without limitation the arbitrator's compensation and
expenses, hearing room charges, court reporter transcript charges etc., shall
be borne by the parties equally or otherwise as the arbitrator may determine.
The arbitrator may award the prevailing party its reasonable attorneys' fees
and costs incurred in connection with the arbitration. The arbitrator is
specifically instructed to award attorneys' fees for instances of abuse in the
discovery process.
(iii) Location of Proceedings. The arbitration
proceedings shall be held in Austin, Texas, unless the parties agree otherwise.
(iv) Pre-hearing Discovery. The parties shall have
the right to conduct and enforce pre- hearing discovery in accordance with the
then current Federal Rules of Civil Procedure, subject to these limitations:
(a) Each party may serve no more than one set of
interrogatories limited to fifty items;
(b) Each party may depose the other party's expert
witnesses who will be called to testify at the hearing, plus
two fact witnesses without regard to whether they will be
called to testify (each party will be entitled to a total of
not more than 24 hours of depositions of the other party's
witnesses), provided however, that the arbitrator may provide
for additional depositions upon showing of good cause; and
(c) Document discovery and other discovery shall be
under the control of and enforceable by the arbitrator.
(v) Discovery disputes. All discovery disputes
shall be decided by the arbitrator. The arbitrator is empowered;
(a) to issue subpoenas to compel pre-hearing document
or deposition discovery;
(b) to enforce the discovery rights and obligations
of the parties; and
(c) to otherwise control the scheduling and conduct
of the proceedings.
Notwithstanding any contrary foregoing provisions, the arbitrator
shall have the power and authority to, and to the fullest extent practicable
shall, abbreviate arbitration discovery in a manner which is fair to all
parties in order to expedite the conclusion of each alternative dispute
resolution proceeding.
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<PAGE> 21
(vi) Pre-hearing Conference. Within fifteen (15)
days after selection of the arbitrator or as soon thereafter as is mutually
convenient to the arbitrator, the arbitrator shall hold a pre-hearing
conference to establish schedules for completion of discovery, for exchange of
exhibit and witness lists, for arbitration briefs, for the hearing, and to
decide procedural matters and all other questions that may be presented.
(vii) Hearing Procedures. The hearing shall be
conducted to preserve its privacy and to allow reasonable procedural due
process. Rules of evidence need not be strictly followed, and the hearing shall
be streamlined as follows:
(a) Documents shall be self-authenticating, subject
to valid objection by the opposing party;
(b) Expert reports, witness biographies, depositions,
and affidavits may be utilized, subject to the opponent's
right of a live cross-examination of the witness in person;
(c) Charts, graphs, and summaries shall be utilized
to present voluminous data, provided (i) that the underlying
data were made available to the opposing party thirty (30)
days prior to the hearing, and (ii) that the preparer of each
chart, graph, or summary is available for explanation and live
cross-examination in person;
(d) The hearing should be held on consecutive
business days without interruption to the maximum extent
practicable; and
(e) The arbitrator shall establish all other
procedural rules for the conduct of the arbitration in
accordance with the Rules.
(viii) Governing Law. This arbitration provision
shall be governed by, and all rights and obligations specifically enforceable
under and pursuant to, the Federal Arbitration Act (9 U.S.C. Section 1, et
seq.). All disputes under this Agreement shall be construed and interpreted in
accordance with the laws of the State of Texas. No conflict-of-laws rule or
law that might refer such construction or interpretation to the laws of another
jurisdiction shall be considered.
(ix) Consolidation. No arbitration shall include,
by consolidation, joinder, or in any other manner, any additional person not a
party to the Agreement, except by written consent of both parties containing a
specific reference to this Agreement.
(x) Award. The arbitrator is empowered to render
an award of general compensatory damages but is not empowered to award
equitable relief (including, without limitations, injunctive relief),
exemplary, special or punitive damages. The award rendered by the arbitrator
(1) shall be final; (2) shall not constitute a basis for collateral estoppel as
to any issue; and (3) shall not be subject to vacation or modification, except
to the extent provided by the Rules. Judgment upon the award rendered by the
arbitrator or arbitrators may be enforced in any court having jurisdiction
thereof.
