-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ri+z7Sf4X5f1EK0WDqp7JhWRe8bDXZayni4NZ5E9GLzpQ9uHrmZcJVlzzZ7e3eoi /bGu14YyNHbMelqCM64iuw== 0000795551-99-000004.txt : 19990518 0000795551-99-000004.hdr.sgml : 19990518 ACCESSION NUMBER: 0000795551-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERAGENICS CORP CENTRAL INDEX KEY: 0000795551 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 581528626 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14339 FILM NUMBER: 99626631 BUSINESS ADDRESS: STREET 1: 5325 OAKBROOK PKWY CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7703818338 MAIL ADDRESS: STREET 1: 5325 OAKBROOD PKWY CITY: NORCROSS STATE: GA ZIP: 30093 10-Q 1 FORM 10-Q FOR 1ST QTR 1999 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 0-15443 THERAGENICS CORPORATION (Exact name of registrant as specified in its charter) Delaware 58-1528626 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5203 Bristol Industrial Way Buford, Georgia 30518 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 271-0233 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X _ NO ___ As of May 14, 1999 the number of shares of $.01 par value common stock outstanding was 29,497,734. THERAGENICS CORPORATION TABLE OF CONTENTS PART I. FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page No. Balance Sheets - December 31, 1998 and March 31, 1999 . . . . . 3 Statements of Earnings for the three months ended March 31, 1998 and 1999 . . . . . . . . . . . . . . . . . . . . 5 Statements of Cash Flows for the three months ended March 31, 1998 and 1999 . . . . . . . . . . . . . . . . . . . . 6 Statement of Changes in Stockholders' Equity for the three months ended March 31, 1999 . . . . . . . . . . . . . . . . . . 7 Notes to Financial Statements . . . . . . . . . . . . . . . . . 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . . . . . . . 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . 15 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 THERAGENICS CORPORATION BALANCE SHEETS DECEMBER 31, 1998 AND MARCH 31, 1999 (UNAUDITED) ASSETS
December 31, March 31, 1998 1999 ------------------- ------------------ CURRENT ASSETS Cash and short-term investments $ 19,541,662 $ 23,589,146 Marketable Securities 6,830,266 9,522,224 Trade Accounts Receivable, less allowance of $53,773 in 1998 and $34,957 at March 31, 1999 7,000,446 4,107,997 Inventories 780,825 790,290 Deferred income tax asset 210,000 280,000 Prepaid expenses and other current assets 579,132 588,079 ------------------- ------------------ TOTAL CURRENT ASSETS 34,942,331 38,877,736 PROPERTY AND EQUIPMENT Buildings and improvements 17,425,990 17,425,990 Leasehold improvements 154,234 154,234 Machinery and equipment 25,570,513 28,342,811 Office furniture and equipment 333,816 362,573 ------------------- ------------------ 43,484,553 46,285,608 Less accumulated depreciation and amortization (7,031,902) (7,911,553) ------------------- ------------------ 36,452,651 38,374,055 Land 848,359 848,359 Construction in progress 15,957,453 14,643,643 ------------------- ------------------ TOTAL PROPERTY AND EQUIPMENT 53,258,463 53,866,057 OTHER ASSETS 71,782 69,418 ------------------- ------------------ TOTAL ASSETS $ 88,272,576 $ 92,813,211 =================== ==================
The accompanying notes are an integral part of these statements. THERAGENICS CORPORATION BALANCE SHEETS DECEMBER 31, 1998 AND MARCH 31, 1999 (UNAUDITED) LIABILITIES & STOCKHOLDERS' EQUITY December 31, March 31, 1998 1999 ------------------- ------------------
CURRENT LIABILITIES Accounts Payable Trade $ 627,679 $ 777,783 Construction 359,339 -- Accrued salaries, wages and payroll taxes 498,863 534,822 Income taxes payable 165,182 1,635,182 Other current liabilities 316,161 299,912 ------------------- ------------------ TOTAL CURRENT LIABILITIES 1,967,224 3,247,699 LONG-TERM LIABILITIES Deferred income taxes 1,920,000 2,133,000 STOCKHOLDERS' EQUITY Common stock, $.01 par value, 100,000,000 shares authorized; 29,405,571 and 29,435,018 issued and outstanding 294,056 294,350 Additional paid-in capital 58,921,414 59,087,757 Retained earnings 25,169,882 28,050,405 ------------------- ------------------ TOTAL STOCKHOLDERS' EQUITY 84,385,352 87,432,512 ------------------- ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 88,272,576 $ 92,813,211 =================== ==================
The accompanying notes are an integral part of these statements. THERAGENICS CORPORATION STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended March 31, ----------------------------------------------------- 1998 1999 ----------------------- ---------------------- REVENUE Product sales - affiliate $ 8,239,985 $ 9,105,557 Product sales - non affiliates 15,962 33,662 Licensing Fees 25,000 25,000 ----------------------- ---------------------- 8,280,947 9,164,219 COSTS AND EXPENSES Cost of sales 2,188,435 3,379,785 Selling, general & administrative 1,350,947 1,406,555 Research & development 41,411 139,737 ----------------------- ---------------------- 3,580,793 4,926,077 OTHER INCOME (EXPENSE) Interest income 450,712 276,729 Interest and financing costs (2,684) (6,139) Other 8,937 3,491 ----------------------- ---------------------- 456,965 274,081 Earnings before income taxes 5,157,119 4,512,223 Income tax expense 1,856,563 1,631,700 ----------------------- ---------------------- NET EARNINGS $ 3,300,556 $ 2,880,523 ======================= ====================== NET EARNINGS PER COMMON SHARE Basic $ 0.11 $ 0.10 Diluted $ 0.11 $ 0.10 WEIGHTED AVERAGE SHARES Basic 29,087,936 29,426,480 Diluted 30,352,859 29,871,730
The accompanying notes are an integral part of these statements. THERAGENICS CORPORATION STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
Three Months Ended March 31, -------------------------------------------- 1998 1999 ------------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Earnings $ 3,300,556 $ 2,880,523 Adjustments to reconcile net earnings to net cash provided by operating activities Deferred income taxes 75,000 143,000 Depreciation & amortization 407,388 846,390 Stock based compensation 68,919 -- Changes in assets and liabilities: Accounts Receivable (654,646) 2,892,449 Inventories (114,793) (9,465) Prepaid expenses and other current assets 38,721 (8,947) Other assets 252 2,364 Trade accounts payable 3,207,348 150,104 Accrued salaries, wages and payroll taxes (333,194) 35,959 Income taxes payable 1,036,158 1,470,700 Other current liabilities 159,133 (16,249) ------------------- ----------------- Total adjustments 3,821,367 5,575,224 ------------------- ----------------- Net cash provided by operating activities 7,121,923 8,455,747 CASH FLOWS FROM INVESTING ACTIVITIES Purchases and construction of property and equipment (13,173,309) (1,824,410) Purchases and maturities of marketable securities (2,680,871) -- ------------------- ----------------- Net Cash used by investing activities (13,173,309) (4,505,281) CASH FLOWS FROM FINANCING ACTIVITIES Exercise of stock options and stock purchase plan 90,877 97,018 ------------------- ----------------- Net Cash provided by financing activities 90,877 97,018 NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (5,960,509) 4,047,484 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 30,161,614 19,541,662 ------------------- ----------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 24,201,105 $ 23,589,146 =================== =================
The accompanying notes are an integral part of these statements. THERAGENICS CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
Common Stock -------------------------------- Additional Number of Par value paid-in Retained shares $0.01 capital earnings Total --------------- ------------- ------------- ------------- ------------ BALANCE, December 31, 1998 29,405,571,571 $294,056 $58,921,414 $25,169,882 $84,385,352 Exercise of stock options and warrants 28,075 281 80,921 81,202 Stock-based compensation -- 68,919 68,919 Shares issued under employee stock purchase plan 1,372 13 15,803 15,816 Income tax benefit from exercise of stock options and early disposition of shares 700 700 Net earnings for the period 2,880,523 2,880,523 -------------- ------------- ------------- ------------- ------------ BALANCE, March 31, 1999 29,435,018 $294,350 $59,087,757 $28,050,405 $87,432,512 ============== ============= ============= ============= ============
The accompanying notes are an integral part of these statements. THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - ----------------------------- MARCH 31, 1999 - -------------- (Unaudited) NOTE A - BASIS OF PRESENTATION The interim financial statements included herein have been prepared by the Company without audit. These statements reflect all adjustments, which are, in the opinion of management, necessary to present fairly the financial position as of March 31, 1999, the results of operations and cash flows for the three months ended March 31, 1998 and 1999 and the changes in stockholders' equity for the three months ended March 31, 1999. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the financial statements and disclosures are adequate to make the information not misleading. It is suggested that these financial statements and notes be read in conjunction with the audited financial statements and notes for the year ended December 31, 1998, included in the Form 10-K filed by the Company. NOTE B - CONSTRUCTION IN PROGRESS AND PURCHASE COMMITMENTS Construction in progress consists primarily of payments made toward a project for construction of manufacturing equipment and facilities expansion. This project is expected to be completed in phases during 1999. The Company expects to invest an additional $17.4 million to complete the remaining phases of this project. Of the remaining $17.4 million of purchase commitments, $8.5 million was denominated in Belgian Francs, based on the period end rate of exchange. Included in construction in progress at March 31, 1999 are progress payments totaling approximately $5.9 million related to equipment being constructed in Belgium. Upon completion of construction, the equipment will be transported to the United States and installed in the Company's U.S. manufacturing facilities. In April 1999 the Company announced that the U.S. Department of Energy (DOE) has granted Theragenics access to unique DOE technology for use in production of Pd-103. This technology venture represents part of a DOE initiative to redirect Cold War assets to peacetime use and cushion the economic impact of U.S. Defense Department cutbacks. This project is expected to enable the Company to significantly increase its production capacity and allow for expanded use of Pd-103 and TheraSeed(R) beyond treatment of prostate cancer to new medical applications. The Company expects to construct a facility in Oak Ridge, Tennessee to house the equipment, infrastructure and work force necessary to support the production of Pd-103 using this DOE technology. The Company expects to invest approximately $25 million over the next three years to build this manufacturing and R&D facility, with less than $12 million expected to be spent during 1999. Construction is expected to commence in the second quarter of 1999. NOTE C - LITIGATION In January 1999, the Company and certain of its officers and directors were named as defendants in certain securities actions, alleging violations of the federal securities laws, including Sections 10(b), 20(a) and Rule 10b-5 of the Securities and Exchange Act of 1934, as amended. As of this time, eleven such actions are pending in the U.S. District Court for the Northern District of Georgia. The complaints, which are substantially similar in nature, purport to represent a class of investors who purchased or sold securities during the time period from January 29, 1998 