UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 No. 0-15443
THERAGENICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 58-1528626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5203 Bristol Industrial Way
Buford, Georgia 30518
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 271-0233
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 ___
As of May 14, 1999 the number of shares of $.01 par value common stock
outstanding was 29,497,734.
<PAGE>
THERAGENICS CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page No.
Balance Sheets - December 31, 1998 and March 31, 1999 . . . . . 3
Statements of Earnings for the three months ended
March 31, 1998 and 1999 . . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows for the three months ended
March 31, 1998 and 1999 . . . . . . . . . . . . . . . . . . . . 6
Statement of Changes in Stockholders' Equity for the three
months ended March 31, 1999 . . . . . . . . . . . . . . . . . . 7
Notes to Financial Statements . . . . . . . . . . . . . . . . . 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK . . . . . . . . . . . . . . . . . . . . . . . . 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
<TABLE>
THERAGENICS CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1999
(UNAUDITED)
ASSETS
<CAPTION>
December 31, March 31,
1998 1999
------------------- ------------------
CURRENT ASSETS
<S> <C> <C>
Cash and short-term investments $ 19,541,662 $ 23,589,146
Marketable Securities 6,830,266 9,522,224
Trade Accounts Receivable, less
allowance of $53,773 in 1998 and
$34,957 at March 31, 1999 7,000,446 4,107,997
Inventories 780,825 790,290
Deferred income tax asset 210,000 280,000
Prepaid expenses and other current assets 579,132 588,079
------------------- ------------------
TOTAL CURRENT ASSETS 34,942,331 38,877,736
PROPERTY AND EQUIPMENT
Buildings and improvements 17,425,990 17,425,990
Leasehold improvements 154,234 154,234
Machinery and equipment 25,570,513 28,342,811
Office furniture and equipment 333,816 362,573
------------------- ------------------
43,484,553 46,285,608
Less accumulated depreciation and
amortization (7,031,902) (7,911,553)
------------------- ------------------
36,452,651 38,374,055
Land 848,359 848,359
Construction in progress 15,957,453 14,643,643
------------------- ------------------
TOTAL PROPERTY AND EQUIPMENT 53,258,463 53,866,057
OTHER ASSETS 71,782 69,418
------------------- ------------------
TOTAL ASSETS $ 88,272,576 $ 92,813,211
=================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
THERAGENICS CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1999
(UNAUDITED)
LIABILITIES & STOCKHOLDERS' EQUITY
December 31, March 31,
1998 1999
------------------- ------------------
<CAPTION>
CURRENT LIABILITIES
Accounts Payable
<S> <C> <C>
Trade $ 627,679 $ 777,783
Construction 359,339
--
Accrued salaries, wages and payroll taxes 498,863 534,822
Income taxes payable 165,182 1,635,182
Other current liabilities 316,161 299,912
------------------- ------------------
TOTAL CURRENT LIABILITIES 1,967,224 3,247,699
LONG-TERM LIABILITIES
Deferred income taxes 1,920,000 2,133,000
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000
shares authorized; 29,405,571 and 29,435,018
issued and outstanding 294,056 294,350
Additional paid-in capital 58,921,414 59,087,757
Retained earnings 25,169,882 28,050,405
------------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 84,385,352 87,432,512
------------------- ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 88,272,576 $ 92,813,211
=================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
THERAGENICS CORPORATION
STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
Three Months
Ended March 31,
-----------------------------------------------------
1998 1999
----------------------- ----------------------
REVENUE
<S> <C> <C>
Product sales - affiliate $ 8,239,985 $ 9,105,557
Product sales - non affiliates 15,962 33,662
Licensing Fees 25,000 25,000
----------------------- ----------------------
8,280,947 9,164,219
COSTS AND EXPENSES
Cost of sales 2,188,435 3,379,785
Selling, general & administrative 1,350,947 1,406,555
Research & development 41,411 139,737
----------------------- ----------------------
3,580,793 4,926,077
OTHER INCOME (EXPENSE)
Interest income 450,712 276,729
Interest and financing costs (2,684) (6,139)
Other 8,937 3,491
----------------------- ----------------------
456,965 274,081
Earnings before income taxes 5,157,119 4,512,223
Income tax expense 1,856,563 1,631,700
----------------------- ----------------------
NET EARNINGS $ 3,300,556 $ 2,880,523
======================= ======================
NET EARNINGS PER COMMON SHARE
Basic $ 0.11 $ 0.10
Diluted $ 0.11 $ 0.10
WEIGHTED AVERAGE SHARES
Basic 29,087,936 29,426,480
Diluted 30,352,859 29,871,730
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
THERAGENICS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)
<CAPTION>
Three Months
Ended March 31,
--------------------------------------------
1998 1999
------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Earnings $ 3,300,556 $ 2,880,523
Adjustments to reconcile net earnings to
net cash provided by operating activities
Deferred income taxes 75,000 143,000
Depreciation & amortization 407,388 846,390
Stock based compensation 68,919
--
Changes in assets and liabilities:
Accounts Receivable (654,646) 2,892,449
Inventories (114,793) (9,465)
Prepaid expenses and other current assets 38,721 (8,947)
Other assets 252 2,364
Trade accounts payable 3,207,348 150,104
Accrued salaries, wages and payroll taxes (333,194) 35,959
Income taxes payable 1,036,158 1,470,700
Other current liabilities 159,133 (16,249)
------------------- -----------------
Total adjustments 3,821,367 5,575,224
------------------- -----------------
Net cash provided by operating activities 7,121,923 8,455,747
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and construction of property and equipment (13,173,309) (1,824,410)
Purchases and maturities of marketable securities (2,680,871)
--
------------------- -----------------
Net Cash used by investing activities (13,173,309) (4,505,281)
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options and stock purchase plan 90,877 97,018
------------------- -----------------
Net Cash provided by financing activities 90,877 97,018
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (5,960,509) 4,047,484
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 30,161,614 19,541,662
------------------- -----------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $ 24,201,105 $ 23,589,146
=================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
THERAGENICS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<CAPTION>
Common Stock
-------------------------------- Additional
Number of Par value paid-in Retained
shares $0.01 capital earnings Total
--------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 29,405,571,571 $294,056 $58,921,414 $25,169,882 $84,385,352
Exercise of stock options and warrants 28,075 281 80,921 81,202
Stock-based compensation -- 68,919 68,919
Shares issued under employee stock purchase plan 1,372 13 15,803 15,816
Income tax benefit from exercise of stock
options and early disposition of shares 700 700
Net earnings for the period 2,880,523 2,880,523
-------------- ------------- ------------- ------------- ------------
BALANCE, March 31, 1999 29,435,018 $294,350 $59,087,757 $28,050,405 $87,432,512
============== ============= ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
MARCH 31, 1999
- --------------
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments, which are, in
the opinion of management, necessary to present fairly the financial position as
of March 31, 1999, the results of operations and cash flows for the three months
ended March 31, 1998 and 1999 and the changes in stockholders' equity for the
three months ended March 31, 1999. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes that
the financial statements and disclosures are adequate to make the information
not misleading. It is suggested that these financial statements and notes be
read in conjunction with the audited financial statements and notes for the year
ended December 31, 1998, included in the Form 10-K filed by the Company.
NOTE B - CONSTRUCTION IN PROGRESS AND PURCHASE COMMITMENTS
Construction in progress consists primarily of payments made toward a project
for construction of manufacturing equipment and facilities expansion. This
project is expected to be completed in phases during 1999. The Company expects
to invest an additional $17.4 million to complete the remaining phases of this
project. Of the remaining $17.4 million of purchase commitments, $8.5 million
was denominated in Belgian Francs, based on the period end rate of exchange.
Included in construction in progress at March 31, 1999 are progress payments
totaling approximately $5.9 million related to equipment being constructed in
Belgium. Upon completion of construction, the equipment will be transported to
the United States and installed in the Company's U.S. manufacturing facilities.
In April 1999 the Company announced that the U.S. Department of Energy (DOE) has
granted Theragenics access to unique DOE technology for use in production of
Pd-103. This technology venture represents part of a DOE initiative to redirect
Cold War assets to peacetime use and cushion the economic impact of U.S. Defense
Department cutbacks. This project is expected to enable the Company to
significantly increase its production capacity and allow for expanded use of
Pd-103 and TheraSeed(R) beyond treatment of prostate cancer to new medical
applications. The Company expects to construct a facility in Oak Ridge,
Tennessee to house the equipment, infrastructure and work force necessary to
support the production of Pd-103 using this DOE technology. The Company expects
to invest approximately $25 million over the next three years to build this
manufacturing and R&D facility, with less than $12 million expected to be spent
during 1999. Construction is expected to commence in the second quarter of 1999.
NOTE C - LITIGATION
In January 1999, the Company and certain of its officers and directors were
named as defendants in certain securities actions, alleging violations of the
federal securities laws, including Sections 10(b), 20(a) and Rule 10b-5 of the
Securities and Exchange Act of 1934, as amended. As of this time, eleven such
actions are pending in the U.S. District Court for the Northern District of
Georgia. The complaints, which are substantially similar in nature, purport to
represent a class of investors who purchased or sold securities during the time
period from January 29, 1998 to January 11, 1999. The complaints generally
allege that the defendants made certain misrepresentations and omissions in
connection with the performance of the Company during the class period. The
complaints seek unspecified damages. No answer or otherwise responsive papers
are yet due from the defendants. Management believes these charges are without
merit and intends to vigorously oppose the litigation, however, given the nature
and early stage of the proceedings, the ultimate outcome of the litigation
cannot be determined at this time. Accordingly, no provision for any liability
that might result from this litigation has been made. The Company and its
officers and directors maintain insurance for claims of this general nature.
<PAGE>
Item 2. Management's' Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
Revenues
Revenues for the quarter ended March 31, 1999 increased $883,000 or 10.7% over
the comparable 1998 period. The increase in revenues was attributable to the
Company's continued ability to increase production of TheraSeed(R) with
additional cyclotron and assembly capacity. Eight cyclotrons were in service
during the first quarter of 1999, compared to four cyclotrons in service during
the comparable 1998 period.
The softness in sales that the Company first recognized in the fourth quarter of
1998 continued into the first quarter of 1999 as sales declined from those
recorded in 1998's fourth quarter. As stated in the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1998, the Company's marketing partner,
Indigo Medical, Inc. (Indigo), a Johnson and Johnson company, has advised the
Company that it continues to adjust its sales and marketing strategies to
address the softness in sales primarily by increasing the focus on marketing
efforts directed to patients.
Looking forward, the full impact of Indigo's increased focus on patient directed
marketing efforts may not be realized for several months since a patient is
typically not treated until six weeks to three months or more after being
diagnosed with prostate cancer. Therefore, there are no assurances that sales
for the second quarter of 1999 will increase versus the first quarter of 1999.
Management believes that Indigo's patient directed marketing focus could have a
positive impact on sales in the second half of 1999, though there are no
assurances that these efforts will not take longer to have an impact on revenue,
if any. Actual results may differ materially from those anticipated based on
certain risks and uncertainties, such as the impact of Indigo's marketing
efforts to consumers and medical professionals. Management is confident in
Indigo's commitment of both talent and resources to its objective of making
TheraSeed(R) the treatment of choice for prostate cancer.
Costs and Expenses
Cost of sales for the quarter ended March 31, 1999 increased $1,191,000, or
54.4% over the comparable 1998 period. Cost of sales as a percentage of revenue
increased to 36.9% for the quarter ended March 31, 1999 from 26.4% during the
comparable 1998 period. This increase was attributable to an increase in the
manufacturing fixed cost base as depreciation and other fixed expenses
associated with additional cyclotrons and new manufacturing facilities, which
were not in service during the first quarter of 1998, were incurred during the
first quarter of 1999. As additional cyclotrons come on line, margins generally
decline because each machine represents excess capacity for a period while
carrying its full component of fixed costs, including depreciation. With
cyclotron numbers nine through thirteen expected to be brought on line during
the last three quarters of 1999, cost of product sales are expected to continue
to increase as a percent of revenue to the extent that additional cyclotrons
create capacity more rapidly than the growth in demand. Additionally, the number
of production related employees during the first quarter of 1999 was greater
than the comparable 1998 period due to the Company's increased operations.
<PAGE>
Selling, general and administrative ("SG&A") expenses were $1.40 million during
the first quarter of 1999 compared to $1.35 million during the first quarter of
1998, an increase of $50,000 or 3.7%. The increase was primarily due to an
increase in compensation and benefits.
Research and development ("R&D") expenses were $140,000 for the first quarter of
1999 compared to $41,000 for first quarter of 1998. The increase in R&D was
primarily a result of development efforts to improve the Company's proprietary
production processes. In connection with the Company's efforts to enhance its
production processes and its objective to expand the application of Pd-103 and
TheraSeed(R) to other oncological and non-oncological uses, management plans to
significantly increase efforts and investment in research and development in
1999. R&D expenditures during 1999 could be more than three times the 1998
levels. However, R&D spending is dependent on appropriate opportunities arising
so no assurances can be made as to spending amounts. As a result, R&D expenses
may fluctuate significantly from period to period.
