<PAGE> 1
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, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-24872
Physician Reliance Network, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Texas 75-2495107
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
8115 Preston Road, Suite 300
Dallas, Texas 75225
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 692-3800
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 13, 1996, approximately 23,637,214 shares of Common Stock
were issued and outstanding.
Page 1 of __ sequentially numbered pages.
Exhibit Index appears on sequential page __.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The condensed consolidated financial statements include the accounts
of Physician Reliance Network, Inc. and its wholly owned subsidiaries
(collectively, the "Company") and have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the period ended December 31, 1995, as filed with the Securities and
Exchange Commission. In the opinion of the Company, all adjustments necessary
to present fairly the information in the following consolidated financial
statements of the Company have been included. Please be advised that the
results of operations for interim periods are not necessarily indicative of the
results of the full year.
2
<PAGE> 3
PHYSICIAN RELIANCE NETWORK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,266 $ 12,405
Accounts receivable, net of allowances of $13,321 and
$14,666 at December 31, 1995 and at March 31,
1996, respectively 78,408 53,823
Inventories 4,568 3,841
Prepaid expenses and other 2,675 1,965
Deferred income tax 750 361
------------ ------------
Total current assets 88,667 72,395
------------ ------------
Property and equipment:
Land 10,111 9,386
Buildings 36,403 33,502
Furniture and equipment 72,545 66,809
Construction-in-progress 8,539 3,164
------------ ------------
127,598 112,861
Less- Accumulated depreciation (18,967) (16,310)
------------ ------------
Net property and equipment 108,631 96,551
------------ ------------
Investments 1,997 1,997
Management service agreements, net 35,563 29,188
Other assets, net 4,525 4,502
------------ ------------
Total assets $ 239,383 $ 204,633
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
PHYSICIAN RELIANCE NETWORK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,627 $ 10,206
Accrued liabilities
Salaries and benefits 2,804 2,850
Other 1,870 2,775
------------ ------------
4,674 5,625
Due to related party -- 1,105
Federal income tax 2,465 960
Current maturities of long-term debt 1,932 1,873
------------ ------------
Total current liabilities 18,698 19,769
Long-term debt, net of current maturities 58,048 26,973
Construction and retainage payable 1,651 7,505
Deferred income taxes 5,633 4,652
------------ ------------
Total liabilities 84,030 58,899
------------ ------------
Stockholders' equity:
Common stock 210 209
Additional paid-in capital 122,789 120,880
Common stock to be issued, 378,933 shares 10,563 8,027
Retained earnings 21,991 16,818
------------ ------------
155,553 145,934
Less-Subscription receivable (200) (200)
------------ ------------
Total stockholders' equity 155,353 145,734
------------ ------------
Total liabilities and stockholders' equity $ 239,383 $ 204,633
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
PHYSICIAN RELIANCE NETWORK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, March 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Revenues:
Medical service revenues $ 47,531 $ 25,817
Other revenues 2,179 1,176
--------------- ---------------
Total revenues 49,710 26,993
--------------- ---------------
Costs and expenses:
Salaries and benefits 14,080 7,927
Pharmaceuticals and supplies 12,671 7,041
General and administrative 10,597 7,082
Depreciation and amortization 3,232 1,407
Interest expense 579 130
--------------- ---------------
Total costs and expenses 41,159 23,587
--------------- ---------------
Income before taxes 8,551 3,406
--------------- ---------------
Provision (benefit) for income taxes:
Current 2,786 2,386
Deferred 592 (1,053)
--------------- ---------------
Total provision for income taxes 3,378 1,333
--------------- ---------------
Net income $ 5,173 $ 2,073
=============== ===============
Net income per share (primary and fully diluted) $ 0.24 $ 0.12
=============== ===============
Weighted average shares outstanding 21,736 17,620
=============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
PHYSICIAN RELIANCE NETWORK INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, March 31,
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,173 $ 2,073
Adjustments to reconcile net income to net cash
provided by(used in) operating activities
Depreciation and amortization 3,232 1,407
Deferred income tax, net 592 (1,053)
Changes in operating assets and liabilities:
Increase in accounts receivable, net (24,585) (8,971)
Increase in inventories and prepaids (1,437) (848)
Increase in other assets (110) (1,547)
Increase (decrease) in accounts payable
and accrued liabilities (25) 4,903
Increase (decrease) in due to related party (1,105) 1,240
---------------- ----------------
Net cash used in operating activities (18,265) (2,796)
---------------- ----------------
Cash flows from investing activities:
Capital expenditures (14,737) (9,768)
Construction and retainage (5,854) (714)
Management service agreements (2,479) --
----------------
Net cash used in investing activities (23,070) (10,482)
---------------- ----------------
Cash flows from financing activities:
Proceeds from long-term borrowings 36,000 9,800
Payments on long-term borrowings (4,866) --
Issuance of common stock 62 --
----------------
Net cash provided by flnancing activities 31,196 9,800
---------------- ----------------
Net decrease in cash and cash equivalents (10,139) (3,478)
Cash and cash equivalents, beginning of period 12,405 10,498
---------------- ----------------
Cash and cash equivalents, end of period $ 2,266 $ 7,020
================ ================
Cash paid during the period:
Interest, net of amount capitalized $ 442 $ 130
Income taxes 1,300 --
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE> 7
PHYSICIAN RELIANCE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts
of Physician Reliance Network, Inc. and its subsidiaries for the three months
ended March 31, 1996, and 1995, respectively. All significant intercompany
transactions have been eliminated. Certain reclassifications of prior year
amounts have been made to conform to the current year presentation.
2. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental schedule of noncash investing and financing activities
are as follows:
During 1996, the Company acquired assets in exchange for $2,125,000 of
common stock and a commitment to issue approximately $2,311,000 of common stock
in connection with the execution of certain Service Agreements.
3. PUBLIC OFFERING:
In April 1996, the Company completed a public offering of 2,690,000
shares of common stock. The net proceeds to the Company from the Offering were
approximately $102,300,000, of which $59,000,000 was used to repay amounts
outstanding under the Revolver. The remainder of the net proceeds will be used
for future capital expenditures, acquisitions, amounts paid to Affiliated
Physician Groups as consideration for entering into service agreements, and for
working capital.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included in its December
31, 1995, Annual Report on Form 10-K and with the Condensed Consolidated
Financial Statements included in this Form 10-Q.
OVERVIEW
The Company provides the management, facilities, administrative and
technical support, and ancillary services necessary to establish and maintain a
fully-integrated network of outpatient oncology care. The Company's affiliated
physicians groups ("Affiliated Physician Groups") provide all aspects of care
related to the diagnosis and treatment of cancer on an outpatient basis,
including medical oncology, radiation oncology, gynecological oncology, and
diagnostic radiology. The Company earns its revenues for services provided
under its service agreements ("Service Agreements") with the Affiliated
Physician Groups. The Company's medical service revenues (the "Medical Service
Revenues") are equal to gross billings of its Affiliated Physician Groups
("Gross Medical Billings") less contractual discounts, provision for
uncollectible accounts, and amounts retained by physicians ("Amounts Retained
by Physicians") pursuant to its Service Agreements. Under the Service
Agreements, the Company receives a fee for services rendered, and the method of
determining the fee varies based upon the agreement entered into with the
physician groups. The Company's most significant service agreement is with
Texas Oncology, P.A. (the "Texas Service Agreement"). Effective January 1,
1996, the method of calculating the Company's management fee under the Texas
Service Agreement was amended. Prior to the amendment, the management fee to
the Company was based upon a percentage of Gross Medical Revenues. Under the
amended Service Agreement, the management fee to the Company is based upon a
percentage of the earnings before interest and taxes ("Earnings") plus certain
nonphysician expenses of the related practice locations. The Company and Texas
Oncology, P.A. believe that this change in calculating the Company's management
fee and the related Amounts Retained by Physicians better aligns the incentives
of the Company and Texas Oncology, P.A. for the development and the expansion
of service lines and locations as well as the management of the cost of
providing services. The Company believes that as capitated arrangements with
payors increase, a management fee based upon Earnings is more appropriate and
that an increasing amount of its revenues in the future will be from management
service agreements with a management fee based upon a percentage of Earnings
rather than based on Gross Medical Revenues.
The following table summarizes (in thousands) the derivation of
Medical Service Revenues for the periods indicated.
<TABLE>
<CAPTION>
Three Months ended March 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Gross Medical Billings $ 101,533 $ 66,804
Contractual Discounts (36,771) (25,576)
------------ ------------
Gross Medical Revenues 64,762 41,228
Provision for uncollectible accounts (1,322) (1,735)
Amounts Retained by Physicians (15,909) (13,676)
------------ ------------
Medical Service Revenues $ 47,531 $ 25,817
============ ============
</TABLE>
8
<PAGE> 9
The following table sets forth the percentages of total revenues
represented by certain items reflected in the income statement. The
information that follows should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
------ ------
<S> <C> <C>
Revenues:
Medical service revenues 95.6% 95.6%
Other revenues 4.4 4.4
------ ------
Total revenues 100.0 100.0
Costs and expenses:
Salaries and benefits 28.3 29.4
Pharmaceutical and supplies 25.5 26.1
General and administrative 21.3 26.2
Depreciation and amortization 6.5 5.2
------ ------
Income before interest expense and taxes 18.4 13.1
Interest expense 1.2 0.5
------ ------
Income before income taxes 17.2 12.6
Income taxes 6.8 4.9
------ ------
Net income 10.4% 7.7%
====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995
The following discussion compares the three months ended March 31,
1996, to the three months ended March 31, 1995.
MEDICAL SERVICE REVENUES. Medical Service Revenues were $47,531,000
for the three months ended March 31, 1996, compared to $25,817,000 for the
three months ended March 31, 1995, representing an increase of $21,714,000 or
84.4%. The growth in Medical Service Revenues is attributable to a $34,729,000
increase in Gross Medical Billings generated by the Affiliated Physician Groups
offset by an increase in Amounts Retained by Physicians of $2,233,000 and a
decrease in the provision for uncollectible revenues of $413,000. The growth
in Gross Medical Revenues during the three months ended March 31, 1996, is due
to an increase in the number of physicians by 85 at March 31, 1996, compared to
March 31, 1995; an increase in the number of service locations from 49 to 78;
and growth of the revenue base from expansion of services provided at existing
locations. The increase over the prior period in the number of physicians is
comprised of 55 medical oncologists, 13 radiation oncologists, and 17 other
physicians.
The Company began expansion of its management services to
oncology-related physicians outside the state of Texas in April 1995. During
1995, the Company entered into Service Agreements with physicians in Iowa,
Oregon, Missouri, and Washington. In January 1996, the Company entered into
Service Agreements with physicians in Maryland, and in March 1996, with
physicians in Arkansas.
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<PAGE> 10
The Company opened four full-service cancer centers, which include
radiation therapy services, since March 31, 1995 (the Brownsville cancer center
opened in June 1995, the Southwest Dallas cancer center opened in August 1995,
and the North Dallas and Mesquite cancer centers opened in September 1995).
The Company assumed the operations of the Midland cancer center in April 1995
under a ten-year lease. In addition, effective April 1, 1996, the Company
purchased an existing cancer treatment facility and assumed the operations of
another facility in El Paso, Texas, and Las Cruces, New Mexico, respectively.
Amounts Retained by Physicians were 24.7% of Gross Medical Revenues
for the three months ended March 31, 1996, compared to 33.2% of Gross Medical
Revenues for the comparable period in 1995. The decrease in the percentage is
due to the expansion of services offered through the Company's facilities, the
change in calculating the Company's management fee under the Texas Service
Agreement, and the addition of new Agreements entered into with Affiliated
Physician Groups outside of Texas.
Contractual discounts were 36.2% of Gross Medical Billings for the
three months ended March 31, 1996, compared to 38.3% of Gross Medical Billings
for the comparable period in 1995. A larger percentage of the Company's
revenue is derived from managed care payors. The managed care payors with whom
the Company has contracts reimburse the Company on a discounted fee-for-service
basis, which accounted for 25% and 21% of Gross Medical Billings for the three
months ended March 31, 1996 and 1995, respectively. The provision for
contractual discounts and for uncollectible accounts reflects the Company's
current collection experience.
OTHER REVENUES. Other revenues for the three months ended March 31,
1996, were $2,179,000 compared to $1,176,000 for the three months ended March
31, 1995, representing an increase of $1,003,000, or 85.3%. Other revenues are
primarily derived from retail pharmacy operations located in certain of the
Company's cancer centers and larger physician offices and from research
activities performed by the Company's affiliated physicians that are sponsored
by certain pharmaceutical companies. The Company's pharmacy locations provide
convenient oncologic and pain management pharmaceuticals to patients. The
increase in the retail pharmacy revenues is a result of the growth in the
number of locations opened as of March 31, 1996, of 21 compared to 12 as of
March 31, 1995.
SALARIES AND BENEFITS. Salaries and benefits for the three months
ended March 31, 1996, were $14,080,000 compared to $7,927,000 for the three
months ended March 31, 1995, representing an increase of $6,153,000 or 77.6%.
Salaries and benefits include certain costs of clinical nonphysician employee
expenses paid by the Company pursuant to the terms of the Service Agreements.
The dollar increase in the salaries and benefits was due to the addition of
clinical and nonclinical personnel required to support the increase in
Affiliated Physician Groups. The percentage of salaries and benefits to total
revenues was 28.3% for the three months ended March 31, 1996, compared to 29.4%
for the comparable period in 1995. This decrease in the percentage of salaries
and benefits to total revenues was due to enhanced services, such as radiation
therapy, where the incremental personnel cost of providing services is less
than the increase in the revenues generated. In addition, the Company's
incremental cost of administrative personnel, such as billing and collection
personnel, does not increase proportionately to the increase in revenues as a
result of the Company's increasing use of technologies such as electronic
billing and remittances with certain large payors. The decrease in the
percentage was offset, in part, through the increase in corporate management,
required to support the Company's expanded operations.
PHARMACEUTICALS AND SUPPLIES. Pharmaceuticals and supplies for the
three months ended March 31, 1996, were $12,671,000 compared to $7,041,000 for
the three months ended March 31, 1995, representing an increase of $5,630,000
or 80.0%. The dollar increase in pharmaceuticals and supplies for the three
months ended March 31, 1996, compared with the comparable period in the prior
year is attributable to an increase in infusion, radiation, and breast
diagnostic services generated by the Affiliated Physician Groups, both through
the increased number of physicians and the enhancement of services provided in
physician offices and cancer centers. The percentage of pharmaceuticals and
supplies to total revenues was 25.5% for the three months ended March 31, 1996,
compared to 26.1% for the three months ended March 31, 1995. The percentage of
pharmaceuticals and supplies to total revenues decreased as a result of the
increased growth in the radiation therapy services (as compared to
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<PAGE> 11
chemotherapy infusion services) generated by the Affiliated Physician Groups.
Radiation therapy services, unlike chemotherapy infusion services, do not
require significant pharmaceuticals in connection with treatments.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for
the three months ended March 31, 1996, were $10,597,000 compared to $7,082,000
for the three months ended March 31, 1995, representing an increase of
$3,515,000 or 49.6%. The percentage of general and administrative expenses to
total revenues was 21.3% for the three months ended March 31, 1996, compared to
26.2% for the three months ended March 31, 1995. The increase in general and
administrative expenses is attributable in part to additional occupancy costs
of $1,348,000 consisting primarily of rents, utilities, and taxes incurred to
support the additional office and leased cancer centers, which have commenced
operations since March 31, 1995. Purchased services increased $1,117,000
primarily due to increased reference laboratory services that have been
contracted by the Company to support the Company's expanded operations and
amounts incurred for temporary clerical work to assist in the expansion of the
Company's existing and new service locations. Other general and administrative
expenses increased $950,000 as a result of the increased level of travel,
promotions, telecommunications services, and insurance required to support the
Company's expanded opertaions. The provision for uncollectible accounts
related to Medical Service Revenues increased $100,000 and reflects the results
of the Company's current collections experience.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
three months ended March 31, 1996, was $3,232,000 compared to $1,407,000 for
the three months ended March 31, 1995, representing an increase of $1,825,000
or 129.7%. Depreciation increased $1,358,000 as a result of the additional
office and cancer center locations that were opened or assumed by the Company
since March 31, 1995. Amortization increased $467,000 as a result of the
increase in Service Agreement costs incurred as consideration for the
Affiliated Physician Groups entering into Service Agreements with the Company.
INTEREST. Interest expense for the three months ended March 31, 1996,
was $579,000 compared to $130,000 for the three months ended March 31, 1995,
representing an increase of $449,000 or 345.9%. The proceeds from the
Company's initial public offering in December 1994, were used to fund a portion
of the Company's capital expenditures incurred during the three months ended
March 31, 1995. The increased level of capital expenditures during the three
months ended March 31, 1996, and the related increase in amounts borrowed under
the revolving line of credit ("Revolver") resulted in the increase in interest.
INCOME TAXES. Income taxes were $3,378,000 for the three months ended
March 31, 1996 compared to $1,333,000 for the three months ended March 31,
1995, representing an increase of $2,045,000 or 153.4%. Income taxes were
provided on the taxable income of the Company for federal and state reporting
purposes at an effective rate of 39%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated its cash flows from operations,
bank financing, and the sale of securities. The Company's primary cash
requirements are for construction of cancer centers, acquisition of equipment
for cancer centers and medical offices, and financing receivables. More
recently, the Company has also used cash, in part, when acquiring assets from
and entering into Service Agreements with Affiliated Physician Groups.
Net cash used in operations for the three months ended March 31, 1996,
was $18,265,000. Collections on the Company's accounts receivable, which are
purchased at the end of each month under the terms of the Service Agreements,
are an integral part of the Company's liquidity from operating activities.
Under the terms of the Service Agreements, the accounts receivable are
purchased net of estimated contractual discounts and estimated uncollectible
accounts. In addition, the Company typically purchases the outstanding
accounts receivables of Affiliated Physician Groups when a group enters into a
Service Agreement. Net cash was used from operations for
11
<PAGE> 12
the quarter ended March 31, 1996, primarily as a result of the continued growth
in the Company's existing business, the increase in the number of physicians
that have affiliated with the Company, and the corresponding impact that the
growth had on the amount of receivables purchased by the Company and financed
by cash flows from operations.
Net cash used in investing activities for the three months ended March
31, 1996, was $23,070,000. During the three months ended March 31, 1996, the
Company continued the construction and equipping of a cancer center in El Paso,
Texas which is scheduled to open in June, a diagnostic imaging center located
adjacent to the Mesquite cancer center scheduled to open in May, and the
remodeling and expansion of the Plano and Sherman cancer centers. In January
1996, the Company made a final payment on twelve computerized tomography scan
machines that were acquired and installed in certain of its cancer centers
beginning in March 1994. In addition, land was purchased for future
development of cancer centers in Eugene, Oregon and Abilene, Texas and
$1,757,000 was paid to the Affiliated Physician Groups in Maryland and Arkansas
who entered into Service Agreements in January and March, respectively. The
Company is currently committed to approximately $16,000,000 in capital
expenditures related to construction activities and the acquisition of
equipment. These expenditures are expected to be funded primarily using
proceeds from the Company's recently completed public offering and from
borrowings under its Revolver.
Net cash flows from financing activities for the three months ended
March 31, 1996, were $31,186,000. Borrowings under the Company's Revolver were
$36,000,000 and were used to finance the Company's ongoing construction and
development activities, the acquisition of equipment, and for working capital
purposes. During the three months ended March 31, 1996, payments of $4,866,000
were made to Affiliated Physician Groups on Company-financed notes that have
been issued as part of the consideration for entering into a Service Agreement.
In April 1996, the Company completed a public offering of 2,990,000 shares of
common stock of which 2,690,000 were sold by the Company and 300,000 were sold
by a selling shareholder. The net proceeds to the Company from this offering
were approximately $102,300,000, of which $59,000,000 was used to repay amounts
outstanding under the Revolver as of the closing date. The remainder of the
proceeds are expected to be used for future capital expenditures, acquisitions,
amounts paid to Affiliated Physician Groups as consideration for entering into
Service Agreements, and for working capital.
The Company's Revolver provides for maximum borrowings of up to $90
million (based on a calculation of the Company's borrowing base). The Company
has the option of financing borrowings under the Revolver at either a LIBOR-
based rate (LIBOR plus 1% at March 31, 1996) or the Prime Rate. The Revolver
also contains covenants that, among other things, require the Company to
maintain certain financial ratios and impose restrictions on the Company's
ability to incur future indebtedness, pay cash dividends, sell assets, and
redeem or repurchase Company securities. Currently, the Company has available
borrowing capacity under the Revolver of $90,000,000.
The Company expects that its principal use of funds in the foreseeable
future will be for the construction of cancer centers and the acquisition of
the related equipment, which is expected to be approximately $40 million
through the remainder of 1996; acquisition of medical practice assets; entering
into Service Agreements with physician practices; repayment of notes issued in
connection with the acquisition of Service Agreement; and working capital. The
Company believes that proceeds from the recently completed public offering and
unused borrowing capacity under the Revolver will be sufficient to meet its
needs in the near term. In addition, the Company will continue to lease cancer
centers under operating leases rather than construct them if the implicit cost
of construction is equal to or less than the cost to construct its own
facilities.
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<PAGE> 13
Part II
Item 1. Legal Proceedings.
In March 1996, Methodist Hospitals of Dallas ("Methodist") filed a
lawsuit in the District Court of Dallas County, Texas against the Company and
TOPA. This lawsuit asserts various claims, including claims of monopolization,
attempted monopolization, conspiracy to monopolize, unfair competition, and
tortious interference with contractual relationships. Methodist seeks both
injunctive relief and unspecified monetary and punitive damages. The Company
has denied each of Methodist's claims, believes this lawsuit is without merit,
and intends to vigorously defend itself. The Company is not aware of any
governmental actions to assert claims against TOPA or the Company similar to
those asserted by Methodist.
Item 2. Changes in Securities.
Effective May 7, 1996, the Company's Articles of Incorporation was
amended to increase the authorized shares of common stock from 50,000,000 to
150,000,000. The additional authorized shares of common stock may be issued by
the Board of Directors, at their discretion and without shareholder approval,
except as may be required by law or the rules of the Nasdaq Stock Market.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.1 -- Articles of Incorporation of Registrant. --
3.2* -- Bylaws of the Registrant. --
4.1* -- See Exhibits 3.1 and 3.2 for provisions of the Articles of --
Incorporation and Bylaws defining rights of the holders of the Common
Stock of the Registrant.
4.2* -- Form of Stock Certificate for the Common Stock of the Registrant. --
10.1* -- Amended and Restated Service Agreement, dated as of October 1, 1993, --
by and between the Registrant and Texas Oncology, P.A., as amended by
Amendment No. 1.
10.2* -- Restated Security Agreement, dated as of October 1, 1993, by Texas --
Oncology, P.A. in favor of Registrant.
10.3* -- Service Agreement, dated as of October 1, 1993, by and between Texas --
Oncology Pharmacy Services, Inc. and Texas Oncology, P.A.
10.4**** -- Amended and Restated Loan and Security Agreement among Bank One, --
Texas, N.A. as administrative lender, Bank One, Texas, N.A., and
NationsBank of Texas, N.A., as lenders, and the Registrant, dated
effective December 31, 1995.
10.5* -- Series A Convertible Preferred Stock Purchase Agreement, dated as of --
October 8, 1993, by and among the Registrant, Texas Oncology, P.A.,
and certain investors.
10.6* -- Stockholders' Agreement, dated October 8, 1993, by and among the --
Registrant, Texas Oncology, P.A., and certain investors.
10.7* -- Registration Rights Agreement, dated as of October 8, 1993, by and --
among the Registrant, Texas Oncology, P.A., and certain investors.
10.8* -- Series B Convertible Preferred Stock Purchase Agreement, dated as of --
September 16, 1994, between the Registrant and Baylor University
Medical Center.
10.9* -- Stockholders' Agreement, dated as of September 16, 1994, by and among --
the Registrant, Texas Oncology, P.A., and Baylor University Medical
Center.
10.10* -- Registration Rights Agreement, dated as of September 16, 1994, by and --
among the Registrant, Texas Oncology, P.A., and Baylor University
Medical Center.
10.11* -- Promissory Note of Texas Oncology, P.A., dated September 15, 1994, in --
the original principal amount of $6,600,000, payable to the order of
the Registrant.
10.12* -- Lease Agreement, dated as of August 1, 1994, by and between Baylor --
Health Care System, as landlord, and the Registrant, as tenant.
10.13* -- Lease, dated as of September 1, 1992, by and between Mother Frances --
Hospital of Tyler, Texas, as landlord, and the Registrant, as tenant.
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10.14* -- Office Lease Agreement, dated as of February 12, 1993, by and between --
Texas Commerce Bank -- Odessa, N.A., as lessor, and the Registrant,
as Lessee.
10.15* -- Arlington Medical Center Medical Office Building Lease Agreement, --
dated as of December 8, 1993, by and between HCA-Arlington, Inc., as
landlord, and the Registrant as tenant.
10.16** -- Sublease, dated as of January 24, 1995, by and between Eagle Snacks, --
Inc., as Sublandlord, and the Registrant, as Subtenant.