to January 11, 1999. The complaints generally allege that the defendants made certain misrepresentations and omissions in connection with the performance of the Company during the class period. The complaints seek unspecified damages. No answer or otherwise responsive papers are yet due from the defendants. Management believes these charges are without merit and intends to vigorously oppose the litigation, however, given the nature and early stage of the proceedings, the ultimate outcome of the litigation cannot be determined at this time. Accordingly, no provision for any liability that might result from this litigation has been made. The Company and its officers and directors maintain insurance for claims of this general nature. Item 2. Management's' Discussion and Analysis of Financial Condition and ---------------------------------------------------------------- Results of Operations --------------------- Results of Operations Revenues Revenues for the quarter ended March 31, 1999 increased $883,000 or 10.7% over the comparable 1998 period. The increase in revenues was attributable to the Company's continued ability to increase production of TheraSeed(R) with additional cyclotron and assembly capacity. Eight cyclotrons were in service during the first quarter of 1999, compared to four cyclotrons in service during the comparable 1998 period. The softness in sales that the Company first recognized in the fourth quarter of 1998 continued into the first quarter of 1999 as sales declined from those recorded in 1998's fourth quarter. As stated in the Company's Annual Report on Form 10-K for the Year Ended December 31, 1998, the Company's marketing partner, Indigo Medical, Inc. (Indigo), a Johnson and Johnson company, has advised the Company that it continues to adjust its sales and marketing strategies to address the softness in sales primarily by increasing the focus on marketing efforts directed to patients. Looking forward, the full impact of Indigo's increased focus on patient directed marketing efforts may not be realized for several months since a patient is typically not treated until six weeks to three months or more after being diagnosed with prostate cancer. Therefore, there are no assurances that sales for the second quarter of 1999 will increase versus the first quarter of 1999. Management believes that Indigo's patient directed marketing focus could have a positive impact on sales in the second half of 1999, though there are no assurances that these efforts will not take longer to have an impact on revenue, if any. Actual results may differ materially from those anticipated based on certain risks and uncertainties, such as the impact of Indigo's marketing efforts to consumers and medical professionals. Management is confident in Indigo's commitment of both talent and resources to its objective of making TheraSeed(R) the treatment of choice for prostate cancer. Costs and Expenses Cost of sales for the quarter ended March 31, 1999 increased $1,191,000, or 54.4% over the comparable 1998 period. Cost of sales as a percentage of revenue increased to 36.9% for the quarter ended March 31, 1999 from 26.4% during the comparable 1998 period. This increase was attributable to an increase in the manufacturing fixed cost base as depreciation and other fixed expenses associated with additional cyclotrons and new manufacturing facilities, which were not in service during the first quarter of 1998, were incurred during the first quarter of 1999. As additional cyclotrons come on line, margins generally decline because each machine represents excess capacity for a period while carrying its full component of fixed costs, including depreciation. With cyclotron numbers nine through thirteen expected to be brought on line during the last three quarters of 1999, cost of product sales are expected to continue to increase as a percent of revenue to the extent that additional cyclotrons create capacity more rapidly than the growth in demand. Additionally, the number of production related employees during the first quarter of 1999 was greater than the comparable 1998 period due to the Company's increased operations. Selling, general and administrative ("SG&A") expenses were $1.40 million during the first quarter of 1999 compared to $1.35 million during the first quarter of 1998, an increase of $50,000 or 3.7%. The increase was primarily due to an increase in compensation and benefits. Research and development ("R&D") expenses were $140,000 for the first quarter of 1999 compared to $41,000 for first quarter of 1998. The increase in R&D was primarily a result of development efforts to improve the Company's proprietary production processes. In connection with the Company's efforts to enhance its production processes and its objective to expand the application of Pd-103 and TheraSeed(R) to other oncological and non-oncological uses, management plans to significantly increase efforts and investment in research and development in 1999. R&D expenditures during 1999 could be more than three times the 1998 levels. However, R&D spending is dependent on appropriate opportunities arising so no assurances can be made as to spending amounts. As a result, R&D expenses may fluctuate significantly from period to period. In April 1999 the Company announced that the U.S. Department of Energy (DOE) has granted Theragenics access to unique DOE technology for use in production of Pd-103 (See "Liquidity and Capital Resources" below). The Company expects that the use of this technology and the related infrastructure will significantly increase the Company's production capacity for Pd-103. In addition, the Company expects that this increased production capacity will make additional R&D resources and opportunities available as that technology becomes operational, which is not expected before 2001. Other income was $274,000 in the first quarter of 1999 compared to $457,000 during the same period in 1998. The decrease was attributable to a decrease in the funds available for investment during the 1999 period. Funds available for investment have and will continue to be utilized for the Company's current and future expansion programs. As funds continue to be used for expansion programs, management expects other income to decline accordingly. The Company's effective income tax rate was approximately 36% for each of the quarters ended March 31, 1999 and 1998. Liquidity and Capital Resources The Company had cash and short-term investments of $23.6 million at March 31, 1999 compared to $19.6 million at December 31, 1998. The increase was attributable to cash provided by operations of $8.5 million offset by cash used by investing activities of $4.5 million. Operating activities generated $8.5 million in cash. This primarily consisted of net earnings of $2.9 million, non-cash expenses, primarily depreciation and amortization, of $1.1 million, a decrease in accounts receivable of $2.9 million and an increase in income taxes payable of $1.5 million. Cash used by investing activities was $4.5 million for the first quarter of 1999, comprised of $1.8 million for capital expenditures and $2.7 for net investments in marketable securities. Capital expenditures are expected to increase significantly throughout 1999. These expenditures relate primarily to capital expansion projects including the addition of cyclotrons and new manufacturing and support facilities, including investments related to the Company's agreement with the U.S. Department of Energy (see below). Currently there are eight cyclotrons in operation marking the completion of Phase I of an expansion project. Additional phases of this project are currently underway, consisting of the purchase of six additional cyclotrons (numbers nine through fourteen) and supporting facilities during 1999, although one of these cyclotrons is not expected to be operational until early 2000. Cyclotron numbers nine and ten are currently being installed and are expected to be operational during the second quarter of 1999. Approximately $14.4 million of construction in progress at March 31, 1999 relates to this expansion project, and the Company expects to invest an additional $17.4 million to complete the remaining phases of this project. As previously stated, in April 1999 the Company announced that the U.S. Department of Energy (DOE) has granted Theragenics access to unique DOE technology for use in production of Pd-103. This technology venture represents part of a DOE initiative to redirect Cold War assets to peacetime use and cushion the economic impact of U.S. Defense Department cutbacks. The Company expects that the use of this technology will significantly increase its capacity and allow for expanded use of Pd-103 and TheraSeed(R) beyond treatment of prostate cancer to new medical applications. The Company expects to construct a facility in Oak Ridge, Tennessee to house the equipment, infrastructure and work force necessary to support the production of Pd-103 using this DOE technology. The Company expects to invest approximately $25 million over the next three years to build this manufacturing and R&D facility, with less than $12 million expected to be spent during 1999. Construction is expected to commence in the second quarter of 1999. As part of this project, the Company has leased land in the Oak Ridge, Tennessee area and equipment previously used by the government to produce isotopes. As a result of the sensitive nature of the equipment, the specialized technology involved and the access to unique DOE-operated facilities, the Company has contra ted with the DOE's primary contractor for the Oak Ridge government installation to handle certain technical and operational services that are critical to the project, including moving, reassembling and recommissioning equipment currently in storage, designing and fabricating new parts and modifications to the equipment and DOE facilities; and operating and providing ongoing access to the DOE facilities. The success of the project is dependent on the continued cooperation of the DOE and its primary contractor, which could be adversely affected by future changes in governmental program priorities and funding. If the equipment cannot be moved and recommissioned successfully, if there are problems with the operation or modification of the DOE-operated facilities, or if unforeseen challenges arise, the project may not be successful or the costs or timeliness associated with the project could exceed current estimates. Cash provided by financing activities was $97,000 in the first quarter of 1999 representing cash proceeds from the exercise of stock options and the employee stock purchase plan. The Company currently has a $15 million revolving credit facility collateralized by substantially all of the Company's assets. No borrowings were outstanding under this revolving credit facility as of March 31, 1999 or the current date. The Company believes that current cash and investment balances, cash from future operations and credit facilities, will be sufficient to meet its currently anticipated working capital and capital expenditure requirements. In the event additional financing becomes necessary, management may choose to raise those funds through other means of financing as appropriate. Foreign Currency and Geographic Information The Company has outstanding purchase commitments of approximately $17.4 million related to the completion of its expansion project related to cyclotrons and supporting facilities. Of these commitments, approximately $8.5 million is denominated in Belgian Francs, based on the exchange rate at March 31, 1999. This exposes the Company to foreign currency risk as it relates to movements in the exchange rate between the U.S. dollar and the Belgian Franc. The Company manages this risk by frequently reviewing