In April 1999 the Company announced that the U.S. Department of Energy (DOE) has
granted Theragenics access to unique DOE technology for use in production of
Pd-103 (See "Liquidity and Capital Resources" below). The Company expects that
the use of this technology and the related infrastructure will significantly
increase the Company's production capacity for Pd-103. In addition, the Company
expects that this increased production capacity will make additional R&D
resources and opportunities available as that technology becomes operational,
which is not expected before 2001.
Other income was $274,000 in the first quarter of 1999 compared to $457,000
during the same period in 1998. The decrease was attributable to a decrease in
the funds available for investment during the 1999 period. Funds available for
investment have and will continue to be utilized for the Company's current and
future expansion programs. As funds continue to be used for expansion programs,
management expects other income to decline accordingly.
The Company's effective income tax rate was approximately 36% for each of the
quarters ended March 31, 1999 and 1998.
Liquidity and Capital Resources
The Company had cash and short-term investments of $23.6 million at March 31,
1999 compared to $19.6 million at December 31, 1998. The increase was
attributable to cash provided by operations of $8.5 million offset by cash used
by investing activities of $4.5 million.
Operating activities generated $8.5 million in cash. This primarily consisted of
net earnings of $2.9 million, non-cash expenses, primarily depreciation and
amortization, of $1.1 million, a decrease in accounts receivable of $2.9 million
and an increase in income taxes payable of $1.5 million.
Cash used by investing activities was $4.5 million for the first quarter of
1999, comprised of $1.8 million for capital expenditures and $2.7 for net
investments in marketable securities. Capital expenditures are expected to
increase significantly throughout 1999. These expenditures relate primarily to
capital expansion projects including the addition of cyclotrons and new
manufacturing and support facilities, including investments related to the
Company's agreement with the U.S. Department of Energy (see below).
Currently there are eight cyclotrons in operation marking the completion of
Phase I of an expansion project. Additional phases of this project are currently
<PAGE>
underway, consisting of the purchase of six additional cyclotrons (numbers nine
through fourteen) and supporting facilities during 1999, although one of these
cyclotrons is not expected to be operational until early 2000. Cyclotron numbers
nine and ten are currently being installed and are expected to be operational
during the second quarter of 1999. Approximately $14.4 million of construction
in progress at March 31, 1999 relates to this expansion project, and the Company
expects to invest an additional $17.4 million to complete the remaining phases
of this project.
As previously stated, in April 1999 the Company announced that the U.S.
Department of Energy (DOE) has granted Theragenics access to unique DOE
technology for use in production of Pd-103. This technology venture represents
part of a DOE initiative to redirect Cold War assets to peacetime use and
cushion the economic impact of U.S. Defense Department cutbacks. The Company
expects that the use of this technology will significantly increase its capacity
and allow for expanded use of Pd-103 and TheraSeed(R) beyond treatment of
prostate cancer to new medical applications. The Company expects to construct a
facility in Oak Ridge, Tennessee to house the equipment, infrastructure and work
force necessary to support the production of Pd-103 using this DOE technology.
The Company expects to invest approximately $25 million over the next three
years to build this manufacturing and R&D facility, with less than $12 million
expected to be spent during 1999. Construction is expected to commence in the
second quarter of 1999.
As part of this project, the Company has leased land in the Oak Ridge, Tennessee
area and equipment previously used by the government to produce isotopes. As a
result of the sensitive nature of the equipment, the specialized technology
involved and the access to unique DOE-operated facilities, the Company has
contra ted with the DOE's primary contractor for the Oak Ridge government
installation to handle certain technical and operational services that are
critical to the project, including moving, reassembling and recommissioning
equipment currently in storage, designing and fabricating new parts and
modifications to the equipment and DOE facilities; and operating and providing
ongoing access to the DOE facilities. The success of the project is dependent on
the continued cooperation of the DOE and its primary contractor, which could be
adversely affected by future changes in governmental program priorities and
funding. If the equipment cannot be moved and recommissioned successfully, if
there are problems with the operation or modification of the DOE-operated
facilities, or if unforeseen challenges arise, the project may not be successful
or the costs or timeliness associated with the project could exceed current
estimates.
Cash provided by financing activities was $97,000 in the first quarter of 1999
representing cash proceeds from the exercise of stock options and the employee
stock purchase plan.
The Company currently has a $15 million revolving credit facility collateralized
by substantially all of the Company's assets. No borrowings were outstanding
under this revolving credit facility as of March 31, 1999 or the current date.
The Company believes that current cash and investment balances, cash from future
operations and credit facilities, will be sufficient to meet its currently
anticipated working capital and capital expenditure requirements. In the event
additional financing becomes necessary, management may choose to raise those
funds through other means of financing as appropriate.
Foreign Currency and Geographic Information
The Company has outstanding purchase commitments of approximately $17.4 million
related to the completion of its expansion project related to cyclotrons and
supporting facilities. Of these commitments, approximately $8.5 million is
denominated in Belgian Francs, based on the exchange rate at March 31, 1999.
<PAGE>
This exposes the Company to foreign currency risk as it relates to movements in
the exchange rate between the U.S. dollar and the Belgian Franc. The Company
manages this risk by frequently reviewing the status of the purchase commitments
and entering into foreign exchange forward contracts to hedge the foreign
currency risks when believed it is appropriate to do so. Such forward contracts
typically mature concurrently with payments required under the equipment
purchase contracts. The Company does not hold foreign exchange forward contracts
for trading or speculative purposes. At March 31, 1999 the Company did not hold
any foreign exchange forward contracts. Additionally, management does not expect
the introduction of the EURO to have any effect on its purchase commitments
denominated in Belgian Francs. The terms of the agreements allow for all
payments to be made in Belgian Francs, and the contracts are expected to be
completed prior to the time that use of the EURO is mandatory.
All balance sheet accounts denominated in foreign currencies are translated into
U.S. dollars at the period-end rate of exchange. Such balance sheet accounts,
which were not significant at March 31, 1999, included a cash account maintained
in Belgium and denominated in Belgian Francs. Additionally, statements of
earnings items and foreign currency transaction gains or losses were not
significant during the quarter ended March 31, 1999.
Included in construction in progress at March 31, 1999 are progress payments
totaling approximately $5.9 million related to equipment being constructed in
Belgium. Upon completion of construction, the equipment will be transported to
the United States and installed in the Company's U.S. manufacturing facilities.
Impact of the Year 2000 Issue
Introduction
Many computer systems used today were designed and developed using two digits,
rather than four, to specify the year. Consequently, such systems may recognize
a date of "00" as the year 1900 instead of the year 2000. Other problems may
also be encountered, such as the inability to recognize special codes that make
use of the date field. These and other problems may exist in primary software
products and embedded systems such as microcontrollers. This may cause many
computer systems to fail or create inaccurate results unless corrective measures
are taken. Additionally, a company may be affected by the computer systems of
their customers and vendors, even though that company's internal computer
systems may be Year 2000 (Y2K) compliant.
State of Readiness
The Company began to assess the status of its Y2K readiness during 1997 and
developed a plan intended to make its information technology assets, including
embedded microcontrollers ("IT assets"), year 2000 ready. The plan covers the
following phases: (i) inventory of IT assets, (ii) assessment of repair
requirements (iii) repair and testing, and (iv) creation of contingency plans in
the event of Y2K related failures. The inventory and assessment phases have been
completed for all critical IT assets. Repairs and testing of critical IT assets
is currently in process and is scheduled to be completed in the second quarter
of 1999.
The Company's Y2K compliance also depends upon the compliance of others. The
Company has contacted its critical suppliers and significant customer to
evaluate their Y2K programs and state of readiness, and to evaluate whether a
Y2K related disruption at these entities would have a material adverse effect on
the Company's operations as the year 2000 approaches. At the current date, the
Company has received responses from approximately 74% of the entities contacted,
none of which have indicated that a year 2000 related business interruption is
anticipated. However, while the Company believes it is taking reasonable action
<PAGE>
in this regard, Theragenics is not in a position to guarantee the performance of
others or predict whether any assurances and representations received from
others will ultimately prove to be accurate. Additionally, the Y2K compliance of
the Company's critical suppliers and significant customer also depends upon the
Y2K compliance of their critical suppliers and customers. The Company also
relies on governmental agencies, utility companies, telecommunication service
providers, financial institutions and other service providers outside of the
Company's control. There is no assurance that any of these entities will not
experience a year 2000 related failure and business interruption. Such failures
could have a material adverse effect on the Company's financial position and
results of operations.
Costs to Address the Year 2000 Issue
The Company has incurred costs of approximately $60,000 in addressing the Y2K
issue, consisting primarily of replacing IT assets that were not Y2K compliant.
Remaining costs of Y2K remediation are not expected to be material.
Risks of the Company's Year 2000 Issues
The Company has not currently identified any critical IT assets under its
control that present a material risk of not being Y2K compliant in a timely
manner, or for which an acceptable alternative cannot be implemented. As testing
continues however, it is possible that IT assets could be identified that
present a material risk of a Y2K interruption, and that such an interruption
could have a material adverse effect on the Company's financial position and
results of operations.
The Company does not possess the ability to control its critical suppliers,
significant customer or the health care providers that utilize its product. Y2K
related disruptions at these entities could result in delays in the supply of
goods and services, capital equipment and construction of facilities from the
Company's vendors, delays in receiving payments from the Company's significant
customer, and delays in the ordering of product and scheduling of TheraSeed(R)
procedures by the health care providers, among other things. Such potential
delays could be of a short-term nature or could be more significant and
longer-term. The failure of any of these entities to properly address their year
2000 issues could have a materially adverse effect on the Company's financial
position and results of operations. Additionally, the failure of the Company's
primary equipment vendor to deliver cyclotrons in accordance with the terms of
the purchase contracts could have a materially adverse effect on the Company's
ability to increase its production capacity.
Contingency Plans
Contingency plans for critical IT assets are currently being developed. These
contingency plans are in the early stages of development and will be modified as
the risks of potential Y2K interruptions continue to be assessed.
Forward Looking and Cautionary Statements
This document contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 including, without
limitation, statements regarding, the timing of possible impact of Indigo's
sales and marketing efforts, future cost of sales, R&D expenses, SG&A expenses,
expansion plans, the Oak Ridge project, possible electronic data processing
issues related to the year 2000, the development of new technologies, processes
and products, adverse changes in governmental program priorities and budgetary
<PAGE>
funding by the relevant governmental authorities, potential costs and delays in
the startup and refinement of technology and related equipment, potential
equipment failure, inability to obtain, construct or install necessary parts or
modifications to production equipment or facilities,and the sufficiency of the
Company's liquidity and capital resources. From time to time, the Company may
also make other forward-looking statements relating to such matters as well as
anticipated financial performance, business prospects, technological
developments, research and development activities and similar matters. These
forward-looking statements are subject to certain risks, uncertainties and other
factors which could cause actual results to differ materially from those
anticipated, including risks associated with the management of growth, Year 2000
issues, research and development activities, effectiveness and execution of
Indigo's marketing and sales programs, government regulation of the therapeutic
radiological pharmaceutical and device business, dependence on health care
professionals, and competition from other brachytherapy products and
conventional and newly developed methods of treating localized cancer.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations; Foreign Currency and Geographic Information".
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Note C to the Company's financial statements included in Item 1 of this
report, which is incorporated by reference hereby.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.1 - Sublease dated March 25, 1999 between Theragenics
Corporation and Community Reuse Organization of East Tennessee*
(b) Exhibit 10.2 - Work For Others Agreement dated March 25, 1999
between Theragenics Corporation and Lockheed Martin Energy
Research Corporation*
(c) Exhibit 27 - Financial Data Schedule
(d) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
1999.
* - Confidential portions of Exhibit 10 have been redacted and filed
separately with the Securities and Exchange Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT:
THERAGENICS CORPORATION
By: /s/ M. Christine Jacobs
--------------------------
M. Christine Jacobs
Chief Executive Officer
/s/ Bruce W. Smith
---------------------------
Bruce W. Smith
Treasurer and Chief Financial Officer
Dated: May 17, 1999
COMMUNITY REUSE ORGANIZATION OF EAST TENNESSEE
SUBLEASE
THIS SUBLEASE, entered into this 25 day of March, 1999 between
COMMUNITY REUSE ORGANIZATION OF EAST TENNESSEE, a Tennessee nonprofit
corporation hereinafter referred to as "CROET," and THERAGENICS CORPORATION, a
Delaware corporation, hereinafter referred to as the "Sublessee," provides for
the use and development by the Sublessee of Government-owned real and personal
property held by CROET pursuant to two Leases from the United States of America
acting by and through the Department of Energy, hereinafter referred to as
"DOE." The DOE-CROET leases are (1) a lease entered into January 16, 1996, as
amended by Supplemental Agreement of Outgrant No. 1 effective April 28, 1998,
and Supplemental Agreement of Outgrant No. 2 effective January 13, 1999,
Supplemental Agreement of Outgrant No. 3 effective February 23, 1999, and
Supplemental Agreement of Outgrant No. 4 effective February 25, 1999 for a DOE
owned track of undeveloped land near DOE's East Tennessee Technology Park
("ETTP") to be developed by CROET through arrangements with commercial firms or
public entities, said lease being hereinafter referred to as the "Land Lease"
and, (2) Department of Energy Lease entered into March 22, 1999, for the lease
of DOE owned equipment consisting of the Plasma Separation Process ("PSP") to be
used for producing isotopes, said lease hereinafter referred to as the
"Equipment Lease." The Land Lease and the Equipment Lease are collectively
hereinafter referred to as "Leases." The parcel of land subleased to the
Sublessee under this Sublease consists of approximately 21 acres, is identified
as parcel HOC-001 on the drawing attached hereto as Appendix "A," and will be
referred to throughout this Sublease as the "Premises." In the event Sublessee,
at its expense, obtains a current survey of the Premises, a legal description of
the Premises prepared from such survey may, by amendment executed by CROET and
Sublessee, be incorporated herein.