10.17*** -- Lease Agreement, dated as of April 2, 1995, by and between Midland --
County Hospital District, as landlord, and the Registrant, as tenant.
10.18**** -- Office Lease, dated as of November 20, 1996, by and between --
Northcreek Business Park, Ltd., as lessor, and the Registrant, as
lessee.
10.19**** -- First Amendment to Lease, dated as of February 29, 1996, by and --
between Northcreek Business Park, Ltd., as lessor, and the
Registrant,
as lessee.
10.20**** -- Lease Agreement, dated June 16, 1995, between Medical City Dallas --
Limited, as lessor, and the Registrant, as lessee.
10.21**** -- First Amendment to Lease Agreement, dated November 9, 1995, by and --
between Medical City Dallas Limited, as lessor, and the Registrant,
as lessee.
10.22**** -- Lease Agreement, dated as of June 1, 1995, by and between Galen --
Hospitals of Texas, Inc., as lessor, and the Registrant, as lessee.
10.23**** -- Lease Agreement, dated as of June 1, 1995, by and between Galen --
Hospitals of Texas, Inc., as lessor, and the Registrant, as lessee.
10.24 -- Two Lincoln Centre office sublease agreement between Santa Fe --
International Corporation as landlord and Physician Reliance Network,
Inc., as tenant.
10.25 -- Amended and Restated Service Agreement between Physician Reliance --
Network, Inc. and Texas Oncology, P.A.
EXECUTIVE COMPENSATION PLANS AND MANAGEMENT CONTRACTS
10.26* -- 1993 Stock Option Plan. --
10.27* -- 1994 Stock Option Plan for Outside Directors. --
10.28* -- Form of Employment Agreement entered into by the Registrant with Drs. --
Reese and Bailes and with Messrs. Kurtz, McGinn, Sims, and Whren.
11 -- Statement re net income per common equivalent share.
21**** -- Subsidiaries of the Registrant. --
</TABLE>
14
# _________________
* Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33- 84436).
** Incorporated by reference to the Registrant's Transition Report
on Form 10-K for the period from October 1, 1994 through
December 31, 1994.
*** Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33- 90996).
**** Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHYSICIAN RELIANCE NETWORK, INC.
Date: May 15, 1995 By: /s/ Merrick H. Reese
----------------------------------
Merrick H. Reese, President and
Chief Executive Officer
By: /s/ Randall D. Kurtz
----------------------------------
Randall D. Kurtz, Executive Vice
President Chief Financial Officer
and Treasurer
16
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PHYSICIAN COMPETITIVE RESOURCE CORPORATION
The undersigned natural person of the age of eighteen (18) years or
more, acting as incorporator of a corporation under the Texas Business
Corporation Act, hereby adopts the following Articles of Incorporation for the
Corporation:
1. NAME. The name of the Corporation is Physician Competitive
Resource Corporation.
2. DURATION. The period of its duration is perpetual.
3. PURPOSE. The purpose for which the corporation is organized
is the transaction of any or all lawful business.
4 . CAPITAL STOCK. The corporation shall have the authority to
issue two classes of shares, to be designated "common" and "preferred." The
aggregate number of shares of capital stock that the Corporation has authority
to issue is 55,000,000 shares, which shall consist of 50,000,000 shares of
common stock, having no par value, and 5,000,000 shares of preferred stock,
having no par value.
5. DIRECTORS TO ESTABLISH-SERIES. The shares of preferred stock
authorized by these Articles of Incorporation may be issued from time to time
in one or more series, as may be established from time to time by the Board of
Directors. The Board of Directors is hereby authorized to establish series of
unissued shares of preferred stock and to fix or alter the designations,
preferences, limitations, and relative rights, including without limitation
voting rights, dividend rates, conversion rights, rights and terms of
redemption (along with any sinking fund provisions), and liquidation
preferences, of the shares of any series of preferred stock, and the number of
shares constituting any such series.
6 . DENIAL OF PREEMPTIVE RIGHTS. Except as expressly provided by
contract, no holder of shares of stock of the Corporation shall have any
preemptive or other right to purchase or subscribe for or receive any shares of
any class, or series thereof, of stock of the Corporation, whether now or
hereafter authorized, or any warrants, options, bonds, debentures, or other
securities convertible into, exchangeable for or carrying any right to purchase
any shares of any class, or series thereof, of stock. Such additional shares
of stock and such warrants, options, bonds, debentures, or other securities
convertible into, exchangeable for or carrying any right to purchase any shares
of any class, or series thereof, of stock may be issued or disposed of
17
<PAGE> 2
by the Board of Directors to such persons, and on such terms and for such
lawful considerations, as in its discretion it shall deem advisable or as to
which the Corporation shall have by binding contract agreed.
7. NON-CUMULATIVE VOTING. Cumulative voting by the
shareholders of the Corporation at any election for directors is expressly
prohibited.
8 . PURCHASE OF SHARES. The Corporation may purchase directly
or indirectly, its own shares to the extent of the surplus of the Corporation.
9. COMMENCEMENT OF BUSINESS. The Corporation will not commence
business until it has received for the issuance of its shares consideration of
the value of at least One Thousand Dollars ($1,000.00), consisting of money,
labor done or property actually received.
10. REGISTERED OFFICE AND AGENT. The street address of the
initial registered office of the Corporation is 3320 Live Oak, Suite 700,
Dallas, Texas 75204, and the name of the Corporation's initial registered agent
at that address is Merrick H.-Reese.
11. INITIAL DIRECTORS. The number of directors constituting the
initial Board of Directors is one (1) , and the name and address of such person
who is to serve as director until the first annual meeting of the shareholders
or until his successor is elected and qualified is:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Merrick H. Reese 3720 Live Oak, Suite 700
Dallas, Texas 75204
</TABLE>
12. INCORPORATOR. The name and address of the incorporator are
Merrick H. Reese, 3320 Live Oak, Suite 700, Dallas, Texas 75204.
13. INTERESTED DIRECTORS. OFFICERS AND SECURITY HOLDERS. No
contract or transaction between the Corporation and one or more of its
directors, officers, or security holders, or between the Corporation and any
other Corporation, partnership, association, or other organization in which one
or more of its directors, officers, or security holders are directors or
officers or have a financial interest, shall be void or voidable solely for
this reason, solely because the director, officer, or security holder is
present at or participates in the meeting of the Board of Directors, a
committee thereof, or shareholders which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if:
(a) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or
committee in good faith authorized the contract or transaction by the
affirmative
18
<PAGE> 3
vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
(b) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the shareholders; or
(c) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved, or ratified b the Board of
Directors, a committee thereof, or the shareholders.
Interested directors shall be counted in determining the presence of a quorum
at a meeting of the Board of Directors, a committee thereof, or shareholders
which authorizes the contract or transaction.
14. INDEMNITY. The Corporation shall indemnify each person who is
or was a director, officer, employee or agent of the Corporation to the fullest
extent permitted by the Texas Business Corporation Act, as the same exists or
may hereafter be amended but such indemnification shall not be deemed exclusive
of any other rights to which any director, officer, employee or agent may
entitled. The Corporation may purchase and maintain insurance or another
arrangement on behalf of any person who is or was director, officer, employee
or agent of the Corporation as permitted by the Texas Business Corporation Act,
as amended.
15. LIMITATION ON DIRECTOR LIABILITY. A director of the
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director, except to the extent otherwise expressly provided by the Texas
Miscellaneous Corporation Laws Act, and the Texas Business Corporation Act, as
such statutes now exist or may hereafter be amended. Any repeal or
modification of this Article or adoption of any other provision of these
Articles Incorporation inconsistent with this Article by the shareholders the
Corporation shall be prospective only and shall not adversely affect any
limitation of the liability of a director of the Corporation existing at the
time of such repeal, modification, or adoption of an inconsistent provision.
16. BYLAWS. The initial bylaws shall be adopted by the Board of
Directors. The power to alter, amend, or repeal the bylaws or adopt new bylaws
is vested exclusively in the Board of Directors
17. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required
by the Texas Business Corporation Act or the Corporation's bylaws to be taken
at a meeting of the shareholders, or any action which may be taken at any
meeting of the shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall have been signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to
take such
19
<PAGE> 4
action at a meeting at which the holders of all shares entitled to vote on the
action were present and voted.
18. VOTE REQUIRED FOR CERTAIN MATTERS. With respect to any matter
for which the affirmative vote of the holders of a specified portion of the
shares entitled to vote is required by the Texas Business Corporation Act, the
affirmative vote of the holders of a majority of the shares entitled to vote on
such matter, rather than the affirmative vote otherwise required by the Texas
Business Corporation Act, shall be the act of the shareholders.
19. VOTE REQUIRED IN ELECTION OF DIRECTORS. A director shall be
elected only if the director either (i) receives the vote of the holders of a
majority of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of shareholders at which a quorum is present
or (ii) is elected by written consent of the holders of a majority of the
shares entitled to vote in the election of directors.
20. SPECIAL MEETING OF SHAREHOLDERS. Special meetings of the
shareholders of the Corporation may be called only by the Chief Executive
Officer or the Board of Directors at the request of the holders of at least
thirty (30%) percent of all the issued and outstanding shares entitled to vote
at the proposed meeting.
IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of June, 1993
-----------------------------------
Merrick H. Reese
20
<PAGE> 5
ARTICLES OF AMENDMENT
OF
PHYSICIAN RELIANCE NETWORK, INC.
Pursuant to Article 4.04 of the Texas Business Corporation Act,
Physician Reliance Network, Inc. hereby adopts the following Articles of
Amendment to its Articles of Incorporation.
1. Name. The name of the corporation is Physician Reliance
Network, Inc.
2. Amendment. The following amendment to the Articles of
Incorporation was adopted by the shareholders of the corporation as of May 8,
1996:
Article 4 of the Articles of Incorporation is amended in its
entirety to read as follows:
4. CAPITAL STOCK. The Corporation shall have
the authority to issue two classes of shares, to be designated
"common" and "preferred." The aggregate number of shares of
capital stock that the Corporation has authority to issue is
155,000,000 shares, which shall consist of 150,000,000 shares
of common stock, having no par value, and 5,000,000 shares of
preferred stock, having no par value.
3. Voting of Shares. The number of shares of common stock of the
corporation outstanding at the time of adoption of the amendment to the
Articles of Incorporation was 20,869,130; the number of common shares entitled
to vote thereon was 20,869,130; the number of shares voted for such amendment
was 12,942,372; and the number of shares voted against such amendment was
3,982,146. No shares of preferred stock were outstanding at the time of
adoption of such amendment.
4. Exchange, Reclassification or Cancellation. The amendment set
forth in Section 2 hereof does not provide for any exchange, reclassification,
or cancellation of issued shares.
5. Change in Stated Capital. The amendment set forth in Section
2 hereof does not effect a change in the amount of stated capital.
Adopted as of May 8, 1996.
PHYSICIAN RELIANCE NETWORK, INC.
By:
--------------------------------
Merrick H. Reese, President
21
<PAGE> 6
ARTICLES OF AMENDMENT
OF
PHYSICIAN COMPETITIVE RESOURCE CORPORATION
Pursuant to Article 4.04 of the Texas Business Corporation Act,
Physician Competitive Resource Corporation hereby adopts the following Articles
of Amendment to its Articles of Incorporation.
1. Name. The name of the corporation is Physician Competitive
Resource Corporation.
2. Amendment. The following amendment to the Articles of
Incorporation was adopted by the shareholders of the corporation as of April 5,
1994:
(a) Article 1 of the Articles of Incorporation is amended
in its entirety to read as follows:
1. Name. The name of the corporation is Physician
Reliance Network, Inc.
3. Voting of Shares. The number of shares of common stock and
preferred stock of the corporation outstanding at the time of such adoption was
10,000,000; the number of common shares and preferred shares entitled to vote
thereon was 10,000,000; and the holders of a majority of the shares outstanding
and entitled to vote on said amendment have signed a consent in writing
adopting said amendment as permitted by the Articles of Incorporation of the
corporation.
4. Exchange, Reclassification or Cancellation. The amendment set
forth in Section 2 hereof does not provide for any exchange, reclassification,
or cancellation of issued shares.
5. Change in Stated Capital. The amendment set forth in Section
2 hereof does not effect a change in the amount of stated capital.
Adopted as of April 5, 1994.
PHYSICIAN COMPETITIVE RESOURCE
CORPORATION
By:
-------------------------------
Merrick H. Reese, President
22
<PAGE> 1
EXHIBIT 10.24
TWO LINCOLN CENTRE
OFFICE SUBLEASE AGREEMENT
BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD,
AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
DATED April 23,1996
23
<PAGE> 2
TABLE OF CONTENTS
OFFICE SUBLEASE AGREEMENT
BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD
AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
1. Definitions 1
(a) Building 1
(b) Premises 1
(c) Base Rental 1
(d) Commencement Date 1
(e) Lease Term 1
(f) Intentionally omitted 1
(g) Expense Stop 2
(h) Intentionally omitted I 2
(i) Shell Improvements 2
(j) Common Areas 2
(k) Service Areas 2
(l) Rentable Area 2
(m) Normal Business Hours 2
(n) Initial Improvements 2
(o) Building Grade 2
(p) Basic Costs 3
</TABLE>
i
24
<PAGE> 3
<TABLE>
<S> <C>
(q) Intentionally omitted 3
(r) Centre 3
2. Lease Grant 3
3. Lease Term 3
4. Use 3
5. Base Rental 3
6. Services to be Furnished by Landlord 4
7. Future Improvements 7
8. Maintenance and Repair of Premises by Landlord 7
9. Graphics 7
10. Care of the Premises by Tenant 8
11. Repairs and Alterations by Tenant 8
12. Use of Electrical Services by Tenant 8
13. Laws and Regulations 9
14. Building Rules 9
15. Entry by Landlord 9
16. Assignment and Subletting 10
17. Mechanic's Liens 11
18. Property Insurance 12
19. Liability Insurance 12
20. Indemnity 12
21. Waiver of Subrogation Rights 13
22. Casualty Damage 13
23. Condemnation 15
24. Damages from Certain Causes 16
25. Events of Default/Remedies 17
</TABLE>
ii
25
<PAGE> 4
<TABLE>
<S> <C>
26. Peaceful Enjoyment 20
27. Holding Over 21
28. Subordination to Mortgage 21
29. Estoppel Certificates 21
30. Landlords Lien 22
31. Attorney's Fees 22
32. No Implied Waiver 22
33. Personal Liability 22
34. Landlord's Warranties, Representations and Covenants 22
35. Notice 24
36. Severability 24
37. Recordation 24
38. Governing Law 24
39. Force Majeure 24
40. Time of Performance 24
41. Transfers by Landlord 24
42. Transfers by Tenant 25
43. Commissions 25
44. Effect of Delivery of This Lease 25
45. Entire Agreement 25
46. Receipt of Premises 25
47. Merger of Estates 25
48. Waste Management 25
49. Americans with Disabilities Act and Texas Architectural Barriers Act 26
50. Environmental Survey 26
51. Representations and Warranties 26
52. Exhibits and Addendum 27
</TABLE>
iii
26
<PAGE> 5
TWO LINCOLN CENTRE
OFFICE SUBLEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), is made and entered into as of
, between SANTA FE INTERNATIONAL CORPORATION, a
Cayman Islands corporation formerly known as Santa Fe Drilling Co.
("Landlord"), duly authorized to do business in the State of Texas and
PHYSICIAN RELIANCE NETWORK, INC. ("Tenant"). Landlord is the current tenant
under that certain Office Lease Agreement (the "Master Lease") dated as of
April 26, 1993, by and between Two Lincoln Centre - A Joint Venture, a Texas
joint venture (the "Master Landlord") and the Landlord as the tenant, as
amended by First Amendment dated July 1, 1993, Second Amendment dated January
15, 1994, Third Amendment dated December 1, 1994, Fourth Amendment dated
September 18, 1995, Fifth Amendment dated December 19, 1995, Sixth Amendment
dated January 25, 1996, and Seventh Amendment to Office Lease Agreement dated
April 1, 1996, pursuant to which Master Landlord leased certain premises (the
"Master Premises") to Landlord. The Premises are a part of the Master
Premises. This Lease, including without limitation the rights and privileges
of the Tenant hereunder, is expressly made subject to the terms and conditions
of the Master Lease.
WITNESSETH
1. Definitions.
(a) "Building" shall mean the office building located upon the
real property ("Property") described in Exhibit "A" attached hereto and
incorporated herein. The address of the "Building" is 5420 LBJ Freeway,
Dallas, Texas 75240.
27
<PAGE> 6
(b) "Premises" shall mean all of the eighth and ninth floors,
located within the Building and outlined on the floor plan attached to this
Lease as Exhibit "B", and incorporated herein. The Premises are stipulated for
all purposes to contain approximately 65,960 square feet of "Rentable Area" (as
defined below), being approximately 60,513 square feet of Usable Area (as
defined below).
(c) "Base Rental" shall mean the monthly rental described in
Exhibit "C" ' attached hereto and incorporated herein, as adjusted pursuant to
Exhibit "D", attached hereto and incorporated herein. "Rent" shall mean,
collectively, the Base Rental and other sums of money becoming due and payable
to Landlord hereunder.
(d) "Commencement Date" shall mean April 1, 1996.
(e) "Lease Term" shall mean a ten-n commencing on the Commencement
Date and ending August 31, 2001.
(f) Intentionally omitted.
(g) "Expense Stop" shall mean the Basic Costs (as grossed up and
defined in Paragraph 2(d) of Exhibit "D") per square foot of Rentable Area in
the Building for the calendar year 1996.
(h) Intentionally omitted.
(i) "Shell Improvements" shall mean (i) lay-in acoustical ceiling
grid with acoustical ceiling tile inventory stored on the floor on which the
Premises are located; (ii) central air conditioning and heating ducts and
diffusers in a placement consistent with other such improvements in the
Building; (iii) lay-in fluorescent light fixtures in a placement consistent
with other such improvements in the Building; and (iv) sprinkler heads in a
placement consistent with other such improvements in the Building.
(j) "Common Areas" shall mean those areas devoted to corridors,
elevator foyers, restrooms, mechanical rooms, janitorial closets, electrical
and telephone closets, vending areas,
28
<PAGE> 7
and lobby areas (whether at ground level or otherwise), and other similar
facilities provided for the common use or benefit of tenants generally and/or
the public.
(k) "Service Areas" shall mean those areas within the outside
walls used for elevator mechanical rooms, building stairs, elevator shafts,
flues, vents, stacks, pipe shafts and other vertical penetrations (but shall
not include any such areas for the exclusive use of a particular tenant).
(l) "Rentable Area" of the Premises shall mean (1) the "Usable
Area" within the Premises (i.e., the gross area enclosed by the surface of the
exterior glass walls, the mid-point of any walls separating portions of the
Premises from those of adjacent tenants, the slab penetration line of all walls
separating the Premises from Service Areas and the corridor side of walls
separating the Premises from Common Areas) plus (2) a pro rata part of the
Common Areas within the Building, such proration based upon the ratio of the
Usable Area within the Premises to the total Usable Area within the Building
existing as of the date of this Lease, including the area encompassed by any
columns or other structural elements which provide support to the Premises
and/or the Building. Rentable Area shall not include any Service Areas. The
Rentable Area in the Building existing as of the date of this Lease is 585,000
square feet.
(m) "Normal Business Hours" for the Building shall mean 8 a.m. to
6 p.m. Mondays through Fridays, and 8 a.m. to 1 p.m. on Saturdays, exclusive of
"Normal Business Holidays," which shall mean New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, together with
any other holidays reasonably determined by Landlord from time to time during
the Lease Term..
(n) "Initial Improvements", when used herein, shall mean the
as-built improvements to the Premises, which Master Landlord provided to
Landlord according to the Work Letter attached as Exhibit "E" to the Master
Lease.
(o) "Building Grade" shall mean the type, brand and/or quality of
materials, consistent with standards being used in other areas of the Building,
which Master Landlord designates from time to time to be the minimum quality to
be used in the Building or the exclusive type, grade or quality of material to
be used in the Building.
29
<PAGE> 8
(p) "Basic Costs" shall have the meaning described in Exhibit "D" hereto.
(q) Intentionally omitted.
(r) "Centre" shall mean, collectively, the Building and the other
two (2) office buildings located on the balance of the land located between LBJ
Freeway, the Dallas North Tollway, Harvest Ell Lane, and Noel Road.
2. Lease Grant. Subject to and upon the terms herein set forth,
Landlord leases to Tenant and Tenant leases from Landlord the Premises.
3. Lease Tenn. This Lease shall continue in force during a
period beginning on the Commencement Date and continuing until the expiration
of the Lease Term, unless this Lease is sooner terminated or extended to a
later date under any other term or provision hereof.
4. Use. Tenant may use the Premises for office purposes and for
such other lawful purposes as are incidental or related thereto and which are
consistent with the normal use of a building of this character. Without
limiting the generality of the foregoing, Tenant may maintain in the Premises
employee lunch rooms, coffee bars, executive dining rooms, kitchens for the
foregoing, computer equipment and any other facility or equipment useful in the
normal conduct of Tenant's business not inconsistent with the above-described
use of the Leased Premises as a business office.
5. Base Rental.
(a) Tenant agrees to pay the Rent to Landlord during the
Lease Term, without any setoff or deduction whatsoever other than any abatement
permitted by this Lease, for the nonpayment of which Landlord shall be entitled
to exercise all such rights and remedies as are herein provided in the case of
the non-payment of Base Rental. Except as otherwise provided herein, the Base
Rental for each calendar month or portion thereof during the Lease Term,
together with any estimated adjustment thereto pursuant to Exhibit "D" hereof
then in effect, shall be due and payable in advance in the amounts and on the
dates set forth in Exhibit "C" to this Lease; and Tenant hereby agrees to pay
such Base Rental and any adjustments thereto to Landlord at Landlord's address
provided herein (or such other address as may be designated by Landlord in
writing from time to time) monthly, in advance, and without demand. If
30
<PAGE> 9
the Lease Term terminates on a day other than the last day of a month, then (i)
the installments of Base Rental for such month shall be prorated, based on the
number of days in such month, and (ii) Tenant's share of Basic Costs shall be
prorated as specified in Exhibit "D" hereto. The sum of $173,350.08 has been
deposited with Landlord by Tenant contemporaneously with the execution hereof
and such sum shall be applied by Landlord in payment of the installments of
Base Rental due on January 1, 1997 and August 1, 2001 under this Lease.
(b) All installments of Rent not paid within ten (10)
business days after they become due and payable shall bear interest at the
maximum lawful rate from the due date until paid.
(c) The Base Rental payable hereunder shall be adjusted
from time to time in accordance with the provisions of Exhibit "D" attached
hereto and incorporated herein for all purposes.
6. Services to be Furnished by Landlord. To the extent furnished
by the Master Landlord to Landlord under the Master Lease, Landlord agrees to
furnish Tenant the following:
(a) Facilities for hot and cold water at those points of
supply provided for general use of other tenants in the Building, central heat
and air conditioning in season, at such temperatures and in such amounts as the
Master Landlord is required to furnish to Landlord pursuant to the Master
Lease; provided, however, heating and air conditioning service at times other
than for Normal Business Hours for the Building shall be furnished only upon
the written request of Tenant delivered to Landlord prior to 12:00 noon on the
business day immediately preceding the day for which such usage is requested.
Tenant shall bear the cost incurred by Landlord under the Master Lease in
furnishing such requested additional service, as demonstrated by Landlord to
Tenant from time to time, with a pro rata reduction of such amount to the
extent that other tenants on the same air handling system are also using the
same after-hours services during the same times as Tenant at times other than
Normal Business Hours and shall pay the same as additional Rent upon
presentation of a statement therefor by Landlord and a copy of the statement
for such services from the Master Landlord and all other documents relating
thereto received by Landlord from Master Landlord.
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<PAGE> 10
(b) Routine cleaning, maintenance and electric lighting
service for all Common Areas and Service Areas of the Building in the manner
and to the extent furnished by Master Landlord to Landlord pursuant to the
Master Lease.
(c) Janitor service, five (5) days per week, exclusive of
any Normal Business Holidays.
SuchjanitorserviceshalibethesamequalityasMasterLandlordisrequiredtofumish to
Landlord pursuant to the Master Lease. The Minimum Janitorial Specifications
presently in effect are attached to this Lease as Exhibit "H." provided that
Landlord may change such specifications from time to time if and to the extent
such Minimum Janitorial Specifications are changed by Master Landlord pursuant
to the Master Lease; provided, however, if Tenant's floor covering or other
improvements require special treatment, Tenant shall pay the additional
cleaning cost attributable thereto as additional Rent upon presentation of a
statement therefor by Landlord and a copy of the statement for such services
from the Master Landlord and all other documents relating thereto received by
Landlord from Master Landlord; and provided further that Tenant agrees to
comply with Landlord's requests with respect to waste management as may be
required pursuant to the provisions of Paragraph 48 of this Lease.
(d) Subject to the provisions of Paragraph 12, facilities
to provide all electrical current required by Tenant in its use and occupancy
of the Premises.
(e) All Building Grade fluorescent bulb replacement in
the Premises necessary to maintain the lighting provided as a part of the Shell
Improvements and the Initial Improvements and fluorescent and incandescent bulb
replacement in the Common Areas and Service Areas.