the status of the purchase commitments and entering into foreign exchange forward contracts to hedge the foreign currency risks when believed it is appropriate to do so. Such forward contracts typically mature concurrently with payments required under the equipment purchase contracts. The Company does not hold foreign exchange forward contracts for trading or speculative purposes. At March 31, 1999 the Company did not hold any foreign exchange forward contracts. Additionally, management does not expect the introduction of the EURO to have any effect on its purchase commitments denominated in Belgian Francs. The terms of the agreements allow for all payments to be made in Belgian Francs, and the contracts are expected to be completed prior to the time that use of the EURO is mandatory. All balance sheet accounts denominated in foreign currencies are translated into U.S. dollars at the period-end rate of exchange. Such balance sheet accounts, which were not significant at March 31, 1999, included a cash account maintained in Belgium and denominated in Belgian Francs. Additionally, statements of earnings items and foreign currency transaction gains or losses were not significant during the quarter ended March 31, 1999. Included in construction in progress at March 31, 1999 are progress payments totaling approximately $5.9 million related to equipment being constructed in Belgium. Upon completion of construction, the equipment will be transported to the United States and installed in the Company's U.S. manufacturing facilities. Impact of the Year 2000 Issue Introduction Many computer systems used today were designed and developed using two digits, rather than four, to specify the year. Consequently, such systems may recognize a date of "00" as the year 1900 instead of the year 2000. Other problems may also be encountered, such as the inability to recognize special codes that make use of the date field. These and other problems may exist in primary software products and embedded systems such as microcontrollers. This may cause many computer systems to fail or create inaccurate results unless corrective measures are taken. Additionally, a company may be affected by the computer systems of their customers and vendors, even though that company's internal computer systems may be Year 2000 (Y2K) compliant. State of Readiness The Company began to assess the status of its Y2K readiness during 1997 and developed a plan intended to make its information technology assets, including embedded microcontrollers ("IT assets"), year 2000 ready. The plan covers the following phases: (i) inventory of IT assets, (ii) assessment of repair requirements (iii) repair and testing, and (iv) creation of contingency plans in the event of Y2K related failures. The inventory and assessment phases have been completed for all critical IT assets. Repairs and testing of critical IT assets is currently in process and is scheduled to be completed in the second quarter of 1999. The Company's Y2K compliance also depends upon the compliance of others. The Company has contacted its critical suppliers and significant customer to evaluate their Y2K programs and state of readiness, and to evaluate whether a Y2K related disruption at these entities would have a material adverse effect on the Company's operations as the year 2000 approaches. At the current date, the Company has received responses from approximately 74% of the entities contacted, none of which have indicated that a year 2000 related business interruption is anticipated. However, while the Company believes it is taking reasonable action in this regard, Theragenics is not in a position to guarantee the performance of others or predict whether any assurances and representations received from others will ultimately prove to be accurate. Additionally, the Y2K compliance of the Company's critical suppliers and significant customer also depends upon the Y2K compliance of their critical suppliers and customers. The Company also relies on governmental agencies, utility companies, telecommunication service providers, financial institutions and other service providers outside of the Company's control. There is no assurance that any of these entities will not experience a year 2000 related failure and business interruption. Such failures could have a material adverse effect on the Company's financial position and results of operations. Costs to Address the Year 2000 Issue The Company has incurred costs of approximately $60,000 in addressing the Y2K issue, consisting primarily of replacing IT assets that were not Y2K compliant. Remaining costs of Y2K remediation are not expected to be material. Risks of the Company's Year 2000 Issues The Company has not currently identified any critical IT assets under its control that present a material risk of not being Y2K compliant in a timely manner, or for which an acceptable alternative cannot be implemented. As testing continues however, it is possible that IT assets could be identified that present a material risk of a Y2K interruption, and that such an interruption could have a material adverse effect on the Company's financial position and results of operations. The Company does not possess the ability to control its critical suppliers, significant customer or the health care providers that utilize its product. Y2K related disruptions at these entities could result in delays in the supply of goods and services, capital equipment and construction of facilities from the Company's vendors, delays in receiving payments from the Company's significant customer, and delays in the ordering of product and scheduling of TheraSeed(R) procedures by the health care providers, among other things. Such potential delays could be of a short-term nature or could be more significant and longer-term. The failure of any of these entities to properly address their year 2000 issues could have a materially adverse effect on the Company's financial position and results of operations. Additionally, the failure of the Company's primary equipment vendor to deliver cyclotrons in accordance with the terms of the purchase contracts could have a materially adverse effect on the Company's ability to increase its production capacity. Contingency Plans Contingency plans for critical IT assets are currently being developed. These contingency plans are in the early stages of development and will be modified as the risks of potential Y2K interruptions continue to be assessed. Forward Looking and Cautionary Statements This document contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding, the timing of possible impact of Indigo's sales and marketing efforts, future cost of sales, R&D expenses, SG&A expenses, expansion plans, the Oak Ridge project, possible electronic data processing issues related to the year 2000, the development of new technologies, processes and products, adverse changes in governmental program priorities and budgetary funding by the relevant governmental authorities, potential costs and delays in the startup and refinement of technology and related equipment, potential equipment failure, inability to obtain, construct or install necessary parts or modifications to production equipment or facilities,and the sufficiency of the Company's liquidity and capital resources. From time to time, the Company may also make other forward-looking statements relating to such matters as well as anticipated financial performance, business prospects, technological developments, research and development activities and similar matters. These forward-looking statements are subject to certain risks, uncertainties and other factors which could cause actual results to differ materially from those anticipated, including risks associated with the management of growth, Year 2000 issues, research and development activities, effectiveness and execution of Indigo's marketing and sales programs, government regulation of the therapeutic radiological pharmaceutical and device business, dependence on health care professionals, and competition from other brachytherapy products and conventional and newly developed methods of treating localized cancer. Item 3. Quantitative and Qualitative Disclosures About Market Risk See Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations; Foreign Currency and Geographic Information". PART II. OTHER INFORMATION Item 1. Legal Proceedings. See Note C to the Company's financial statements included in Item 1 of this report, which is incorporated by reference hereby. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 10.1 - Sublease dated March 25, 1999 between Theragenics Corporation and Community Reuse Organization of East Tennessee* (b) Exhibit 10.2 - Work For Others Agreement dated March 25, 1999 between Theragenics Corporation and Lockheed Martin Energy Research Corporation* (c) Exhibit 27 - Financial Data Schedule (d) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 1999. * - Confidential portions of Exhibit 10 have been redacted and filed separately with the Securities and Exchange Commission. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REGISTRANT: THERAGENICS CORPORATION By: /s/ M. Christine Jacobs -------------------------- M. Christine Jacobs Chief Executive Officer /s/ Bruce W. Smith --------------------------- Bruce W. Smith Treasurer and Chief Financial Officer Dated: May 17, 1999 EX-99 2 SUBLEASE WITH CROET COMMUNITY REUSE ORGANIZATION OF EAST TENNESSEE SUBLEASE THIS SUBLEASE, entered into this 25 day of March, 1999 between COMMUNITY REUSE ORGANIZATION OF EAST TENNESSEE, a Tennessee nonprofit corporation hereinafter referred to as "CROET," and THERAGENICS CORPORATION, a Delaware corporation, hereinafter referred to as the "Sublessee," provides for the use and development by the Sublessee of Government-owned real and personal property held by CROET pursuant to two Leases from the United States of America acting by and through the Department of Energy, hereinafter referred to as "DOE." The DOE-CROET leases are (1) a lease entered into January 16, 1996, as amended by Supplemental Agreement of Outgrant No. 1 effective April 28, 1998, and Supplemental Agreement of Outgrant No. 2 effective January 13, 1999, Supplemental Agreement of Outgrant No. 3 effective February 23, 1999, and Supplemental Agreement of Outgrant No. 4 effective February 25, 1999 for a DOE owned track of undeveloped land near DOE's East Tennessee Technology Park ("ETTP") to be developed by CROET through arrangements with commercial firms or public entities, said lease being hereinafter referred to as the "Land Lease" and, (2) Department of Energy Lease entered into March 22, 1999, for the lease of DOE owned equipment consisting of the Plasma Separation Process ("PSP") to be used for producing isotopes, said lease hereinafter referred to as the "Equipment Lease." The Land Lease and the Equipment Lease are collectively hereinafter referred to as "Leases." The parcel of land subleased to the Sublessee under this Sublease consists of approximately 21 acres, is identified as parcel HOC-001 on the drawing attached hereto as Appendix "A," and will be referred to throughout this Sublease as the "Premises." In the event Sublessee, at its expense, obtains a current survey of the Premises, a legal description of the Premises prepared from such survey may, by amendment executed by CROET and Sublessee, be incorporated herein. CROET does hereby sublease to Sublessee, and Sublessee does hereby sublease from CROET, the Premises and the PSP. This Sublease is granted subject to the following terms and conditions: 1. CROET AUTHORITY TO SUBLEASE. This Sublease is made by CROET pursuant to Condition No. 7 of the Land Lease and Condition No. 6 of the Equipment Lease. So long as Sublessee makes payments and performs and complies with the other covenants, terms, and conditions set forth herein to be performed or complied with by Sublessee, CROET does hereby covenant and agree that Sublessee may peacefully hold, enjoy and use the Premises and the PSP during the term hereof without any hindrance or interference. 