CROET does hereby sublease to Sublessee, and Sublessee does hereby
sublease from CROET, the Premises and the PSP.
This Sublease is granted subject to the following terms and conditions:
1. CROET AUTHORITY TO SUBLEASE. This Sublease is made by CROET pursuant to
Condition No. 7 of the Land Lease and Condition No. 6 of the Equipment
Lease. So long as Sublessee makes payments and performs and complies
with the other covenants, terms, and conditions set forth herein to be
performed or complied with by Sublessee, CROET does hereby covenant and
agree that Sublessee may peacefully hold, enjoy and use the Premises
and the PSP during the term hereof without any hindrance or
interference.
2. TERM.
The term of this Sublease shall be May 1, 1999, and ending April 30,
2029; provided, however, that Sublessee acknowledges that the Leases
and this Sublease are terminable by DOE under the provisions contained
in Condition No. 4 of the Land Lease and Condition No. 3 of the
Equipment Lease.
3. TERMINATION BY DOE OR CROET.
(a) The Sublessee acknowledges that DOE may terminate the Leases
and this Sublease at any time as provided in Condition No. 4
of the Land Lease and Condition No. 3 of the Equipment Lease;
provided however, in the event of such termination by DOE,
the Sublessee shall be entitled to a refund of any rent paid
under paragraph 4(a) below for any period after the date of
termination. Additionally, in the event DOE terminates the
Land Lease and this Sublease due to national emergency or in
the interest of national defense, CROET acknowledges
and agrees that Sublessee shall be entitled to the
compensation set forth in Condition No. 41 of the Land Lease
and CROET will assist Sublessee in obtaining such
compensation; provided that this shall not
be construed as imposing liability on CROET to pay such
compensation if DOE does not do so.
(b) CROET may terminate this Sublease at any time by giving
ninety (90) days written notice by the authorized
representative to the Sublessee under any of the following
circumstances: If the Sublessee fails to substantially
perform or comply with any of the terms and conditions
of this Sublease and continues and persists therein for
ten (10) days after notice thereof in writing by CROET;
provided, however, if such default is not reasonably capable
of cure within such ten (10) day period, CROET shall not be
entitled to terminate this Sublease if Sublessee promptly
undertakes to cure such default and diligently pursues such
cure. In the event of such termination, CROET shall be
entitled to recover from the Sublessee the costs incurred by
CROET in performing any obligation on the part of the
Sublessee to be performed under the terms of this Sublease
for any period prior to the date of termination or for costs
incurred by CROET as a result of matters arising after the
date of termination but which resulted from Sublessee's
actions prior to the date of termination.
(c) The Sublessee agrees to engage an architectural and
engineering firm to design the improvements Sublessee desires
to construct on the Premises (the "Facility") within ninety
(90) days from the date of this Sublease. In the event
Sublessee does not use reasonable efforts to complete the
Facility on or before the later of (i) one (1) year after the
date of this Sublease, or (ii) the date upon which the PSP and
all necessary component parts (including any new parts that
need to be ordered or fabricated) are ready to be installed in
the Facility, CROET shall have the right to terminate the
Sublease on not less than thirty (30) days written notice to
Sublessee unless Sublessee promptly commences to attempt to
develop the Premises on or before thirty (30) days after
receipt of such notice of default.
(d) CROET may terminate this Sublease in the event that Sublessee
fails to obtain all the required governmental and regulatory
authority, licenses, permits, approval and consents for the
development, use and operation of the Facility, the PSP and
any other equipment required for use in connection with
Sublessee's business operations on the Premises, provided,
that this shall not be construed as requiring the Sublessee to
operate the PSP on the Premises or to engage in activity
requiring any particular license.
(e) The Sublessee shall also pay to CROET on demand any sum which
CROET is obligated to pay to DOE by reason of expenditures
after the expiration, revocation, or termination of this
Sublease in restoring the Premises to the condition required
by Condition No. 33 of the Land Lease and Condition No. 23 of
the Equipment Lease; provided, however, this shall not in any
manner relieve CROET or DOE from any of their respective
liabilities, to the extent the cause of such restoration
resulted, in whole or in part, from their acts or omissions.
In any of the above events, the provisions of Condition No. 33 of the Land Lease
and Condition and 23 of the Equipment Lease shall apply to the Premises.
4. RENT.
(a) Land Rent. The Sublessee shall pay to CROET land rental for the
premises according to the following terms:
(1) $ [Confidential Treatment Requested] per month until
January 1, 2000.
(2) $ [Confidential Treatment Requested] per annum
[Confidential Treatment Requested] after January 1,
2000, and every year thereafter, to be paid in equal
monthly amounts on the first day of each calendar month;
[Confidential Treatment Requested]. The land rental
shall be adjusted as set forth in this paragraph 4(a).
Such rent shall be prorated for any portion of the term
which is not a full calendar month.
On January 1, 2005 and each fifth (5th) anniversary thereafter
during the term of this Sublease, the land rental shall be
increased by an amount equal to the product of: (i) the amount
of land rental set forth in paragraph 4(a)(2) of this
Sublease, multiplied by (ii) the fraction whose numerator is
the Consumer Price Index (as hereinafter defined) for the
calendar month just ended and whose denominator is the
Consumer Price Index for the calendar month January, 2000. The
term "Consumer Price Index" as used herein shall mean the
Consumer Price Index for All Urban Consumer (1982-84=100)
specified for All Items, U.S. City Average and issued by the
Bureau of Labor Statistics of the United States Department of
Labor. In the event the Consumer Price Index shall hereafter
be converted to a different standard reference base or
otherwise revised, CROET shall designate a comparable
procedure for adjustment of land rent.
(b) Equipment Rent. The Sublessee shall pay to CROET equipment
rental, for the PSP, according to the following terms:
(1) $ [Confidential Treatment Requested] per month until the
equipment becomes operational.
(2) $ [Confidential Treatment Requested] per month
after the equipment becomes operational, whether or not
it continues in operation.
(c) Utilities and Services. The Sublessee shall be responsible for
paying the charges for utilities and services DOE may provide
to the Premises under Condition No. 5(b) of the Land Lease, as
such charges are determined and charged by DOE; provided,
however, Sublessee shall only be required to pay for utilities
and services actually being used or consumed by Sublessee. The
method of payment to DOE shall be determined by CROET and the
Sublessee. Sublessee shall be responsible for paying for all
utilities and services actually being used or consumed by
Sublessee which are provided by any entity other than DOE
under terms and conditions to be arranged by Sublessee with
that entity.
(d) Additional Consideration. The Sublessee shall be responsible
for the expense of maintenance, operations, alterations and
repairs to the Premises for the entire term of the Sublease,
and shall pay to the taxing authority any taxes levied as a
result of this Sublease excluding any taxes levied on CROET
because of its separate status as a corporation. CROET agrees
to reasonably cooperate with Sublessee in seeking tax
relief/abatement measures with applicable city and county
governmental authorities with respect to the Premises, the PSP
and the Sublease.
5. IMPROVEMENTS TO THE PREMISES.
------------------------------
Consistent with various requirements contained in the Land Lease, and
accepted by the Sublessee under Condition No. 9 below, the Sublessee
may, at its expense, make such improvements on the Premises, including
erecting structures and making tie-ins to utilities, as are necessary
to conduct Sublessee's business. Title to all such improvements shall
be vested in the Sublessee until the Sublease is terminated or expires
of its own terms, at which time the status of such improvements will be
controlled by Condition No. 17 of the Land Lease. The foregoing shall
not in any manner restrict or impair the right of Sublessee, if it
elects, to remove its trade fixtures and personal property from the
Premises at the end of the term of this Sublease, but Sublessee shall
be responsible for any damage to the Premises caused by such removal.
6. EMPLOYMENT.
----------
Consistent with applicable laws, rules, regulations and ordinances, and
the various requirements contained in the Land Lease, the Sublessee, in
hiring workers for work on the Premises, shall give preference to
workers formerly employed at DOE installations on the Oak Ridge
reservation, all other things being equal among prospective employees.
The Sublessee shall report to CROET in writing annually or upon demand
by CROET the number of employees working on the premises and, to the
extent the Sublessee has actual knowledge based on information
furnished to it by CROET or through arrangements made by CROET, the
number among them who are workers formerly employed at DOE
installations on the Oak Ridge reservations. The Sublessee commits to
use its best efforts to employ for work on the premises the following
numbers of full-time employees ("FTEs"):
Year 1 * FTEs
Year 2 * FTEs
Year 3 * FTEs
Year 4 * FTEs
Year 5 * FTEs
Years Beyond 5 * FTEs
[*Confidential Treatment Requested]
The sole remedy for failure to achieve, or use Sublessee's best efforts
to achieve, these employment levels on the premises shall result in the
Sublessee paying an additional [Confidential Treatment Requested] in
land rent and equipment rent for the year involved, unless Sublessee
can demonstrate that business factors beyond its control were the cause
for not meeting the employment level. Should the Sublessee exceed those
employment levels by [Confidential Treatment Requested] or more the
sublessee shall pay [Confidential Treatment Requested] less in land
rent and equipment rent for the years involved.
7. AUTHORIZED REPRESENTATIVES. CROET'S representative concerning the
---------------------------
provisions of this Sublease shall be Lawrence Young, Community Reuse
Organization of East Tennessee, 107 Lea Way, P.O. Box 2110, Oak
Ridge, Tennessee, 37830, Tel. No. (423) 482-1336. The Sublessee's
representative shall be Christine Jacobs, Theragenics Corporation, 5325
Oakbrook Parkway, Norcross, Georgia, 30093, Tel. No. (770)-271-0233.
Any changes in the designated representative or their respective
addresses shall be given in writing to the other.
8. NOTICE. No notice, order, direction, determination, requirement,
------
consent, or approval under this Sublease shall be of any effect, within
the restrictions of this Sublease, unless provided in writing to the
authorized representative at the address set forth in paragraph 7 above
by personal delivery (or reputable overnight courier service) or by
certified mail, return receipt requested, postage prepaid. All notices
shall be effective upon receipt at the proper address. Refusal to
accept delivery shall be deemed receipt.
9. OBLIGATIONS OF THE SUBLESSEE. The Land Lease and Equipment Lease
------------------------------
retain for DOE certain rights and imposes various obligations on CROET.
Sublessee's obligations under this Sublease shall be subject to the
terms and conditions imposed on CROET under the Leases during the term
of this Sublease, and for any period beyond the term, during which the
rights of DOE and obligations of CROET are affected by the failure of
the Sublessee to recognize, abide by, or fulfill obligations of
Sublessee under this Sublease. Sublease assumes the obligations of
CROET under the Land Lease but only with respect to the Premises (and
not with respect to any other premises included in the Land Lease) and
only as to such obligations arising during the term of this Sublease or
as a result of the performance of the Sublessee. The Sublessee agrees
to hold CROET harmless for any failure on its part, or those acting
through it, to recognize, abide by, or fulfill the obligations assumed
by Sublessee under this Sublease. The assumption by Sublessee of
obligations under this Sublease is not intended to, nor does it
constitute, an assignment by CROET to the Sublessee of the Leases or
any portion thereof. CROET does hereby indemnify and hold Sublessee
harmless as a result of CROET's failure to recognize, abide by or
fulfill the obligations of CROET under the Leases, to the extent such
obligations are not obligations in the Leases which the Sublessee has
assumed under this Sublease.
CROET acknowledges that Sublesse's sole obligations and liabilities
with respect to loss, damage or destruction of the PSP are as set forth
in Condition No. 10 of the Equipment Lease.
In addition, and without regard to the obligations contained in the
Leases to which the Sublessee is obligated, the Sublessee agrees to
hold CROET harmless against any liabilities of CROET which may arise
during the term of this Sublease arising out of Sublessee's negligence
or wilful misconduct. Nothing in this Sublease shall in any manner be
construed to relieve or release CROET from any liability for its own
negligence or wilful misconduct.