(f) Landlord shall provide limited access to the Building
before and after Normal Business Hours in the form of special limited access
entry cards ("Entry Cards") for Tenant and its employees. An Entry Card shall
not automatically qualify Tenant or any of its employees for an access card to
the "Parking Garage" as defined in and pursuant to the terms of Exhibit T".
Landlord agrees to provide Tenant with up to, but not in excess of, one hundred
fifty (150) entry cards at no cost to Tenant. However, Tenant shall pay
Landlord for any additional or replacement cards, in such amount as Landlord
shall, from time to time, determine, but in no event to exceed Landlord's
actual cost for replacing such cards. Landlord shall be entitled to cancel (by
computer entry) any lost or stolen cards of which it becomes aware. Tenant
shall promptly notify Landlord of any lost or stolen cards. Landlord shall
have no liability to Tenant, its employees, agents, invitees, or licensees for
losses due to theft or burglary, or for damage done by unauthorized persons on
the Premises; and neither Landlord nor Master Landlord shall be required to
insure against any such losses. Tenant shall cooperate fully in Landlord's and
Master Landlord's efforts to maintain security in the Building and shall follow
all regulations
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<PAGE> 11
promulgated by Landlord or Master Landlord with respect thereto. Tenant's
security methods, procedures and systems in the Premises, if any, shall be
reasonable and shall also be subject to Master Landlord's prior written
approval which under the Master Lease will not be unreasonably withheld by
Master Landlord. When and if approved, Landlord agrees to reasonably cooperate
with, and to cause Master Landlord to reasonably cooperate with, Tenant's
efforts to maintain security in the Premises. Tenant further agrees to
surrender all Entry Cards in its possession upon the expiration or earlier
termination of this Lease.
(g) Passenger and freight elevator service for use in
common with other tenants of the Building for access to and from the floors of
the Building upon which the Premises are located. Passenger elevators shall be
available on a twenty-four (24) hour, seven (7) days per week basis, except
with respect to the maintenance and repair thereof, provided, however, that
Master Landlord may for other reasons limit the number of elevators to be in
operation and may require use of an Entry Card to utilize such elevators during
times other than Normal Business Hours. Freight elevators shall also be
available on a twenty-four (24) hour, seven (7) days per week basis, except
during periods of maintenance or repair, provided that Tenant's usage thereof
shall be subject to reasonable scheduling requirements as may be adopted from
time to time by Master Landlord, consistent with the needs of Tenant, Landlord,
Master Landlord and other tenants of the Building.
(h) Unless resulting from Landlord's negligent acts or
omissions or willful misconduct, including without limitation Landlord's breach
of the Master Lease, no interruption or malfunction of any utility service
shall constitute an eviction or disturbance of Tenant's use or possession of
the Premises or a breach by Landlord of any of Landlord's obligations hereunder
or render Landlord or Master Landlord liable or responsible to Tenant for any
loss or damage which Tenant may sustain or incur if either the quantity or
character of any utility service is changed or is no longer available to or is
no longer suitable for Tenant's requirements or entitle Tenant to be relieved
from any of Tenant's obligations hereunder, including, without limitation, the
obligation to pay Rent, or grant Tenant any right to set-off, abatement, or
recoupment. At any time when Master Landlord is making such facilities for
such utility services available to the Premises, Master Landlord may, at Master
Landlord's option, upon not less than thirty (30) days prior written notice to
Landlord, discontinue the availability of any such utility service. If Master
Landlord gives any such notice of discontinuance, Landlord shall promptly
deliver a copy of such notice to Tenant and Landlord shall use reasonable
efforts to cause Master Landlord to make all the necessary arrangements with
the public utility service supplying the utility to the area in which the
Building is located with respect to obtaining such utility service to the
Premises; but Tenant will contract directly with such public utility service
for the supplying of such utility services to the Premises. If such utility
services are at any time discontinued by Master Landlord due to the utility
requirements of Tenant exceeding the types or levels of services which Master
Landlord is currently capable of providing in the Building or by reason of any
other special utility requirements of Tenant, Tenant shall pay the full cost
for the conversion of such services. If such utility services are at any time
discontinued by Master Landlord or Landlord for any other reason, Landlord
shall pay the full cost of such conversion. In either event, for purposes of
making the adjustments to Base Rental pursuant to Exhibit "D" hereof Landlord
shall, from and after the date of such conversion, deduct from Tenant's Expense
Stop the portion of such Basic Costs attributable to the provision of the
utility or utilities service no longer being provided directly by Landlord or
Master Landlord. Additionally, the cost of such directly billed utility
service shall be excluded from the Basic Costs. Unless resulting from
Landlord's negligent acts or omissions or willful misconduct, including without
limitation Landlord's breach of the Master Lease, failure to any extent to make
available, or any slowdown, stoppage, or interruption of, the specified utility
services resulting from any cause, including, without limitation, Master
Landlord's compliance with any voluntary or similar governmental or business
guidelines now or hereafter published or any requirements now or hereafter
established by any governmental agency, board, or bureau having jurisdiction
over the operation of the Building shall not render Landlord or Master Landlord
liable in any respect for damages to either persons, property, or business, nor
be construed as an eviction of Tenant or work an abatement of Rent, nor relieve
Tenant of Tenant's obligations for fulfillment of any covenant or agreement
hereof Should any equipment or machinery furnished by Master Landlord cease to
function
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<PAGE> 12
properly for any reason, Landlord shall use reasonable diligence to cause
Master Landlord to repair same promptly, but Tenant shall have no claim for
abatement of Rent or damages on account of any interruption of service
occasioned thereby or resulting therefrom unless Landlord fails to use
reasonable efforts to cause Master Landlord to repair such equipment or
machinery. Notwithstanding the foregoing, in the event that the Premises, or a
portion thereof, are rendered untenantable by reason of the interruption or
termination of the services specified in Subparagraph (a) or (d) hereof not
caused by Tenant for five (5) consecutive business days and Tenant does not in
fact use the applicable portion of the Premises during such period of
untenantability, then, so long as Base Rental with respect to the Premises is
abated under the Master Lease, Base Rental hereunder shall abate with respect
to that portion of the Premises so rendered untenantable from the business day
Tenant first ceases to use that portion of the Premises to the earlier of (i)
the date Tenant again commences to use that portion of the Premises or (ii) the
date on which that portion of the Premises is again rendered tenantable. In
connection with (i) in the prior sentence, Tenant shall not be considered to
have commenced to "use" the Premises if Tenant simply enters the Premises for a
temporary purpose such as accessing or retrieving vital business records.
Except for interruptions due to force majeure, in the event that such condition
continues for in excess of one hundred twenty (120) consecutive days from the
date the Premises were rendered untenantable, Tenant shall have the right, at
Tenant's sole option, to terminate this Lease by providing written notice to
Landlord of such election within ten (10) consecutive days of the expiration of
such one hundred twenty (I 20) day period. The failure of Tenant to provide
notice to Landlord in the manner and within the time period specified in the
preceding sentence shall be deemed to be an irrevocable waiver of such option.
The foregoing shall be Tenant's sole remedies with respect to any such
occurrence and in no event shall Landlord be liable to Tenant for any failure
by Master Landlord to provide utilities or services to the Leased Premises
unless such failure results from Landlord's negligent acts or omissions or
willful misconduct, including without limitation Landlord's breach of the
Master Lease. Provided, however, Tenant shall not exercise such right of
termination so long as comparable space in the Centre is made available to
Tenant for Tenant's use and occupancy on the same terms and conditions as those
set forth in this Lease, in which case Landlord shall pay Tenant's reasonable
moving costs if Tenant relocates. Notwithstanding anything contained herein to
the contrary, if the failure by Landlord to any extent to furnish the services
described in this Paragraph 6, or any cessation thereof, results from a
casualty as described in Paragraph 22 hereof, then the provisions of Paragraph
22 shall apply instead of this paragraph. Landlord hereby assigns to Tenant
all of Landlord's rights under Paragraph 6 of the Master Lease to the extent
necessary to require Master Landlord to furnish the above services to Tenant,
and Tenant shall have the right, either in its own name or in the name of
Landlord, to take any and all actions Tenant deems necessary or appropriate to
enforce Landlord's rights under the Master Lease with respect to the Premises.
Landlord shall cooperate fully with Tenant in any such action taken by Tenant.
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<PAGE> 13
7. Future Improvements. All installations and improvements
hereafter placed on the Premises by Tenant or Master Landlord at Tenant's
request, shall be for Tenant's account and at Tenant's cost. Tenant shall also
pay all ad valorem taxes and increased insurance premiums that are payable on
account of any improvements that are hereafter placed on the Premises. If
Tenant makes additional improvements after having received Master Landlord's
consent, Tenant will be responsible for additional taxes and insurance
attributable to such additional improvements. Landlord shall use all
reasonable efforts to obtain the consent of Master Landlord to any additional
installations and improvements proposed by Tenant from time to time during the
Lease Term.
8. Maintenance and Repair of Premises by Landlord. Landlord
hereby assigns to Tenant all of Landlord's rights relating to Master Landlord's
maintenance obligation of the Premises and the Building as set forth in the
Master Lease, and Tenant shall have the right, either in its own name or in the
name of Landlord, to take any and all actions Tenant deems necessary or
appropriate to enforce Master Landlord's maintenance obligations under the
Master Lease with respect to the Premises. Landlord shall cooperate fully with
Tenant in any such action taken by Tenant. Landlord shall have no other
obligation to Tenant regarding maintenance of the Premises or the Building.
9. Graphics. Landlord shall cause Master Landlord to provide,
install, repair and replace as necessary, at Tenant's cost, all letters or
numerals on the doors in the Premises, and all signage related to Tenant's
occupancy in the Building. All such letters and numerals shall be in the
standard graphics for the Building and no others shall be used or permitted on
the Premises without Master Landlord's prior written consent. Landlord agrees
to use reasonable efforts to secure the approval of the Master Landlord for any
signs requested by Tenant.
10. Care of the Premises by Tenant. Tenant shall use reasonable
efforts not to allow any waste to be committed on any portion of the Premises,
and at the termination of this Lease to deliver up the Premises to Landlord in
as good condition as at the date of the commencement of the term of this Lease,
ordinary wear and tear excepted.
11. Repairs and Alterations by Tenant. Landlord shall have the
right, at its option, and at Tenant's own cost and expense, to repair or
replace any damage or injury done to the Building, or any part thereof, caused
by Tenant or Tenant's agents, employees, invitees, or visitors, and Tenant
shall pay the cost thereof to the Landlord on demand as additional Rent.
Notwithstanding the aforesaid, except in case of emergencies or mechanical,
electrical, plumbing and structural matters, if repairs become necessary,
which, by the terms hereof, are the responsibility of Tenant, Landlord may make
such repairs only if, after Landlord has given reasonable notice to Tenant of
the need for such repairs, Tenant shall have failed to proceed promptly and
with due diligence to continence such repairs within four (4) business days or
shall thereafter have failed to continuously proceed with due diligence to
complete such repairs within a reasonable period of time not to exceed
twenty-five (25) days. Tenant agrees with Landlord not to make or allow to be
made any alterations to the Premises, install any vending machines on
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<PAGE> 14
the Premises which are visible from outside the Premises, or place signs on the
Premises which are visible from outside the Premises, without first obtaining
the prior written consent of Master Landlord in each such instance, which under
the Master Lease, such consent is not to be unreasonably withheld. Any and all
alterations to the Premises shall become the property of Landlord upon
termination of this Lease (except for movable equipment or furniture owned by
Tenant). Except for those items previously approved by Landlord and Master
Landlord, upon the expiration of the Lease Term or upon the termination of this
Lease, Landlord may require Tenant to remove any fixtures, movable equipment,
furniture, security systems, telephone wiring and telecommunications systems
hereafter installed by or on behalf of Tenant on the Premises or the Building.
12. Use of Electrical Services by Tenant. Tenant's use of
electrical services furnished by Master Landlord shall be subject to the
following:
(a) To the extent furnished by Master Landlord to
Landlord pursuant to the Master Lease, Landlord will provide the necessary
facilities to supply (i) two (2) watts per square foot of Usable Area within
the Premises, at 277 volts, for Tenant's fluorescent lighting and (ii) two (2)
watts per square foot of Usable Area within the Premises, at 120 volts, for
Tenant's receptacle/equipment loads (excluding Tenant's dedicated circuits).
Collectively, Tenant's lighting and receptacle/equipment shall not have an
electrical design load greater than an average of four (4) watts per square
foot of Usable Area within the Premises ("Standard Building Capacity"). The
electrical costs component of Basic Costs is calculated on the basis of the
Standard Building Capacity.
(b) The electrical facilities in the Building available
for Tenant's use are (i) 277/480 volts, 3 phase, for large equipment loads and
fluorescent lighting; and (ii) 120/208 volts, 3 phase, for small equipment
loads and incandescent lighting. Tenant shall notify Landlord, in writing, of
any equipment that has a rated electrical load greater than 500 watts and/or
that requires a service voltage other than 120 volts, and Master Landlord's
written approval shall be required with respect to the installation of any such
high electrical consumption equipment in the Premises.
(c) Tenant shall pay for all costs of meters, submeters,
wiring, risers, transformers, electrical panels, air conditioning and other
items required by Master Landlord, in Master Landlord's discretion, to
accommodate Tenant's design loads and capacities that exceed Standard Building
Capacity, including, without limitation, the installation and maintenance
thereof Notwithstanding the aforesaid, Tenant shall not be required to pay for
the cost of meters or submeters which are already in the Premises which can be
used with no additional cost to Landlord or Master Landlord, provided, however,
Tenant shall pay for any costs of removing and/or relocating such existing
meters and submeters. Notwithstanding the foregoing, Landlord may refuse to
install and withhold consent for Tenant's installation of any wiring, risers,
transformers, electrical panels, or air conditioning if, Master Landlord
determines in Master Landlord's sole but not arbitrary judgment, the same are
not necessary or would cause damage or
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<PAGE> 15
injury to the Building or the Premises or cause or create a dangerous or
hazardous condition or entail excessive or unreasonable alterations or repairs
to the Building or the Premises, or would interfere with or create or
constitute a disturbance to other tenants or occupants of the Building. In no
event shall Landlord incur any liability for Master Landlord's refusal to
install, or the withholding of consent for Tenant's installation of, any such
electrical facility or equipment.
(d) Tenant shall pay to Landlord, upon demand, Landlord's
actual cost of Tenant's consumption of electrical service in excess of the
Standard Building Capacity.
(e) Master Landlord may, at its option, upon not less
than thirty (30) days' prior written notice to Landlord, discontinue the
availability of such extraordinary electrical service. If Master Landlord
gives any such notice, Landlord shall promptly deliver a copy of such notice to
Tenant, and Tenant will contract directly with the applicable public utility
for the supplying of such electrical service to the Premises.
13. Laws and Regulations. Tenant agrees to comply with all
applicable laws, ordinances, rules, and regulations of any governmental entity
or agency having jurisdiction with respect to the Premises.
14. Building Rules. Tenant will comply with the rules and
regulations of the Building as adopted and altered by Master Landlord from time
to time and will cause all of its agents, employees, invitees and visitors to
do so. Promptly after receipt of any rule changes furnished to Landlord by
Master Landlord, such changes will be promptly sent by Landlord to Tenant in
writing. The current rules and regulations for the Building are attached
hereto as Exhibit "E". In the event of any inconsistency or conflict between
Exhibit "E" and any other part of this Lease, the terms of this Lease shall
control.
15. Entry by Landlord. Tenant shall permit Landlord, Master
Landlord or their respective employees, agents or representatives to enter into
and upon any part of the Premises at all reasonable hours (and in emergencies
at all times) in order to: (i) perform Master Landlord's maintenance and repair
obligations under the Master Lease; (h) inspect same (after reasonable advance
verbal notice to Tenant) as Landlord or Master Landlord may reasonably deem
necessary or desirable; (iii) exhibit the Premises to mortgagees or prospective
mortgagees or assignees of mortgages (after reasonable advance verbal notice to
Tenant); and (iv) exhibit the Premises to prospective tenants during the
eighteen (18) months prior to the expiration of the Lease Term (after
reasonable advance verbal notice to Tenant). Landlord shall attempt, and shall
use reasonable efforts to cause Master Landlord, to make reasonable efforts
under the circumstances not to interfere with Tenant's business or use of the
Premises. Tenant shall have the right to accompany Landlord and Master
Landlord upon any such entry by Landlord upon the Premises under (ii), (iii) or
(iv) above; but it is understood by the parties that Landlord or Master
Landlord may enter the Premises for emergencies, maintenance, repair and
janitorial purposes without prior notice to Tenant and without Tenant
accompanying Landlord or Master Landlord,
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<PAGE> 16
but that Landlord will give Tenant reasonable advance notice whenever possible
for maintenance and repairs conducted during Normal Business Hours.
16. Assignment and Subletting.
(a) Tenant shall not (i) assign this Lease or any
interest therein, or (ii) sublease the Premises or any portion thereof. Any
attempted assignment or sublease by Tenant in violation of the terms and
covenants of this paragraph shall be void. Notwithstanding the foregoing,
Tenant may, with the consent of Master Landlord, and upon notice to Landlord
but without the necessity of obtaining Landlord's prior consent thereto,
assign, this Lease or sublet the Premises to an "Affiliate." As used herein,
the term "Affiliate" shall mean any entity under common control of a person or
entity which controls Tenant or which is controlled by Tenant. The sale by
Tenant of all, or substantially all, of its assets, including its leasehold
rights hereunder, shall not be deemed to be an assignment for purposes of this
paragraph.
(b) If Tenant requests Landlord's consent to an
assignment of the Lease or subletting of all or part of the Premises, Landlord
shall either (i) approve such sublease or assignment (but no approval of an
assignment or sublease shall relieve Tenant of any liability hereunder), or (h)
negotiate directly with the proposed subtenant or assignee and (in the event
Landlord is able to reach agreement with such proposed subtenant or assignee)
upon execution of a lease with such proposed subtenant or assignee, terminate
this Lease with respect to the portion of the Premises identified in Tenant's
request upon thirty (3 0) days' notice, or (iii) if Landlord shall fail to
notify Tenant in writing of its decision within a thirty (30) day period after
Landlord is notified in writing of the proposed assignment or sublease,
Landlord shall be deemed to have refused to consent to such assignment or
subleasing, and to have elected to keep this Lease in full force and effect.
(c) Landlord shall be entitled to any Profit from any
approved assignment or sublease. As used herein, "Profit" shall refer to any
sum in excess of Base Rental for the term of the sublease or assignment
received by Tenant from any assignee or sublessee, less Tenant's reasonable
costs for such assignment or subletting including inducements, moving costs, or
other payments or concessions made by Tenant to assignee or sublessee. This
covenant and assignment shall benefit Landlord and its successors in ownership
of the tenant's rights under the Master Lease and shall bind Tenant and
Tenant's heirs, executors, administrators, personal representatives, successors
and assigns. Any assignee, sublessee or purchaser of Tenant's interest in this
Lease (all such assignees, sublessees or purchasers being hereinafter referred
to as "Successors"), by occupying the Premises and/or assuming Tenant's
obligations hereunder, shall be deemed to have assumed liability to Landlord
for all amounts paid to persons other than Landlord by such Successor in
consideration of any such sale, assignment or subletting, in violation of the
provision hereof
(d) Except as otherwise set forth herein, no assignment
or subletting, whetheror not with Landlord's consent, shall ever relieve Tenant
of any liability hereunder.
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<PAGE> 17
(e) Notwithstanding the foregoing, Landlord may withhold
consent to such sublease or assignment, which denial of consent shall be due
solely to one or more of the following factors: the proposed assignee or
sublessee intends a use which would create a nuisance, is not in accordance
with Paragraph 4 hereof, is not consistent with the standards of the Building
and its other tenants or would create an unreasonable burden on the utility,
electrical, or other systems of the Building; the proposed assignee or
sublessee is unable, upon request by Landlord, to furnish information
indicating that, in Landlord's reasonable discretion, it has sufficient
financial strength to carry out its financial obligations under the assignment
or sublease; the proposed assignee or sublessee is a party with whom Landlord
or Master Landlord has, within the last ninety (90) days, been actively
negotiating to lease space in the Centre directly from the Landlord or Master
Landlord; the proposed assignment or sublease conflicts with the terms of
another lease within the Centre such that Landlord or Master Landlord would be
considered in default under such other lease; the terms and conditions of the
proposed assignment or sublease are not in conformity with the Lease; or the
occupancy of the Premises, or applicable portion thereof by the proposed third
party would increase fire hazards or adversely affect the reputation and image
of the Budding. In no event shall Landlord be deemed to have unreasonably
withheld consent to an assignment or sublease to a third party who is owned or
controlled by a foreign government (except for the State of Kuwait), involved
in lobbying activities, or reputed to be involved in illegal or illicit
activities. Under no circumstances shall Tenant have the right, without first
obtaining Landlord's and Master Landlord's prior consent, to advertise or to
engage in any other promotional activities regarding an assignment or
subletting of all or any portion of the Premises. Neither the consent by
Landlord to any such assignment or sublease nor the collection by Landlord of
rent from any such assignee or sublessee will be construed as a release by
Landlord of Tenant from Tenant's obligations hereunder. Notwithstanding the
foregoing, Tenant may not sublease or assign any part of the Lease or Premises
to any tenant occupying space in the Centre.
17. Mechanic's Liens. Tenant will not permit any mechanic's liens
or other liens arising from any work performed, materials furnished, or
obligations incurred by or on behalf of Tenant to be placed upon the Premises
or the Building and nothing in this Lease shall be deemed or construed in any
way as constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any person for the performance of any labor or the
furnishing of any materials to the Premises, or any part thereof, nor as giving
Tenant any right, power, or authority to contract for or permit the rendering
of any services or the furnishing of any materials that would give rise to any
mechanic's or other liens against the Premises. In the case of the filing of
any such lien on the interest of Landlord or Tenant in the Leased Premises,
Tenant may cause the same to be discharged of record or Tenant may contest such
lien through appropriate proceedings. If Tenant shall fail to discharge within
60 days after such lien attached, through appropriate proceedings, such
mechanic's lien then, in addition to any other right or remedy of Landlord,
Landlord may, but shall not be obligated to, discharge the same, either by
paying the amount claimed to be due, or by procuring the discharge of such lien
by deposit in court or bonding. Any amount paid by
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<PAGE> 18
Landlord for any of the aforesaid purposes shall be paid by Tenant to Landlord
on demand as additional Rent. This paragraph shall not apply to any liens
which are unrelated to Tenant.
18. Property Insurance. Landlord shall have no obligation to
maintain any fire and extended coverage insurance on the Building or the
Premises except that Landlord shall maintain such insurance as Landlord is
required to maintain under the Master Lease. Tenant shall maintain at its
expense, in an amount equal to full replacement cost, fire and extended
coverage insurance on all of its personal property, including removable trade
fixtures, located on the Premises and in such additional amounts as are
required to meet Tenant's obligations pursuant to Paragraph 22 hereof Tenant
shall, at Landlord's request from time to time, provide Landlord with a current
certificate of insurance evidencing Tenant's compliance with this Paragraph 18
and Paragraphs 19 and 21 hereof. Tenant shall obtain the agreement of Tenant's
insurers to notify Landlord that a policy is due to expire at least thirty (30)
days prior to such expiration.
19. Liability Insurance. Tenant shall maintain a policy or
policies of comprehensive general liability insurance with respect to its
activities in the Building and on the Property, with the premiums thereon fully
paid on or before the due date, issued by and binding upon an insurance company
rated "A, VII or better (or comparable rating if such rating system is changed
in the future) in "Best's Insurance Guide" and licensed to issue such coverage
in the State of Texas, such insurance to afford minimum protection of not less
than $5,000,000 combined single limit coverage of bodily injury, property
damage or combination thereof In addition, Tenant agrees to obtain a fire legal
liability endorsement, or other coverage satisfactory to Landlord which removes
the "leased or occupied" property exclusion from Tenant's liability policy.
Landlord shall not be required to maintain insurance against thefts within the
Premises or the Building or the Property and Landlord shall have no liability
for any such thefts. Tenant's insurance shall contain a provision naming
Landlord and Master Landlord as an additional insured and include coverage for
the contractual liability of Tenant to indemnify Landlord pursuant to Paragraph
20 below. Tenant shall use reasonable efforts to obtain the agreement of
Tenant's insurers to notify Landlord that a policy is due to expire at least
thirty (30) days prior to such expiration.
20. Indemnity. Landlord shall not be liable to Tenant, or to
Tenant's agents, servants, employees, customers, or invitees for any injury to
person or damage to property caused by any act, omission, or neglect of Tenant,
its agents, servants, employees, invitees, licensees or any other person
entering the Building under the invitation of Tenant or arising out of the use
of the Premises by Tenant and the conduct of its business or out of a default
by Tenant in the performance of its obligations hereunder. Tenant hereby
indemnifies and holds Landlord harmless from all liability and claims for any
such damage or injury except for any actual
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<PAGE> 19
damage to person or property caused by the negligence or willful misconduct of
Landlord, its agents, servants, employees, invitees, licensees or any other
person entering the Building under the invitation of Landlord. Tenant shall
not be liable to Landlord, or to Landlord's agents, servants, employees,
customers, or invitees for any injury to person or damage to property caused by
the act, omission, or neglect of Landlord, its agents, servants, employees,
invitees, licensees or any other person entering the Building under the
invitation of Landlord or arising out of the use of the Master Premises (other
than the Premises) and the conduct of its business or out of a default by
Landlord in the performance of its obligations hereunder or under the Master
Lease. Landlord hereby indemnifies and holds Tenant harmless from all
liability and claims for any such damage or injury except for any actual damage
to person or property caused by the negligence or willful misconduct of Tenant,
its agents, servants, employees, invitees, licensees or any other person
entering the Building under the invitation of Tenant.