2. TERM. The term of this Sublease shall be May 1, 1999, and ending April 30, 2029; provided, however, that Sublessee acknowledges that the Leases and this Sublease are terminable by DOE under the provisions contained in Condition No. 4 of the Land Lease and Condition No. 3 of the Equipment Lease. 3. TERMINATION BY DOE OR CROET. (a) The Sublessee acknowledges that DOE may terminate the Leases and this Sublease at any time as provided in Condition No. 4 of the Land Lease and Condition No. 3 of the Equipment Lease; provided however, in the event of such termination by DOE, the Sublessee shall be entitled to a refund of any rent paid under paragraph 4(a) below for any period after the date of termination. Additionally, in the event DOE terminates the Land Lease and this Sublease due to national emergency or in the interest of national defense, CROET acknowledges and agrees that Sublessee shall be entitled to the compensation set forth in Condition No. 41 of the Land Lease and CROET will assist Sublessee in obtaining such compensation; provided that this shall not be construed as imposing liability on CROET to pay such compensation if DOE does not do so. (b) CROET may terminate this Sublease at any time by giving ninety (90) days written notice by the authorized representative to the Sublessee under any of the following circumstances: If the Sublessee fails to substantially perform or comply with any of the terms and conditions of this Sublease and continues and persists therein for ten (10) days after notice thereof in writing by CROET; provided, however, if such default is not reasonably capable of cure within such ten (10) day period, CROET shall not be entitled to terminate this Sublease if Sublessee promptly undertakes to cure such default and diligently pursues such cure. In the event of such termination, CROET shall be entitled to recover from the Sublessee the costs incurred by CROET in performing any obligation on the part of the Sublessee to be performed under the terms of this Sublease for any period prior to the date of termination or for costs incurred by CROET as a result of matters arising after the date of termination but which resulted from Sublessee's actions prior to the date of termination. (c) The Sublessee agrees to engage an architectural and engineering firm to design the improvements Sublessee desires to construct on the Premises (the "Facility") within ninety (90) days from the date of this Sublease. In the event Sublessee does not use reasonable efforts to complete the Facility on or before the later of (i) one (1) year after the date of this Sublease, or (ii) the date upon which the PSP and all necessary component parts (including any new parts that need to be ordered or fabricated) are ready to be installed in the Facility, CROET shall have the right to terminate the Sublease on not less than thirty (30) days written notice to Sublessee unless Sublessee promptly commences to attempt to develop the Premises on or before thirty (30) days after receipt of such notice of default. (d) CROET may terminate this Sublease in the event that Sublessee fails to obtain all the required governmental and regulatory authority, licenses, permits, approval and consents for the development, use and operation of the Facility, the PSP and any other equipment required for use in connection with Sublessee's business operations on the Premises, provided, that this shall not be construed as requiring the Sublessee to operate the PSP on the Premises or to engage in activity requiring any particular license. (e) The Sublessee shall also pay to CROET on demand any sum which CROET is obligated to pay to DOE by reason of expenditures after the expiration, revocation, or termination of this Sublease in restoring the Premises to the condition required by Condition No. 33 of the Land Lease and Condition No. 23 of the Equipment Lease; provided, however, this shall not in any manner relieve CROET or DOE from any of their respective liabilities, to the extent the cause of such restoration resulted, in whole or in part, from their acts or omissions. In any of the above events, the provisions of Condition No. 33 of the Land Lease and Condition and 23 of the Equipment Lease shall apply to the Premises. 4. RENT. (a) Land Rent. The Sublessee shall pay to CROET land rental for the premises according to the following terms: (1) $ [Confidential Treatment Requested] per month until January 1, 2000. (2) $ [Confidential Treatment Requested] per annum [Confidential Treatment Requested] after January 1, 2000, and every year thereafter, to be paid in equal monthly amounts on the first day of each calendar month; [Confidential Treatment Requested]. The land rental shall be adjusted as set forth in this paragraph 4(a). Such rent shall be prorated for any portion of the term which is not a full calendar month. On January 1, 2005 and each fifth (5th) anniversary thereafter during the term of this Sublease, the land rental shall be increased by an amount equal to the product of: (i) the amount of land rental set forth in paragraph 4(a)(2) of this Sublease, multiplied by (ii) the fraction whose numerator is the Consumer Price Index (as hereinafter defined) for the calendar month just ended and whose denominator is the Consumer Price Index for the calendar month January, 2000. The term "Consumer Price Index" as used herein shall mean the Consumer Price Index for All Urban Consumer (1982-84=100) specified for All Items, U.S. City Average and issued by the Bureau of Labor Statistics of the United States Department of Labor. In the event the Consumer Price Index shall hereafter be converted to a different standard reference base or otherwise revised, CROET shall designate a comparable procedure for adjustment of land rent. (b) Equipment Rent. The Sublessee shall pay to CROET equipment rental, for the PSP, according to the following terms: (1) $ [Confidential Treatment Requested] per month until the equipment becomes operational. (2) $ [Confidential Treatment Requested] per month after the equipment becomes operational, whether or not it continues in operation. (c) Utilities and Services. The Sublessee shall be responsible for paying the charges for utilities and services DOE may provide to the Premises under Condition No. 5(b) of the Land Lease, as such charges are determined and charged by DOE; provided, however, Sublessee shall only be required to pay for utilities and services actually being used or consumed by Sublessee. The method of payment to DOE shall be determined by CROET and the Sublessee. Sublessee shall be responsible for paying for all utilities and services actually being used or consumed by Sublessee which are provided by any entity other than DOE under terms and conditions to be arranged by Sublessee with that entity. (d) Additional Consideration. The Sublessee shall be responsible for the expense of maintenance, operations, alterations and repairs to the Premises for the entire term of the Sublease, and shall pay to the taxing authority any taxes levied as a result of this Sublease excluding any taxes levied on CROET because of its separate status as a corporation. CROET agrees to reasonably cooperate with Sublessee in seeking tax relief/abatement measures with applicable city and county governmental authorities with respect to the Premises, the PSP and the Sublease. 5. IMPROVEMENTS TO THE PREMISES. ------------------------------ Consistent with various requirements contained in the Land Lease, and accepted by the Sublessee under Condition No. 9 below, the Sublessee may, at its expense, make such improvements on the Premises, including erecting structures and making tie-ins to utilities, as are necessary to conduct Sublessee's business. Title to all such improvements shall be vested in the Sublessee until the Sublease is terminated or expires of its own terms, at which time the status of such improvements will be controlled by Condition No. 17 of the Land Lease. The foregoing shall not in any manner restrict or impair the right of Sublessee, if it elects, to remove its trade fixtures and personal property from the Premises at the end of the term of this Sublease, but Sublessee shall be responsible for any damage to the Premises caused by such removal. 6. EMPLOYMENT. ---------- Consistent with applicable laws, rules, regulations and ordinances, and the various requirements contained in the Land Lease, the Sublessee, in hiring workers for work on the Premises, shall give preference to workers formerly employed at DOE installations on the Oak Ridge reservation, all other things being equal among prospective employees. The Sublessee shall report to CROET in writing annually or upon demand by CROET the number of employees working on the premises and, to the extent the Sublessee has actual knowledge based on information furnished to it by CROET or through arrangements made by CROET, the number among them who are workers formerly employed at DOE installations on the Oak Ridge reservations. The Sublessee commits to use its best efforts to employ for work on the premises the following numbers of full-time employees ("FTEs"): Year 1 * FTEs Year 2 * FTEs Year 3 * FTEs Year 4 * FTEs Year 5 * FTEs Years Beyond 5 * FTEs [*Confidential Treatment Requested] The sole remedy for failure to achieve, or use Sublessee's best efforts to achieve, these employment levels on the premises shall result in the Sublessee paying an additional [Confidential Treatment Requested] in land rent and equipment rent for the year involved, unless Sublessee can demonstrate that business factors beyond its control were the cause for not meeting the employment level. Should the Sublessee exceed those employment levels by [Confidential Treatment Requested] or more the sublessee shall pay [Confidential Treatment Requested] less in land rent and equipment rent for the years involved. 7. AUTHORIZED REPRESENTATIVES. CROET'S representative concerning the --------------------------- provisions of this Sublease shall be Lawrence Young, Community Reuse Organization of East Tennessee, 107 Lea Way, P.O. Box 2110, Oak Ridge, Tennessee, 37830, Tel. No. (423) 482-1336. The Sublessee's representative shall be Christine Jacobs, Theragenics Corporation, 5325 Oakbrook Parkway, Norcross, Georgia, 30093, Tel. No. (770)-271-0233. Any changes in the designated representative or their respective addresses shall be given in writing to the other. 8. NOTICE. No notice, order, direction, determination, requirement, ------ consent, or approval under this Sublease shall be of any effect, within the restrictions of this Sublease, unless provided in writing to the authorized representative at the address set forth in paragraph 7 above by personal delivery (or reputable overnight courier service) or by certified mail, return receipt requested, postage prepaid. All notices shall be effective upon receipt at the proper address. Refusal to accept delivery shall be deemed receipt. 