10. INSURANCE. In addition to the requirements of the Leases, all insurance
required of the Sublessee shall be for the protection of CROET, DOE,
and the Sublessee against their respective risks and liabilities and
shall be in such form, for such period of time, and with such insurers
as CROET and DOE may reasonably require. Insurance of the types, and in
the amounts, shall include at least the following:
General Liability $*
Automobile, if applicable to Sublessee $*
Workman's Compensation (statutory amount)
[*Confidential Treatment Requested]
A certificate of insurance or a certified copy of each policy of
insurance shall be furnished to CROET and DOE's Realty Officer and
DOE's Account Executive prior to use of the Premises or the PSP. The
Sublessee agrees that not less than thirty (30) days prior to the
expiration of any insurance required by this Sublease, it will furnish
to CROET and DOE's Realty Officer and DOE's Account Executive a
certificate of insurance or a certified copy of each renewal policy to
cover the same risks. The Sublessee shall provide evidence of adequate
insurance coverage for Bodily Injury and Property Damage. Each policy
of insurance against loss or damage to DOE's property shall name the
Sublessee, CROET, and DOE as the insured and shall contain a loss
payable clause reading substantially as follows:
"Loss, if any, under this policy shall be adjusted with (name
of Sublessee) and the proceeds, at the direction of DOE, shall
be payable to (name of Sublessee), and proceeds not paid to
(name of Sublessee) shall be payable to the Treasurer of the
United States of America."
Additionally, each policy of insurance shall contain an endorsement
reading substantially as follows:
"The insurer waives any right of subrogation against the
United States of America which might arise by reason of any
payment made under this policy."
The Sublessee is encouraged to carry business disruption insurance
sufficient to cover losses due to interruption of business activities
under this Sublease caused by events of every kind. CROET will not be
liable for any such losses, whether or not the Sublessee carries such
insurance, and the Sublessee agrees to waive any claims it might
otherwise have against CROET for such losses; provided, however, this
shall not in any manner relieve CROET from and liabilities or
obligations arising out of CROET's negligence or wilful misconduct.
11. DOE - CROET LAND LEASE OBLIGATIONS. CROET hereby covenants and agrees
-----------------------------------
to comply with all obligations of the tenant under the Land Lease and
the Equipment Lease; provided, however, to the extent that Sublessee is
obligated under this Sublease for any such obligations, CROET shall
have no responsibility therefor. In the event CROET receives any notice
of any default, event of default, or non-compliance with the terms and
conditions of the Land Lease or the Equipment Lease, and in DOE's
judgment CROET is not taking adequate steps to cure the default, CROET
shall promptly advise Sublessee of such matters. CROET hereby grants to
Sublessee the right (but not the obligation, unless otherwise set forth
in this Sublease) to cure any default, event of default or
non-compliance with the Land Lease or the Equipment Lease. Any amounts
expended by Sublessee in a successful cure may be offset against any
amounts due under this Sublessee, but only to the extent that Sublessee
is not obligated under the terms of this Sublease for such performance
under the Land Lease or the Equipment Lease.
12. EMINENT DOMAIN. If all or any part of the Premises shall be
---------------
appropriated or condemned by any public or quasi-public authority in
the exercise of its right of condemnation or eminent domain, both CROET
and Sublessee shall have the right to prosecute a claim for an award
and to share in the proceeds of any and all awards based upon their
respective interests as hereafter set forth. If all the Premises shall
be appropriated or condemned, or so much thereof that Sublessee cannot
reasonably continue the operation of its business thereon, this
Sublease shall terminate as of the time when possession shall be
required by such public or quasi-public authority. In the event that
this Subleases shall not terminate after any part of the Premises is
taken or condemned, there shall be a reduction in rental equal to the
percentage to the ground area of the Premises which is taken or
condemned. CROET shall be entitled to receive that portion of any and
all awards necessary to compensate it for the present value of the
rents which it would have received in the future and for the present
value of its reversionary interest, and notwithstanding the termination
of this Sublease, Sublessee shall be entitled to that portion of any
and all awards necessary to compensate it for the value of its
improvements to the Premises, the value of its leasehold estate and the
damages which it may sustain as a result of termination of this
Sublease prior to the end of the Sublease term, including any renewal
terms.
13. LANDLORD'S ACCESS TO PREMISES. Notwithstanding anything to the
-------------------------------
contrary in this Sublease, entry to the Premises by CROET will only be
permitted when accompanied by Sublessee's authorized escort, except as
hereinafter provided. It is recognized by both CROET and Sublessee that
Sublessee will be performing research on, and manufacturing, drugs for
human consumption under regulations and licenses from various
governmental agencies, including, without limitation, the Federal Drug
Administration ("FDA"). Sublessee is responsible to such governmental
agencies, including, without limitation, the FDA, for compliance with
all applicable laws, rules, regulations and ordinances (including
protection of materials in work areas from unauthorized alterations or
access), whose object it is to protect the public from adulterated
contaminated or otherwise uncontrolled and potentially harmful
products. CROET acknowledges it is not competent to judge the impact of
its entry of the Premises on the relationship between Sublessee and the
applicable regulatory authorities and potential impact on public health
and safety.
CROET hereby agrees, except as hereinafter expressly provided, that
CROET shall provide Sublessee with one (1) business day advance notice
of any desire by CROET, or its authorized agents or representative to
enter the Premises. All entries on the Premises must comply with
applicable laws, rules, regulations and ordinances (collectively called
the "Regulations"). Upon request, Sublessee will provide CROET with
necessary information concerning the Regulations. Except as expressly
hereinafter provided, all entries shall be with an escort from
Sublessee or its representatives and shall be subject to all reasonable
safety procedures and guidelines as may be prescribed by Sublessee.
In the case of emergencies, CROET may enter the Premises unannounced
and unescorted; provided, however, CROET agrees to cooperate with
Sublessee in complying with all reporting requirements pursuant to
applicable Regulations.
It is further recognized by CROET and Sublessee that Sublessee is
engaged in commerce utilizing proprietary and confidential information,
processes and procedures. CROET agrees that any written materials
located on or in the Premises obtained during any inspection or access
to the Premises by CROET (or its agents or employees) shall be
confidential except for written materials delivered to CROET, or its
agents or employees, by Sublessee or its employees; provided, however,
this shall not affect CROET's ability to obtain information to assess
Sublessee's compliance with the terms and conditions of this Sublease
with respect to Sublessee's use, operation and maintenance of the
Premises, and further provided that CROET may divulge such information
to its agents, employees, contractors, attorneys, prospective lenders
and purchasers and to DOE.
14. OPTION TO SUBLEASE ADJOINING LAND AND RIGHT OF FIRST REFUSAL.
(a) During the Option Period (as defined in paragraph 14(b)),
CROET hereby grants unto Sublessee the non-exclusive right
and option to sublease the remainder of Site 3 of Parcel
ED-1 (containing approximately [Confidential Treatment
Requested] acres) and identified as the "Adjoining Property"
on Appendix "A" attached hereto (the "Adjoining Property"),
on the same terms and conditions as contained in this
Sublease (with the land rental being $ [Confidential
Treatment Requested] per acre per year, as adjusted by the
Consumer Price Index every five (5) years from the date of
this Sublease) for the remaining term set forth in this
Sublease. Sublessee shall give CROET no less than thirty
(30) days advance written notice of the exercise of this
option. This option shall terminate simultaneously with
the right of first refusal set forth below. If said first
refusal right is triggered, the terms of the first refusal
right shall control in lieu of the non-exclusive option terms
hereinbefore set forth provided a sublease of the Adjoining
Property is consummated to the third-party offeree or to
Sublessee under the following paragraph.
In the event CROET receives a bona fide written offer from any
third party to sublet the Adjoining Property (or any portion
thereof or any tract of which the Adjoining Property is a
part) during the Option Period, CROET has granted and does
hereby grant the right, on a right of first refusal basis
described hereinafter, to Sublessee, its successors and
assigns, at the election of Sublessee or its successors or
assigns, to sublet the Adjoining Property at the price and on
the terms and conditions contained in the written offer except
the term of any sublease shall not extend beyond the term of
this Sublease and further except for the time within which to
close the transaction. CROET shall give notice to Sublessee of
the written offer, including delivery to Sublessee of a true
and exact copy of the written offer, and allow Sublessee
thirty (30) calendar days subsequent to the notice within
which Sublessee may elect to sublet from CROET. In the event
Sublessee so elects to sublet by giving notice of such
election to CROET within the thirty (30) day period, CROET
shall sublet the Adjoining Property to Sublessee at the price
and on the same terms and conditions as are contained in the
written offer, except that (i) Sublessee shall also reimburse
CROET for its reasonable marketing expenses incurred in its
effort to sublease the Premises to the third party offeree
which triggered this right of first refusal, and (ii) the
closing of the transaction shall be held within sixty (60)
calendar days following the expiration of the aforesaid 30-day
period. Should Sublessee by written notice to CROET elect not
to exercise the right to sublet or should Sublessee fail to
notify CROET of its election to sublet within the aforesaid
30-day period, then in either of such events CROET shall be
free to consummate the sublease of the Adjoining Property to
the third party submitting the written offer, provided that
the sublease is closed and on the same material terms and
conditions as are contained in the written offer, without any
substantive modification thereto, except that the closing
thereof may occur on or before the thirtieth (30th) day
subsequent to the closing deadline set forth in the written
offer. Should any such sublease not be consummated as
aforesaid, CROET shall, in the event CROET subsequently
receives any modified or new bona fide written offer from any
third party to sublet the Adjoining Property, again follow the
provisions of this paragraph 14 requiring notice to Sublessee
and opportunity for Sublessee to sublet the Adjoining
Property. No restriction on CROET's ability to sublease the
Adjoining Property shall apply to any period subsequent to the
Option Period. CROET shall not be obligated to offer to sublet
the Adjoining Property, and CROET shall not be obligated to
disclose to Sublessee any offer to sublet the Adjoining
Property which CROET receives which CROET, in its discretion,
does not intend to accept. The aforesaid right of first
refusal in favor of Sublessee is a material part of the
consideration for this Sublease and shall and does hereby vest
in Sublessee, its successors and assigns, immediately.
Sublessee may not exercise its right to sublet pursuant to
this paragraph 14 if at the time of the attempted exercise
Sublessee is in default (for which any applicable cure period
has expired without cure) under the terms of this Sublease.
(b) The non-exclusive option and right of first refusal set forth
in paragraph 14(a) shall be in effect, at no additional cost
or charge to Sublessee, from the date of this Sublease until
January 1, 2002, as may be extended by mutual agreement of
CROET and Sublessee for such consideration as mutually agreed
by said parties. This three-year period, as may be extended as
aforesaid, is herein called the "Option Period."
(c) In the event the Sublessee exercises the option granted
herein, or successfully invokes its right of first refusal
granted herein, CROET may terminate the rights so granted or
invoked and all rights with respect to the Adjoining Property
shall revert to CROET and this Sublease shall be terminated
solely as to the Adjoining Property unless (i) within
ninety (90) days from the date of the exercise of the option
or successful invoking of the right of first refusal
the Sublessee agrees to engage an architectural and
engineering firm to design a facility to be constructed on the
Adjoining Property that is consistent with the permitted uses
of the Adjoining Property, and (ii) the employment on
the Premises and the Adjoining Property, in the aggregate,
\shall be at least [Confidential Treatment Requested] of
the employment figures described in paragraph 6 herein, and
(iii) the Sublessee uses reasonable efforts to complete
the facility on the Adjoining Property on or before one year
after the exercising of the option or successfully
invoking its right of first refusal. This right of CROET to
terminate the Sublessee's rights and interest in the
Adjoining Property shall be given to the Sublessee by written
notice thirty (30) days prior to termination, and the
termination shall not take effect if the Sublessee promptly
commences to develop the Adjoining Property within
thirty (30) days of receiving this notice.
15. LEASEHOLD MORTGAGES/DEEDS OF TRUST. Sublessee is hereby given the
------------------------------------
right by CROET in addition to any other rights herein granted, without
CROET's prior written consent, to mortgage, or to grant deeds of trust
in and to (collectively "mortgage"), Sublessee's interests in this
Sublease, and assign this Sublease as security for a Mortgage (as
hereinafter defined) upon the condition that all rights acquired under
such Mortgage shall be subject to all of the terms, covenants and
conditions of this Sublease, and to all rights and interests of CROET
herein, none of which terms, covenants or conditions is or shall be
waived by CROET by reason of the right given so to mortgage such
interest in this Sublease, except as expressly provided herein. If
Sublessee (including, but not limited to, any sublessee of Sublessee,
but only with Sublessee's prior consent) shall mortgage this leasehold,
or any part or parts thereof, and if the Mortgagee (as hereinafter
defined) shall send to CROET a true copy thereof, together with a
notice specifying the name and address of the Mortgagee and the
pertinent recording date with respect to such Mortgage, CROET agrees
that as long as any such Mortgage shall remain unsatisfied of record or
until a notice of satisfaction is given by the Mortgagee to CROET, the
following provisions shall apply:
(i) There shall be no cancellation, surrender or modification of
this Sublease by joint action of CROET and Sublessee without
the prior consent of the Mortgagee;
(ii) CROET shall, upon serving Sublessee with any notice of
default, simultaneously serve a copy of such notice upon the
Mortgagee. The Mortgagee shall thereupon have the same period,
after service of such notice upon it, to remedy or cause to be
remedied the defaults complained of, and CROET shall accept
such performance by or at the instigation of such Mortgagee as
if the same had been done by Sublessee. Mortgagee shall give
notice to CROET in the event Mortgagee elects to undertake
remedial action which involves Mortgagee taking possession and
control of the Premises and/or the PSP to cure any default by
Sublessee under this Sublease.