21. Waiver of Subrogation Rights. Subject to the conditions
hereinafter specified in this Paragraph 21 and only to the extent that and so
long as the same is permitted under the laws and regulations governing the
writing of insurance within the State of Texas with respect to the respective
insurance that is to be carried by Landlord, Master Landlord or Tenant covering
losses arising out of the destruction or damage to the Premises or its contents
or to other portions of the Building or to Tenant's occupancy and operation of
the Premises without invalidating or nullifying any such policy, or providing a
defense to the applicable insurance carrier with respect to the coverage of any
such policy, all such insurance carried by either Landlord or Tenant shall
provide for a waiver of rights of subrogation against Landlord, Master Landlord
and Tenant on the part of the insurance carrier. Notwithstanding the
foregoing, nothing contained herein shall require either party to obtain the
inclusion of such a waiver of rights of subrogation in the event that, because
of the cost or premium attributable to such waiver, the obtaining of such
waiver is not feasible and reasonable. Unless such waivers contemplated by
this sentence will invalidate, nullify, or provide a defense to coverage under
any such insurance policy or are not obtainable for the reasons described in
this Paragraph 21, Landlord and Tenant each hereby waive any and all rights of
recovery, claims, actions or causes of action against the other or Master
Landlord, its agents, officers, or employees, for any loss or damage that may
occur to the Premises or the Building, or any improvements thereto, which loss
or damage is covered by valid and collectible insurance policies, to the extent
that such loss and damage is actually recovered under such insurance policy.
The waivers set forth in this Paragraph 21 shall be in addition to, and not
substitution for, any other waivers, indemnities, or exclusions of liabilities
as set forth in this Lease.
22. Casualty Damage. If the Premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Building shall be damaged such that
substantial alteration or reconstruction of the Building shell, in Master
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<PAGE> 20
Landlord's sole opinion, is required (whether or not the Premises shall have
been damaged by such casualty) or in the event any mortgagee under any mortgage
or deed of trust covering the Building should require that the insurance
proceeds payable as a result of a casualty be applied to the payment of the
mortgage debt or in the event of any material uninsured loss to the Building,
and if the Master Landlord terminates the Master Lease pursuant to the terms of
the Master Lease, Landlord shall notify Tenant in writing of such termination
within seven (7) days after Landlord's receipt of Master Landlord's notice of
termination, and this Lease shall terminate effective as of the date of Master
Landlord's notice. If the Premises are damaged by fire or other casualty not
caused by the fault or negligence of Tenant or any of Tenant's agents,
employees or contractors, if such damage cannot be repaired within one hundred
eighty (I 80) days from the date of fire or other casualty, as determined by
Master Landlord and set forth in a notice from Landlord to Tenant within
sixty-five (65) days after the fire or other casualty, and if Tenant is not in
default under any covenant, agreement, term, provisions or condition contained
in this Lease, then Tenant shall have the right, within twenty-five (25) days
after its receipt of such notice from Landlord, to terminate this Lease as of
the end of such twenty-five (25) day period. If Master Landlord terminates the
Master Lease pursuant to Paragraph 22 of the Master Lease, Landlord shall
notify Tenant in writing of such termination within 7 days after Landlord is
notified by Master Landlord that it intends to terminate the Master Lease and
this Lease shall terminate effective as of the date of termination of the
Master Lease. Unless Master Landlord, Landlord or Tenant elects to terminate
this Lease, Landlord shall use reasonable efforts to cause Master Landlord to
commence and proceed with reasonable diligence to obtain a building permit with
respect to such restoration and to restore the Building shell and Shell
Improvements located on the Premises; except that Master Landlord shall not be
required to cause Master Landlord to spend for such work an amount in excess of
the insurance proceeds actually received by Master Landlord as a result of the
casualty. When the repairs described in the preceding sentence have been
completed by Master Landlord, Landlord shall use reasonable efforts to cause
Master Landlord to complete the restoration of the Initial Improvements
pursuant to the final Plans and Specifications approved by Master Landlord
pursuant to the Work Letter attached to the Master Lease ("Improvements
Restoration"). Except for the cost of the Improvements Restoration, all excess
cost and expense of completing any further restoration or improvement of the
Premises shall be borne by Tenant and the amount of such excess, as determined
by Master Landlord, is herein referred to as the "Reconstruction Excess".
Fifty percent (50%) of the Reconstruction Excess shall be paid by Tenant to
Master Landlord, in cash, in monthly progress payments the amount of which
shall be determined by the percentage of completion of the Improvements
Restoration. After substantial completion of the Improvements Restoration, but
prior to reoccupancy of the Premises by Tenant, Tenant shall pay Master
Landlord, in cash, any additional amount necessary to cause the sum of the
Reconstruction Excess payments made by Tenant to equal ninety percent (90%) of
the then unpaid balance of the Reconstruction Excess (as then estimated by
Master Landlord). As soon as a final accounting can be prepared and submitted
to Tenant, Tenant shall pay Master Landlord, in cash, the entire unpaid balance
of the Restoration Excess, based on Master Landlord's final cost. Each
increment of the Reconstruction Excess payable by Tenant to Master Landlord
shall be paid by Tenant within seven (7) days after a written request therefor
by Master Landlord to Tenant. Tenant shall not be entitled to receive
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<PAGE> 21
any credit or payment with respect to any portion of the Reconstruction
Allowance not actually spent upon restoration of the Premises. Landlord or
Master Landlord shall not be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting in any way from such
damage or the repair thereof, except that, subject to the provisions of the
next sentence, and provided that cash in the amount of each increment of the
Reconstruction Excess shall have been paid by Tenant to Master Landlord within
seven (7) days after a written request therefor by Landlord or Master Landlord
to Tenant, Landlord shall allow Tenant a fair diminution of Rent during the
time and to the extent the Premises are unfit for occupancy (based upon that
portion of Base Rental applicable to the portion of the Premises subject to
such casualty); provided, however, the Premises shall not be considered unfit
for occupancy at any time that (i) such of the Improvements Restoration has
been completed so as to permit occupancy as evidenced by the issuance of a
Certificate of occupancy or its equivalent for the Premises by the appropriate
governmental entity having jurisdiction over the Premises for the purpose of
issuing such certificate, or (ii) if no such certificate can be issued by any
appropriate governmental entity under applicable laws, ordinances, or
regulations, at such time as the Improvements Restoration have been
substantially completed and tendered to Tenant. In the event that the
restoration or repair of the Building shell, Shell Improvements located in the
Premises, and Improvements Restoration has not been completed to the extent
necessary so that Tenant can occupy the Premises for normal business purposes
within one hundred seventy (170) days from the date on which Master Landlord
receives a building permit with respect thereto, Tenant shall have the right,
exercisable by written notice to Landlord delivered within two hundred (200)
days from the date on which Master Landlord receives such building permit, to
terminate this Lease, but in no event exercisable after such completion.
Landlord shall give Tenant notice of the date on which Master Landlord receives
a building permit. In the event that Tenant fails to give such notice in the
manner and within the time period specified in the preceding sentence or prior
to completion, such option to terminate shall be deemed to have been
irrevocably waived by Tenant. In addition, in the event that Master Landlord
has diligently and continuously prosecuted such restoration or repair during
such period not to exceed two hundred seventy (270) days, the exercise by
Tenant of the option to terminate shall be delayed until such time as Master
Landlord has failed to diligently and continuously prosecute such restoration
or repair to completion. Landlord hereby assigns to Tenant all of Landlord's
rights pursuant to Paragraph 22 of the Master Lease to have Master Landlord
repair all or any portion of the Leased Premises and any part of the Building
and/or Common Areas that are so damaged by any casualty as to render all or a
portion of the Premises unusable and Tenant hereby assumes all obligations of
Tenant under Paragraph 22 of the Master Lease insofar as and to the extent that
such obligations relate to the Premises, and Tenant shall have the right,
either in its own name or in the name of Landlord, to take any and all actions
Tenant deems necessary or appropriate to enforce Master Landlord's obligations
under Paragraph 22 of the Master Lease with respect to the Premises. Landlord
shall cooperate fully with Tenant in any such action taken by Tenant. Such
repair rights of Landlord shall be subject to the limitations of Paragraph 22
of the Master Lease.
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23. Condemnation. If the whole or substantially the whole of the
Building or the Premises should be taken for any public or quasi-public use, by
right of eminent domain or otherwise or should be sold in lieu of condemnation,
then this Lease shall terminate as of the date when physical possession of the
Building or the Premises are taken by the condemning authority. If less than
the whole or substantially the whole of the Building or the Premises are thus
taken or sold, Master Landlord (whether or not the Premises are affected
thereby) may terminate the Master Lease by giving written notice thereof to
Landlord; in which event Landlord shall promptly so notify Tenant and this
Lease shall terminate as of the date when physical possession of such portion
of the Building or Premises are taken by the condemning authority. If this
Lease is not so terminated upon any such taking or sale, the Base Rental
payable hereunder shall be diminished by an amount representing that portion of
Base Rental applicable to the portion of the Premises subject to such taking or
sale, and Landlord shall use reasonable efforts to cause Master Landlord to
restore the Building and the Premises to substantially their former condition,
to the extent Master Landlord deems feasible, but such work shall not exceed
the scope of the work done by Master Landlord in originally constructing the
Building and installing Shell Improvements and Initial Improvements in the
Premises, nor shall Landlord in any event be required to cause Master Landlord
to spend for such work an amount in excess of the amount received by Master
Landlord as compensation for such taking. Tenant shall not be entitled to and
expressly waives all claims to any amounts awarded upon a taking of any part or
all of the Property, Building or the Premises.
(i) Notwithstanding the foregoing, if less than whole or
substantially the whole of the Premises are thus taken or sold and the
remainder of the Premises are rendered untenantable, in Tenant's reasonable
opinion, Tenant may indicate its intent to terminate this Lease by giving
Landlord written notice of same within twenty (20) days after the date when
physical possession of the portion of the Premises is taken by the condemning
authority (the "Premises Taking Date"). Such notice shall specify with
particularity the items or characteristics of the remainder of the Premises
which render it untenantable. Landlord shall thereafter have a period of
ninety (90) days to cure the items of untenantability, including, without
limitations the relocation of Tenant to another space in the Centre reasonably
comparable to the Premises, in which case Landlord shall pay Tenant's
reasonable moving costs if Tenant relocates.
(ii) Notwithstanding the foregoing, if more than one third
(1/3) of a full floor of the Building which is included within the Premises is
thus taken or sold, Tenant may indicate its intent to terminate this Lease by
giving Landlord written notice of same within twenty (20) days after the date
when physical possession of that portion of the Premises is taken by the
condemning authority (the "Premises Taking Date"). Landlord shall thereafter
have a period of ninety (90) days to cure the taking by relocating Tenant to
another space in the Building, reasonably comparable to that portion of the
Premises which was taken and which uses the same
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<PAGE> 23
elevator bank, in which case Landlord shall pay Tenant's reasonable moving
costs if Tenant relocates.
This Lease shall terminate on, and no further rentals shall accrue after the
Premises Taking Date, unless Landlord has relocated Tenant in the manner
described above and within the above described cure period or unless Landlord
has filed a court action, contesting Tenant's claims that the remainder of the
Premises is untenantable. In the event that Tenant fails to give such notice
in the manner and within the time period specified in this Paragraph 23, such
right to terminate shall be deemed to have been irrevocably waived by Tenant
and the remainder of the Premises shall be deemed to be tenantable.
24. Damages from Certain Causes. Landlord shall not be liable to
Tenant for any loss or damage to any property or person occasioned by theft,
fire, act of God, public enemy, injunction, riot, strike, insurrection, war,
court order, requisition, or order of governmental body or authority or by any
other cause, except as specifically provided in Paragraph 33 hereof Nor shall
Landlord be liable for any damage or inconvenience which may arise through (a)
the leasing of other space within the Building to whomsoever Master Landlord
chooses for whatever use is allowed by Master Landlord or (b) repair or
alteration of any part of the Building or Premises or to the construction of
leasehold improvements for other tenants in the Building, it being specifically
acknowledged and agreed by Tenant that Tenant is leasing space in a Building
which is not fully occupied and that Master Landlord will, as a part of Master
Landlord's leasing of other space within the Building, be conducting
construction work in order to prepare other space in the Building, from time to
time, for other tenants.
25. Events of Default/Remedies.
(a) The following events shall be deemed to be events of
default by Tenant under this Lease: (i) Tenant shall fail to pay any Rent or
other sum of money due hereunder and such failure shall continue for a period
of five (5) days after the date such sum is due; provided, however, Landlord
agrees with respect to monetary defaults to give Tenant not more than two (2)
"warning notices" (as hereinafter defined) during any consecutive twelve (12)
month period during the Lease Term, in either of which events Tenant shall be
entitled to a five (5) day cure period and Landlord agrees not to commence any
enforcement actions against Tenant until the expiration of such cure period (a
"warning notice" for these purposes shall be in writing, delivered in any
manner permitted by Paragraph 3 5, and may be sent at any time after a payment
is due and before payment of the full delinquent amount has been received); a
warning notice will be effective on, and the five (5) day cure period shall be
counted from, the date the notice is first sent; in
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<PAGE> 24
addition, Tenant shall be entitled to only one (1) warning notice per calendar
month; (ii) Tenant shall fail to comply with any provision of this Lease or any
other agreement between Landlord and Tenant not requiring the payment of money,
all of which terms, provisions and covenants shall be deemed material and such
failure shall continue for a period of five (5) days after written notice of
such default is delivered to Tenant; provided that in the event such failure is
of the nature that it cannot, with due diligence, be cured within five (5)
days, it shall not constitute an event of default unless the Tenant fails to
proceed promptly with due diligence to cure the same, it being the intention of
Landlord and Tenant that with respect to a failure not susceptible of being
cured within five (5) days, the time within which Tenant shall have to cure the
same shall be extended for such period as may be necessary for the curing
thereof with the exercise of due diligence, not to exceed twenty-five (25)
days; (iii) the leasehold hereunder demised shall be taken on execution or
other process of law in any action against Tenant; or (iv) Tenant shall fail to
promptly move into and take possession of the Premises on the Commencement Date
or shall cease to do business in or abandon any portion of the Premises unless
Tenant screens and protects from public view, to Landlord's satisfaction, any
indication that the Premises are vacant, in which case abandonment shall not be
an event of default (provided, however, Landlord reserves the right, but will
not have the obligation, to terminate this Lease at any time that Tenant
abandons the Premises with an intent to not return; "intent to not return" for
these purposes shall mean either that Tenant notifies Landlord in writing that
it does not intend to re-occupy the abandoned portion of the Premises or that
Tenant has failed to re- occupy the abandoned portion of the Premises and
resume its business therein within three (3) months from the date Tenant
originally vacated the Premises); (notwithstanding the foregoing, Landlord's
right to terminate the Lease shall be limited to the abandoned portion of the
Premises); (v) Tenant shall become insolvent or unable to pay its debts as they
become due, or Tenant notifies Landlord that it anticipates either condition;
(vi) Tenant takes any action to, or notifies Landlord that Tenant intends to
file a petition under any section or chapter of the Bankruptcy Code, as amended
from time to time, or under any similar law or statute of the United States or
any State thereof, or a petition shall be filed against Tenant under any such
statute; or Tenant or any creditor of Tenant notifies Landlord that it knows
such a petition will be filed; or Tenant notifies Landlord that it expects such
a petition to be filed; or (vii) a receiver or trustee shall be appointed for
Tenant's leasehold interest in the Premises or for all or a substantial part of
the assets of Tenant.
(b) Upon the occurrence of any event or events of default
by Tenant, Landlord shall have the option to pursue any one or more of the
following remedies: (i) terminate this Lease in which event Tenant shall
immediately surrender the Premises to Landlord; (H) terminate Tenant's right to
occupy the Premises and re-enter and take possession of the Premises (without
terminating this Lease); (iii) enter upon the Premises and do whatever Tenant
is obligated to do under the terms of this Lease; and Tenant agrees to
reimburse Landlord on demand for any reasonable expenses which Landlord may
incur in effecting compliance with Tenant's obligations under this Lease, and
Tenant further agrees that Landlord shall not be liable for any damages
resulting to the Tenant from such action; and (iv) exercise all other remedies
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<PAGE> 25
available to Landlord at law or in equity, including, without limitation,
injunctive relief of all varieties.
(c) In the event Landlord elects to re-enter or take
possession of the Premises after Tenant's default, Landlord may, without
prejudice to any other remedy which it may have for possession or arrearages in
or future Rent, expel or remove Tenant and any other person who may be
occupying said Premises or any part thereof. In addition, the provisions of
Paragraph 27 hereof shall apply with respect to the period from and after the
giving of notice of such repossession by Landlord. In addition, Landlord may
change or alter the locks and other security devices on the doors to the
Premises and/or remove Tenant's master entry cards from the security and master
entry card system. All Landlord's remedies shall be cumulative and not
exclusive. Forbearance by Landlord to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default.
(d) In the event that Landlord elects to terminate this
Lease upon the occurrence of any event of default, then, notwithstanding such
termination, Tenant shall be liable for and shall pay to Landlord the sum of
all Rents and other indebtedness, accrued to the date of such termination,
plus, as damages, an amount equal to the total of. (i) the cost of recovering
the Premises; (H) the cost of removing and storing Tenant's and other
occupant's property located therein; (iii) the costs of reletting the Premises,
or portion thereof (including, without limitation, brokerage commissions); (iv)
the cost of restoring the Premises to the same condition as they existed on the
Commencement Date (reasonable wear and tear and any improvements hereafter made
to the Premises with Landlord's approval excepted); (v) the cost of collecting
such amounts from Tenant hereunder; and (vi) any other sums of money or damages
that may be owed to Landlord as the result of default by Tenant or the exercise
of Landlord's rights at law or in equity. In such event, Landlord shall have
no responsibility to attempt to relet the Premises or to apply any rentals
received by Landlord as a result of any such reletting to Tenant's obligations
hereunder, except that Landlord agrees to list or advertise the Premises for
rent in any manner deemed reasonably prudent in Landlord's reasonable
discretion, and the aggregate amount of all damages due to Landlord shall be
immediately due and payable to Landlord upon demand.
(e) In the event that Landlord elects to take possession
of the Premises and terminate Tenant's right to occupy the Premises without
terminating this Lease, Tenant shall remain liable, and shall pay to Landlord,
from time to time, on demand, any deficiency between the total Base Rental due
under this Lease for the remainder of the Lease Term and rents, if any, which
Landlord is able to collect from another tenant(s) for the Premises, or portion
thereof, during the remainder of the Lease Term ("Rental Deficiency"). In
addition, Tenant shall be
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liable for and shall pay to Landlord, on demand, an amount equal to (i) the
cost of recovering possession of the Premises, (ii) the cost of removing and
storing Tenant's or any other occupant's property located therein, (iii) the
costs of reletting the Premises, or applicable portion thereof, and whether
accomplished in one or more phases (including, without limitation, brokerage
commissions), (iv) the cost of restoring the Premises to the same condition as
they existed on the Commencement Date (reasonable wear and tear and any
improvements hereafter made to the Premises with Landlord's approval,
excepted)(v) the cost of collection of the rent accruing from any such
reletting, (vi) the cost of collecting any sums billable to Tenant by Landlord
hereunder, and (vii) any other sum of money or damages that may be owed to
Landlord as a result of Tenant's default or the exercise of Landlord's rights
at law or in equity. Landlord may file suit to recover any sums falling due
under the terms hereof from time to time, and no delivery to or recovery by
Landlord of any portion of the sums due Landlord hereunder shall be any defense
in any action to recover any amount not theretofore reduced to judgment in
favor of Landlord. Nothing contained herein shall be deemed to require
Landlord to relet the Premises except that Landlord agrees to list or advertise
the Premises for rent in any manner deemed reasonably prudent in Landlord's
reasonable discretion. Any sums received by Landlord through reletting shall
reduce the sums owing by Tenant to Landlord hereunder, but in no event shall
Tenant be entitled to any excess of any sums obtained by reletting over and
above the Base Rental provided in this Lease to be paid by Tenant to Landlord.
For the purpose of such reletting, Landlord is authorized to decorate or to
make any repairs, changes, alterations, or additions in and to the Premises or
applicable portion thereof, that Landlord may deem necessary or advisable. No
reletting shall be construed as an election on the part of Landlord to
terminate this Lease unless a written notice of such intention is given to
Tenant by Landlord. Notwithstanding any such reletting without termination,
Landlord may at any time thereafter elect to terminate this Lease for such
previous default.
(f) In addition to the remedies set forth in Paragraph
25(b) of the Lease, upon the occurrence of any event or events of default by
Tenant under the Lease with respect to which Landlord elects to either
terminate the Lease, or without terminating the Lease, to terminate Tenant's
possession of the Premises, Landlord shall be entitled to (i) receive a cash
payment from Tenant on demand in an amount equal to all "Reimbursable Costs"
(as defined below) which have not yet vested in Tenant, and (ii) terminate any
remaining lease concessions which have not yet accrued under the Lease. As
used herein, the term "Reimbursable Costs" shall mean the total of (i) the
difference between the average rate of Base Rental payable by Tenant over the
entire Lease Term and the rate of Base Rental payable by Tenant from the
Commencement Date to the date of default; and (ii) the aggregate dollar amount
which has been paid to or on behalf of Tenant under the Lease, including,
without limitation, any brokerage commission which has been paid and/or is
payable by Landlord in connection with the execution of the Lease. Since the
Reimbursable Costs were incurred by Landlord in reliance upon Tenant fully
performing Tenant's obligations under the Lease, Tenant hereby acknowledges
that Landlord will be damaged, upon a default by Tenant, in an amount equal to
the aggregate dollar value of the
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Reimbursable Costs which have not yet vested in Tenant. Tenant shall vest as
to Reimbursable Costs on a pro rata basis for each calendar month during the
Lease Term for which Tenant has paid rent and is not otherwise in default
hereunder. No vesting shall occur with respect to any month for which Tenant
has not paid rent or in which Tenant is otherwise in default hereunder.
(g) This Paragraph 25 shall be enforceable to the maximum
extent not \CV prohibited by applicable law, and the unenforceability of any
portion thereof shall not thereby render unenforceable any other portion. No
act or thing done by Landlord or its agents during the Lease Term shall be
deemed an acceptance of an attempted surrender of the Premises, and no
agreement to accept a surrender of the Premises shall be valid unless made in
writing and signed by Landlord. No re-entry or taking of possession of the
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such termination is given to
Tenant.
(h) The occurrence of any of the following events (a
"Landlord's Default") shall be deemed to be an event of default by Landlord
under this Lease: (i) Landlord's failure to comply with any provision of the
Master Lease or this Lease, and such failure shall continue for a period of ten
(10) business days after written notice of default is delivered to Landlord,
provided that in the event such failure is of a nature that it cannot, with due
diligence, be cured within ten (10) business days, it shall not constitute an
event of default unless Landlord fails to proceed promptly with due diligence
to cure the same, it being the intention of Landlord and Tenant that with
respect to a failure not susceptible of being cured within ten (10) business
days, the time within which Landlord shall have to cure the same shall be
extended for such period as may be necessary for the curing thereof with the
exercise of due diligence not to exceed twenty-five (25) days; (ii) Landlord
takes any action to, or notifies Tenant or Master Landlord in writing that
Landlord intends to file a petition under any section or chapter of the
Bankruptcy Code, as amended from time to time, or under any similar law or
statute of the United States or any State thereof or of the Cayman Islands, or
a petition shall be filed against Landlord under any such statute, or Landlord
or any creditor of Landlord notifies Tenant or Master Landlord in writing that
it knows such a petition will be filed; or Landlord notifies Tenant or Master
Landlord in writing that it expects such a petition to be filed; or (iii) a
receiver or trustee shall be appointed for Landlord's leasehold interest under
the Master Lease or for all or a substantial part of the assets of Landlord.
Upon the occurrence of Landlord's Default, Tenant may, in addition to any other
rights and remedies it may have under this Lease or at law, (A) pursue a suit
against Landlord to recover all damages suffered as a result of such defaults;
(B) provided Tenant pays to Landlord in cash the applicable Termination Amount
(hereinafter as defined), terminate this Lease upon ten (10) days' written
notice to Landlord and the holder of the mortgage lien of which Tenant has
received written notice, specifying that Tenant elects to terminate this Lease
under this Section and specifying a date for termination of the Lease not to
exceed one hundred and
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eighty (180) days from the date of such notice; or (C) at Tenant's option and
without any obligation to do so, cure such Landlord's Default(s) on behalf of
and at the expense of the Landlord and do all necessary work and make all
necessary payments in connection therewith in Tenant's reasonable discretion to
protect Tenant's leasehold interest and continued use and occupancy of the
Premises for Tenant's intended purposes. The term "Termination Amount" for any
period shall mean the amount for such period as set forth on Addendum 1.