9. OBLIGATIONS OF THE SUBLESSEE. The Land Lease and Equipment Lease ------------------------------ retain for DOE certain rights and imposes various obligations on CROET. Sublessee's obligations under this Sublease shall be subject to the terms and conditions imposed on CROET under the Leases during the term of this Sublease, and for any period beyond the term, during which the rights of DOE and obligations of CROET are affected by the failure of the Sublessee to recognize, abide by, or fulfill obligations of Sublessee under this Sublease. Sublease assumes the obligations of CROET under the Land Lease but only with respect to the Premises (and not with respect to any other premises included in the Land Lease) and only as to such obligations arising during the term of this Sublease or as a result of the performance of the Sublessee. The Sublessee agrees to hold CROET harmless for any failure on its part, or those acting through it, to recognize, abide by, or fulfill the obligations assumed by Sublessee under this Sublease. The assumption by Sublessee of obligations under this Sublease is not intended to, nor does it constitute, an assignment by CROET to the Sublessee of the Leases or any portion thereof. CROET does hereby indemnify and hold Sublessee harmless as a result of CROET's failure to recognize, abide by or fulfill the obligations of CROET under the Leases, to the extent such obligations are not obligations in the Leases which the Sublessee has assumed under this Sublease. CROET acknowledges that Sublesse's sole obligations and liabilities with respect to loss, damage or destruction of the PSP are as set forth in Condition No. 10 of the Equipment Lease. In addition, and without regard to the obligations contained in the Leases to which the Sublessee is obligated, the Sublessee agrees to hold CROET harmless against any liabilities of CROET which may arise during the term of this Sublease arising out of Sublessee's negligence or wilful misconduct. Nothing in this Sublease shall in any manner be construed to relieve or release CROET from any liability for its own negligence or wilful misconduct. 10. INSURANCE. In addition to the requirements of the Leases, all insurance required of the Sublessee shall be for the protection of CROET, DOE, and the Sublessee against their respective risks and liabilities and shall be in such form, for such period of time, and with such insurers as CROET and DOE may reasonably require. Insurance of the types, and in the amounts, shall include at least the following: General Liability $* Automobile, if applicable to Sublessee $* Workman's Compensation (statutory amount) [*Confidential Treatment Requested] A certificate of insurance or a certified copy of each policy of insurance shall be furnished to CROET and DOE's Realty Officer and DOE's Account Executive prior to use of the Premises or the PSP. The Sublessee agrees that not less than thirty (30) days prior to the expiration of any insurance required by this Sublease, it will furnish to CROET and DOE's Realty Officer and DOE's Account Executive a certificate of insurance or a certified copy of each renewal policy to cover the same risks. The Sublessee shall provide evidence of adequate insurance coverage for Bodily Injury and Property Damage. Each policy of insurance against loss or damage to DOE's property shall name the Sublessee, CROET, and DOE as the insured and shall contain a loss payable clause reading substantially as follows: "Loss, if any, under this policy shall be adjusted with (name of Sublessee) and the proceeds, at the direction of DOE, shall be payable to (name of Sublessee), and proceeds not paid to (name of Sublessee) shall be payable to the Treasurer of the United States of America." Additionally, each policy of insurance shall contain an endorsement reading substantially as follows: "The insurer waives any right of subrogation against the United States of America which might arise by reason of any payment made under this policy." The Sublessee is encouraged to carry business disruption insurance sufficient to cover losses due to interruption of business activities under this Sublease caused by events of every kind. CROET will not be liable for any such losses, whether or not the Sublessee carries such insurance, and the Sublessee agrees to waive any claims it might otherwise have against CROET for such losses; provided, however, this shall not in any manner relieve CROET from and liabilities or obligations arising out of CROET's negligence or wilful misconduct. 11. DOE - CROET LAND LEASE OBLIGATIONS. CROET hereby covenants and agrees ----------------------------------- to comply with all obligations of the tenant under the Land Lease and the Equipment Lease; provided, however, to the extent that Sublessee is obligated under this Sublease for any such obligations, CROET shall have no responsibility therefor. In the event CROET receives any notice of any default, event of default, or non-compliance with the terms and conditions of the Land Lease or the Equipment Lease, and in DOE's judgment CROET is not taking adequate steps to cure the default, CROET shall promptly advise Sublessee of such matters. CROET hereby grants to Sublessee the right (but not the obligation, unless otherwise set forth in this Sublease) to cure any default, event of default or non-compliance with the Land Lease or the Equipment Lease. Any amounts expended by Sublessee in a successful cure may be offset against any amounts due under this Sublessee, but only to the extent that Sublessee is not obligated under the terms of this Sublease for such performance under the Land Lease or the Equipment Lease. 12. EMINENT DOMAIN. If all or any part of the Premises shall be --------------- appropriated or condemned by any public or quasi-public authority in the exercise of its right of condemnation or eminent domain, both CROET and Sublessee shall have the right to prosecute a claim for an award and to share in the proceeds of any and all awards based upon their respective interests as hereafter set forth. If all the Premises shall be appropriated or condemned, or so much thereof that Sublessee cannot reasonably continue the operation of its business thereon, this Sublease shall terminate as of the time when possession shall be required by such public or quasi-public authority. In the event that this Subleases shall not terminate after any part of the Premises is taken or condemned, there shall be a reduction in rental equal to the percentage to the ground area of the Premises which is taken or condemned. CROET shall be entitled to receive that portion of any and all awards necessary to compensate it for the present value of the rents which it would have received in the future and for the present value of its reversionary interest, and notwithstanding the termination of this Sublease, Sublessee shall be entitled to that portion of any and all awards necessary to compensate it for the value of its improvements to the Premises, the value of its leasehold estate and the damages which it may sustain as a result of termination of this Sublease prior to the end of the Sublease term, including any renewal terms. 13. LANDLORD'S ACCESS TO PREMISES. Notwithstanding anything to the ------------------------------- contrary in this Sublease, entry to the Premises by CROET will only be permitted when accompanied by Sublessee's authorized escort, except as hereinafter provided. It is recognized by both CROET and Sublessee that Sublessee will be performing research on, and manufacturing, drugs for human consumption under regulations and licenses from various governmental agencies, including, without limitation, the Federal Drug Administration ("FDA"). Sublessee is responsible to such governmental agencies, including, without limitation, the FDA, for compliance with all applicable laws, rules, regulations and ordinances (including protection of materials in work areas from unauthorized alterations or access), whose object it is to protect the public from adulterated contaminated or otherwise uncontrolled and potentially harmful products. CROET acknowledges it is not competent to judge the impact of its entry of the Premises on the relationship between Sublessee and the applicable regulatory authorities and potential impact on public health and safety. CROET hereby agrees, except as hereinafter expressly provided, that CROET shall provide Sublessee with one (1) business day advance notice of any desire by CROET, or its authorized agents or representative to enter the Premises. All entries on the Premises must comply with applicable laws, rules, regulations and ordinances (collectively called the "Regulations"). Upon request, Sublessee will provide CROET with necessary information concerning the Regulations. Except as expressly hereinafter provided, all entries shall be with an escort from Sublessee or its representatives and shall be subject to all reasonable safety procedures and guidelines as may be prescribed by Sublessee. In the case of emergencies, CROET may enter the Premises unannounced and unescorted; provided, however, CROET agrees to cooperate with Sublessee in complying with all reporting requirements pursuant to applicable Regulations. It is further recognized by CROET and Sublessee that Sublessee is engaged in commerce utilizing proprietary and confidential information, processes and procedures. CROET agrees that any written materials located on or in the Premises obtained during any inspection or access to the Premises by CROET (or its agents or employees) shall be confidential except for written materials delivered to CROET, or its agents or employees, by Sublessee or its employees; provided, however, this shall not affect CROET's ability to obtain information to assess Sublessee's compliance with the terms and conditions of this Sublease with respect to Sublessee's use, operation and maintenance of the Premises, and further provided that CROET may divulge such information to its agents, employees, contractors, attorneys, prospective lenders and purchasers and to DOE. 14. OPTION TO SUBLEASE ADJOINING LAND AND RIGHT OF FIRST REFUSAL. (a) During the Option Period (as defined in paragraph 14(b)), CROET hereby grants unto Sublessee the non-exclusive right and option to sublease the remainder of Site 3 of Parcel ED-1 (containing approximately [Confidential Treatment Requested] acres) and identified as the "Adjoining Property" on Appendix "A" attached hereto (the "Adjoining Property"), on the same terms and conditions as contained in this Sublease (with the land rental being $ [Confidential Treatment Requested] per acre per year, as adjusted by the Consumer Price Index every five (5) years from the date of this Sublease) for the remaining term set forth in this Sublease. Sublessee shall give CROET no less than thirty (30) days advance written notice of the exercise of this option. This option shall terminate simultaneously with the right of first refusal set forth below. If said first refusal right is triggered, the terms of the first refusal right shall control in lieu of the non-exclusive option terms hereinbefore set forth provided a sublease of the Adjoining Property is consummated to the third-party offeree or to Sublessee under the following paragraph. In the event CROET receives a bona fide written offer from any third party to sublet the Adjoining Property (or any portion thereof or any tract of which the Adjoining Property is a part) during the Option Period, CROET has granted and does hereby grant the right, on a right of first refusal basis described hereinafter, to Sublessee, its successors and assigns, at the election of Sublessee or its successors or assigns, to sublet the Adjoining Property at the price and on the terms and conditions contained in the written offer except the term of any sublease shall not extend beyond the term of this Sublease and further except for the time within which to close the transaction. CROET shall give notice to Sublessee of the written offer, including delivery to Sublessee of a true and exact copy of the written offer, and allow Sublessee thirty (30) calendar days subsequent to the notice within which Sublessee may elect to sublet from CROET. In the event Sublessee so elects to sublet by giving notice of such election to CROET within the thirty (30) day period, CROET shall sublet the Adjoining Property to Sublessee at the price and on the same terms and conditions