(iii) CROET agrees that in the event of the termination of this
Sublease by reason of any default by Sublessee other than for
nonpayment of basic rent, CROET will, upon written request of
Mortgagee, enter into a new sublease of the Premises with the
Mortgagee or its nominee(s), for the remainder of the term,
effective as of the date of such termination, at the same
basic rent and upon the terms, covenants and conditions as
herein contained and subject only to the same conditions of
title as this Sublease is subject to on the date of the
execution hereof, and to the rights, if any, of any parties
then in possession of any part of the Premises, provided:
(A) The Mortgagee or its nominee shall give notice to
CROET for such new sublease within thirty (30) days
after the date of such termination and such notice
shall be accompanied by payment to CROET of all sums
then due to CROET and not paid by Sublessee pursuant
to this Sublease;
(B) The Mortgagee or its nominee shall pay to CROET at
the time of the execution and delivery of such new
sublease, any expenses, including reasonable
attorneys' fees, to which CROET shall have been
subjected by reason of such default;
(C) The Mortgagee or its nominee shall perform and
observe all covenants herein contained on Sublessee's
part to be performed and shall further remedy any
other conditions which Sublessee pursuant to the
terminated Sublease was obligated to perform under
the terms of this Sublease; and upon execution and
delivery of such new sublease, any subleases which
may have theretofore been assigned and transferred by
Sublessee to CROET, as security under this Sublease,
shall thereupon be deemed to be held by CROET as
security for the performance of all of the
obligations of Sublessee pursuant to the new lease;
(D) Such new sublease shall be expressly made subject to
the rights, if any, of Sublessee pursuant to the
terminated sublease;
(E) The Sublessee under such new sublease shall have the
same right, title and interest in and to the
buildings and improvements on the Premises as
Sublessee had under the terminated sublease;
(iv) The Mortgagee shall be given notice of any judicial or
administrative proceedings by the parties hereto regarding a
default of this Sublease, and shall have the right to
intervene therein and be made party to such proceedings, and
the parties hereto do hereby consent to such intervention. In
the event that the Mortgagee shall not elect to intervene or
become a party to such proceedings, the Mortgagee shall
receive notice of, and a copy of any award or decision made in
said proceedings; and
(v) CROET shall, upon request, execute, acknowledge and deliver to
each Mortgagee, an agreement prepared at the sole cost and
expense of Sublessee, in form reasonably satisfactory to such
Mortgagee, between CROET, Sublessee and Mortgagee, agreeing to
all of the provisions of this section. The term "Mortgage,"
whenever used herein, shall include whatever security
instruments are used in the locale of the Premises, such as,
without limitation, deeds of trust, security deeds and
conditional deeds, as well as financing statements, security
agreements and other documentation required pursuant to the
Uniform Commercial Code. The term "Mortgagee" shall mean the
holder or beneficiary of any Mortgage. The provisions of this
section shall survive any termination of this Sublease.
16. TERMINATION RIGHTS OF SUBLESSEE. The Sublessee shall have the right to
terminate this Sublease in the event any of the following conditions
occurs, in Sublessee's sole discretion:
(i) The physical condition of Property not satisfactory to
Sublessee, or the lenders which Sublessee selects to extend
financing of the Facility or equipment to be used on the
Premises ("Sublessee's Lender"). The physical condition
of the Premises shall include, without limitation, the status
of title and any industrial park covenants, restrictions,
conditions and easements to be hereafter placed upon Parcel
ED-1, geological, archeological, environmental, survey
and other developmental matters, federally-designated
wetlands areas, federally-designated flood plain areas. In
the event Sublessee does not notify CROET of its intention
to terminate this Sublease for failure of this condition
to be satisfied on or before one (1) year from the date of
this Sublease, this condition shall be deemed to be
waived or satisfied by Sublessee.
(ii) The Lease and the Sublease are not approved by Sublessee's
Lender. In the event Sublessee does not notify CROET of its
intention to terminate this Sublease for failure of this
condition to be satisfied on or before one (1) year from the
date of this Sublease, this condition shall be deemed to be
waived or satisfied by Sublessee.
(iii) Sublessee fails to obtain all the required governmental and
regulatory authority, licenses, permits, approval and consents
for the development, use and operation of the Facility, the
PSP and any other equipment required for use in connection
with Sublessee's business operations on the Premises.
(iv) Sublessee fails to receive state and local governmental
incentives and inducements satisfactory to Sublessee in
connection with the development, use and operation of the
Facility, including the PSP and any other equipment to be used
on the Premises (including, without limitation, ad valorem tax
relief/abatement from county and city governmental
authorities). Sublessee agrees to use reasonable diligence in
the filing and pursuit of all governmental incentives and
inducements required or desired by Sublessee. In the event
that Sublessee does not notify CROET of its intention to
terminate this Sublease for failure of this condition to be
satisfied on or before January 1, 2000, this condition shall
be deemed to be waived or satisfied by Sublessee.
(v) DOE or CROET fails to grant any consents or approval to
Sublease to Sublessee, required to be obtained by Sublessee
pursuant to the Land Lease or this Sublease, which is
reasonably necessary for Sublessee's enjoyment, use and
operation of the Facility, the PSP, and any other equipment to
be utilized by Sublessee on the Premises.
(vi) DOE fails to enter into a written agreement satisfactory to
Sublessee and Sublessee's Lender on or before April 30, 1999,
which provide that in the event there is a default under the
Land Lease not resulting from Sublessee's default under this
Sublease, in the event the Land Lease is terminated, the
Sublease shall become a direct lease between DOE and Sublessee
subject to all terms of this Sublease and the provisions of
the Land Lease applicable to the Premises and DOE shall not
disturb any rights, interests or privileges of Sublessee under
the Sublease provided Sublessee is in compliance with the
terms thereof.
(vii) DOE terminates the Equipment Lease pursuant to Section 3
thereof in the event of a national emergency or in the
interest of national defense, or if the PSP is taken by power
of eminent domain.
(viii) Sublessee determines, as a result of a detailed inventory of
the PSP components after the date hereof, that critical
components of the PSP are missing, damaged or inoperable to an
extent that, in Sublessee's business judgment, it would be
impractical to repair or replace them.
(ix) The DOE does not release all existing components of the PSP
for delivery to Sublessee within thirty (30) days after the
Facility is ready to receive the same, provided that Sublessee
shall have used reasonable efforts to agree with DOE on, and
to implement, an appropriate security plan so that DOE can
release the PSP for delivery.
(x) DOE's M&O contractor fails to deliver the same to Sublessee's
facility within thirty (30) days after the Facility is ready
to receive the same; provided, that Sublessee shall not be in
breach of the Work for Others Agreement between Sublessee and
the M&O contractor ("the WFO Agreement"), and provided
Sublessee shall have given the M&O contractor adequate advance
notice (at least thirty [30] days) of the proposed delivery
date.
(xi) The PSP or critical components thereof fail operational
testing and, in Sublessee's business judgment, it would be
impractical to repair or replace them.
(xii) Sublessee determines that production of enriched palladium
isotopes using the PSP is not, or is no longer, economically
feasible in light of then-current market conditions.
(xiii) The DOE's High Flux Isotope Reactor is shut down permanently
or indefinitely, or Sublessee is not permitted [Confidential
Treatment Requested] as presently contemplated by the WFO
Agreement, or if Sublessee is no longer given access to the
HFIR for isotope irradiation as presently contemplated by the
WFO Agreement.
In the event Sublessee elects to terminate this Sublease for failure of
any of the foregoing conditions to be satisfied, Sublessee shall notify
CROET in writing of such election, in which event this Sublease shall
terminate on the date designated by Sublessee, but in no event more
than thirty (30) days from the date of such notice.
Furthermore, Sublessee shall have the right to terminate by giving
ninety (90) days' notice to CROET if CROET fails to substantially
perform or comply with any of its obligations under the terms and
conditions of this Sublease and continues and persists therein for ten
(10) days after notice thereof in writing by Sublessee; provided,
however, if such default is not reasonably capable of cure within such
ten (10) day period, Sublessee shall not be entitled to terminate this
Sublease if CROET promptly undertakes to cure such default and
diligently pursues such cure.
In addition, Sublessee shall have the right to terminate this Sublease
only as it relates to the PSP and the Equipment Lease, with or without
cause, on ninety (90) days' prior written notice to CROET.
In the event of the termination of this Sublease (or the portion hereof
relating to the PSP) as aforesaid, this Sublease (or such portion
relating to the PSP) shall be of no further force and effect, and the
parties hereto shall have no further rights, obligations and duties
hereunder except that nothing provided herein shall relieve Sublessee
of the restoration obligations set forth paragraph 3(d) of the
Sublease.
17. SUBLESSEE'S ENTRY ON PREMISES. From and after the date of Sublease and
------------------------------
prior to the commencement of the term of this Sublease as set forth in
Paragraph 2(a), CROET grants to Sublessee and its authorized agents and
representatives, the right to enter onto the Premises to conduct any
surveys, tests, analyses, investigations, inspections and studies as
Sublessee may elect to determine the feasibility of the development
contemplated by Sublessee upon the Premises. Sublessee shall indemnify,
and hold CROET harmless from any losses, costs, damages, expenses and
actions arising out of said activities of Sublessee.
18. CROET'S OBLIGATIONS FOR COMMON AREA FACILITIES; EASEMENTS. CROET
----------------------------------------------------------
intends to develop the approximately 957.16 acres which it leases from
DOE pursuant to Land Lease (the "Industrial Park Property") as an
integrated industrial park. In connection therewith, CROET hereby
covenants and agrees to construct and maintain, or cause to be
constructed and maintained, all facilities commonly-used by the
occupants of the Industrial Park Property (collectively, the "Common
Area Facilities"), including, without limitation, all roads and streets
(which are not publicly dedicated), all commonly used utility lines
(which are not public lines or lines of other privately-owned utility
companies) and detention/retention areas. CROET agrees to complete
construction of all Common Area Facilities necessary for Sublessee's
use of the Facility on or before one (1) year from the date of this
Sublease. In the event CROET fails to construct or maintain the Common
Area Facilities as aforesaid, thirty (30) days after notice from
Sublessee (except for emergency repairs), Sublessee may (but shall not
be obligated to) undertake such construction and/or maintenance. Any
amounts expended by Sublessee shall be immediately due and payable to
Sublessee and shall bear interest from the date advanced at the lesser
of twelve percent (12%) per annum or the maximum amount permitted by
law. Sublessee shall also have the right to offset rents due under this
Sublease for any such amounts owed Sublessee
CROET hereby grants unto Sublessee, during the term of this Sublease,
the following non-exclusive easements:
(i) an ingress-egress easement 60-feet in width for purposes of
ingress and egress from State Route 95 (bordering the eastern
side of the Industrial Park Property) over such private road
as shall border the northern boundary of the Premises;
(ii) an easement for utilities (including, without limitation, gas,
water, electricity, sanitary, sewer and telephone) across the
Industrial Park Property to the boundary of the Premises at
such locations as may be mutually approved by CROET and
Sublessee, such approval not to be unreasonably withheld; and
(iii) an easement for drainage of surface storm water across the
Industrial Park Property from the Premises at such locations
as may be mutually approved by CROET and Sublessee, such
approval not to be unreasonably withheld.
19. PARAMETERS OF LAND USE. In accordance with Condition No. 7 of the
------------------------
Land Lease, the Sublessee shall be subject to the following parameters
addressed within the approved environmental documentation or subsequent
documentation which expands those parameters:
The Environmental Assessment (DOE/EA-113) ("EA") issued in April 1996
by the U.S. Department of Energy's Oak Ridge Operations Office for the
lease of parcel ED-1 of the Oak Ridge Reservation by the East Tennessee
Economic Council, now CROET, provides in subsection 2.1.3, Industrial
Development, that industrial use of the parcel will conform to the City
of Oak Ridge Zoning Ordinance (Chapter 7, Sect. 6-713 IND-2, Industrial
District), except for certain uses not relevant to this Sublease. The
ordinance referenced is included as Appendix C to the EA, and it
provides in subsection 6-713(a)(l) that permitted principal uses of
industrial districts include, among other things, "light and heavy
manufacturing and processing plants, research and development
facilities, and facilities such as processing of radioisotopes."
20. PSP USAGE FOR NON-MEDICAL ISOTOPES. If the Sublessee desires to use the
----------------------------------
PSP to produce isotopes which are not either [Confidential Treatment
Requested] notify DOE in writing so that DOE can determine whether
those isotopes are recognized by the EA covering the Premises and, if
not so recognized, so that DOE can process an appropriate addendum to
the EA, the cost of such addendum to the EA being borne by Sublessee.