26. Peaceful Enjoyment. Tenant shall, and may peacefully have,
hold, and enjoy the Premises, subject to the other terms hereof, provided that
Tenant pays the Rent and other sums herein recited to be paid by Tenant and
performs all of Tenant's covenants and agreements herein contained.
27. Holding Over. In the event of holding over by Tenant after
expiration or other termination of this Lease or in the event Tenant continues
to occupy the Premises after the termination of Tenant's right of possession
pursuant to Paragraph 25(b) hereof, Tenant shall, throughout the entire
holdover period, pay Rent equal to one hundred fifty percent (I 5 0%) of the
Base Rental and additional Base Rental which would have been applicable had the
term of this Lease continued through the period of such holding over by Tenant.
No holding over by Tenant after the expiration of the term of this Lease shall
be construed to extend the term of this Lease.
28. Subordination to Mortgage. Tenant accepts this Lease subject
and subordinate to any mortgage, deed of trust or other lien presently existing
or hereafter arising upon the Premises, or upon the Building and/or the
Property and to any renewals, modifications, consolidations, refinancing, and
extensions thereof, but Tenant agrees that any such mortgagee shall have the
right at any time to subordinate such mortgage, deed of trust or other lien to
this Lease on such terms and subject to such conditions as such mortgagee may
deem appropriate in its discretion. Subject to the remaining provisions of
this Paragraph 28, Master Landlord is hereby irrevocably vested with full power
and authority to subordinate this Lease to any mortgage, deed of trust or other
lien now existing or hereafter placed upon the Premises, or the Building and/or
the Property and Tenant agrees within fifteen (15) business days after demand
to execute such further instruments subordinating this Lease or attorning to
the holder of any such liens as Landlord may request. Notwithstanding the
foregoing provisions of this Paragraph 28, if, at any time hereafter during the
Lease Term, Master Landlord shall place a mortgage, deed of trust or other lien
upon the Premises, and Tenant then occupies under this Lease at least a full
floor of the Building, this Lease shall not be subject and subordinate to such
mortgage, deed of trust or other lien; provided, however, that Tenant agrees to
subordinate this Lease to such mortgage, deed of trust or other lien upon the
receipt of a non-disturbance agreement from such
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mortgagee, deed of trust beneficiary or lienholder which shall be reasonably
satisfactory to Tenant in form and content. If such non-disturbance agreement
is in the form of Subordination, Non-disturbance and Attornment Agreement
attached hereto as Exhibit "G". or shall contain terms and conditions no more
adverse to Tenant than contained in the form attached as Exhibit "G", then such
form of non-disturbance agreement shall be deemed reasonably satisfactory to
Tenant.
29. Estoppel Certificates. Tenant agrees that it will from time
to time upon request by Landlord execute and deliver to such persons as
Landlord shall request a statement in recordable form certifying that this
Lease is unmodified and in FULL force and effect (or if there have been
modifications, that the same is in full force and effect as so modified),
stating the dates to which rental and other charges payable under this Lease
have been paid, stating that the Landlord is not in default hereunder (or if
Tenant alleges a default stating the nature of such alleged default in
particularity) and further stating such other matters as Landlord shall
reasonably require. Tenant agrees to deliver such statement within ten (10)
days after written request from Landlord. Landlord agrees that it will, within
ten (10) business days of receipt of a written request therefor from Tenant,
execute and deliver to such persons as Tenant shall request a statement in
recordable form certifying as to certain factual matters with respect to this
Lease and the Master Lease as Tenant shall reasonably require.
30. Landlord's Lien. Landlord hereby waives its statutory rights
under Section 54.021 et seq. of the Texas Property Code to a lien on Tenant's
property.
31. Attorneys' Fees. In the event either party files suit to
enforce the performance of or obtain damages caused by a default under any of
the terms of this Lease, the party against whom a judgment is rendered shall
pay the prevailing party's reasonable attorneys' fees.
32. No Implied Waiver. The failure of Landlord or Tenant to
insist at any time upon the strict performance of any covenant or agreement
herein or to exercise any option, right, power or remedy contained in this
Lease shall not be construed as a waiver or a relinquishment thereof for the
future. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly installment of Rent due under this Lease shall be deemed to be
other than on account of the earliest Rent due hereunder, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such Rent or pursue any other remedy in this Lease provided.
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<PAGE> 30
33. Personal Liability. In no event shall Landlord or Tenant be
liable to the other either for (a) any loss or damage that may be occasioned by
or through the acts or omissions of other tenants of the Building or of any
other persons whomsoever or (b) any consequential damages regardless of
causation. With respect to tort claims against Landlord or Tenant, neither
party shall be liable to the other or to any other person for any act or
omission of the other party or of its agents or employees, negligent or
otherwise, except for actual damages or costs incurred as a direct result of
and caused directly by the willful misconduct or negligence of such other party
(or of such other party's agents or employees) in circumstances in which
Landlord or Tenant, as the case may be, is deemed to be liable at law for such
acts or omissions. Nothing contained in the immediately preceding sentence
shall ever be construed as creating liability in excess of that existing at law
or, in any event, increasing the liability of Landlord or Tenant, under any
theory or cause of action, however denominated, from that existing at law.
34. Landlord's Warranties, Representations and Covenants.
Landlord hereby certifies, represents, warrants, confirms, covenants and agrees
with Tenant that:
(a) The Master Lease consists of the documents described
on Addendum 2 attached hereto and incorporated herein, is in full force and
effect, and has not been amended or modified except as specified on Addendum 2.
(b) The Master Lease and any modifications and amendments
which are specified herein are a full and complete statement of covenants,
agreements, terms and conditions between Master Landlord and Landlord with
respect to the letting of the Master Premises, which includes but is not
limited to the Premises, and that there are no other agreements between Master
Landlord and Landlord with respect to the Master Premises or the Premises or
the Master Lease.
(c) The primary term of the Master Lease commenced on
July 1, 1993, and will end on August 31, 2001.
(d) Rents under the Master Lease have been duly and
timely paid through March 31, 1996,
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<PAGE> 31
(e) All covenants, agreements, terms and conditions of
the Master Lease which were to be performed or complied with by either Landlord
or by Master Landlord relating to construction of improvements or the use of
the Master Leased Premises have been satisfied and the improvements were fully
and timely completed and have been approved and accepted by Master Landlord and
Landlord.
(f) At the date hereof, there is no default under the
Master Lease in the payment of rent or in the observance or performance of any
other covenant, agreement, term or condition to be observed or performed by
Master Landlord or Landlord, and that the undersigned has no knowledge of any
state of facts or events which, with the passage of time or the giving of
notice thereof, would constitute a default by Master Landlord or Landlord
thereunder.
(g) The Landlord has no notice or knowledge of any
conveyance of any of the Property including the Master Premises or any
assignment of the Master Lease, or of any assignment, hypothecation or pledge
of rents by Master Landlord or Landlord except as specified in Addendum 2.
(h) All construction with respect to the Master Premises
and the Premises required by the Master Lease or any modification or amendment
to the Master Lease specified herein, has been fully completed and has been
accepted by the Master Landlord. Landlord is in actual occupancy and
possession of the Master Premises.
(i) None of the following events have occurred prior to
or as of the date hereof (a) the filing by or against Landlord of a petition in
bankruptcy, insolvency, reorganization, or an action for the appointment of a
receiver or trustee; (b) the making of an assignment for the benefit of
creditors; or (c) the inability of the Landlord to pay its debts as they become
due and payable.
(j) Landlord entered into or assumed its obligations
under the Master Lease upon good and sufficient authority, and the person or
persons executing the Master Lease on behalf of Landlord was authorized and
empowered to do so.
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<PAGE> 32
(k) By the execution of this Lease, Landlord agrees that
without Tenant's prior written consent, Landlord agrees not to:
(i) modify, amend or in any manner alter the
terms of the Master Lease if such a modification, amendment or alteration would
materially affect the Premises, this Lease, or any of Tenant's obligations or
liabilities under this Lease;
(ii) waive performance or release the Master
Landlord from any of its obligations, duties, covenants and agreements under
the Master Lease with respect to the Master Premises or which would materially
affect the Premises or Tenant's rights or obligations under this Lease; or
(iii) cause or accept any surrender or termination
of the Master Lease or of the leasehold estate or any portion thereof created
thereby with respect to the Premises or which would materially affect the
Premises
(l) Notwithstanding anything to the contrary in the
Master Lease or any modifications or amendments thereto, the Landlord agrees
that Landlord shall give to you copies of all written notices which Landlord
receives from Master Landlord or gives to Master Landlord specifying the
occurrence and nature of any default under the Master Lease.
(m) Notwithstanding anything herein to the contrary,
Tenant shall not have any obligations under the Master Lease.
35. Notice. Any notice in the Lease provided for must, unless
otherwise expressly provided herein, be in writing, and may, unless otherwise
in this Lease expressly provided, be given or be served by depositing the same
in the United States mail, postage prepaid and certified and addressed to the
party to be notified, with return receipt requested, or by prepaid telegram,
when appropriate, addressed to the party to be notified at the address stated
in this Lease or such other address notice of which has been given to the other
party. Notice deposited in the mail in the manner herein above described shall
be effective from and after the expiration of three (3) calendar days after it
is so deposited.
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<PAGE> 33
36. Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
37. Recordation. Tenant agrees not to record this Lease or any
memorandum hereof
38. Governing Law. This Lease and the rights and obligations of
the parties hereto shall be interpreted, construed, and enforced in accordance
with the laws of the State of Texas.
39. Force Majeure. Whenever a period of time is herein prescribed
for the taking of any action by Landlord or Tenant, then such party shall not
be liable or responsible for, and there shall be excluded from the computation
of such period of time, any delays due to strikes, riots, acts of God,
shortages of labor or materials, war, governmental laws, regulations or
restrictions, litigation brought by third parties to enjoin Landlord's or
Tenant's activities at the Building, or any other cause whatsoever beyond the
control of such party.
40. Time of Performance. Except as expressly otherwise herein
provided, with respect to all required acts of either Landlord or Tenant, time
is of the essence of this Lease.
41. Transfers by Landlord. Landlord shall have the right to
transfer and assign, in whole or in part, all its rights and obligations under
the Master Lease; provided, however, Landlord shall not be released from any
liability hereunder.
42. Transfers by Tenant. Except as provided in Paragraph 16 of
this Lease, Tenant shall not transfer, convey, mortgage, pledge, hypothecate,
or encumber Tenant's leasehold interest hereunder or grant any license,
concession, or other right to occupancy of any portion of the Premises without
the
55
<PAGE> 34
prior written consent of Landlord, which may be granted or withheld in
Landlord's sole discretion. The prohibitions specified in this Paragraph 42
shall be construed to include, without limitation, any such prohibited
transfers occurring by operation of law. Any attempt by Tenant to accomplish a
transfer prohibited by the provisions of this Lease, without having obtained
the prior written consent of Landlord thereto shall be void and of no force or
effect and may, at the option of Landlord, constitute a material default
hereunder.
43. Commissions. In connection with the negotiation and execution
of this Lease, Landlord agrees to pay, for the benefit of Tenant, a commission
to Davidson Conine Realty Advisors, Inc., pursuant to a separate written
agreement by and between Landlord and such party. Landlord and Tenant hereby
indemnify and hold each other harmless against any loss, claim, expense or
liability with respect to any other commissions or brokerage fees claimed on
account of the execution and/or renewal of this Lease due to any action of the
indemnifying party.
44. Effect of Delivery of This Lease. Landlord has delivered a
copy of this Lease to Tenant for Tenant's review only, and the delivery hereof
does not constitute an offer to Tenant or option. This Lease shall not be
effective until a copy executed by both Landlord and Tenant is delivered to and
accepted by Landlord, and this Lease has been consented to and approved by
Master Landlord in writing.
45. Entire Agreement. This Lease embodies the entire agreement
between the parties hereto with relation to the transaction contemplated
hereby, and there have been and are no covenants, agreements, representations,
warranties or restrictions between the parties hereto with regard thereto other
than those specifically set forth herein.
46. Receipt of Premises. The occupancy of the Premises by Tenant
shall constitute the acknowledgment and agreement of Tenant that Tenant is
fully familiar with the physical condition of the Premises, that Tenant has
received the same in good order and condition, and that the Premises comply in
all respects with the requirements of this Lease and are suitable for the
purposes for which the Premises are hereby leased. In that regard, Landlord
hereby disclaims, and Tenant hereby waives, any warranty of suitability with
respect to the Premises.
47. Merger of Estates. The voluntary or other surrender of this
Lease by Tenant or a mutual cancellation thereof, shall not constitute a
merger; and upon such surrender or cancellation of this Lease, Landlord shall
have the option, in Landlord's sole discretion, to (i)
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<PAGE> 35
either terminate all or any existing subleases or subtenancies, or (ii) assume
Tenant's interest in any or all subleases or subtenancies.
48. Waste Management. Without limiting its obligations under this
Lease, Tenant covenants and agrees to comply with all laws, rules, regulations
and guidelines now or hereafter made applicable to the Premises respecting the
disposal of waste, trash, garbage and other matter (liquid or solid), generated
by Tenant, the disposal of which is not otherwise the express obligation of
Landlord under this Lease, including, but not limited to, laws, rules,
regulations and guidelines respecting recycling and other forms of reclamation
(all of which are herein collectively referred to as "Waste Management
Requirements"). Tenant covenants and agrees to comply with Waste Management
Requirements applicable to Master Landlord (i) as owner of the Premises and
(ii) applicable to Landlord in performing Landlord's obligations under this
Lease, if any. Tenant further covenants and agrees to comply with all rules
and regulations established by Master Landlord to enable Master Landlord from
time to time to avail itself of the lowest rate available for the disposal of
waste, trash, garbage and other matter (liquid or solid), generated by Tenant
which rules and regulations shall be of general applicability to all tenants of
the Building. Tenant covenants and agrees to indemnify, defend, protect and
hold Landlord harmless [in accordance with Paragraph 20] from and against all
liability (including costs, expenses and attorney fees) that Landlord may
sustain by reason of Tenant's breach of its obligations under this Paragraph
48. Tenant's obligations under this Paragraph 48 shall survive the termination
of this Lease.
49. Americans with Disabilities Act and Texas Architectural
Barriers Act. Tenant agrees to comply with all requirements of the Americans
with Disabilities Act (Public Law 101 336 (July 26, 1990)) and the Texas
Architectural Barriers Act (Article 9102, Tex. Rev. Civ. St. (I 99 1))
applicable to the Premises and applicable to the Building and Property to
accommodate its employees, invitees and customers. Tenant acknowledges that it
shall be wholly responsible for making any accommodations or alterations which
need to be made to the Premises to accommodate Tenant's employees, customers
and invitees. Furthermore, Tenant acknowledges that it shall be wholly
responsible for making any additional accommodations or alterations which need
to be made to the Building or the Property solely to accommodate Tenant's
employees, invitees and customers. Tenant agrees to indemnify and hold
Landlord harmless from any and all expenses, liabilities, costs or damages
suffered by Landlord as a result of Tenant's failure to fulfill its aforesaid
responsibilities regarding making such accommodations and alterations. Except
as aforesaid, Tenant shall not be responsible for compliance with either of
such Acts outside of the Premises. No provision in this Lease should be
construed in any manner as permitting, consenting to or authorizing Tenant to
violate requirements under either such Act and any provision of the Lease which
could arguably be construed as authorizing a
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<PAGE> 36
violation of either Act shall be interpreted in a manner which permits
compliance with such Act and is hereby amended to permit such compliance.
50. Environmental Survey. Tenant hereby acknowledges that (i)
Landlord has provided Tenant with the results of a Survey for
Asbestos-Containing Materials on floors 8-11 of Two Lincoln Centre ("Survey")
in the form of a letter dated March 10, 1993 from Law Engineering to
Metropolitan Life Insurance Company ("MetLife"), (ii) neither Landlord nor
MetLife have made any representations or warranties regarding such Survey or
letter, and (iii) any reliance by Tenant on such Survey or letter is at
Tenant's sole risk.
51. Representations and Warranties.
(a) Landlord and Tenant warrant and represent to each
other that this Lease is binding contract.
(b) Tenant hereby represents and warrants to Landlord
that Tenant is duly authorized to transact business in the State of Texas.
(c) Landlord hereby represents and warrants to Tenant
that Landlord is duly organized and validly existing under the laws of the
Cayman Islands and is duly authorized to transact business in the State of
Texas.
52. Exhibits and Addendum. The following numbered exhibits are
attached hereto and incorporated herein and made a part of this Lease for all
purposes:
Exhibit "A" Legal Description
Exhibit "B" Floor Plan
Exhibit "C" Schedule of Base Rental Payments
Exhibit "D" Payment of Excess Basic Costs
Exhibit "E' Rules and Regulations
Exhibit "E-1" Interpretation of Specific Rules & Regulations
Exhibit "F" Parking
Exhibit "G" Subordination, Non-disturbance and Attornment Agreement
Exhibit "H" Minimum Janitorial Specifications
Addendum 1 Termination Amount
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[SIGNATURES INTENTIONALLY
APPEAR ON NEXT PAGE]
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in multiple
original counterparts as of the day and year first above written.
<TABLE>
<S> <C>
Address: LANDLORD:
Mr. John J. Mika SANTA FE INTERNATIONAL CORPORATION,
Mice President - (formerly known as Santa Fe Drilling Co.)
Corporate Affairs a Cayman Islands corporation, authorized to do
Santa Fe International Corporation business in the State of Texas
Two Lincoln Centre
Suite 1100 By:
-------------------------------
5420 LBJ Freeway Name:
-----------------------------
Dallas, TX 75240-2648 Title:
----------------------------
Address: TENANT:
Physician Reliance Network, Inc.
8115 Preston Road PHYSICIAN RELIANCE NETWORK, INC.,
Suite 300, LB 11 a Texas corporation
Dallas, TX 75225
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
</TABLE>
59
<PAGE> 38
EXHIBIT "A"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
LEGAL DESCRIPTION
Being a tract of land situated in the Isaiah Park Survey, Abstract No.
1144, Dallas County, Texas and being part of the City of Dallas Block 7000, and
being more particularly described as follows:
BEGINNING at the intersection of the South line of IH-635 (variable
width) and the West line of Noel Road (60 ft. R. O.W.); Thence along said West
line of Noel Road and along a circular curve to the right having a beginning
tangent bearing of South 25' 53' 11" East, a central angle of 25' 5741", a
radius of 50.00 ft., a tangent length of 11.53 ft. and an arc length of 22.66
ft. to the end of said circular curve to the right; Thence South 00' 04'30"
West along said West line of Noel Road a distance of 691.65 ft. to the True
Point of Beginning;
THENCE South 00' 04'30" West continuing along said West line of Noel
Road a distance of 23 5.3 3 ft. to a point for a comer;
THENCE North 89' 55'30" West leaving said West line of Noel Road a
distance of 241.80 ft. to a point for a comer;
THENCE South 000 0413011 West a distance of 15.30 ft. to a point for a
comer;
THENCE North 890 5513011 West a distance of 36.76 ft. to a point for a
comer;
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<PAGE> 39
THENCE South 000 04'30" West a distance of 38.41 ft. to a point for a
comer;
THENCE North 890 5513011 West a distance of 57.00 ft. to a point for a
comer;
THENCE North 000 04'30" East a distance of 6.3 ft. to a point for a
comer;
THENCE North 890 5513011 West a distance of 28.14 ft. to a point for a
comer;
THENCE South 00 04'30" West a distance of 7.5 ft. to an iron rod for a
comer;
THENCE North 890 55'30" West a distance of 16.2 ft. to an iron rod for
a comer;
THENCE North 00 04130" East a distance of 7.5 ft. to an iron rod for a
comer;
EXHIBIT "A" TO OFFICE SUBLEASE AGREEMENT- Page 1
THENCE North 890 55130" West a distance of 191.5 ft. to an iron rod
for a comer;
THENCE South 00' 04'30" West a distance of 18.0 ft. to a point for a
comer;
THENCE North 890 55130" West a distance of 82.0 ft. to a point for a
comer;
THENCE North 00' 04'30" East a distance of 24.5 ft. to a point for a
comer;
THENCE North 89' 55'30" West a distance of 32. 10 ft. to a point for a
comer;
THENCE North 000 04130" East a distance of 3 1.00 R. to a point for a
comer;
THENCE North 890 55'30" West a distance of 157.5 ft. to a point for a
comer;
THENCE South 00 04'30" West a distance of 13.4 ft. to an iron rod for
a comer;
THENCE North 89' 55'30" West a distance of 27.6 ft. to an iron rod for
a comer;
THENCE North O' 04' 3 0" East a distance of 13.4 ft. to an iron rod
for a comer;
THENCE North 890 55'30" West a distance of 100.29 ft. to an iron rod
for a comer;
THENCE South 00' 04'30" West a distance of 135.38 ft. to a point for a
comer;
THENCE South 73' 05'00" West a distance of 86.27 R. to a point in the
East line of a 100 ft. Dallas Power & Light company R.O.W. for a comer;
61
<PAGE> 40
THENCE North 16' 55'00" West along said East line of 100 ft. Dallas
Power & Light Company R.O.W. a distance of 465.82 ft. to a point for a comer;
THENCE South 89' 55'30" East a distance of 562.31 R. to a point for a
comer;
THENCE North 30' 04'30" East a distance of 57.58 ft. to a point for a
comer;
THENCE South 89' 55'30" East a distance of 62.95 ft. to a point for a
comer;
THENCE South 30' 04'30" West a distance of 57.58 ft. to a point for a
comer;
THENCE South 89' 55'30" East a distance of 294.93 ft. to a point for a
comer;
THENCE South 00' 04'30" West a distance of 39.65 ft. to a point for a
comer;
THENCE South 890 55130" East a distance of 269.33 ft. to the True Point of
Beginning and containing 8.0410 Acres (350,266 sq. ft.) of land.
EXHIBIT "A" TO OFFICE SUBLEASE AGREEMENT- Page 2
62
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EXHIBIT "B"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
FLOOR PLAN
EXHIBIT "B" TO OFFICE SUBLEASE AGREEMENT- Page I
63
<PAGE> 42
EXHIBIT "C"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
SCHEDULE OF BASE RENTAL PAYMENTS
<TABLE>
<S> <C>
April 1, 1996 through December 31, 1996 -0-
January 1, 1997 through February 28, 1997 $ 47,080.00 per month
March 1, 1997 through August 31, 1997 $ 74,395.50 per month
September 1, 1997 through August 31, 1998 $104,283.42 per month
September 1, 1998 through August 31, 1999 $112,528.42 per month
September 1, 1999 through August 31, 2000 $118,025.08 per month
September 1, 2000 through August 31, 2001 $126,270.08 per month
</TABLE>
EXHIBIT "C" TO OFFICE SUBLEASE AGREEMENT- Page I
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<PAGE> 43
EXHIBIT "D'
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
PAYMENT OF EXCESS BASIC COSTS
1. Basic Costs. The Base Rental payable hereunder shall be
adjusted from time to time in accordance with the following provisions:
(a) Tenant's Base Rental is based, in part, upon the estimate that
annual "Basic Costs" (as hereinafter defined) will be equal to the "Expense
Stop". During the Lease Term, Tenant shall pay as an adjustment to Base Rental
hereunder an amount (per each square foot of Rentable Area within the Premises)
equal to the excess ("Excess") from time to time of Basic Costs per square foot
of Rentable Area in the Building over the Expense Stop. Landlord may collect
such additional Base Rental in arrears on a yearly basis. If Master Landlord
requires Landlord to pay a monthly payment of Base Rental adjusted in
accordance with an estimate of the Excess under the Master Lease, Landlord
shall also have the option to make a good faith estimate of the Excess from
time to time for each upcoming calendar year (or remainder thereof, if
applicable) and, upon thirty (30) days' written notice to Tenant, may require
the monthly payment of Base Rental to be adjusted in accordance with such
estimate. Any amounts paid based on such an estimate shall be subject to
adjustment pursuant to Paragraph 2 below when Basic Costs are available for
such calendar year.
(b) "Basic Costs" shall mean all direct and indirect costs and
expenses of Master Landlord in each calendar year of operating, maintaining,
repairing, managing and owning the Building and the Property plus all operating
costs of the Exterior Common Areas (below defined). Basic Costs shall not
include the cost of capital improvements, depreciation, interest, lease
commissions, and principal payments on mortgage and other non-operating debts
of Master Landlord, other specific costs billed to a specific tenant or tenants
for which Master Landlord is reimbursed by such tenant or tenants as an
additional charge or rental over and above the base rental payable under the
lease(s) with such tenant(s), and over and above any such tenant(s) pro rata
share of Basic Costs, costs to construct tenant leasehold improvements and
sales taxes related thereto, legal fees relating to pursuing remedies against
tenants and advertising and promotional expenses (however, Basic Costs may
include the expense of providing and circulating tenant newsletters, etc.).