as are contained in the written offer, except that (i) Sublessee shall also reimburse CROET for its reasonable marketing expenses incurred in its effort to sublease the Premises to the third party offeree which triggered this right of first refusal, and (ii) the closing of the transaction shall be held within sixty (60) calendar days following the expiration of the aforesaid 30-day period. Should Sublessee by written notice to CROET elect not to exercise the right to sublet or should Sublessee fail to notify CROET of its election to sublet within the aforesaid 30-day period, then in either of such events CROET shall be free to consummate the sublease of the Adjoining Property to the third party submitting the written offer, provided that the sublease is closed and on the same material terms and conditions as are contained in the written offer, without any substantive modification thereto, except that the closing thereof may occur on or before the thirtieth (30th) day subsequent to the closing deadline set forth in the written offer. Should any such sublease not be consummated as aforesaid, CROET shall, in the event CROET subsequently receives any modified or new bona fide written offer from any third party to sublet the Adjoining Property, again follow the provisions of this paragraph 14 requiring notice to Sublessee and opportunity for Sublessee to sublet the Adjoining Property. No restriction on CROET's ability to sublease the Adjoining Property shall apply to any period subsequent to the Option Period. CROET shall not be obligated to offer to sublet the Adjoining Property, and CROET shall not be obligated to disclose to Sublessee any offer to sublet the Adjoining Property which CROET receives which CROET, in its discretion, does not intend to accept. The aforesaid right of first refusal in favor of Sublessee is a material part of the consideration for this Sublease and shall and does hereby vest in Sublessee, its successors and assigns, immediately. Sublessee may not exercise its right to sublet pursuant to this paragraph 14 if at the time of the attempted exercise Sublessee is in default (for which any applicable cure period has expired without cure) under the terms of this Sublease. (b) The non-exclusive option and right of first refusal set forth in paragraph 14(a) shall be in effect, at no additional cost or charge to Sublessee, from the date of this Sublease until January 1, 2002, as may be extended by mutual agreement of CROET and Sublessee for such consideration as mutually agreed by said parties. This three-year period, as may be extended as aforesaid, is herein called the "Option Period." (c) In the event the Sublessee exercises the option granted herein, or successfully invokes its right of first refusal granted herein, CROET may terminate the rights so granted or invoked and all rights with respect to the Adjoining Property shall revert to CROET and this Sublease shall be terminated solely as to the Adjoining Property unless (i) within ninety (90) days from the date of the exercise of the option or successful invoking of the right of first refusal the Sublessee agrees to engage an architectural and engineering firm to design a facility to be constructed on the Adjoining Property that is consistent with the permitted uses of the Adjoining Property, and (ii) the employment on the Premises and the Adjoining Property, in the aggregate, \shall be at least [Confidential Treatment Requested] of the employment figures described in paragraph 6 herein, and (iii) the Sublessee uses reasonable efforts to complete the facility on the Adjoining Property on or before one year after the exercising of the option or successfully invoking its right of first refusal. This right of CROET to terminate the Sublessee's rights and interest in the Adjoining Property shall be given to the Sublessee by written notice thirty (30) days prior to termination, and the termination shall not take effect if the Sublessee promptly commences to develop the Adjoining Property within thirty (30) days of receiving this notice. 15. LEASEHOLD MORTGAGES/DEEDS OF TRUST. Sublessee is hereby given the ------------------------------------ right by CROET in addition to any other rights herein granted, without CROET's prior written consent, to mortgage, or to grant deeds of trust in and to (collectively "mortgage"), Sublessee's interests in this Sublease, and assign this Sublease as security for a Mortgage (as hereinafter defined) upon the condition that all rights acquired under such Mortgage shall be subject to all of the terms, covenants and conditions of this Sublease, and to all rights and interests of CROET herein, none of which terms, covenants or conditions is or shall be waived by CROET by reason of the right given so to mortgage such interest in this Sublease, except as expressly provided herein. If Sublessee (including, but not limited to, any sublessee of Sublessee, but only with Sublessee's prior consent) shall mortgage this leasehold, or any part or parts thereof, and if the Mortgagee (as hereinafter defined) shall send to CROET a true copy thereof, together with a notice specifying the name and address of the Mortgagee and the pertinent recording date with respect to such Mortgage, CROET agrees that as long as any such Mortgage shall remain unsatisfied of record or until a notice of satisfaction is given by the Mortgagee to CROET, the following provisions shall apply: (i) There shall be no cancellation, surrender or modification of this Sublease by joint action of CROET and Sublessee without the prior consent of the Mortgagee; (ii) CROET shall, upon serving Sublessee with any notice of default, simultaneously serve a copy of such notice upon the Mortgagee. The Mortgagee shall thereupon have the same period, after service of such notice upon it, to remedy or cause to be remedied the defaults complained of, and CROET shall accept such performance by or at the instigation of such Mortgagee as if the same had been done by Sublessee. Mortgagee shall give notice to CROET in the event Mortgagee elects to undertake remedial action which involves Mortgagee taking possession and control of the Premises and/or the PSP to cure any default by Sublessee under this Sublease. (iii) CROET agrees that in the event of the termination of this Sublease by reason of any default by Sublessee other than for nonpayment of basic rent, CROET will, upon written request of Mortgagee, enter into a new sublease of the Premises with the Mortgagee or its nominee(s), for the remainder of the term, effective as of the date of such termination, at the same basic rent and upon the terms, covenants and conditions as herein contained and subject only to the same conditions of title as this Sublease is subject to on the date of the execution hereof, and to the rights, if any, of any parties then in possession of any part of the Premises, provided: (A) The Mortgagee or its nominee shall give notice to CROET for such new sublease within thirty (30) days after the date of such termination and such notice shall be accompanied by payment to CROET of all sums then due to CROET and not paid by Sublessee pursuant to this Sublease; (B) The Mortgagee or its nominee shall pay to CROET at the time of the execution and delivery of such new sublease, any expenses, including reasonable attorneys' fees, to which CROET shall have been subjected by reason of such default; (C) The Mortgagee or its nominee shall perform and observe all covenants herein contained on Sublessee's part to be performed and shall further remedy any other conditions which Sublessee pursuant to the terminated Sublease was obligated to perform under the terms of this Sublease; and upon execution and delivery of such new sublease, any subleases which may have theretofore been assigned and transferred by Sublessee to CROET, as security under this Sublease, shall thereupon be deemed to be held by CROET as security for the performance of all of the obligations of Sublessee pursuant to the new lease; (D) Such new sublease shall be expressly made subject to the rights, if any, of Sublessee pursuant to the terminated sublease; (E) The Sublessee under such new sublease shall have the same right, title and interest in and to the buildings and improvements on the Premises as Sublessee had under the terminated sublease; (iv) The Mortgagee shall be given notice of any judicial or administrative proceedings by the parties hereto regarding a default of this Sublease, and shall have the right to intervene therein and be made party to such proceedings, and the parties hereto do hereby consent to such intervention. In the event that the Mortgagee shall not elect to intervene or become a party to such proceedings, the Mortgagee shall receive notice of, and a copy of any award or decision made in said proceedings; and (v) CROET shall, upon request, execute, acknowledge and deliver to each Mortgagee, an agreement prepared at the sole cost and expense of Sublessee, in form reasonably satisfactory to such Mortgagee, between CROET, Sublessee and Mortgagee, agreeing to all of the provisions of this section. The term "Mortgage," whenever used herein, shall include whatever security instruments are used in the locale of the Premises, such as, without limitation, deeds of trust, security deeds and conditional deeds, as well as financing statements, security agreements and other documentation required pursuant to the Uniform Commercial Code. The term "Mortgagee" shall mean the holder or beneficiary of any Mortgage. The provisions of this section shall survive any termination of this Sublease. 16. TERMINATION RIGHTS OF SUBLESSEE. The Sublessee shall have the right to terminate this Sublease in the event any of the following conditions occurs, in Sublessee's sole discretion: (i) The physical condition of Property not satisfactory to Sublessee, or the lenders which Sublessee selects to extend financing of the Facility or equipment to be used on the Premises ("Sublessee's Lender"). The physical condition of the Premises shall include, without limitation, the status of title and any industrial park covenants, restrictions, conditions and easements to be hereafter placed upon Parcel ED-1, geological, archeological, environmental, survey and other developmental matters, federally-designated wetlands areas, federally-designated flood plain areas. In the event Sublessee does not notify CROET of its intention to terminate this Sublease for failure of this condition to be satisfied on or before one (1) year from the date of this Sublease, this condition shall be deemed to be waived or satisfied by Sublessee. (ii) The Lease and the Sublease are not approved by Sublessee's Lender. In the event Sublessee does not notify CROET of its intention to terminate this Sublease for failure of this condition to be satisfied on or before one (1) year from the date of this Sublease, this condition shall be deemed to be waived or satisfied by Sublessee. (iii) Sublessee fails to obtain all the required governmental and regulatory authority, licenses, permits, approval and consents for the development, use and operation of the Facility, the PSP and any other equipment required for use in connection with Sublessee's business operations on the Premises. (iv) Sublessee fails to receive state and local governmental incentives and inducements satisfactory to Sublessee in connection with the development, use and operation of the Facility, including the PSP and any other equipment to be used on the Premises (including, without limitation, ad valorem tax relief/abatement from county and city governmental authorities). Sublessee agrees to use reasonable diligence in the filing and pursuit of all governmental incentives and inducements required or desired by Sublessee. In the event that Sublessee does not notify CROET of its