(xi) Waiver of Any Right to Punitive or Exemplary
Damages. All persons subject to the Agreement expressly agree to WAIVE ANY
RIGHT OR CLAIM TO SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES of any kind, whether
this
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<PAGE> 22
right or claim could accrue NOW OR IN THE FUTURE under applicable law. However,
in the event a court determines that the express waiver set forth in Section
3(xi) of this Annex A is unenforceable, then the arbitrator, and not a court,
shall determine if punitive or exemplary damages should be awarded and, if
awarded, the amount thereof.
4. CONFIDENTIALITY. The parties hereto will maintain the
existence substance and result of any proceedings hereunder in confidence, and
the mediators/arbitrators, prior to any proceedings hereunder, will sign an
agreement whereby the mediator/arbitrators agree to keep the existence,
substance and result of any proceedings hereunder and all information presented
by the parties in confidence.
5. SEVERABILITY. In the event any court or other tribunal
concludes any portion of this Annex A to be void or otherwise unenforceable for
any reason, the remainder of this Annex A shall survive and is deemed
severable, such that the parties' express purpose to arbitrate any unresolved
controversy shall be recognized and given effect.
6. NO ADMISSION. The tender or acceptance of any offer of
settlement and the statement of any party or its officers, directors,
representatives, or agents made during or in connection with any negotiations,
mediation proceedings, or arbitration proceedings or hearings shall not be an
admission of liability, engaging in an unlawful act or practice, or breach of
any agreement, obligation or duty.
-22-
<PAGE> 1
EXHIBIT 11.1
ILEX ONCOLOGY, INC.
COMPUTATION OF NET LOSS PER SHARE
(In Thousands, Except Per Share Amount)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Loss .................................................................. $ (574) $ (1,325) $ (990) $ (1,793)
Weighted average number of shares of Common Stock and Common Stock
equivalents outstanding:
Weighted average number of shares of Common Stock outstanding ............. 1,188 11,880 1,188 11,077
Common Stock equivalents applicable to convertible preferred stock(1) ..... 6,093 0 6,093 0
Weighted average number of Common Stock equivalents applicable to stock
options and warrants(1) ................................................... 939 679 939 644
Common Stock and Common Stock equivalents ................................. 8,220 12,559 8,220 11,721
Net loss per share - primary .............................................. $ (0.07) $ (0.11) $ (0.12) $ (0.15)
Net Loss .................................................................. $ (574) $ (1,325) $ (990) $ (1,783)
Weighted average number of shares of Common
Stock and Common Stock equivalents outstanding:
Weighted average number of shares of Common
Stock outstanding ....................................................... 1,188 11,880 1,188 11,077
Common Stock equivalents applicable to
convertible preferred stock(1) .......................................... 6,093 0 6,093 0
Weighted average number of Common Stock equivalents
applicable to stock options and warrants(1) ............................. 939 718 939 667
-------- -------- -------- --------
Common Stock and Common Stock equivalents, assuming
full dilution ............................................................ 8,206 12,598 8,213 11,744
Net loss per share - fully diluted(2) ..................................... $ (0.07) $ (0.11) $ (0.12) $ (0.15)
</TABLE>
(1) Convertible stock, stock options and stock warrants issued within one year
prior to an initial public offering with a conversion price or exercise
price below the estimated initial public offering price has been included
as outstanding for all periods specified by SAB No. 83 (Topic 4-D).
(2) This calculation is submitted in accordance with Item 601(b)11 of
regulation S-K although it is not required by APB Opinion No. 15 because
it results in dilution of less than 3% or is antidilutive.
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1997, AND THE YEAR TO DATE STATEMENT OF OPERATIONS FOR THE
PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 25,692
<SECURITIES> 7,728
<RECEIVABLES> 4,393
<ALLOWANCES> 123
<INVENTORY> 0
<CURRENT-ASSETS> 38,548
<PP&E> 2,686
<DEPRECIATION> (279)
<TOTAL-ASSETS> 55,811
<CURRENT-LIABILITIES> 3,098
<BONDS> 0
0
0
<COMMON> 119
<OTHER-SE> 52,240
<TOTAL-LIABILITY-AND-EQUITY> 55,811
<SALES> 0
<TOTAL-REVENUES> 5,661
<CGS> 0
<TOTAL-COSTS> 5,577
<OTHER-EXPENSES> 2,382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,051
<INCOME-PRETAX> (1,793)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,793)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,793)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