21. AMENDMENTS TO LEASES. CROET covenants and agrees that it shall not
----------------------
consent not to be unreasonably withheld (i) the Equipment Lease, or
(ii) the Land Lease as it affects the Premises or the use, enjoyment
and operation thereof.
22. MISCELLANEOUS.
-------------
(a) CROET and Sublessee each warrant and represent to the other
that such party has not engaged services of any real estate
broker, agent or finder which would entitle any person or
entity to any fee, commission, or other compensation in
connection with this Sublease. CROET and Sublessee hereby
agree to indemnify and hold the other harmless from and
against any and all claims, fees, commissions, or other
compensation of any real estate broker, agent, or finder
claiming services to have been rendered for or on behalf of
such party in connection with the execution of this Sublease.
(b) At any time and from time to time upon the request of either
of the parties hereto or any mortgage lender of Sublessee,
CROET and Sublessee, as the case may be, shall deliver to the
party requesting the same a certificate stating (i)
whether or not this Sublease is in full force and effect,
(ii) whether or not any rights to renew the term of this
Sublease have been exercised and the date on which this
Sublease will terminate, (iii) whether or not this Sublease
has been modified or amended in any way and attach any copy of
such modification or amendment, (iv) whether or not
there are any existing defaults under this Sublease to the
knowledge of the party executing the certificate, and
specifying the nature of such defaults, if any, (v) the status
of rent payments, and (vi) any of the facts regarding
the Sublease which any mortgage lender of Sublessee may
reasonably request.
(c) This Sublease shall be governed by, and construed in
accordance with, the laws of the State of Tennessee, except
that if interpretation or application of provisions of the
Leases are involved, the provisions of the Leases shall
control.
(d) This Sublease shall be binding upon and shall inure to the
benefit of CROET and Sublessee and their respective successors
and assigns.
23. ENTIRE LEASE. This Sublease contains the entire understanding of CROET
and the Sublessee with respect to its subject matter. This Sublease
reflects all agreements and commitments made prior to the date hereof
with respect to this Sublease by CROET and the Sublessee. There are no
other oral or written understandings, terms, or conditions, and neither
CROET nor the Lessee has relied upon any representation or statement,
express or implied, which is not contained in this Sublease.
IN WITNESS WHEREOF, the parties have caused this Sublease to be
executed on their behalf by their duly authorized representatives as of the date
first written above.
CROET:
COMMUNITY REUSE ORGANIZATION
OF EAST TENNESSEE
BY:/s/ Lawrence T. Young
-----------------------------
Print Name: Lawrence T. Young
-----------------------------
Title: President and CEO
-----------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
SUBLESSEE:
THERAGENICS CORPORATION
ATTEST:
/s/ Jaquelyn L. Burtle BY: /s/ Bruce W. Smith
- ------------------------------ --------------------------
Print Name:Jacquelyn L. Burtle Print Name: Bruce W. Smith
Title: Corporate Librarian Title: Executive V. P. and CFO
<PAGE>
APPENDIX A
DRAWING OF PREMISES AND ADJOINING PROPERTY
------------------------------------------
Work for Others Agreement No. ERD-99-1731
Between
LOCKHEED MARTIN ENERGY RESEARCH CORPORATION
Operating Under Prime Contract No.DE-ACO5-96OR22464 for the
U. S. Department of Energy
And
Theragenics Corporation
The obligations of the above-identified DOE Contractor shall apply to any
successor in interest to said Contractor continuing the operation of the DOE
facility involved in this Work for Others Agreement.
Article I. PARTIES TO THE AGREEMENT
The U. S. Department of Energy Contractor, LOCKHEED MARTIN ENERGY RESEARCH
CORPORATION (hereinafter referred to as the "Contractor") has been requested by
Theragenics Corporation (hereinafter referred to as the "Sponsor") to perform
the work set forth in each Task Order, attached hereto as Appendix A. It is
understood by the Parties that, except for the intellectual property provisions
of this Agreement, the Contractor is obligated to comply with the terms and
conditions of its M&O contract with the United States Government (hereinafter
called the "Government") represented by the United States Department of Energy
(hereinafter called the "Department" or "DOE") when providing goods, services,
products, processes, materials, or information to the Sponsor under this
Agreement.
Article II. TERM OF THE AGREEMENT: MULTIPLE TASK ORDERS: ADMINISTRATION
------------------------------------------------------------
(DEVIATION)
-----------
A. The estimated period of performance will be set forth in each Task Order.
The term of this Agreement shall be effective as of the latter date of
(1) the date on which it is signed by the last of the Parties thereto, or
(2) the date on which it is approved by DOE.
B. This is a master Work for Others Agreement that contemplates the issuance
of an indefinite number of Task Orders pursuant to Attachment 1,
Statement of Work to the Agreement. The individual Task Orders are set
forth in Appendix A and approved by DOE. The Contractor has further
agreed to enter into additional Task Orders consistent with the terms
of the Statement of Work including the estimated costs therein, if and
when so requested by Sponsor, provided that Sponsor's options to enter
into these additional Statement of Work will expire if not exercised by
written notice to Contractor on or before [Confidential Treatment
Requested]. It is the intention of the Parties to extend the Agreement
throughout the operating life of the High Flux Isotope Reactor and the
Contractor has initiated the procedure for obtaining approval of
such an extension. Contractor acknowledges that Sponsor is investing
in the initial Task Order as well as other initiatives based on
Contractor's commitment to perform the additional Task Orders specified
above as well, and Contractor agrees that it shall perform these
additional Task Orders, subject to the terms of this Agreement, if
requested by Sponsor,[Confidential Treatment Requested] is incompatible
with the DOE's mission or [Confidential Treatment Requested].
C. The Contractor shall use its best efforts to provide the services under
each Task Order as described therein.
D. The Principal Investigator(s) and other key personnel to be assigned to
each Task Order shall be specified in each Task Order, and shall, except
in case of events such as illness, resignation, other employment actions,
conflicts of interest or if DOE determines that such personnel are needed
to perform DOE mission or programmatic requirements, be available to the
specific projects listed in the Task Order. If any of such personnel
become unavailable as stated above, Contractor will use its best efforts
to replace them promptly with other personnel of comparable
qualifications.
E In addition to the work to be performed under the Task Orders, in
accordance with DOE Order 481.1, this Agreement provides for access
to highly specialized or unique DOE facilities, that is, the High
Flux Isotope Reactor ("HFIR") as follows. Neither LMER nor DOE is
obligated hereunder to maintain the HFIR in operation or to keep it
operating any specified percentage of the time, but as long as the
HFIR is in operation and Sponsor has a continuing need for its use,
Sponsor shall have the following access rights: (1) [Confidential
Treatment Requested] (2) Sponsor shall have the exclusive right to
[Confidential Treatment Requested] to irradiate material, which right
will be exercised through Contractor under this Agreement, as
contemplated by the Statement of Work. DOE may, however,
[Confidential Treatment Requested], on terms to be mutually agreed,
for [Confidential Treatment Requested], including production of
isotopes for sale as long as the isotope is not competitive with the
Sponsor's mission. (3) Sponsor will be required to pay for irradiation
of target material [Confidential Treatment Requested] in accordance
with DOE Accounting Policy. (4) Sponsor may [Confidential Treatment
Requested] to irradiate palladium for research or for medical or
commercial use for its own account or for sale to third parties, subject
to all applicable laws and regulations governing the production of
isotopes; and (5) [Confidential Treatment Requested].
Article III. COSTS (DEVIATION)
-----------------
A. The estimated cost for the work to be performed under this Agreement will
be set forth in each Task Order.
B. The Contractor has no obligation to continue or complete performance of
the work on any Task Order issued pursuant to this agreement at a cost in
excess of the estimated cost, including any subsequent amendment set forth
in each Task Order, except as provided in paragraph C below.
C. The Contractor agrees to provide at least 30 days' notice to the Sponsor
if the actual cost to complete performance will exceed the estimated cost
set forth in each Task Order. If so requested by the Sponsor, the
Contractor will provide its best estimate of the additional cost,
and of the time needed, for completion, or for completion to the next
milestone in the Task Order, if applicable. If upon receipt of
this information Sponsor elects to continue funding the effort,
the Task Order shall be amended to appropriately increase the budget
for the project and, if applicable, to extend the milestone dates, and
the Contractor shall continue the work so long as Sponsor provides the
needed additional funding in accordance with the principles of Article
IV. Nothing shall, however, require the Contractor to continue
work if the Contractor concludes in good faith that the objective
of the work will not be reasonably attainable.
Article IV. FUNDING AND PAYMENT (DEVIATION)
--------------------------------
A. The Sponsor shall provide sufficient funds in advance to reimburse the
Contractor for costs to be incurred in performance of the work described
in this Agreement, and the Contractor shall have no obligation to
perform in the absence of adequate advance funds. If the estimated
period of performance for a given Task Order exceeds 90 days or the
estimated cost exceeds $25,000, the Sponsor may, advance funds
incrementally. In such a case, the Contractor will initially invoice
the Sponsor in an amount sufficient to permit the work to proceed for
ninety (90) days and thereafter invoice the Sponsor monthly so as to
maintain approximately a 90-day period that is funded in advance.
Payment shall be made directly to the Contractor as specified in
Appendix A. Upon termination or completion, any excess funds shall be
refunded by the Contractor to the Sponsor.
B. The Contractor shall maintain such records as are normally maintained for
DOE-supported work. The records of the Contractor shall not be subject to
audit by the Sponsor; however, the Contractor shall make available upon
request of the Sponsor, where reasonably necessary for the Sponsor to
evaluate its expenditures or where otherwise considered appropriate, cost
data and other documents concerning the services performed under this
Agreement, together with any related findings and all reasonably
necessary explanations or discussions.
Article V. SOURCE OF FUNDS
---------------
The Sponsor hereby warrants and represents that, if the funding it brings to
this Agreement has been secured through other agreements, such other agreements
do not have any terms and conditions (including intellectual property) which
conflict with the terms of this Agreement.
Article VI. PROPERTY (DEVIATION)
--------------------
Unless the Parties otherwise agree in writing, all equipment produced or
acquired with funds provided by the Sponsor, shall be delivered to the Sponsor
or otherwise disposed of as instructed by the Sponsor at the Sponsor's expense.
Article VII. PUBLICATION MATTERS (DEVIATION)
-------------------------------
The publishing Party shall provide the other Party a sixty (60)-day period in
which to review and submit comments upon proposed publications, which either
disclose technical developments and/or research findings generated in the course
of this agreement, or identify or contain Proprietary Information (as defined in
paragraph A.2 of Article XV). The publishing Party shall not publish or
otherwise disclose Proprietary Information identified by the other Party, except
as required by law or agreed to by both Parties.
Article VIII. LEGAL NOTICE (DEVIATION)
-------------------------
The Parties agree that the following legal notice shall be affixed to each
report furnished to the Sponsor under this Agreement and to any report prepared
by Contractor under this Agreement which may be distributed by the Sponsor:
"DISCLAIMER NOTICE
------------------
This report was prepared by LOCKHEED MARTIN ENERGY RESEARCH CORPORATION
(LMER) on behalf of the U. S. Department of Energy (DOE), as an account
of work sponsored by Theragenics Corporation. Neither LMER, DOE, the
U. S. Government, or any person acting on their behalf: (a) makes
any warranty or representation, express or implied, with respect to the
information contained in this report; or (b) assumes any liabilities
with respect to the use of, or damages resulting from the use of any
information contained in the report"
Article IX. DISCLAIMER; BEST EFFORTS (DEVIATION)
-------------------------------------
THE GOVERNMENT AND THE CONTRACTOR MAKE NO EXPRESS OR IMPLIED WARRANTY AS TO THE
CONDITIONS OF THE RESEARCH OR ANY INTELLECTUAL PROPERTY, GENERATED INFORMATION,
OR PRODUCT MADE OR DEVELOPED UNDER THIS WORK FOR OTHERS AGREEMENT, OR THE
OWNERSHIP, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE RESEARCH
OR RESULTING PRODUCT, THAT THE GOODS, SERVICES, MATERIALS, PRODUCTS, PROCESSES,
INFORMATION, OR DATA TO BE FURNISHED HEREUNDER WILL ACCOMPLISH INTENDED RESULTS
OR ARE SAFE FOR ANY PURPOSE INCLUDING THE INTENDED PURPOSE, OR THAT ANY OF THE
ABOVE WILL NOT INTERFERE WITH PRIVATELY OWNED RIGHTS OF OTHERS. NEITHER THE
GOVERNMENT NOR THE CONTRACTOR SHALL BE LIABLE FOR SPECIAL, CONSEQUENTIAL, OR
INCIDENTAL DAMAGES ATTRIBUTED TO SUCH RESEARCH OR RESULTING PRODUCT,
INTELLECTUAL PROPERTY, GENERATED INFORMATION, OR PRODUCT MADE OR DELIVERED UNDER
THIS WORK FOR OTHERS AGREEMENT.