intention to terminate this Sublease for failure of this condition to be satisfied on or before January 1, 2000, this condition shall be deemed to be waived or satisfied by Sublessee. (v) DOE or CROET fails to grant any consents or approval to Sublease to Sublessee, required to be obtained by Sublessee pursuant to the Land Lease or this Sublease, which is reasonably necessary for Sublessee's enjoyment, use and operation of the Facility, the PSP, and any other equipment to be utilized by Sublessee on the Premises. (vi) DOE fails to enter into a written agreement satisfactory to Sublessee and Sublessee's Lender on or before April 30, 1999, which provide that in the event there is a default under the Land Lease not resulting from Sublessee's default under this Sublease, in the event the Land Lease is terminated, the Sublease shall become a direct lease between DOE and Sublessee subject to all terms of this Sublease and the provisions of the Land Lease applicable to the Premises and DOE shall not disturb any rights, interests or privileges of Sublessee under the Sublease provided Sublessee is in compliance with the terms thereof. (vii) DOE terminates the Equipment Lease pursuant to Section 3 thereof in the event of a national emergency or in the interest of national defense, or if the PSP is taken by power of eminent domain. (viii) Sublessee determines, as a result of a detailed inventory of the PSP components after the date hereof, that critical components of the PSP are missing, damaged or inoperable to an extent that, in Sublessee's business judgment, it would be impractical to repair or replace them. (ix) The DOE does not release all existing components of the PSP for delivery to Sublessee within thirty (30) days after the Facility is ready to receive the same, provided that Sublessee shall have used reasonable efforts to agree with DOE on, and to implement, an appropriate security plan so that DOE can release the PSP for delivery. (x) DOE's M&O contractor fails to deliver the same to Sublessee's facility within thirty (30) days after the Facility is ready to receive the same; provided, that Sublessee shall not be in breach of the Work for Others Agreement between Sublessee and the M&O contractor ("the WFO Agreement"), and provided Sublessee shall have given the M&O contractor adequate advance notice (at least thirty [30] days) of the proposed delivery date. (xi) The PSP or critical components thereof fail operational testing and, in Sublessee's business judgment, it would be impractical to repair or replace them. (xii) Sublessee determines that production of enriched palladium isotopes using the PSP is not, or is no longer, economically feasible in light of then-current market conditions. (xiii) The DOE's High Flux Isotope Reactor is shut down permanently or indefinitely, or Sublessee is not permitted [Confidential Treatment Requested] as presently contemplated by the WFO Agreement, or if Sublessee is no longer given access to the HFIR for isotope irradiation as presently contemplated by the WFO Agreement. In the event Sublessee elects to terminate this Sublease for failure of any of the foregoing conditions to be satisfied, Sublessee shall notify CROET in writing of such election, in which event this Sublease shall terminate on the date designated by Sublessee, but in no event more than thirty (30) days from the date of such notice. Furthermore, Sublessee shall have the right to terminate by giving ninety (90) days' notice to CROET if CROET fails to substantially perform or comply with any of its obligations under the terms and conditions of this Sublease and continues and persists therein for ten (10) days after notice thereof in writing by Sublessee; provided, however, if such default is not reasonably capable of cure within such ten (10) day period, Sublessee shall not be entitled to terminate this Sublease if CROET promptly undertakes to cure such default and diligently pursues such cure. In addition, Sublessee shall have the right to terminate this Sublease only as it relates to the PSP and the Equipment Lease, with or without cause, on ninety (90) days' prior written notice to CROET. In the event of the termination of this Sublease (or the portion hereof relating to the PSP) as aforesaid, this Sublease (or such portion relating to the PSP) shall be of no further force and effect, and the parties hereto shall have no further rights, obligations and duties hereunder except that nothing provided herein shall relieve Sublessee of the restoration obligations set forth paragraph 3(d) of the Sublease. 17. SUBLESSEE'S ENTRY ON PREMISES. From and after the date of Sublease and ------------------------------ prior to the commencement of the term of this Sublease as set forth in Paragraph 2(a), CROET grants to Sublessee and its authorized agents and representatives, the right to enter onto the Premises to conduct any surveys, tests, analyses, investigations, inspections and studies as Sublessee may elect to determine the feasibility of the development contemplated by Sublessee upon the Premises. Sublessee shall indemnify, and hold CROET harmless from any losses, costs, damages, expenses and actions arising out of said activities of Sublessee. 18. CROET'S OBLIGATIONS FOR COMMON AREA FACILITIES; EASEMENTS. CROET ---------------------------------------------------------- intends to develop the approximately 957.16 acres which it leases from DOE pursuant to Land Lease (the "Industrial Park Property") as an integrated industrial park. In connection therewith, CROET hereby covenants and agrees to construct and maintain, or cause to be constructed and maintained, all facilities commonly-used by the occupants of the Industrial Park Property (collectively, the "Common Area Facilities"), including, without limitation, all roads and streets (which are not publicly dedicated), all commonly used utility lines (which are not public lines or lines of other privately-owned utility companies) and detention/retention areas. CROET agrees to complete construction of all Common Area Facilities necessary for Sublessee's use of the Facility on or before one (1) year from the date of this Sublease. In the event CROET fails to construct or maintain the Common Area Facilities as aforesaid, thirty (30) days after notice from Sublessee (except for emergency repairs), Sublessee may (but shall not be obligated to) undertake such construction and/or maintenance. Any amounts expended by Sublessee shall be immediately due and payable to Sublessee and shall bear interest from the date advanced at the lesser of twelve percent (12%) per annum or the maximum amount permitted by law. Sublessee shall also have the right to offset rents due under this Sublease for any such amounts owed Sublessee CROET hereby grants unto Sublessee, during the term of this Sublease, the following non-exclusive easements: (i) an ingress-egress easement 60-feet in width for purposes of ingress and egress from State Route 95 (bordering the eastern side of the Industrial Park Property) over such private road as shall border the northern boundary of the Premises; (ii) an easement for utilities (including, without limitation, gas, water, electricity, sanitary, sewer and telephone) across the Industrial Park Property to the boundary of the Premises at such locations as may be mutually approved by CROET and Sublessee, such approval not to be unreasonably withheld; and (iii) an easement for drainage of surface storm water across the Industrial Park Property from the Premises at such locations as may be mutually approved by CROET and Sublessee, such approval not to be unreasonably withheld. 19. PARAMETERS OF LAND USE. In accordance with Condition No. 7 of the ------------------------ Land Lease, the Sublessee shall be subject to the following parameters addressed within the approved environmental documentation or subsequent documentation which expands those parameters: The Environmental Assessment (DOE/EA-113) ("EA") issued in April 1996 by the U.S. Department of Energy's Oak Ridge Operations Office for the lease of parcel ED-1 of the Oak Ridge Reservation by the East Tennessee Economic Council, now CROET, provides in subsection 2.1.3, Industrial Development, that industrial use of the parcel will conform to the City of Oak Ridge Zoning Ordinance (Chapter 7, Sect. 6-713 IND-2, Industrial District), except for certain uses not relevant to this Sublease. The ordinance referenced is included as Appendix C to the EA, and it provides in subsection 6-713(a)(l) that permitted principal uses of industrial districts include, among other things, "light and heavy manufacturing and processing plants, research and development facilities, and facilities such as processing of radioisotopes." 20. PSP USAGE FOR NON-MEDICAL ISOTOPES. If the Sublessee desires to use the ---------------------------------- PSP to produce isotopes which are not either [Confidential Treatment Requested] notify DOE in writing so that DOE can determine whether those isotopes are recognized by the EA covering the Premises and, if not so recognized, so that DOE can process an appropriate addendum to the EA, the cost of such addendum to the EA being borne by Sublessee. 21. AMENDMENTS TO LEASES. CROET covenants and agrees that it shall not ---------------------- consent not to be unreasonably withheld (i) the Equipment Lease, or (ii) the Land Lease as it affects the Premises or the use, enjoyment and operation thereof. 22. MISCELLANEOUS. ------------- (a) CROET and Sublessee each warrant and represent to the other that such party has not engaged services of any real estate broker, agent or finder which would entitle any person or entity to any fee, commission, or other compensation in connection with this Sublease. CROET and Sublessee hereby agree to indemnify and hold the other harmless from and against any and all claims, fees, commissions, or other compensation of any real estate broker, agent, or finder claiming services to have been rendered for or on behalf of such party in connection with the execution of this Sublease. (b) At any time and from time to time upon the request of either of the parties hereto or any mortgage lender of Sublessee, CROET and Sublessee, as the case may be, shall deliver to the party requesting the same a certificate stating (i) whether or not this Sublease is in full force and effect, (ii) whether or not any rights to renew the term of this Sublease have been exercised and the date on which this Sublease will terminate, (iii) whether or not this Sublease has been modified or amended in any way and attach any copy of such modification or amendment, (iv) whether or not there are any existing defaults under this Sublease to the knowledge of the party executing the certificate, and specifying the nature of such defaults, if any, (v) the status of rent payments, and (vi) any of the facts regarding the Sublease which any mortgage lender of Sublessee may reasonably request. (c) This Sublease shall be governed by, and construed in accordance with, the laws of the State of Tennessee, except that if interpretation or application of provisions of the Leases are involved, the provisions of the Leases shall control. (d) This Sublease shall be binding upon and shall inure to the benefit of CROET and Sublessee and their respective successors and assigns. 