Basic Costs shall, however, include the amortization of capital improvements
which are primarily for the purpose of reducing Basic costs, or which are
required by governmental authorities. "Exterior Common Areas" shall mean that
portion of the Property (and other tracts of real property comprising the
multi-building project in the event the Building is
EXHIBIT "D" TO OFFICE SUBLEASE AGREEMENT - Page 1
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<PAGE> 44
located in such a project) which are not located within the Building (or other
building in a multi-building project) and which are provided and maintained for
the common use and benefit of Master Landlord and tenants of the Building (or
multi-building project) generally and the employees, invitees and licensees of
Master Landlord and such tenants; including without limitation, all parking
areas enclosed or otherwise) and all streets, sidewalks, walkways, and
landscaped areas. The prorated portion of maintenance costs relative to the
lake located adjacent to the Building shall be included in Basic Costs in
common with the tenants of the "Balance of Lincoln Centre." As used herein, the
term "Balance of Lincoln Centre" shall mean the balance of the land located
between LBJ Freeway, the Dallas North Tollway, Harvest I-Ell Lane, and Noel
Road.
2. Procedure. The following additional provisions shall apply to
Paragraph I of this Exhibit "D":
(a) By April 15 of each calendar year during Tenant's
occupancy, or as soon thereafter as practical, Landlord shall furnish to Tenant
a copy of Master Landlord's statement of Basic Costs for the previous calendar
year. If for any calendar year additional Base Rental was collected for the
prior year, as a result of Landlord's estimate of Basic Costs, in excess of the
additional Base Rental due during such prior year, then Landlord shall refund
to Tenant any overpayment (or at Landlord's option, apply such amount against
rentals due or to become due hereunder). Likewise, Tenant shall pay to
Landlord, on demand, any underpayment with respect to the prior year. In no
event shall Basic Costs per square foot of Rentable Area within the Building be
deemed to be less than the Expense Stop, it being the intent of Landlord and
Tenant that Tenant shall at all times be responsible for the payment of, and
shall pay, not less than the amount of Base Rental for the applicable period
(before adjustment) specified in this Lease.
(b) Tenant, at its expense, shall have the right no more
frequently than once per calendar year, following forty (40) days' prior
written notice to Landlord, to cause Landlord to audit Master Landlord's books
and records relating to Basic Costs (and Landlord shall reimburse Tenant for
the cost of any such audit if such audit reveals to Landlord's satisfaction
that Master Landlord's statement of Basic Costs exceeds actual Basic Costs by
greater than ten percent (10%) ); or at Landlord's sole discretion, Landlord
will provide such audit at Landlord's expense prepared by an independent
certified public accountant.
(c) Notwithstanding any language in the Lease or in this
Exhibit "D" seemingly to the contrary, Master Landlord may, at Master
Landlord's sole election, determine and estimate Basic Costs for any calendar
year within the Lease Term by increasing the variable components of Basic Costs
to the amount which Master Landlord projects would have been incurred had the
Building been occupied to the extent of ninety-five percent (95%) of the
Rentable Area therein during all of the applicable calendar year, provided,
however, that for such purposes, the "variable components" shall be limited to
costs of utilities, janitorial and cleaning expenses, and elevator maintenance
costs. In such event, the term "Basic Costs", as used in this Exhibit "D" and
in the Lease, shall include (i) the actual Basic Costs incurred during any
portion of such calendar year in which the Building
EXHIBIT "D" TO OFFICE SUBLEASE AGREEMENT - Page 2
66
<PAGE> 45
is occupied to the extent ninety-five percent (95%) or more of the Rentable
Area therein plus (ii) the Basic Costs which would have been incurred had the
Building been occupied to the extent of ninety-five percent (95%) of the
Rentable Area thereof during the portion of that calendar year in which the
actual occupancy of the Building is less than ninety-five percent (95%) of the
Rentable Area therein; and Master Landlord shall have the option of making such
estimate in advance for any upcoming calendar year. In the event Master
Landlord exercises its option to make such estimate, Landlord shall notify
Tenant promptly after Landlord receives notice of same and shall provide Tenant
with a copy of all notices and other documents received by Landlord with
respect to same.
(d) For the purpose of establishing the Basic Costs for 1996 in
order to establish Tenant's Expense Stop, the variable components of Basic
Costs shall be increased to the amount which Master Landlord projects would
have been incurred had the Building been occupied to the extent of ninety-five
percent (95%) of the Rentable Area therein during all of 1996, provided,
however, that for such purposes, the "variable components" shall be limited to
costs of utilities, janitorial and cleaning expenses, and elevator maintenance
costs. In such event, the term "Basic Costs for 1996", as used in this Exhibit
"D" and in the Lease, shall include (i) the actual Basic Costs incurred during
any portion of 1996 in which the Building is occupied to the extent of
ninety-five percent (95%) or more of the Rentable Area therein plus (ii) the
Basic Costs which would have been incurred had the Building been occupied to
the extent of ninety-five percent (95%) of the Rentable Area thereof during the
portion of 1996 in which the actual occupancy of the Building is less than
ninety-five percent (95%) of the Rentable Area therein.
(e) In the event that the Lease Term commences on a day other than
January I or terminates on a day other than December 3 1, the Excess for that
part of the first (1st) calendar year or last calendar year during the Lease
Term shall be determined as follows:
(i) The Expense Stop shall be prorated based upon the number of
months in such partial calendar year. With respect to any partial calendar
month occurring during such partial calendar year, the Expense Stop shall also
be prorated based upon the number of days in that partial calendar month.
(ii) The Excess, if any, for the applicable partial calendar year
shall then be the amount by which (A) actual Basic Costs per square foot of
Rentable Area in the Building for such calendar year, prorated based upon the
number of months and days in the applicable partial calendar year, exceed (B)
the Expense Stop, as prorated pursuant to the provisions of this Subparagraph
2(e).
(iii) With respect to a proration for the first (1st) calendar year
and in the event that Landlord's estimate of the Basic Costs to be incurred
during such partial calendar year exceeds the Expense Stop, as prorated
pursuant to the provisions of this Subparagraph 2 (e), Landlord may, upon
thirty (3 0) days' prior written notice to Tenant, require the monthly payments
of Base Rental occurring during such partial calendar year to be adjusted in
accordance with such estimate.
EXHIBIT "D" TO OFFICE SUBLEASE AGREEMENT - Page 3
67
<PAGE> 46
(iv) The provisions of this Exhibit I'D" shall survive the
termination of the Lease Term.
EXHIBIT "D" TO OFFICE SUBLEASE AGREEMENT - Page 4
68
<PAGE> 47
EXHIBIT "E"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS MASTER LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
RULES AND REGULATIONS
1. Sidewalks, doorways, vestibules, halls, stairways, and similar
areas shall not be obstructed nor shall refuse, furniture, boxes or other items
be placed therein by Tenant or its officers, agents, servants, and employees,
or used for any purpose other than ingress and egress to and from the LEASED
premises, or for going from one part of the Building to another part of the
Building. Canvassing, soliciting and peddling in the Building are prohibited.
2. Plumbing fixtures and appliances shall be used only for the
purposes for which constructed, and no unsuitable material shall be placed
therein.
3. No signs, directories, posters, advertisements, or notices
shall be painted or affixed on or to any of the windows or doors, or in
corridors or other parts of the Building, except in such color, size, and
style, and in such places, as shall be first approved in writing by Master
Landlord in its discretion. Building standard suite identification signs will
be prepared by Master Landlord at Tenant's expense. Master Landlord shall have
the right to remove all unproved signs without notice to Tenant, at the expense
of Tenant.
4. Tenants shall not do, or permit anything to be done in or
about the Building, or bring or keep anything therein, that will in any way
increase the rate of fire or other insurance on the Building, or on property
kept therein or otherwise increase the possibility of fire or other casualty.
5. Master Landlord shall have the power to prescribe the weight
and position of heavy equipment or objects which may overstress any portion of
the floor. All damage done to the Building by the improper placing of such
heavy items will be repaired at the sole expense of the responsible Tenant.
6. A Tenant shall notify the Building manager when safes or other
heavy equipment are to be taken in or out of the Building, and the moving shall
be done after written permission is obtained from Master Landlord on such
conditions as Master Landlord shall require.
7. Corridor doors, when not in use, shall be kept closed.
EXHIBIT "E" TO OFFICE SUBLEASE AGREEMENT - Page 1
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<PAGE> 48
8. All deliveries must be made via the service entrance and
service elevator, when provided, during normal working hours. Master
Landlord's written approval must be obtained for any delivery after normal
working hours.
9. Each Tenant shall cooperate with Master Landlord's employees
in keeping their leased premises neat and clean.
10. Tenants shall not cause or permit any improper noises in the
Building, or allow any unpleasant odors to emanate from the leased premises, or
otherwise interfere, injure or annoy in any way other tenants, or persons
having business with them.
11. No animals shall be brought into or kept in or about the Building.
12. When conditions are such that Tenant must dispose of crates,
boxes, etc., it will be the responsibility of Tenant to dispose of same prior
to, or after the hours of 7:30 a.m. and 5:30 p.m., respectively.
13. No machinery of any kind, other than ordinary office machines
such as typewriters and calculators, shall be operated on the leased premises
without the prior written consent of Master Landlord, nor shall a tenant use or
keep in the Building any inflammable or explosive fluid or substance (including
Christmas trees and ornaments), or any illuminating materials, except candles.
No space heaters or fans shall be operated in the Building.
14. No bicycles, motorcycles or similar vehicles will be allowed
in the Building.
15. No nails, hooks, or screws shall be driven into or inserted in
any part of the Building except as approved by Master Landlord.
16. Master Landlord has the right to evacuate the Building in the
event of an emergency or catastrophe.
17. No food and/or beverages shall be distributed from Tenant's
office without the prior written approval of the Building manager.
18. No additional locks shall be placed upon any doors without the
prior written consent of Master Landlord. All necessary keys shall be
furnished by Master Landlord, and the same shall be surrendered upon
termination of this Lease, and Tenant shall then give Master Landlord or his
agent an explanation of the combination of all locks on the doors or vaults.
Tenant shall initially be given two (2) keys to the leased premises by Master
Landlord. No duplicates of such keys shall be made by Tenants. Additional
keys shall be obtained only from Master Landlord, at a fee to be determined by
Master Landlord.
19. Tenants will not locate furnishings or cabinets adjacent to
mechanical or electrical access panels or over air conditioning outlets so as
to prevent operating personnel from servicing such units as routine or
emergency access may require. Cost of moving such furnishings for Master
Landlord's or Landlord's access will be for Tenant's account. The lighting and
air
E)HIBIT "E" TO OFFICE SUBLEASE AGREEMENT - Page 2
70
<PAGE> 49
conditioning equipment of the Building will remain the exclusive charge of the
Building designated personnel.
20. Tenant shall comply with parking rules and regulations as may
be posted or distributed from time to time.
21. No portion of the Building shall be used for the purpose of
lodging rooms.
22. Vending machines or dispensing machines of any kind will not
be placed in the leased premises by a Tenant.
23. Prior written approval, which shall be at Master Landlord's
sole discretion, must be obtained for installation of window shades, blinds,
drapes or any other window treatment of any kind whatsoever. Master Landlord
will control all internal lighting that may be visible from the exterior of the
Building and shall have the right to change any unapproved fighting, without
notice to Tenant, at Tenant's expense.
24. No Tenant shall make any changes or alterations to any portion
of the Building without Master Landlord's prior written approval, which may be
given on such conditions as Master Landlord may elect. All such work shall be
done by Master Landlord or by contractors and/or workmen approved by Master
Landlord, working under Master Landlord's supervision.
25. Tenants shall provide plexiglass or other pads for all chairs
mounted on rollers or casters.
26. Master Landlord reserves the right to rescind any of these
rules and make such other and further rules and regulations as in its judgment
shall from time to time be necessary or advisable for the operation of the
Building, which rules shall be binding upon each Tenant upon delivery to such
Tenant of notice thereof in writing.
EMMIT "E" TO OFFICE SUBLEASE AGREEMENT - Page 3
71
<PAGE> 50
EXHIBIT "E-1"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
INTERPRETATION OF SPECIFIC RULES AND REGULATIONS
1. With respect to Rule No. 7 of Exhibit "E" ' such rule shall be
construed as applying only to those portions of the Premises which are located
on floors which have space leased to another tenant or tenants.
2. With respect to Rule No. 8 of Exhibit "E", Landlord's written
approval shall not be unreasonably withheld.
3. With respect to Rule No. 13 of Exhibit "E" such rule shall not
be construed as prohibiting typical office machines such as computers and
copiers; provided, however, that such equipment shall be nevertheless subject
to applicable floor load requirements. Such rule is also intended to prohibit
tenants from keeping inflammable and explosive materials in the Building and
shall not be construed as to prohibit Tenant from keeping a nonflammable
artificial Christmas tree without lights or other illuminating items on the
Premises (unless such lights are approved by Underwriter's Laboratories).
Current applicable fire codes and laws prohibit the use of space heaters in
buildings, and, to the extent use of space heaters are permitted by applicable
fire codes and laws and the Premises are designed for use of space heaters,
this rule shall not be construed as to prohibit Tenant from using the same in
accordance with such codes and laws and the provisions of this Lease, including
without limitation, Paragraph 12. The rule shall also not be construed as to
prohibit Tenant from using small desk-top fans in accordance with applicable
codes and laws.
4. With respect to Rule No. 15 of Exhibit "E" ' Landlord shall
not unreasonably withhold its consent to the use of hardware typically used to
hang bulletin boards, works of art, framed diplomas and certificates and
similar furnishings, provided that such hardware does not affect the
mechanical, electrical or plumbing systems or the structural integrity of the
Building.
5. With respect to Rule No. 17 of Exhibit "E", no approval from
the Building management shall be required for obtaining or preparing any food
to be consumed within the Premises by employees or business invitees of Tenant;
no food and/or beverages are to be sold to persons outside of the Premises.
6. With respect to Rule No. 18 of Exhibit "E" I if Tenant desires
to have Landlord place locks on interior doors, Landlord's consent shall not be
unreasonably withheld and Landlord shall retain keys for all doors within the
Premises. Landlord agrees that additional keys for the interior and exterior
doors to the Premises shall be obtained only from Landlord at a reasonable fee
based on Landlord's cost of producing such keys.
EXHIBIT "E- 1 " TO OFFICE SUBLEASE AGREEMENT - Page 1
72
<PAGE> 51
7. With respect to Rule No. 22 of Exhibit "E", Landlord agrees
that such rule shall not apply to vending machines or dispensing machines in
Tenant's employee lunch rooms.
8. With respect to Rule No. 23 of Exhibit "E", Landlord's
approval for the installation of window shades, blinds, drapes or any other
window treatment of any kind whatsoever, shall not be unreasonably withheld;
however, Landlord's disapproval shall not be deemed to be unreasonable if such
window treatment requested would be substantially different from typical window
treatments in the Building.
9. With respect to Rule No. 24 of Exhibit "E" ' Landlord shall
not unreasonably withhold its consent with respect to any alteration to the
Premises which (a) costs $10,000.00 or less, (b) does not involve work above
the ceiling in the Premises or any other part of the Building, and (c) does not
affect, in any way, the mechanical, electrical, plumbing and/or structural
components of the Building. Any contractor or contractors employed by Tenant
to complete such alterations must be approved by Landlord in writing prior to
the commencement of such alterations and such consent may be granted or
withheld in Landlord's sole discretion.
10. With respect to Rule No. 25 of Exhibit "E", Tenant shall not
be required to provide plexiglass or other pads for all chairs mounted on
rollers and casters which have been designed to be utilized on carpet.
11. With respect to Rule No. 26 of Exhibit "E", Landlord agrees
that any changes to the Rules and Regulations shall be generally applicable to
all tenants of the Building.
12. With respect to Rule No. 11 of Exhibit "E", such rule shall be
construed so as to except guide dogs or similar support animals accompanying
persons who are physically disabled.
EXHIBIT "E- I" TO OFFICE SUBLEASE AGREEMENT - Page 2
73
<PAGE> 52
EXHIBIT "F"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD
AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
PARKING
This Exhibit "F" ("Parking Exhibit") describes and specifies Tenant's
non-exclusive right to use one hundred forty-five (145) unreserved parking
spaces and five (5) reserved parking spaces as adjusted pursuant to Paragraph 7
of this Exhibit "F" (collectively, the "Spaces") located on such levels inside
the Building's east and west parking garage ("Parking Garage") as set forth on
Schedule 1 attached to this Parking Exhibit and incorporated herein by
reference, all upon the terms and conditions set forth below.
1. Definitions. The terms which are defined in the Lease shall
have the same meaning in this Parking Exhibit.
2. Grant and Rental Fee. Provided no event of default has
occurred and is continuing under the Lease, Tenant shall be permitted the
non-exclusive use of the Spaces during the Lease Term at such monthly rates
(together with any applicable tax thereon) and subject to such terms,
conditions, and regulations as are, from time to time, promulgated by Landlord
or the manager of the Parking Garage, as applicable, and charged or applicable
to patrons of the Parking Garage for spaces similarly situated therein.
Notwithstanding the aforesaid, Tenant shall be permitted the nonexclusive use
of the Spaces during the primary Lease Term at no charge.
3. Risk. All motor vehicles (including all contents thereof)
shall be parked in the Spaces at the sole risk of Tenant, its employees,
agents, invitees and licensees, it being expressly agreed and understood that
Landlord has no duty to insure any of said motor vehicles (including the
contents thereof), and that Landlord is not responsible for the protection and
security of such vehicles. Landlord shall have no liability whatsoever for any
property damage and/or personal injury which might occur as a result of or in
connection with the parking of said motor vehicles in any of the Spaces, and
Tenant hereby agrees to indemnify and hold Landlord harmless from and against
any and all costs, claims, expenses, and/or causes of action which Landlord may
incur in connection with or arising out of Tenant's use of the Spaces pursuant
to this Agreement.
4. No Bailment. It is further agreed that this Parking Exhibit
shall not be deemed to create a bailment between the parties hereto, it being
expressly agreed and understood that the only relationship created between
Landlord and Tenant hereby is that of licensor and licensee, respectively.
EXHIBIT "F TO OFFICE SUBLEASE AGREEMENT - Page 1
74
<PAGE> 53
5. Rules and Regulations. In its use of the Spaces, Tenant shall
follow all of the Rules and Regulations of the Building (attached to the Lease
as Exhibit "E") applicable thereto, and any rules and regulations promulgated
by Landlord or the manager of the Parking Garage, as applicable, as the same
may be amended from time to time. Upon the occurrence of any breach of such
rules Landlord shall notify Tenant of such breach and shall give Tenant a
reasonable opportunity to cure. If Tenant fails to cure such breach within 10
days, Landlord may restrict Tenant's access to the Parking Garage until the
breach has been cured.
6. Access. Landlord shall be entitled to utilize whatever access
device Master Landlord deems necessary (including but not limited to the
issuance of parking stickers or access cards), to assure that only those
persons leasing spaces in the Parking Garage are using the parking spaces
therein. Master Landlord currently limits access to the Parking Garage through
the use of a parking entry card system, the cards for which shall be provided
by Landlord. These cards are different from and do not, without a specific
request from Tenant, entitle the holder thereof to an after-hours entry card to
the Building (pursuant to the terms of Paragraph 6(f)). Landlord agrees to
provide to Tenant one hundred fifty (I 5 0) parking entry cards at no cost to
Tenant. Tenant further agrees to surrender all parking entry cards in its
possession upon the expiration or earlier termination of this Lease. Landlord
shall be entitled to cancel any lost or stolen cards of which it becomes aware.
Tenant shall promptly notify Landlord of any lost or stolen cards. Tenant
shall pay Landlord for each additional card(s) or for each replacement card(s)
for any card(s) lost by or stolen from Tenant, in such amount as Landlord
shall, from time to time determine, but in no event to exceed Landlord's actual
cost of replacing such card(s). Tenant acknowledges that the parking entry
card may also be the same as the master entry card used for access to the
Building during other than normal business hours, and to the extent the cards
are the same, agrees that the provisions of Paragraph 6(f) of the Lease shall
also be applicable and in the event of a conflict with the provisions of this
Parking Exhibit, the provisions of Paragraph 6(f) shall control. In the event
Tenant, its agents or employees wrongfully park in any of the Parking Garage's
spaces, Landlord shall notify Tenant and give Tenant an opportunity to take
corrective action. If Tenant fails to resolve the problem within 24 hours,
Landlord shall be entitled and is hereby authorized to have any such vehicle
towed away, at Tenant's sole risk and expense, and Landlord is further
authorized to impose upon Tenant a penalty of $25.00 for each such occurrence.
Tenant hereby agrees to pay all amounts falling due hereunder upon demand
therefor, and the failure to pay any such amount shall additionally be deemed
an event of default hereunder and under the Lease, entitling Landlord to all of
its rights and remedies hereunder and thereunder.
7. West Garne If and when Landlord no longer requires any
reserved or unreserved parking spaces in the west garage portion of the Parking
Garage, Landlord will provide Tenant the right to utilize any such parking
spaces in exchange for a similar number of Tenant's parking spaces in the east
garage. 1 In such event, such exchange shall commence and be effective upon the
execution and delivery of Landlord and Tenant amendment to the Lease evidencing
such exchange of parking spaces
EXHIBIT "F TO OFFICE SUBLEASE AGREEMENT - Page 2
75
<PAGE> 54
SCHEDULE 1
TO
EXHIBIT "F"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
EAST GARAGE
(Unreserved)
76
<PAGE> 55
EXHIBIT "G"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
NOTICE: THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
RESULTS IN YOUR LEASEHOLD ESTATE IN THE PROPERTY BECOMING
SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER
OR LATER SECURITY INSTRUMENT.
THIS AGREEMENT is entered into by and among Tenant, Landlord, and
Beneficiary and affects the Property described in Schedule I attached hereto.
The terms "Tenant", "Master Landlord", "Landlord", "Beneficiary", "Master
Premises", "Premises", "Master Lease" and "Lease", "Property", "Loan", "Note",
and "Mortgage" are defined in that certain Sublease dated , 1996, by and
between SANTA FE INTERNATIONAL CORPORATION, as Landlord, and PHYSICIAN RELIANCE
NETWORK, INC., as Tenant. The terms I" "Note", and "Mortgage" are defined on
Schedule 2 hereto. "Beneficiary", "Property", 'Loan , This Agreement is
entered into with reference to the following facts:
A. Master Landlord and Landlord have entered into the Master
Lease covering the Master Premises.
77
<PAGE> 56
B. Landlord and Tenant have entered into a Lease covering the Premises.
C. Beneficiary has agreed to make the Loan to Master Landlord to
be evidenced by the Note, which Note is secured by the Mortgage
covering the Property, provided that the Lease and the Master Lease
are subordinate to the lien of the Mortgage.
D. For the purposes of completing the Loan, the parties hereto
desire expressly to acknowledge the subordination of the Lease to the
lien of the Mortgage, it being a condition precedent to Beneficiary's
obligation to consummate the Loan that the lien of the Mortgage be
unconditionally and at all times prior and superior to the leasehold
interests and estates created by the Lease.
E. Tenant has requested that Beneficiary agree not to disturb
Tenant's possessory rights in the Premises in the event Beneficiary
should foreclose the Mortgage; provided that Tenant is not then in
default under the Lease and provided further
EXHIBIT "G" TO OFFICE SUBLEASE AGREEMENT - Page 1
78
<PAGE> 57
that Tenant attorns to Beneficiary or the purchaser at any foreclosure
or trustee's sale of the Property.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Subordination. Notwithstanding anything to the contrary set
forth in the Lease, Tenant hereby acknowledges and agrees that the Lease and
the leasehold estate created thereby and ALL of the Tenant's rights thereunder
are and shall be and shall at all times remain subject, subordinate and
inferior to the Mortgage and the lien thereof, and all rights of Beneficiary
thereunder and to any and all renewals, modifications, consolidations,
replacements and extensions thereof
2. Acknowledizment and Agreement by Tenant. Tenant acknowledges
and agrees that:
(a) Beneficiary would not make the Loan without this
Agreement;
(b) It acknowledges the Mortgage and the agreements
evidencing and securing the Loan; and
(c) Beneficiary, in making any disbursements to Master
Landlord, is under no obligation or duty to oversee or direct the
application of the proceeds of such disbursements, and such proceeds
may be used by Master Landlord for purposes other than improvement of
the Property.
(d) From and after the date hereof, in the event of any
act or omission by Landlord which would give Tenant the right, either
immediately or after the lapse of time, to terminate the Lease or to
claim a partial or total eviction, Tenant will not exercise any such
right:
(i) until it has given written notice of such act
or omission to Beneficiary; and
(ii) until the same period of time as is given to
Landlord under the Lease to cure such act or omission shall
have elapsed following such giving of notice to Beneficiary
and following the time when Beneficiary shall have become
entitled under the Mortgage to remedy the same.
(e) It has notice that the Lease and the rent and all
other sums due thereunder have been assigned or are to be assigned to
Beneficiary as security for the Loan secured by the Mortgage. In the
event that Beneficiary notifies Tenant of a default under the Mortgage
and demands that Tenant pay its rent and all other sums due under the
Lease to Beneficiary, Tenant shall honor such demand and pay its rent
and all other sums due under the Lease directly to Beneficiary or as
otherwise required pursuant to such notice.