Subject to the foregoing, Contractor represents that Contractor shall, within
sixty days after execution of this agreement, use its best efforts to determine
whether the Contractor's Office of Technology Transfer or the principal
investigators named in the initial Task Orders have any actual knowledge that
any of the work to be done under this agreement, or any of the goods, services,
materials, products, processes, information, or data to be furnished hereunder
as indicated in Attachment 1, the Statement of Work, will infringe or is claimed
to infringe, any proprietary or intellectual property rights of third parties.
As additional Task Orders are entered into hereunder, the Contractor will make
similar inquiries of the principal investigators named therein as to actual
knowledge of infringement or claims of infringement, and will, if appropriate,
make additional investigation as to infringement matters within the Office of
Technology Transfer in light of the specific scopes of work agreed to for those
new Task Orders. If, prior to or during the performance of a task order
Contractor learns of any such infringement or claim thereof relating to that
Task Order, Contractor will promptly notify sponsor. If during the term hereof
Sponsor raises specific questions related to possible claims of infringement,
Contractor will, upon request, use its best efforts to determine what actual
knowledge Contractor's Office of Technology Transfer or applicable principal
investigators have that is pertinent to the matter in question, and will
disclose that pertinent information to Sponsor.
The Contractor shall use its best reasonable efforts to provide the services
under each Task Order as described therein. Neither the Government, DOE,
Contractor, nor persons acting on their behalf will be responsible, irrespective
of causes, for failure:
(1) to perform the work,
(2) provide the services, or
(3) furnish the materials or information hereunder
at any particular time or in any specific manner. If at any time Sponsor
believes that Contractor is not using its best reasonable efforts in the
performance the work hereunder or is performing contrary to this agreement or a
Task Order, or if the Sponsor has any other problem with the performance of the
Contractor hereunder, Sponsor shall be entitled to bring the problem to the
attention of the Assistant Manager for Laboratories of the DOE Oak Ridge
Operations Office (the "Assistant Manager"). The Assistant Manager shall hear
the matter within a reasonable time, in a manner deemed appropriate by the
Assistant Manager, and the Contractor agrees to comply with any decision that
the Assistant Manager may, in his sole discretion, issue to the Contractor with
respect to the matter. This right of Sponsor to present a matter for decision to
the Assistant Manager is in addition to, and not in lieu of, Sponsor's right to
seek alternate dispute resolution under Article XX, and any other rights of
Sponsor under this agreement, but nothing in this Article creates any
enforceable right against DOE.
Article X. GENERAL INDEMNITY (DEVIATION)
------------------------------
The Sponsor agrees to indemnify and hold harmless the Government, the
Department, the Contractor and persons acting on their behalf from all
liability, including costs and expenses incurred, to any person, including the
Sponsor, for injury to or death of persons or other living things or injury to
or destruction of property arising out of the performance of the Agreement by
the Government, the Department, the Contractor, or persons acting on their
behalf, or arising out of the use of the services performed, materials supplied,
or information given hereunder by any person including the Sponsor. The
foregoing indemnity shall not, however, apply to liability directly resulting
from the fault or negligence of the Government, the Department, the Contractor,
or persons acting on their behalf.
Article XI. PRODUCT LIABILITY INDEMNITY (DEVIATION)
---------------------------------------
Except for any liability resulting from any willful misconduct or negligent acts
or omissions of the Government or the Contractor, the Sponsor agrees to
indemnify the Government and defend Contractor against any claim or proceeding
and pay all damages, costs, and expenses, including attorney's fees, arising
from personal injury or property damage occurring as a result of the making,
using, or selling of a product, process, or service by or on behalf of the
Sponsor, its assignees, or licensees, which was derived from the work performed
under this Work for Others Agreement. In respect to this Article, neither the
Government nor the Contractor shall be considered assignees or licensees of the
Sponsor, as a result of reserved Government and Contractor rights. The indemnity
set forth in this paragraph shall apply only if the Sponsor shall have been
informed as soon and as completely as practical by the Contractor and/or the
Government of the action alleging such claim and shall have been given an
opportunity, to the maximum extent afforded by applicable laws, rules, or
regulations, to participate in and control its defense, and the Contractor
and/or Government shall have provided all reasonably available information and
reasonable assistance requested by the Sponsor. No settlement of an action
against the Contractor and/or Government for which the Sponsor would be
responsible shall be made without the consent of the Sponsor and of the
Contractor and the Government (whenever either or both of the latter two parties
are involved), unless required by final decree of a court of competent
jurisdiction.
Article XII. INTELLECTUAL PROPERTY INDEMNITY - LIMITED (DEVIATION)
-----------------------------------------------------
The Sponsor shall indemnify the Government and the Contractor and their
officers, agents, and employees against liability, including costs, for
infringement of any United States patent, copyright, or other intellectual
property arising out of any acts required or directed by the Sponsor to be
performed under this Agreement to the extent such acts are not already performed
at the facility. Such indemnity shall not apply to a claimed infringement which
is settled without the consent of the Sponsor unless required by a court of
competent jurisdiction. Sponsor shall be entitled to notice, the opportunity to
defend and control the defense, and cooperation from the Contractor and the
Government as more fully described in Article XI.
Article XIII. NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT
-----------------------------------------------------------------
The Sponsor shall report to the Department and the Contractor, promptly and in
reasonable written detail, each claim of patent or copyright infringement based
on the performance of this Agreement of which the Sponsor has knowledge. The
Sponsor shall furnish to the Department and the Contractor, when requested by
the Department or the Contractor, all evidence and information in the possession
of the Sponsor pertaining to such claim.
Article XIV. PATENT RIGHTS - USE OF FACILITIES (CLASS WAIVER) (DEVIATION)
------------------------------------------------------------
1. Definitions
-----------
A. "Subject Invention" means any invention or discovery of the
Contractor, or, to the extent the Sponsor is performing any work
under this Agreement, of the Sponsor, conceived in the course of
or under this Agreement, or, in the case of an invention
previously conceived by the Sponsor, first actually reduced to
practice in the course of or under this Agreement. "Subject
Invention" includes any art, method, process, machine,
manufacture, design or composition of matter, or any new and
useful improvement thereof, or any variety of plant, whether
patented or unpatented under the Patent Laws of the United
States of America or any foreign country.
B. "Patent Counsel" means the DOE Patent Counsel assisting the
procuring activity which has the administrative responsibility
for the facility where the work under this Agreement is to be
performed.
2. Rights of the Sponsor
---------------------
Election to retain rights
Subject to the provisions of paragraph 3.B. with respect to
any Subject Invention reported and elected in accordance with
paragraph 4. of this clause, the Sponsor may elect to obtain
the entire right, title, and interest throughout the world to
each Subject Invention and any patent application filed in any
country on a Subject Invention and in any resulting patent
secured by the Sponsor. Where appropriate, the filing of
patent applications by the Sponsor is subject to DOE and other
Government security regulations and requirements.
Minimum License
The Sponsor reserves an irrevocable, nonexclusive, paid-up
license in each patent application filed in any country on a
subject invention and any resulting patent in which the
Sponsor does not elect to take title or in which the
Government acquires title. The license shall extend to the
Sponsor's domestic subsidiaries, and affiliates, if any,
within the corporate structure of which the Sponsor is a part
and shall include the right to grant sublicenses of the same
scope as the Sponsor was legally obligated to do so at the
time this agreement was entered into. The license shall be
transferable only with the approval of DOE except when
transferred to the successor of that part of the Sponsor's
business to which the invention pertains.
3. Rights of Contractor and Government
-----------------------------------
A. Assignment to either the Contractor or the Government
--------------------------------------------------------------
The Sponsor agrees to assign to either the Contractor
or the Government, as requested by the Contractor,
the entire right, title, and interest in any country
to each Subject Invention of the Sponsor and to each
Subject Invention of the Contractor, where the
Sponsor:
(1) does not elect pursuant to this clause to
retain such rights; or
(2) elects to obtain title to a Subject Invention
pursuant to paragraph 2. but fails to have a
patent application filed in that country on the
Subject Invention or decides not to continue
prosecution or not to pay any maintenance fees
covering the invention.
B. Terms and Conditions of Waived Rights
(1) To preserve the Contractor's and the
Government's residual rights to Subject
Inventions, and in patent applications and
patents on Subject Inventions, the Sponsor
shall take all actions in reporting, electing,
filing on, prosecuting, and maintaining
invention rights promptly, but in any event, in
sufficient time to satisfy domestic and foreign
statutory and regulatory time requirements, or,
if the Sponsor decides not to take appropriate
steps to protect the invention rights, it shall
notify the Contractor in sufficient time to
permit either the Contractor or the Government
to file, prosecute, and maintain patent
applications and any resulting patents prior to
the end of such domestic or foreign statutory
or regulatory time requirements.
(2) The Sponsor shall convey or ensure the
conveyance of any executed instruments
necessary to vest in either the Contractor or
the Government the rights set forth in this
clause.
(3) With respect to any Subject Invention in which
the Sponsor obtains title, the Sponsor hereby
grants to the Government a non-exclusive,
nontransferable, irrevocable, paid-up license
to practice or have practiced by or on
behalf of the United States the Subject
Invention throughout the world.
(4) The Sponsor shall provide the Government a copy
of any patent application filed on a Subject
Invention within 6 months after such
application is filed, including its serial
number and filing date.
(5) Preference for U.S. Industry. Notwithstanding
any other provision of this clause, the Sponsor
agrees that neither it nor any assignee will
grant to any person the exclusive right to use
or sell any Subject Invention in the United
States unless such person agrees that any
products embodying the Subject Invention or
produced through the use of the Subject
Invention will be manufactured substantially in
the United States. However, in individual
cases, the requirement for such an agreement
may be waived by DOE upon a showing by the
Sponsor or its assignee that reasonable but
unsuccessful efforts have been made to grant
licenses on similar terms to potential
licensees that would be likely to manufacture
substantially in the United States or that
under the circumstances domestic manufacture is
not commercially feasible.
(6) March-In Rights. The Sponsor agrees that with
respect to any Subject Invention of the
Contractor in which it has acquired title, the
DOE shall retain the right to require the
Sponsor to grant a responsible applicant a
nonexclusive, partially exclusive, or exclusive
license to use the Subject Invention in any
field of use, on terms that are reasonable
under the circumstances, or if the Sponsor
fails to grant such a license, to grant the
license itself. DOE may exercise this right
only in exceptional circumstances and only if
DOE determines that:
(a) the action is necessary to meet health or
safety needs that are not reasonably
satisfied by the Sponsor; or
(b) the action is necessary to meet the
requirements for public use specified by
Federal regulations and such requirements
are not reasonably satisfied by the
Sponsor; or
(c) such action is necessary because a
licensee of the exclusive right to use or
sell any Subject Invention in the United
States is in breach of the agreement
required by paragraph 3.B.(5).
(7) The Sponsor agrees to refund any amounts
received as royalty charges on any Subject
Invention in procurement by or on behalf of the
Government and to provide for that refund in
any instrument transferring rights to any party
in the invention.
(8) The Sponsor agrees to include, within the
specification of any United States patent
applications and any patent issuing thereon
covering a Subject Invention, the following
statement. "The Government has rights in this
invention pursuant to
(specify this underlying Agreement)."
4. Invention Identification, Disclosures, and Reports
---------------------------------------------------
A. The Sponsor shall furnish the Patent Counsel a written
report containing full and complete technical information
concerning each Subject Invention it makes within 6 months
after conception or first actual reduction to practice,
whichever occurs first, in the course of or under this
Agreement, but in any event prior to any on sale, public
use, or public disclosure of such invention known to the
Sponsor. The report shall identify the contract and inventor
and shall be sufficiently complete in technical detail and
appropriately illustrated by sketch or diagram to convey to one
skilled in the art to which the invention pertains a clear
understanding to the extent known at the time of disclosure,
of the nature, purpose, operation, and to the extent
known, the physical, chemical, biological, or electrical
characteristics of the invention. The report should also
include any election of invention rights under this clause.
When an invention is reported under this paragraph
4.A, it shall be presumed to have been made in the manner
specified in Section (a)(1) and (2) of 42 USC 5908.
B. The Contractor shall report Subject Inventions it makes in
accordance with the procedures set forth in contract
DE-AC05-96OR22464. In addition, the Contractor shall disclose
to the Sponsor at the same time as disclosure to the Department
any Subject Inventions made by the Contractor under this
Agreement and the Sponsor shall notify the Department within
6 months of receipt of such disclosure by the Sponsor of any
election of patent rights under this clause. With respect
to Subject Inventions of which Contractor personnel are
inventors, Contractor shall execute and deliver, or as
appropriate, cause the inventors to execute and deliver,
to Sponsor any assignments or other instruments reasonably
necessary to the filing of patent applications by
Sponsor, or to the perfection and confirmation of Sponsor's
title in the Subject Invention.
C. Requests for extension of time for election under subparagraphs
A and B may be granted by Patent Counsel for good cause shown in
writing.
5. Limitation of Rights
----------------------
Nothing contained in this patent rights clause shall be deemed to give
the Government any rights with respect to any invention other than a
Subject Invention except as set forth in the Facilities License of
paragraph 6.