EXHIBIT "G" TO OFFICE SUBLEASE AGREEMENT - Page 2
79
<PAGE> 58
(f) It shall send a copy of any notice or statement under
the Lease to Beneficiary at the same time such notice or statement is
sent to Landlord.
(g) It has no right or option of any nature whatsoever,
whether pursuant to the Lease or otherwise, to purchase the Premises
or the Property, or any portion thereof or any interest therein, and
to the extent that Tenant has had, or hereafter acquires, any such
right or option, the same is hereby acknowledged to be subject and
subordinate to the Mortgage and is hereby waived and released as
against Beneficiary.
(h) This Agreement satisfies any condition or requirement
in the Lease relating to the granting of a non-disturbance agreement.
3. Foreclosure and Sale. In the event of foreclosure of the
Mortgage, or upon a sale of the Property pursuant to the trustee's power of
sale contained therein, or upon a transfer of the Property by conveyance in
lieu of foreclosure, then:
(a) Non-Disturbance. So long as Tenant complies with
this Agreement and is not in default under any of the terms,
covenants, or conditions of the Lease, the Lease shall continue in
full force and effect, upon and subject to all of the terms, covenants
and conditions of the Lease, for the balance of the term of the Lease.
Tenant hereby agrees to adhere to and accept any such successor owner
as landlord under the Lease, and to be bound by and perform all of the
obligations imposed by the Lease, and Beneficiary, or any such
successor owner of the Property, will not disturb the possession of
Tenant, and will be bound by all of the obligations imposed on the
Landlord by the Lease; provided however, that Beneficiary, or any
purchaser at a trustee's or sheriff s sale or any successor owner of
the Property shall not be:
(i) liable for any act or omission of a prior
landlord (including Landlord); or
(ii) subject to any offsets or defenses which
Tenant might have against any prior landlord (including
Landlord); or
(iii) bound by any rent or additional rent which
Tenant might have paid in advance to any prior landlord
(including Landlord) for a period in excess of one month or by
any security deposit, cleaning deposit or other prepaid charge
which Tenant might have paid in advance to any prior landlord
(including Landlord); or
(iv) bound by any agreement or modification of the
Lease made without the written consent of Beneficiary.
(b) New Lease. Upon the written request of either
Beneficiary or Tenant given to the other at the time of any
foreclosure, trustee's sale or conveyance in lieu thereof, the parties
agree to execute a lease of the Premises upon the same terms and
conditions as the Lease between Landlord and Tenant, which lease shall
cover any
EXHIBIT "G" TO OFFICE SUBLEASE AGREEMENT - Page 3
80
<PAGE> 59
unexpired term of the Lease existing prior to such foreclosure,
trustee's sale or conveyance in lieu of foreclosure.
(c) Beneficiary shall have no responsibility to provide
(or liability for not providing) any additional space for which Tenant
has any option or right under the Lease where a conflict exists
between the provisions of the Lease and the provisions of any other
lease affecting the Property regarding such additional space unless
Beneficiary at its option elects to provide the same and Tenant hereby
releases Beneficiary from any obligation it may otherwise have to
provide the same, and agrees that Tenant shall have no right to cancel
the Lease, abate rent or assert any claim against Beneficiary as a
result of the failure to provide any option space.
(d) Beneficiary shall have no liability to Tenant or any
other party for any conflict between the provisions of the Lease and
the provisions of any other lease affecting the Property, including,
but not limited to, any provisions relating to renewal options and
options to expand, and in the event of such a conflict, Tenant shall
have no right to cancel the Lease or take any other remedial action
against Beneficiary or action against any other party for which
Beneficiary would be liable.
4. Acknowledgment and Agreement by Landlord. Landlord, as
landlord under the Lease, acknowledges and agrees for itself and its heirs,
successors, and assigns, that:
(a) This Agreement does not constitute a waiver by
Beneficiary of any of its rights under the Mortgage;
(b) The provisions of the Mortgage remain in full force
and effect; and
(c) In the event of a default under the Mortgage, Tenant
may pay all rent and all other sums due under the Lease to Beneficiary
as provided in this Agreement.
5. No Obligation of Beneficiary. Beneficiary shall have no
obligation or incur any liability with respect to the erection or completion of
the improvements in which the Premises are located or for completion of the
Premises or any improvements for Tenant's use and occupancy, either at the
commencement of the term of the Lease or upon any renewal or extension thereof
or upon the addition of additional space, pursuant to any expansion right
contained in the Lease.
6. Notice. All notices hereunder to Beneficiary shall be deemed
to have been fully given if mailed by United States registered or certified
mail, with return receipt requested, postage prepaid to Beneficiary at its
address set forth in Schedule 2 attached hereto (or at such other address AS
shall be given in writing by Beneficiary to Tenant) and shall be deemed
complete upon any such mailing.
7. Miscellaneous.
(a) This Agreement supersedes any inconsistent provision of
the Lease.
EXHIBIT "G" TO OFFICE SUBLEASE AGREEMENT - Page 4
81
<PAGE> 60
(b) Nothing contained in this Agreement shall be
construed to derogate from or in any way impair or affect the lien and
charge or provisions of the mortgage.
(c) Beneficiary shall have no obligations nor incur any
liability with respect to any warranties of any nature whatsoever,
whether pursuant to the Lease or otherwise, including, without
limitation, any warranties respecting use, compliance with zoning,
Landlord's title, Landlord's authority, habitability, fitness for
purpose or possession.
(d) In the event that Beneficiary shall acquire title to
the Premises or the Property, Beneficiary shall have no obligation,
nor incur any liability, beyond Beneficiary's then equity interest, if
any, in the Premises, and Tenant shall look exclusively to such equity
interest of Beneficiary, if any, in the Premises for the payment and
discharge of any obligations imposed upon Beneficiary hereunder or
under the Lease and Beneficiary is hereby released and relieved of any
other obligation hereunder or under the Lease.
(e) This Agreement shall inure to the benefit of the
parties hereto, their respective successors and permitted assigns;
provided however, that in the event of the assignment or transfer of
the interest of Beneficiary, all obligations and liabilities of
Beneficiary under this Agreement shall terminate and thereupon all
such obligations and liabilities shall be the responsibility of the
party to whom Beneficiary's interest is assigned or transferred.
(f) This Agreement shall be governed by and construed in
accordance with the laws of the State in which the Property is
located.
[SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE]
EXHIBIT "G" TO OFFICE SUBLEASE AGREEMENT - Page 5
82
<PAGE> 61
IN WITNESS WHEREOF, the parties executed this Subordination,
Non-Disturbance, and
Attornment Agreement as of the __day of ___. 19__.
IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF TIES SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT, THE PARTIES CONSULT WITH THEIR
ATTORNEYS WITH RESPECT THERETO.
BENEFICIARY:
a
By:
Name:
Title:
TENANT:
PHYSICIAN RELIANCE NETWORK, INC.,
a
By:
Name:
Title:
LANDLORD:
---------
SANTA FE INTERNATIONAL CORPORATION,
a Cayman Islands corporation
By:
Name:
Title:
EXHIBIT "G" TO OFFICE SUBLEASE AGREEMENT - Page 6
83
<PAGE> 62
SCHEDULE 1
TO
EXHIBIT "G"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
LEGAL DESCRIPTION
[TO BE ATTACHED]
SCHEDULE I TO EXHIBIT "G" TO OFFICE SUBLEASE AGREEMENT- Page 1
84
<PAGE> 63
SCHEDULE 2
TO
EXHIBIT "G"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
DEFINED TERMS
[TO BE ATTACHED]
SCHEDULE 2 TO EXHIBIT "G" TO OFFICE SUBLEASE AGREEMENT- Page I
85
<PAGE> 64
EXHIBIT "H"
TO
OFFICE SUBLEASE AGREEMENT BETWEEN
SANTA FE INTERNATIONAL CORPORATION,
AS LANDLORD, AND
PHYSICIAN RELIANCE NETWORK, INC.,
AS TENANT
JANITORIAL SPECIFICATIONS
The following cleaning services shall be provided five (5) days weekly (Normal
Business Holidays excepted):
A. OFFICE LEASE.
1. Empty all waste receptacles and remove waste paper and rubbish
from the Premises nightly; wash receptacles as necessary.
2. Empty and clean all ash trays nightly; screen all sand urns
nightly and supply and replace sand as necessary.
3. Vacuum all rugs and carpeted areas in offices, lobbies, and
corridors nightly.
4. Hand dust and wipe clean with damp or treated cloth all office
furniture, files, fixtures, and all other horizontal surfaces nightly, and
window sills weekly and wash window sills as necessary.
5. Remove all finger marks and smudges from all vertical
surfaces, including doors, door frames, around light switches, private entrance
glass, and partitions weekly.
6. Clean all public water coolers nightly.
7. Sweep all private stairways nightly; vacuum if carpeted.
8. Check all stairwells throughout the entire Building and keep
in clean condition, as required.
9. Damp mop spillage in office and public areas as required.
B. TOILETS.
1. Damp mop floors nightly.
2. Scrub floors as necessary.
3. Clean all mirrors, bright work and enameled surfaces nightly.
EXHIBIT "H" TO OFFICE SUBLEASE AGREEMENT - Page I
86
<PAGE> 65
4. Wash and disinfect all basins, urinals, and bowls nightly,
removing stains and cleaning the undersides of rim of urinals and bowls.
5. Wash both sides of all toilet seats with soap and water or
disinfectant nightly.
6. Damp wipe nightly with disinfectant all partitions, tile walls
and outside surface of all dispensers and receptacles as needed.
7. Empty and sanitize all receptacles and sanitary napkin
disposals nightly; thoroughly clean and disinfect at least once per week.
8. Fill toilet tissue, soap, towel, and sanitary napkin dispensers daily.
9. Vacuum all louvers, ventilating grills and dust light fixtures
monthly.
C. FLOORS.
1. Ceramic tile, marble or terrazzo floors to be swept and buffed
nightly and washed or scrubbed as necessary.
2. Asphalt, vinyl, rubber or other composition floors and bases
to be cleaned nightly.
3. Tile floors in office areas will be buffed as needed.
4. All tile floors stripped, machine cleaned and rewaxed
semi-annually.
5. All carpeted areas and rugs to be vacuum cleaned nightly.
6. Carpet shampooing will be performed at Tenant's request and
billed to Tenant at Landlord's contractor's reasonable cost thereof.
D. GLASS.
1. Clean all perimeter windows, inside and outside, as required,
but in no event less than two (2) times per year with respect to outside
windows and one (1) time per year with respect to inside windows.
2. Spot clean glass entrance doors and adjacent glass panels
nightly.
3. Spot clean partition, glass and interior glass doors nightly.
E. HIGH DUSTING (Quarterly).
1. Dust and wipe clean all closet shelving when empty and sweep
carpet or dry mop all floors in closets if such are empty.
2. Dust all picture frames, charts, graphs and similar wall
hangings.
EXHIBIT "H" TO OFFICE SUBLEASE AGREEMENT - Page 2
87
<PAGE> 66
3. Dust clean all vertical surfaces such as walls, partitions,
doors, door bucks and other surfaces above shoulder height.
4. Damp dust or vacuum all ceiling air conditioning diffusers,
wall grill, registers and other ventilating louvers.
5. Dust the exterior surfaces of lighting fixtures, including
glass and plastic enclosures.
F. DRAPERIES.
1. Spot clean all blinds as required with a full dusting of the
blinds no less often than three (3) times a year.
2. Cleaning of individual pairs of draperies will be performed at
Tenant's request and billed to Tenant at Landlord's contractor's reasonable
cost thereof.
G. DAY SERVICE.
1. At least twice during the day check men's washrooms for toilet
tissue replacement.
2. At least twice during the day check ladies' washrooms for
toilet tissue and sanitary napkin replacement.
3. Supply toilet tissue, soap and towels in men's and ladies'
washrooms and sanitary napkins, sanitary napkin disposal units and coin
dispensers in ladies' toilets.
H. GENERAL.
1. Where "as needed", "as necessary", or "as required" is used in
this janitorial specification, the Landlord shall be the sole judge.
2. The specifications described herein are subject to change from
time to time as Landlord's existing janitorial service contract expires or is
otherwise terminated. New terms may be imposed in subsequent service
contracts.
EXHIBIT "H" TO OFFICE SUBLEASE AGREEMENT - Page 3
88
<PAGE> 67
ADDENDUM 1
TERMINATION AMOUNT
<TABLE>
<CAPTION>
Applicable Applicable
Month During Tennination
Term of Lease Amount
<S> <C>
1 $0
2 $13,536.58
3 $106,979.91
4 $200,423.24
5 $293,866.57
6 $387,309.90
7 $480,753.23
8 $574,196.56
9 $667,639.89
10 $761,083.22
11 $807,446.55
12 $826,494:38
13 $845,542.21
14 $864,590.04
15 $883,637:87
16 $902,685.70
17 $921,733.53
18 $910,893.44
19 $900,053.35
20 $889,213.26
21 $878,373.17
22 $867,533.08
23 $856,692.99
24 $845,852.90
25 $835,012.81
26 $824,172.72
27 $813,332.63
28 $802,492.54
29 $791,652.45
30 $772,567.36
31 $753,482.27
32 $734,397.18
33 $715,312.09
34 S696,227.00
35 $677,141.91
36 S658,056.82
37 S638,971.73
38 S619,886.64
39 $600,801.55
40 $581,716.46
41 $562,631.37
42 $538,049.62
43 $513,467.87
44 S488,886.12
45 S464,304.37
46 S439,722.62
47 S415,140.87
48 $390,559.12
49 $365,977.37
50 $341,395.62
51 $316,813.87
52 $292,232.12
53 $267,650.37
54 $234,823.62
55 $201,996.87
56 $169,170.12
57 $136,343.37
58 $103,516.62
59 $ 70,689@87
60 $ 37,863.12
61 $ 5,036.37
62 $0
63 $0
64 $0
65 $0
</TABLE>
89
<PAGE> 1
Exhibit 10.25
AMENDED AND RESTATED SERVICE AGREEMENT
THIS AMENDED AND RESTATED SERVICE AGREEMENT is entered into as of
January 1, 1996 by and between Physician Reliance Network, Inc., a Texas
corporation ("PHYN"), and Texas Oncology, P.A., a Texas professional
association ("the Practice").
RECITALS:
WHEREAS, the Practice is a group medical practice that provides
oncology medical care to the general public;
WHEREAS, PHYN is in the business of managing and administering medical
clinics, and providing support services to and furnishing medical practices
with facilities, equipment, supplies and administrative support staff;
WHEREAS, the Practice desires to obtain the services of PHYN in
performing such management functions so as to permit the Practice to devote its
efforts on a concentrated and continuous basis to the rendering of medical
services to its patients;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Practice hereby agrees to purchase the management and
support services herein described and PHYN agrees to provide such services on
the terms and conditions provided in this Agreement.
ARTICLE 1.
RELATIONSHIP OF THE PARTIES
1.1 Independent Relationship. The Practice and PHYN intend to
act and perform as independent contractors, and the provisions hereof are not
intended to create any partnership, joint venture, agency or employment
relationship between the parties. Notwithstanding the authority granted to PHYN
herein, PHYN and the Practice agree that the Practice shall retain the sole
authority to direct the medical, professional, and ethical aspects of its
medical practice. Each party shall be solely responsible for and shall comply
with all state and federal laws pertaining to employment taxes, income tax
withholding, unemployment compensation contributions, and other employment
related statutes applicable to that party.
1.2 Responsibilities of the Parties. As more specifically set
forth herein, PHYN shall provide the Practice with offices and facilities,
equipment, supplies, support personnel, and management services. As more
specifically set forth herein, the Practice shall be responsible for
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<PAGE> 2
the recruitment and hiring of physicians and all issues related to medical
practice patterns and documentation thereof. PHYN shall neither exercise
control over nor interfere with any physician-patient relationship, which shall
be maintained strictly between the physicians of the Practice and their
patients.
1.3 The Practice's Matters. Matters involving the internal
agreements and finances of the Practice shall remain the sole responsibility of
the Practice and its shareholders.
1.4 Patient Referrals. It is not a purpose of this Agreement
to induce or encourage the referral of patients. The parties agree that the
benefits to the Practice hereunder do not require, are not payment or
inducement for, and are in no way contingent upon the admission, referral or
any other arrangement for the provision of any item or service offered by PHYN
to any of the Practice's patients.
ARTICLE 2.
DEFINITIONS
2.1 Definitions. For the purposes of this Agreement, the
following definitions shall apply:
2.1.1 "Accounts Receivable" shall mean all "accounts",
"contract rights", "chattel paper", "instruments", and "general
intangibles" as defined in Article Nine of the Uniform Commercial Code
(as adopted in Texas).
2.1.2 "Adjustments" shall mean any adjustments to Clinical
Revenue for uncollectible accounts, discounts, Medicare and Medicaid
disallowances, other contractual discounts, worker's compensation
discounts, employee/dependent healthcare benefit programs,
professional courtesies and other activities that either do not
generate a collectible fee or cause a reduction in accounts as billed.
2.1.3 "Operating Board" shall mean the board established
pursuant to Section 4.1.
2.1.4 "Clinical Facility Employees" shall mean nurses,
medical technologists and technicians, nurse anesthetists, physician
assistants, nurse practitioners, and all other such employees directly
or indirectly involved with providing medical care to patients.
2.1.5 "Clinical Facility" shall mean the facilities,
including satellite locations, related businesses, and all other
business operations and assets of PHYN which are utilized by the
Practice.
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<PAGE> 3
2.1.6 "Clinical Facility Expenses" shall mean all expenses
(including depreciation and amortization) incurred, directly or
indirectly, in the operation of the Clinical Facility other than
expenses paid by the Practice as provided herein.
2.1.7 "Clinical Revenues" shall mean all fees actually
recorded each month (net of Adjustments) by or on behalf of either the
Practice, Physician Employees or PHYN arising from, or in connection
with (i) the operation of the Clinical Facility, (ii) professional
services furnished by Physician Employees or provided under the
supervision of Physician Employees, (iii) consulting services rendered
by Physician Employees, (iv) research programs conducted by Physician
Employees, or (v) professional service contracts between any Physician
Employee or Clinical Facility Employee and a third party. Clinical
Revenues shall not include fees received by Physician Employees
arising from, or in connection with (i) depositions, (ii) acting as an
expert witness, (iii) honoraria, or (iv) any other fees excluded from
Clinical Revenues by the Operating Board.
2.1.8 "EBIT" shall mean the earnings before interest and
income taxes resulting from the operation of the Clinical Facility.
All Clinical Revenues shall be included as revenues and all Clinical
Facility Expenses shall be included as expenses.
2.1.9 "GAAP" shall mean generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity or other practices and procedures as may be approved by a
significant segment of the accounting profession, which are applicable
to the circumstances as of the date of determination. For purposes of
this Agreement, GAAP shall be applied in a manner consistent with the
accounting practices used by PHYN in preparation of PHYN's financial
statements.
2.1.10 "Physician Employees" shall mean those individuals
who are employees of the Practice or otherwise provide professional
services to patients of the Practice and are duly licensed as a
physician to provide professional medical services.
2.1.11 "Practice" shall mean Texas Oncology, P.A. and I.D.
Associates, Ltd.
ARTICLE 3.
FACILITIES TO BE PROVIDED BY PHYN
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<PAGE> 4
3.1 Clinical Facilities. PHYN hereby agrees to provide the
offices and facilities more fully described in Exhibit 3.1 hereto to the
Practice, and shall be responsible for all costs of repairs, maintenance and
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, refuse disposal including disposal of medical and
hazardous waste, and all other costs and expenses reasonably incurred in
conducting operations in the Clinical Facility during the term of this
Agreement.
ARTICLE 4.
DUTIES OF THE OPERATING BOARD
4.1 Formation and Operation of the Operating Board. The
parties shall establish an Operating Board which shall provide advice to PHYN
concerning the management and administrative policies for the overall operation
of the Clinical Facility and shall approve those items set forth in Section
4.2. The Operating Board shall consist of an equal number of members designated
by PHYN and the Practice. Each member of the Operating Board shall have one
vote. The act of a majority vote of the Operating Board shall be the act of
the Operating Board.
4.2 Matters Requiring Operating Board Approval. Prior
approval of the Operating Board is required for (i) establishing operating and
capital budgets for the Clinical Facility; (ii) instituting litigation on
behalf of the Practice; (iii) implementation of a strategic plan to expand the
Practice's operations; or (iv) selling all or substantially all of the assets
of the Clinical Facility.
ARTICLE 5.
CERTAIN OBLIGATIONS OF PHYN
5.1 Performance of Management Functions. PHYN shall provide or
arrange for the services set forth in this Article 5, the cost of all of which
shall be included in Clinical Facility Expenses. PHYN shall be responsible for
all Clinical Facility Expenses. PHYN is hereby expressly authorized to perform
its services hereunder in whatever manner it deems reasonably appropriate to
meet the day-to-day requirements of the Practice's operations. The Practice
will not act in a manner which would prevent PHYN from efficiently managing the
day-to-day operations of the Practice in a business-like manner, and PHYN will
not interfere with any physician-patient relationship.
5.2 Financial Planning and Goals.
5.2.1 Preparation of Budgets. PHYN shall prepare for
approval by the Operating Board annual capital and operating budgets
reflecting, in reasonable detail, the
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<PAGE> 5
anticipated revenues and expenses, sources and uses of capital for
growth in the Practice's practice and medical services rendered at the
Clinical Facility. Said budgets for the next succeeding fiscal year
shall be presented to the Operating Board for review at least thirty
(30) days prior to the end of the preceding fiscal year. PHYN shall
reasonably determine the amount and form of capital to be invested
annually in the Clinical Facility and shall specify the targeted
profit margin for the Clinical Facility.
5.2.2 Service Development. PHYN realizes that the
Clinical Facility has opportunities to provide new services and
utilize new technologies that will require capital expenditures, and
PHYN anticipates that such opportunities may include new and
replacement equipment as may be economically justified. Development of
new services will depend on, among other factors, physician
composition, anticipated volume, reimbursement, number of physicians,
physician support, Clinical Facility performance, and appropriate
physician specialty mix, subject to the requirements of any applicable
statutes, regulations or contracts. PHYN will use its reasonable
efforts to add new services or to supplement existing services.
5.3 Audits and Statements. PHYN shall prepare unaudited annual
financial statements for the operations of the Clinical Facility. If the
Practice desires an audit, the Practice may obtain an audit at its own expense.
PHYN shall prepare monthly unaudited financial statements containing statements
of income from Clinical Facility operations, which shall be delivered to the
Practice within twenty (20) business days after the close of each calendar
month. The Practice shall be solely responsible for the cost of the preparation
of the financial statements of the Practice by any outside party or the audit
thereof. The Practice shall be solely responsible for its local, state and
federal income taxes.
5.4 Inventory and Supplies. PHYN shall order and purchase
inventory and supplies, and such other ordinary, necessary or appropriate
materials which PHYN shall deem to be necessary in the operation of the
Clinical Facility and which are reasonably requested by the Practice to deliver
quality medical services in a cost-effective manner.
5.5 Management Services and Administration.
(a) The Practice hereby appoints PHYN as its sole and
exclusive manager and administrator of all day-to-day business
functions. The Practice agrees that the purpose and intent of this
Service Agreement is to relieve the Practice, its shareholders and
Physician Employees to the maximum extent possible of the
administrative, accounting, personnel and business aspects of their
practice, with PHYN assuming responsibility and being given all
necessary authority to perform these functions. PHYN agrees that the
Practice, and only the Practice, will perform medical functions. PHYN
will have no authority, directly or indirectly, to perform, and will
not perform, any medical function. PHYN may, however, advise the
Practice as to the relationship between its performance
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<PAGE> 6
of medical functions and the overall administrative and business
functioning of the Practice.
(b) PHYN shall, on behalf of the Practice, bill patients
and collect the professional fees for medical services rendered by the
Practice in the Clinical Facility, for services performed outside the
Clinical Facility for the Practice's hospitalized patients, and for
all other professional and Clinical Facility services. The Practice
hereby appoints PHYN for the term hereof to be its true and lawful
attorney-in-fact, for the following purposes: (i) to bill patients
in the Practice's name and on its behalf; (ii) to collect accounts
receivable resulting from such billing in the Practice's name and on
its behalf; (iii) to receive payments from Blue Cross/Blue Shield,
insurance companies, prepayments received from health care plans,
Medicare, Medicaid and all other third party payors in the Practice's
name and on its behalf for deposit in a bank account; (iv) to take
possession of, endorse in the name of the Practice (and/or in the name
of an individual physician, in the event that such payment is intended
for purpose of payment of a physician's bill), and deposit in a bank
account any notes, checks, money orders, insurance payments and other
instruments received in payment of accounts receivable; (v) following
prior written approval of the Operating Board, to initiate the
institution of legal proceedings in the name of the Practice to
collect any accounts and moneys owed to the Practice; (vi) to enforce
the rights of the Practice as creditor under any contract or in
connection with the rendering of any service; and (vii) to contest
adjustments and denials by governmental agencies (or fiscal
intermediaries) as third-party payors. All Adjustments and other
activities that do not generate a collectible fee shall be done in a
reasonable and consistent manner. The performance of all billing and
collection functions by PHYN shall comply with state and federal
statutes, regulations, and directives applicable to such functions.