6. Facilities License
------------------
In addition to the rights of the Parties with respect to inventions or
discoveries conceived or first actually reduced to practice in the
course of or under this Agreement, the Sponsor agrees to and does
hereby grant to the Government an irrevocable, non-exclusive, paid-up
license in and to any inventions or discoveries regardless of when
conceived or first actually reduced to practice or acquired by the
Sponsor, which at any time, through completion of this Agreement, are
owned or controlled by the Sponsor and are incorporated in the facility
as a result of this Agreement to such an extent that the facility is
not restored to the condition existing prior to the Agreement (1) to
practice or to have practiced by or for the Government at the facility,
and (2) to transfer such license with the transfer of the facility. The
acceptance or exercise by the Government of the aforesaid rights and
license shall not prevent the Government at any time from contesting
the enforceability, validity, or scope of, or title to, any rights or
patents herein licensed.
7. Early Termination of Agreement
------------------------------
The terms and conditions of this clause shall survive the Agreement, in
the event that the Agreement is terminated before completion of the
Statement of Work.
Article XV. RIGHTS IN TECHNICAL DATA - USE OF FACILITY
(DEVIATION)
A. Definitions
1. "Generated Information" means information produced in the
performance of this Agreement.
2. Proprietary Information" means information which is developed at
private expense and (1) trade secrets or (2) commercial or
financial information which is privileged or confidential under
the Freedom of Information Act (5 USC 552 (b)(4)). The term
includes information communicated orally or by other means,
if the information is designated at the time of disclosure or
thirty (30) days thereafter as Proprietary Information, or if
it is identical to of documentary information designated as
Proprietary Information, or if the recipient knows that it
embodies Proprietary Information previously submitted in
documentary form and appropriately designated as such.
Proprietary Information includes Generated Information which
is categorized and marked as Proprietary Information by
Sponsor or by Contractor at Sponsor's direction. Generated
Information which has not yet been categorized by Sponsor as to
whether it is Proprietary Information will be treated as
Proprietary Information of the Sponsor pending such
categorization. Information shall be deemed appropriately
marked as Proprietary Information if it is marked as
"Proprietary Information" or marked with words of manifestly
similar meaning such as "Confidential", "Secret",
"Trade Secret" or "Proprietary".
3. "Unlimited Rights" means the right to use, disclose, reproduce,
prepare derivative works, distribute copies to the public, and
perform publicly and display publicly, in any manner and for any
purpose, and to have or permit others to do so.
B. The Sponsor agrees to furnish to the Contractor or leave at the
facility that information, if any, which is (1) essential to the
performance of work by the Contractor personnel or (2) necessary for
the health and safety of such personnel in the performance of
the work. Any information furnished to the Contractor shall be
presumed to have been delivered with Unlimited Rights unless marked as
described in paragraph A.2 above; provided, that if Sponsor
inadvertently delivers Proprietary Information without such markings,
then (1) Sponsor shall have the right at any time to place such
markings thereon, and Contractor shall cooperate fully with such
effort; and (ii) Contractor shall not be liable to Sponsor
for any use or disclosure of that information, in good faith,
between the time of initial delivery and the time Sponsor informs
Contractor that the information is Proprietary Information and should
be marked as such. Once the items are so marked, they shall from that
point forward be treated as Proprietary Information.
C. The Sponsor may designate as Proprietary Information any Generated
Information, where such data would embody trade secrets or would
comprise commercial or financial information that is privileged or
confidential if it were obtained from the Sponsor. Such Proprietary
Information will, to the extent permitted by law, be maintained in
confidence and disclosed or used by the Contractor (under suitable
protective conditions) only for the purpose of carrying out the
Contractor's responsibilities under this Agreement. If so authorized
by Sponsor, Contractor shall, on Sponsor's behalf, use its best efforts
to locate and appropriately mark all copies of Generated Information
which Sponsor has designated as Proprietary Information (such
designation to be either by specific reference to particular
information, or categorical descriptions of types of Generated
Information constituting Proprietary Information.). If
information is not marked by the Contractor when delivered to the
Sponsor and the Sponsor believes it should be marked, the Sponsor will
mark the information itself and notify the Contractor of the omission
that the Sponsor believes to have occurred and the fact that the
Sponsor has affixed such marking. Until such time as any particular
Generated Information has been categorized and marked as Proprietary
Information , Contractor will treat it as Proprietary Information.
Contractor may, at any time, request guidance from Sponsor as to
whether particular information should be designated and marked as
Proprietary Information. Upon completion of activities under this
Agreement (or, if appropriate, upon completion of a given Task Order),
such Proprietary Information and all copies thereof will be disposed
of as requested by the Sponsor, at the Sponsor's expense. Before the
Contractor releases data associated with this Agreement to anyone,
the Sponsor will be afforded the opportunity to review that data
to ascertain whether it is Proprietary Information and to mark it as
such.
D. The Government and Contractor agree to not disclose Proprietary
Information that is properly marked, or Generated Information that
has not yet been categorized by the Sponsor as to whether it is
Proprietary Information to anyone other than the Sponsor without
written approval of the Sponsor, except to Government employees
who are subject to the statutory provisions against disclosure of
confidential information set forth in the Trade Secrets Act
(18 USC 1905). The Government and Contractor shall have the right,
at reasonable times up to 3 years after the termination or completion
of the Agreement, to inspect any information designated as
Proprietary Information by the Sponsor, for the purpose of
verifying that such information has been properly identified as
Proprietary Information.
E. By, or within ninety (90) days after, the date of termination or
expiration of this Agreement, Sponsor shall request the removal of
all of its Proprietary Information from the facility, at the Sponsor's
expense, and when such request is made Contractor shall assemble and
deliver to the Sponsor the original and all copies of such information
and the Sponsor shall accept it and shall then be responsible for its
removal from the facility. The Government and Contractor shall have
Unlimited Rights in any information which is not removed from the
facility by Sponsor after delivery by Contractor to Sponsor as
described above, or which is not requested by Sponsor to be
assembled and delivered to Sponsor by Contractor within the time
limit described above. Notwithstanding the foregoing, by mutual
consent, Sponsor may allow Contractor or the Government to retain
copies of Proprietary Information without compromising its
status as such; for example, the information might be needed for
follow-on tasks hereunder or for other projects to be undertaken by the
Contractor or the Government with Sponsor's consent. The Government
and Contractor shall have Unlimited Rights in any Proprietary
Information which is incorporated into the facility or equipment
under this Agreement at Sponsor's request, to such extent that the
facility or equipment is not restored to the condition existing prior
to such incorporation.
F. The Sponsor agrees that the Contractor will provide to the Department a
nonproprietary description of the work performed under this Agreement.
G. The Government shall have Unlimited Rights in all Generated Information
produced or information provided by the Parties under this Agreement,
except for information which is disclosed in a Subject Invention
disclosure being considered for patent protection, or which is
Proprietary Information.
H. Copyrights
----------
The Sponsor may assert copyright in any of its Generated Information,
and may also require the Contractor, at the Sponsor's expense, to
register copyright and/or to assign to Sponsor copyright in any
Generated Information produced by the Contractor and designated by the
Sponsor. Subject to the other provisions of this clause, including
particularly those relating to Proprietary Information, and to the
extent that copyright is asserted, the Government reserves for itself a
royalty-free, world-wide, irrevocable, non-exclusive license for
Governmental purposes to publish, distribute, translate, duplicate,
exhibit, prepare derivative works, and perform any such data assigned
to the Sponsor.
I. The terms and conditions of this clause shall survive the Agreement.
Article XVI. ASSIGNMENT (DEVIATION)
----------------------
Neither this Agreement nor any interest therein or claim thereunder shall be
assigned or transferred by either Party, except as authorized in writing by the
other Party to this Agreement, which authorization shall not be unreasonably
withheld or delayed, provided, the Contractor may transfer it to the Department,
or its designee, with notice of such transfer to the Sponsor, and the Contractor
shall have no further responsibilities except for the confidentiality, use,
and/or non-disclosure obligations of this Agreement. In the event Contractor
proposes to disapprove any assignment or transfer by Sponsor, Sponsor shall have
the right to appeal that decision to the Director of the DOE Oak Ridge Office of
Partnerships and Program Development, and Contractor shall comply with a
decision, if any, by such Director that this Agreement shall be assigned or
transferred as requested by Sponsor. Further provided, however, that nothing in
this Article creates any enforceable right against DOE.
Article XVII. SIMILAR OR IDENTICAL SERVICES
-----------------------------
The Government and/or Contractor shall have the right to perform similar or
identical services in the Statement of Work (SOW) for other Sponsors as long as
the Sponsor's Proprietary Information is not utilized.
Article XVIII. EXPORT CONTROL
--------------
Each Party is responsible for its own compliance with laws and regulations
governing export control.
Article XIX. TERMINATION (DEVIATION)
-----------------------
Performance of work under this Agreement may be terminated at any time by either
Party, without liability, except as provided above, upon giving a thirty (30)
day written notice to the other Party. [Confidential Treatment Requested],
provided however, that the Contractor shall have the right to terminate if the
Sponsor shall have failed to advance the funds required by Article IV and failed
to cure the same within thirty (30) days after written notice to Sponsor of the
default. In the event of termination, the Sponsor shall be responsible for the
Contractor's costs through the effective date of termination which are either
(a) incurred in the performance of tasks which the Sponsor has specifically
requested Contractor to perform after the notice of termination is given, such
as completing experiments in process, providing the Sponsor with the research
data generated through the date of termination, to finalize required reporting,
etc, or (b) are necessary closeout costs, including but not limited to costs to
shut down any experiment in process which Sponsor does not wish completed or
which cannot be completed prior to termination, to pack and ship surplus
material and equipment, to finish categorizing Generated Information as provided
for in Article XV, and to assemble Generated Information and Proprietary
Information for transmittal to Sponsor; but in no event shall the Sponsor's cost
responsibility exceed the total cost to the Sponsor as described in Article III,
above. Closeout costs do not include costs for transitioning personnel.
It is agreed that any obligations of the Parties regarding Proprietary
Information or other intellectual property will remain in effect, despite early
termination of the Agreement.
Article XX. ALTERNATE DISPUTE RESOLUTION (DEVIATION)
----------------------------------------
Step 1. NEGOTIATION
The Parties shall attempt in good faith to resolve any dispute arising out of or
relating to this Agreement by negotiating between executives and/or officials
who have authority to settle the controversy and who are at a higher level of
management than the persons with direct responsibility for administration of
this contract. Either Party may give the other Party written notice of any
dispute not resolved in the normal course of business. Within 15 days after
delivery of the notice, the receiving Party shall submit to the other a written
response. The notice and the response shall include (a) a statement of each
Party's position and a summary of arguments supporting that position, and (b)
the name and title of the executive or official who will represent that Party
and of any other person(s) who will accompany the executive or official. Within
30 days after delivery of the disputing Party's notice, the executives of both
Parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, to attempt to resolve the dispute. All
reasonable requests for information made by one party to the other will be
honored.
If the matter has not been resolved within 60 days of the disputing Party's
notice, or if the Parties fail to meet within 30 days, either party initiate
mediation of the controversy or claim as provided hereafter.
All negotiations pursuant to this Agreement are confidential and shall be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence and state rules of evidence.
Step 2. MEDIATION
In the event the dispute has not been resolved by negotiation as provided
herein, the Parties agree to participate in a one day mediation, using a
mutually agreed upon mediator. The mediator will not render a decision, but will
assist the Parties in reaching a mutually satisfactory agreement.
The Parties agree to equally split the costs of the mediation. The first
mediation session shall commence within 30 days from agreement on the selection
of mediator. The Parties may contact the DOE Office of Dispute Resolution with
questions or for assistance with selection of neutrals or samples of Agreements
to Mediate.
All meditations are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
Step 3. ARBITRATION
Any dispute not otherwise satisfactorily resolved may, by mutual agreement, be
submitted to arbitration, provided that both parties shall bear their own costs
of arbitration and further provided that such arbitration shall be binding only
if the Parties have previously agreed upon the limits of the awards that may
result from arbitration, pursuant to the Administrative Dispute Resolution Act
through the American Arbitration Association, Jams/Endispute Center for Public
Resources, United States Arbitration and Mediation, or other reputable ADR
provider.
Article XXI. CERTIFICATION
Sponsor certifies that to the best of its knowledge and belief the analysis or
other work or services to be provided hereunder cannot reasonably or practicably
be conducted in private facilities or with private equipment reasonably
available.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS
AGREEMENT NO. ERD-99-1731
FOR LOCKHEED MARTIN ENERGY RESEARCH CORPORATION
Name: /s/ Frank V. Damiano
-----------------------------------
Title: Sr. Contracts Admin
-----------------------------------
Date: March 25, 1999
-----------------------------------
FOR THERAGENICS CORPORATION
Name: /s/ Bruce W. Smith
------------------------------------
Title: Executive V/P & CFO
------------------------------------
Date: March 25, 1999
------------------------------------
ON BEHALF OF THE DEPARTMENT OF ENERGY
Name: /s/ James A. Reafsnyder
------------------------------------
James A. Reafsnyder, Director
Title: Office of Partnerships and Program Development
----------------------------------------------
Date: March 25, 1999
-------------------------------------
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