(c) PHYN shall supervise and maintain custody of all
files and records relating to the operation of the Clinical Facility,
including but not limited to accounting, billing, patient medical
records, and collection records. Patient medical records shall at all
times be and remain the property of the Practice and shall be located
at the Clinical Facility so that they are readily accessible for
patient care. Access to patient records shall be governed by
applicable state and federal laws governing confidentiality of patient
records. Information extracted from patient records to create
databases desired by PHYN shall be the exclusive property of PHYN. The
management of all files and records shall comply with applicable
local, state and federal statutes and regulations. PHYN shall use its
best efforts to preserve the confidentiality of patient medical
records, shall use information contained in such records only for the
limited purpose necessary to perform the services set forth herein,
and shall be responsible for damages resulting from a breach of the
foregoing due solely to its negligence; provided, however, in no event
shall a breach of said confidentiality be deemed a default under this
Agreement.
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<PAGE> 7
(d) PHYN shall supply to the Practice necessary clerical,
payroll, accounting, bookkeeping and computer services, printing,
postage and duplication services, medical transcribing services and
any other ordinary, necessary or appropriate service for the operation
of the Clinical Facility.
(e) PHYN shall design and implement an appropriate public
relations program on behalf of and in conjunction with the Practice,
with appropriate emphasis on public awareness of the availability of
services at the Clinical Facility. The public relations program shall
be conducted in compliance with applicable laws and regulations
governing advertising by the medical profession, and with due regard
to such standards as may from time to time be promulgated by the
American Medical Association.
(f) PHYN shall assist the Practice in recruiting
additional physicians, carrying out such administrative functions as
may be appropriate such as advertising for and identifying potential
candidates, checking credentials, and arranging interviews; provided,
however, that the Practice shall interview and make the ultimate
decision as to the suitability of any physician to become associated
with the Clinical Facility. All physicians hired by the Practice
shall be the sole employees of the Practice.
(g) PHYN shall negotiate and administer all managed care
contracts on behalf of the Practice and shall consult with the
Practice on all professional or clinical matters relating thereto.
(h) PHYN shall provide for the proper cleanliness of the
premises comprising the Clinical Facility, as well as maintenance and
cleanliness of the equipment, furniture and furnishings located upon
such premises.
(i) PHYN shall assist the Practice with respect to
negotiating for premiums to be paid for the professional liability
insurance provided for in Section 10.1. Premiums and deductibles with
respect to such policies shall be paid by the Practice.
5.6 Personnel. PHYN shall provide professional management and
administrative personnel, clerical, secretarial, bookkeeping and collection
personnel reasonably necessary for the conduct of the Clinical Facility
operations. PHYN shall determine and cause to be paid the salaries and fringe
benefits of all such personnel. Such personnel shall be under the direction,
supervision and control of PHYN. If the Practice is dissatisfied with the
services of any person other than a Clinical Facility Employee, the Practice
shall consult with PHYN. PHYN shall in good faith determine whether the
performance of that employee could be brought to acceptable levels through
counsel and assistance, or whether the employment of such employee should be
terminated. All of PHYN's obligations regarding staff shall be governed by the
overriding principle and goal of providing quality medical care. Employee
assignments shall be made to promote consistent and continued rendering of
quality medical support services and to provide prompt availability and
accessibility of individual medical support personnel to physicians in
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<PAGE> 8
order to develop constant, familiar and routine working relationships between
individual physicians and individual members of the medical support personnel.
PHYN shall maintain established working relationships wherever possible and
PHYN shall make every effort consistent with sound business practices to honor
the specific requests of the Practice with regard to the assignment of
personnel.
5.7 Events Excusing Performance. PHYN shall not be liable to
the Practice for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies or other events over which PHYN has no control for so long as such
events continue, and for a reasonable period of time thereafter.
5.8 Compliance with Applicable Laws. PHYN shall comply in all
material respects with all applicable federal, state and local laws,
regulations and restrictions in the conduct of its obligations under this
Agreement.
5.9 Quality Assurance. PHYN shall assist the Practice in
fulfilling its obligations to its patients to maintain quality medical and
professional services.
5.10 Reimbursed Employee Expenses. PHYN will reimburse the
Practice for all reasonable compensation paid by the Practice to Clinical
Facility Employees other than Physician Employees and benefits provided by the
Practice to Clinical Facility Employees other than Physician Employees
(including any incremental cost associated with the Practice obtaining the
insurance for Clinical Employees as required by Section 6.5) in an amount not
to exceed an amount approved in advance by the Operating Board.
ARTICLE 6.
OBLIGATIONS OF THE PRACTICE
6.1 Professional Services. The Practice shall provide the
Clinical Facility Employees, Physician Employees and the professional medical
and clinical services required to operate the Clinical Facility. Such services
shall be provided to patients in compliance at all times with ethical
standards, laws and regulations applying to the medical profession. The
Practice shall ensure that each physician associated with the Practice to
provide medical care to patients of the Practice is licensed by all required
agencies or authorities. In the event that any disciplinary actions or medical
malpractice actions are initiated against any such physician, the Practice
shall promptly inform PHYN of such action and the underlying facts and
circumstances. The Practice shall carry out a program to monitor the quality of
medical care practiced at the Clinical Facility. Each physician associated with
the Practice shall maintain active medical staff membership or clinical
privileges appropriate for the range of services provided by such physician at
all hospitals utilized by the Practice for patients serviced by such physician.
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<PAGE> 9
6.2 Medical Practice. The Practice shall use and occupy the
Clinical Facility exclusively for the practice of medicine, and shall comply
with all applicable local rules, ordinances and all recognized standards of
medical care, and with the terms of any lease for such facilities. It is
expressly acknowledged by the parties that the medical practice or practices
conducted at the Clinical Facility shall be conducted solely by Physician
Employees , and no other physician or medical practitioner shall be permitted
to use or occupy the Clinical Facility without the prior written consent of
PHYN.
6.3 Employment of Physician Employees. The Practice shall have
complete control of and responsibility for the hiring, compensation,
supervision, evaluation and termination of its Physician Employees. The
Practice shall be responsible for the payment of such Physician Employees'
salaries and wages, payroll taxes, benefits and all other taxes and charges now
or hereafter applicable to them. With respect to physicians, the Practice
shall employ and contract only with licensed physicians meeting applicable
credentialling guidelines established by the Practice. The Practice agrees to
maintain a sufficient number of Physician Employees to adequately staff and
treat patients at the Clinical Facility.
6.4 Professional Dues and Education Expenses. The Practice and
its Physician Employees shall be solely responsible for the cost of membership
in professional associations and continuing professional education. The
Practice shall ensure that each of its Physician Employees and Clinical
Facility Employees participates in continuing medical education as is necessary
for such employee to provide medical services, consistent with recognized and
acceptable standards of professional practice.
6.5 Professional Insurance. The Practice shall at its own
expense obtain and retain professional liability insurance for its Physician
Employees and the Clinical Facility Employees, and shall assure that its
Physician Employees and the Clinical Facility Employees are insurable.
6.6 Events Excusing Performance. The Practice shall not be
liable to PHYN for failure to perform any of the services required herein in
event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies or other events over which the Practice has no control for so long as
such events continue, and for a reasonable period of time thereafter.
6.7 Fees for Professional Services. The Practice shall be
solely responsible for legal, accounting and other professional services fees
incurred by the Practice.
6.8 Employment of Clinical Facility Employees. The Practice
shall employ and supervise all Clinical Facility Employees necessary to provide
efficient medical care to patients of the Practice.
ARTICLE 7.
RESTRICTIVE COVENANTS
98
<PAGE> 10
The Parties recognize that the services to be provided by PHYN shall
be feasible only if the Practice operates an active medical practice to which
the physicians associated with the Practice devote their full time and
attention. To that end:
7.1 Restrictive Covenants by the Practice.. During the term of
this agreement, the Practice shall not establish, operate or provide physician
services at any medical office, clinic or other health care facility providing
services substantially similar to those provided by PHYN and the Practice
pursuant to this Agreement anywhere within 35 miles of any facility, including
without limitation any clinical facility, operated by PHYN.
7.2 Restrictive Covenants By Physician Employees. The
Practice shall enforce the existing formal agreements with its Physician
Employees pursuant to which the Physician Employees have agreed to certain
limitations on their ability to compete with the Practice. The Practice shall
obtain and enforce formal agreements with all new Physician Employees
substantially in the form of Exhibit 7.2.
7.3 Enforcement. PHYN and the Practice acknowledge and agree
that since a remedy at law for any breach or attempted breach of the provisions
of this Article 7 shall be inadequate, PHYN shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of
any bond in connection with the obtaining of any such injunctive or other
equitable relief.
7.4 Limitation on Restrictive Covenants. Notwithstanding the
foregoing provisions of Article 7, PHYN and the Practice acknowledge that the
provisions of Article 7 shall not interfere with the ability of Physician
Employees to utilize any facility necessary to provide appropriate patient
care.
99
<PAGE> 11
ARTICLE 8.
FINANCIAL ARRANGEMENTS
8.1 Service Fee. PHYN shall be paid by the Practice a fee
equal to the Clinical Facility Expenses plus 35% of EBIT. The amounts to be
paid to PHYN under this Section 8.1 shall be payable monthly. The amounts
shall be estimated based upon the previous month's operating results of the
Clinical Facility. Adjustments to the estimated payments shall be made to
reconcile actual amounts due under this Section 8.1 by the end of the following
month. Upon preparation of quarterly financial statements, final adjustments to
the service fee for the quarter shall be made and any additional payments owing
to PHYN or the Practice shall then be made. The service fee set forth above
will be reviewed annually (commencing one year from the date hereof) to ensure
that the intended underlying economic arrangements between the Practice and
PHYN are preserved. Such review shall take place in the first quarter of PHYN's
fiscal year. If changes in state or federal laws or regulations, changes in the
amount or method of reimbursing healthcare services, or changes in the services
or facilities provided by PHYN, result in a material adverse change in the
economic benefits of this Agreement to the Practice or PHYN, the fees set forth
above shall be equitably adjusted as soon as reasonably possible.
8.2 Accounts Receivable. Effective the last business day of each
month, PHYN shall purchase the Accounts Receivable of the Practice arising
during the month just ended, by payment of cash or other readily available
funds into an account of the Practice. The consideration for the purchase shall
be an amount equal to actual charges of the Clinical Facility for the month
just ended, reduced by PHYN to reflect historical Adjustments. For purposes of
determining historical Adjustments, reference shall be made to the average
monthly collections of the Clinical Facility for the three-month period
preceding the month for which a payment is made. Payment for the Accounts
Receivable shall be reduced by the amount of the service fees due to PHYN under
Section 8.1 and shall be made on the 15th business day of the month following
the month in which the Accounts Receivable are generated. For example, if PHYN
is purchasing receivables generated in July 1996, payment will be made on
August 20, 1996, and the amount of the payment shall be made by reference to
the average monthly collections of the Clinical Facility during the preceding
months of April, May and June.
Although it is the intention of the parties that PHYN purchase and
thereby become owner of the Accounts Receivable of the Practice, in case such
purchase shall be ineffective for any reason, the Practice has entered into a
Security Agreement to grant a security interest in the Accounts Receivable to
PHYN to secure the immediate repayment to PHYN of all indebtedness and
obligations of the Practice to PHYN arising under or in connection with this
Agreement. In addition, the Practice shall cooperate with PHYN and execute all
necessary documents in connection with the pledge of such Accounts Receivable
to PHYN or at PHYN's option, its lenders. All collections in respect of such
Accounts Receivable shall be deposited in a bank account designated by PHYN. To
the extent the Practice comes into possession of any payments
100
<PAGE> 12
in respect of such Accounts Receivable, the Practice shall direct such payments
to PHYN for deposit in bank accounts designated by PHYN.
8.3 Amounts Retained by the Practice. The Practice shall receive
65% of EBIT payable monthly as provided in Section 8.1.
ARTICLE 9.
RECORDS
9.1 Patient Records. Upon termination of this Agreement, the
Practice shall retain all patient medical records maintained by the Practice or
PHYN in the name of the Practice. At all times during the term of this
Agreement, access to patient records shall be governed by applicable state and
federal laws governing confidentiality of patient records. The Practice shall,
at its option, be entitled to retain copies of financial and accounting records
relating to all services performed by the Practice. The cost of producing such
copies shall be borne equally by the Practice and PHYN.
9.2 Records Owned by PHYN. All records relating in any way to
the operation of the Clinical Facility which are not the property of the
Practice shall at all times be the property of PHYN.
9.3 Access to Records. During the term of this Agreement, and
thereafter, the Practice or its designee shall have reasonable access during
normal business hours to the Practice's and PHYN's records, including, but not
limited to, records of collections, expenses and disbursements as kept by PHYN
in performing PHYN's obligations under this Agreement, and the Practice may
copy any or all such records. During the term of this Agreement, and
thereafter, PHYN or its designee shall have reasonable access during normal
business hours to the Practice's records and PHYN may copy at its expense any
or all of such records. Access to patient records shall be governed by
applicable state and federal laws regarding confidentiality of patient records.
ARTICLE 10.
INSURANCE AND INDEMNITY
10.1 Insurance to be Maintained by the Practice. Throughout the
term of this Agreement, the Practice shall maintain comprehensive professional
liability insurance for its Physician Employees and the Clinical Facility
Employees with a reputable insurance company or companies and with such limits
and coverages as are reasonably acceptable to PHYN. The Practice shall be
responsible for all liabilities in excess of the limits of such policies.
101
<PAGE> 13
10.2 Insurance to be Maintained by PHYN. Throughout the term of
this Agreement, PHYN will use reasonable efforts to provide and maintain, as a
Clinical Facility Expense, (i) comprehensive professional liability insurance
for all professional employees (other than Clinical Facility Employees) of PHYN
with limits as determined reasonable by PHYN in its national program and (ii)
comprehensive general liability and property insurance covering the Clinical
Facility premises and operations.
10.3 Tail Insurance Coverage. Unless the Practice elects to
provide its Physician Employees with an "incident" form of professional
liability insurance providing continuation of coverage after termination of
employment, the Practice will cause each individual physician who associates
with the Practice after the date hereof to enter into an agreement with the
Practice that upon termination of such physician's relationship with the
Practice, for any reason, tail insurance coverage (or final endorsement premium
or prior acts coverage) will be purchased by the individual physician. Such
provisions may be contained in employment agreements, restrictive covenant
agreements or other agreements entered into by the Practice and the individual
physicians, and the Practice hereby covenants with PHYN to enforce to the best
of its ability such provisions relating to the tail insurance coverage or to
provide such coverage at the expense of the Practice.
10.4 Additional Insureds. The Practice and PHYN agree to use
their reasonable efforts to have each other named as an additional insured on
the other's respective liability insurance policies.
10.5 Indemnification. Unless expressly prohibited by the
Practice's medical malpractice insurance policies, the Practice shall
indemnify, hold harmless and defend PHYN, its officers, directors, employees,
agents and subcontractors from and against any and all liability, loss, damage,
claim, causes of action, and expenses caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of medical
services or any other acts or omissions by the Practice and/or its
shareholders, agents, employees and/or subcontractors (other than PHYN) during
the term hereof. Unless expressly prohibited by PHYN's insurance policies,
PHYN shall indemnify, hold harmless and defend the Practice, its officers,
directors, shareholders ,employees, agents and subcontractors from and against
any and all liability, loss, damage, claim, causes of action, and expenses,
caused or asserted to have been caused, directly or indirectly, by or as a
result of the performance of any acts or omissions by PHYN and/or its
shareholders, agents, employees and/or subcontractors (other then the
Practice) during the term of this Agreement.
ARTICLE 11.
TERM AND TERMINATION
102
<PAGE> 14
11.1 Term of Agreement. This Agreement shall expire on December
31, 2023 unless earlier terminated pursuant to the terms hereof.
11.2 Extended Term. Unless earlier terminated as provided for in
this Agreement, the term of this Agreement shall be automatically extended for
additional terms of five (5) years each, unless either party delivers to the
other party, not less than twelve (12) months nor earlier than fifteen (15)
months prior to the expiration of the preceding term, written notice of such
party's intention not to extend the term of this Agreement.
11.3 Termination by the Practice. The Practice may terminate this
Agreement as follows:
(a) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by PHYN, or
upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by PHYN,
except for the filing of a petition in involuntary bankruptcy against
PHYN which is dismissed within sixty (60) days thereafter, the
Practice may give notice of the immediate termination of this
Agreement.
(b) In the event PHYN shall materially default in the
performance of any duty or obligation to make a payment to the
Practice imposed upon PHYN by Section 8.3 of this Agreement, and such
default shall continue for a period of ten (10) days after written
notice thereof has been given to PHYN by the Practice, the Practice
may terminate this Agreement. In the event PHYN shall materially
default in the performance of any duty or obligation (other than its
obligations under Section 8.3) imposed upon it by this Agreement, and
such default shall continue for a period of ninety (90) days after
written notice thereof has been given to PHYN by the Practice, the
Practice may terminate this Agreement
11.4 Termination by PHYN. PHYN may terminate this Agreement as
follows:
(a) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by the
Practice, or upon other action taken or suffered, voluntarily or
involuntarily, under any federal or state law for the benefit of
debtors by the Practice, except for the filing of a petition in
involuntary bankruptcy against the Practice which is dismissed within
sixty (60) days thereafter, PHYN may give notice of the immediate
termination of this Agreement.
(b) In the event the Practice shall materially default in
the performance of any duty or obligation imposed upon it by this
Agreement, and such default shall continue for a period of ninety (90)
days after written notice thereof has been given to the Practice by
PHYN, PHYN may terminate this Agreement.
103
<PAGE> 15
ARTICLE 12.
GENERAL PROVISIONS
12.1 Assignment. PHYN shall have the right to assign its
rights hereunder to any person, firm or corporation under common control with
PHYN and to any lending institution, for security purposes or as collateral,
from which PHYN obtains financing. Except as set forth above, neither PHYN nor
the Practice shall have the right to assign their respective rights and
obligations hereunder without the written consent of the other party.
12.2 Whole Agreement, Modification. There are no other agreements
or understandings, written or oral, between the parties regarding this
Agreement and the Exhibits, other than as set forth herein. This Agreement,
including the Exhibits incorporated herein, shall not be modified or amended
except by a written document executed by both parties to this Agreement, and
such written modifications shall be attached hereto.
12.3 Notices. All notices required or permitted by this
Agreement shall be in writing and shall be addressed as follows:
To PHYN: Physician Reliance Network, Inc.
8115 Preston Road, Suite 300
Dallas, Texas 75225
Attention: General Counsel
With a copy to: Chief Financial Officer
To the Practice: Texas Oncology, P.A.
8115 Preston Road, Suite 300
Dallas, Texas 75225
Attention: President
or to such other address as either party shall notify the other.
12.4 Binding on Successors. This Agreement shall be binding upon
the parties hereto, and their successors and assigns.
12.5 Waiver of Provisions. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a
waiver of any other terms and conditions hereof.
104
<PAGE> 16
12.6 Governing Law. The validity, interpretation and performance
of this Agreement shall be governed by and construed in accordance with the
laws of the State of Texas. The parties acknowledge that PHYN is not authorized
or qualified to engage in any activity which may be construed or deemed to
constitute the practice of medicine. To the extent any act or service required
of PHYN in this Agreement should be construed or deemed, by any governmental
authority, agency or court to constitute the practice of medicine, the
performance of said act or service by PHYN shall be deemed waived by the
Practice and forever unenforceable; provided, however, in no event shall the
unenforceability of an act or service caused by this section affect the
enforceability of any other provisions of this Agreement unless the failure by
PHYN to perform such act or service would constitute a material and incurable
default in the performance of a duty or obligation imposed on it by this
Agreement.
12.7 Severability. The provisions of this Agreement shall be
deemed severable and if any portion shall be held invalid, illegal or
unenforceable for any reason, the remainder of this Agreement shall be
effective and binding upon the parties unless the invalidity, illegality or
unenforceability of such provisions prevent the parties hereto from achieving
the primary benefits sought to be achieved by this Agreement .
12.8 Additional Documents. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by
the other party to implement or complete such party's obligations pursuant to
this Agreement.
12.9 Confidentiality. Except for disclosure to its bankers,
underwriters or lenders, or as necessary or desirable for conduct of business,
including negotiations with acquisition candidates, neither party hereto shall
disseminate or release to any third party any information regarding any
provision of this Agreement, or any financial information regarding the other
(past, present or future) obtained by the other in the course of the
negotiation of this Agreement or in the course of the performance of this
Agreement, without the other party's written approval; provided, however, the
foregoing shall not apply to information which (i) is generally available to
the public other than as a result of a breach of confidentiality provisions;
(ii) becomes available on a non-confidential basis from a source other than
the other party or its affiliates or agents, which source was not itself bound
by a confidentiality agreement; or (iii) which is required to be disclosed by
law including securities laws, or pursuant to court order.
12.10 Contract Modifications for Prospective Legal Events. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel in such a manner as to
indicate that the structure of this Agreement may be in violation of such laws
or regulations, the Practice and PHYN shall amend this Agreement as necessary.
To the maximum extent possible, any such amendment shall preserve the
underlying economic and financial arrangements between the Practice and PHYN.
If PHYN and the Practice are unable to agree to any amendments required by this
Section, the matter shall be submitted to binding arbitration in accordance
with Section 12.15, below.
105
<PAGE> 17
12.11 Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
12.12 Language Construction. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
12.13 No Obligation to Third Parties. None of the obligations and
duties of PHYN or the Practice under this Agreement shall in any way or in any
manner be deemed to create any obligation of PHYN or of the Practice to, or any
rights in, any person or entity not a party to this Agreement.
12.14 Communications. The Practice and PHYN agree that good
communication between the parties is essential to the successful performance of
this Agreement, and each pledges to communicate fully and clearly with the
other on matters relating to the successful operation of the Practice's
practice at the Clinical Facility.
12.15 Arbitration. All disputes relative to this Agreement (other
than disputes arising under Section 4.2) shall be resolved by the arbitration
pursuant to the rules of the American Arbitration Association then pertaining.
Arbitration proceedings shall be held in Dallas, Texas.
The parties may, if they are able to do so, agree upon one arbitrator;
otherwise, there shall be three arbitrators selected to resolve disputes
pursuant to this Section 12.15, one named in writing by each party within
fifteen (15) days after notice of arbitration is served upon either party by
the other and a third arbitrator selected by the two arbitrators selected by
the parties within fifteen (15) days thereafter.
If the two arbitrators cannot select a third arbitrator within such
fifteen (15) days, either party may request that the American Arbitration
Association selected such third arbitrator. If one party does not choose an
arbitrator within fifteen (15) days, the other party shall request that the
American Arbitration Association name such other arbitrator. No one shall
serve as arbitrator who is in any way financially interested in this Agreement
or in the affairs of either party.
Each of the parties hereto shall pay its own expenses of arbitration
and one-half of the expenses of the arbitrators. If any position by either
party hereunder, or any defense or objection thereto, is deemed by the
arbitrators to have been unreasonable, the arbitrators shall assess, as part of
their aware against the unreasonable party or reduce the award to the
unreasonable party, all or part of the arbitration expenses of the other party
and of the arbitrators.
106
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
TEXAS ONCOLOGY, P.A.
By: Charles S. White
-----------------------------------
Title: Vice President
-------------------------------
PHYSICIAN RELIANCE NETWORK, INC.
By: Merrick H. Reese
----------------------------------
Title: President
-------------------------------
107
<PAGE> 1
EXHIBIT 11
PHYSICIAN RELIANCE NETWORK, INC. AND SUBSIDIARIES
NET INCOME PER COMMON EQUIVALENT SHARES
(IN THOUSANDS,EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
---------------- ----------------
<S> <C> <C>
Weighted average common shares outstanding 21,257,261 16,817,604
Incremental shares related to assumed exercise of stock options 478,245 280,129
---------------- ----------------
Weighted average common and common equivalent shares-
primary 21,735,506 17,097,733
Incremental shares related to assumed conversion of common
stock subscribed -- 522,304
---------------- ----------------
Weighted average common and common equivalent shares-
fully diluted 21,735,506 17,620,037
================ ================
Net income $ 5,173 $ 2,073
---------------- ----------------
Net income per share (primary and fully diluted) $ 0.24 $ 0.12
================ ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,266
<SECURITIES> 0
<RECEIVABLES> 91,729
<ALLOWANCES> 13,321
<INVENTORY> 4,568
<CURRENT-ASSETS> 88,667
<PP&E> 127,598
<DEPRECIATION> 18,967
<TOTAL-ASSETS> 239,383
<CURRENT-LIABILITIES> 18,698
<BONDS> 0
<COMMON> 210
0
0
<OTHER-SE> 155,143
<TOTAL-LIABILITY-AND-EQUITY> 239,383
<SALES> 49,710
<TOTAL-REVENUES> 49,710
<CGS> 0
<TOTAL-COSTS> 40,580
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 579
<INCOME-PRETAX> 8,551
<INCOME-TAX> 3,378
<INCOME-CONTINUING> 5,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,173
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