23. ENTIRE LEASE. This Sublease contains the entire understanding of CROET and the Sublessee with respect to its subject matter. This Sublease reflects all agreements and commitments made prior to the date hereof with respect to this Sublease by CROET and the Sublessee. There are no other oral or written understandings, terms, or conditions, and neither CROET nor the Lessee has relied upon any representation or statement, express or implied, which is not contained in this Sublease. IN WITNESS WHEREOF, the parties have caused this Sublease to be executed on their behalf by their duly authorized representatives as of the date first written above. CROET: COMMUNITY REUSE ORGANIZATION OF EAST TENNESSEE BY:/s/ Lawrence T. Young ----------------------------- Print Name: Lawrence T. Young ----------------------------- Title: President and CEO ----------------------------- [SIGNATURES CONTINUED ON FOLLOWING PAGE] [SIGNATURES CONTINUED FROM PREVIOUS PAGE] SUBLESSEE: THERAGENICS CORPORATION ATTEST: /s/ Jaquelyn L. Burtle BY: /s/ Bruce W. Smith - ------------------------------ -------------------------- Print Name:Jacquelyn L. Burtle Print Name: Bruce W. Smith Title: Corporate Librarian Title: Executive V. P. and CFO APPENDIX A DRAWING OF PREMISES AND ADJOINING PROPERTY ------------------------------------------ EX-99 3 AGREEMENT BETWEEN LOCKHEED MARTIN AND THERAGENICS Work for Others Agreement No. ERD-99-1731 Between LOCKHEED MARTIN ENERGY RESEARCH CORPORATION Operating Under Prime Contract No.DE-ACO5-96OR22464 for the U. S. Department of Energy And Theragenics Corporation The obligations of the above-identified DOE Contractor shall apply to any successor in interest to said Contractor continuing the operation of the DOE facility involved in this Work for Others Agreement. Article I. PARTIES TO THE AGREEMENT The U. S. Department of Energy Contractor, LOCKHEED MARTIN ENERGY RESEARCH CORPORATION (hereinafter referred to as the "Contractor") has been requested by Theragenics Corporation (hereinafter referred to as the "Sponsor") to perform the work set forth in each Task Order, attached hereto as Appendix A. It is understood by the Parties that, except for the intellectual property provisions of this Agreement, the Contractor is obligated to comply with the terms and conditions of its M&O contract with the United States Government (hereinafter called the "Government") represented by the United States Department of Energy (hereinafter called the "Department" or "DOE") when providing goods, services, products, processes, materials, or information to the Sponsor under this Agreement. Article II. TERM OF THE AGREEMENT: MULTIPLE TASK ORDERS: ADMINISTRATION ------------------------------------------------------------ (DEVIATION) ----------- A. The estimated period of performance will be set forth in each Task Order. The term of this Agreement shall be effective as of the latter date of (1) the date on which it is signed by the last of the Parties thereto, or (2) the date on which it is approved by DOE. B. This is a master Work for Others Agreement that contemplates the issuance of an indefinite number of Task Orders pursuant to Attachment 1, Statement of Work to the Agreement. The individual Task Orders are set forth in Appendix A and approved by DOE. The Contractor has further agreed to enter into additional Task Orders consistent with the terms of the Statement of Work including the estimated costs therein, if and when so requested by Sponsor, provided that Sponsor's options to enter into these additional Statement of Work will expire if not exercised by written notice to Contractor on or before [Confidential Treatment Requested]. It is the intention of the Parties to extend the Agreement throughout the operating life of the High Flux Isotope Reactor and the Contractor has initiated the procedure for obtaining approval of such an extension. Contractor acknowledges that Sponsor is investing in the initial Task Order as well as other initiatives based on Contractor's commitment to perform the additional Task Orders specified above as well, and Contractor agrees that it shall perform these additional Task Orders, subject to the terms of this Agreement, if requested by Sponsor,[Confidential Treatment Requested] is incompatible with the DOE's mission or [Confidential Treatment Requested]. C. The Contractor shall use its best efforts to provide the services under each Task Order as described therein. D. The Principal Investigator(s) and other key personnel to be assigned to each Task Order shall be specified in each Task Order, and shall, except in case of events such as illness, resignation, other employment actions, conflicts of interest or if DOE determines that such personnel are needed to perform DOE mission or programmatic requirements, be available to the specific projects listed in the Task Order. If any of such personnel become unavailable as stated above, Contractor will use its best efforts to replace them promptly with other personnel of comparable qualifications. E In addition to the work to be performed under the Task Orders, in accordance with DOE Order 481.1, this Agreement provides for access to highly specialized or unique DOE facilities, that is, the High Flux Isotope Reactor ("HFIR") as follows. Neither LMER nor DOE is obligated hereunder to maintain the HFIR in operation or to keep it operating any specified percentage of the time, but as long as the HFIR is in operation and Sponsor has a continuing need for its use, Sponsor shall have the following access rights: (1) [Confidential Treatment Requested] (2) Sponsor shall have the exclusive right to [Confidential Treatment Requested] to irradiate material, which right will be exercised through Contractor under this Agreement, as contemplated by the Statement of Work. DOE may, however, [Confidential Treatment Requested], on terms to be mutually agreed, for [Confidential Treatment Requested], including production of isotopes for sale as long as the isotope is not competitive with the Sponsor's mission. (3) Sponsor will be required to pay for irradiation of target material [Confidential Treatment Requested] in accordance with DOE Accounting Policy. (4) Sponsor may [Confidential Treatment Requested] to irradiate palladium for research or for medical or commercial use for its own account or for sale to third parties, subject to all applicable laws and regulations governing the production of isotopes; and (5) [Confidential Treatment Requested]. Article III. COSTS (DEVIATION) ----------------- A. The estimated cost for the work to be performed under this Agreement will be set forth in each Task Order. B. The Contractor has no obligation to continue or complete performance of the work on any Task Order issued pursuant to this agreement at a cost in excess of the estimated cost, including any subsequent amendment set forth in each Task Order, except as provided in paragraph C below. C. The Contractor agrees to provide at least 30 days' notice to the Sponsor if the actual cost to complete performance will exceed the estimated cost set forth in each Task Order. If so requested by the Sponsor, the Contractor will provide its best estimate of the additional cost, and of the time needed, for completion, or for completion to the next milestone in the Task Order, if applicable. If upon receipt of this information Sponsor elects to continue funding the effort, the Task Order shall be amended to appropriately increase the budget for the project and, if applicable, to extend the milestone dates, and the Contractor shall continue the work so long as Sponsor provides the needed additional funding in accordance with the principles of Article IV. Nothing shall, however, require the Contractor to continue work if the Contractor concludes in good faith that the objective of the work will not be reasonably attainable. Article IV. FUNDING AND PAYMENT (DEVIATION) -------------------------------- A. The Sponsor shall provide sufficient funds in advance to reimburse the Contractor for costs to be incurred in performance of the work described in this Agreement, and the Contractor shall have no obligation to perform in the absence of adequate advance funds. If the estimated period of performance for a given Task Order exceeds 90 days or the estimated cost exceeds $25,000, the Sponsor may, advance funds incrementally. In such a case, the Contractor will initially invoice the Sponsor in an amount sufficient to permit the work to proceed for ninety (90) days and thereafter invoice the Sponsor monthly so as to maintain approximately a 90-day period that is funded in advance. Payment shall be made directly to the Contractor as specified in Appendix A. Upon termination or completion, any excess funds shall be refunded by the Contractor to the Sponsor. B. The Contractor shall maintain such records as are normally maintained for DOE-supported work. The records of the Contractor shall not be subject to audit by the Sponsor; however, the Contractor shall make available upon request of the Sponsor, where reasonably necessary for the Sponsor to evaluate its expenditures or where otherwise considered appropriate, cost data and other documents concerning the services performed under this Agreement, together with any related findings and all reasonably necessary explanations or discussions. Article V. SOURCE OF FUNDS --------------- The Sponsor hereby warrants and represents that, if the funding it brings to this Agreement has been secured through other agreements, such other agreements do not have any terms and conditions (including intellectual property) which conflict with the terms of this Agreement. Article VI. PROPERTY (DEVIATION) -------------------- Unless the Parties otherwise agree in writing, all equipment produced or acquired with funds provided by the Sponsor, shall be delivered to the Sponsor or otherwise disposed of as instructed by the Sponsor at the Sponsor's expense. Article VII. PUBLICATION MATTERS (DEVIATION) ------------------------------- The publishing Party shall provide the other Party a sixty (60)-day period in which to review and submit comments upon proposed publications, which either disclose technical developments and/or research findings generated in the course of this agreement, or identify or contain Proprietary Information (as defined in paragraph A.2 of Article XV). The publishing Party shall not publish or otherwise disclose Proprietary Information identified by the other Party, except as required by law or agreed to by both Parties. Article VIII. LEGAL NOTICE (DEVIATION) ------------------------- The Parties agree that the following legal notice shall be affixed to each report furnished to the Sponsor under this Agreement and to any report prepared by Contractor under this Agreement which may be distributed by the Sponsor: "DISCLAIMER NOTICE ------------------ This report was prepared by LOCKHEED MARTIN ENERGY RESEARCH CORPORATION (LMER) on behalf of the U. S. Department of Energy (DOE), as an account of work sponsored by Theragenics Corporation. Neither LMER, DOE, the U. S. Government, or any person acting on their behalf: (a) makes any warranty or representation, express or implied, with respect to the information contained in this report; or (b) assumes any liabilities with respect to the use of, or damages resulting from the use of any information contained in the report" Article IX. DISCLAIMER; BEST EFFORTS (DEVIATION) ------------------------------------- THE GOVERNMENT AND THE CONTRACTOR MAKE NO EXPRESS OR IMPLIED WARRANTY AS TO THE CONDITIONS OF THE RESEARCH OR ANY INTELLECTUAL PROPERTY, GENERATED INFORMATION, OR PRODUCT MADE OR DEVELOPED UNDER THIS WORK FOR OTHERS AGREEMENT, OR THE OWNERSHIP, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE RESEARCH OR RESULTING PRODUCT, THAT THE GOODS, SERVICES, MATERIALS, PRODUCTS, PROCESSES, INFORMATION, OR DATA TO BE FURNISHED HEREUNDER WILL ACCOMPLISH INTENDED RESULTS OR ARE SAFE FOR ANY PURPOSE INCLUDING THE INTENDED PURPOSE, OR THAT ANY OF THE ABOVE WILL NOT INTERFERE WITH PRIVATELY OWNED RIGHTS OF OTHERS. NEITHER THE GOVERNMENT NOR THE CONTRACTOR SHALL BE LIABLE FOR SPECIAL, CONSEQUENTIAL, OR INCIDENTAL DAMAGES ATTRIBUTED TO SUCH RESEARCH OR RESULTING PRODUCT, INTELLECTUAL PROPERTY, GENERATED INFORMATION, OR PRODUCT MADE OR DELIVERED UNDER THIS WORK FOR OTHERS AGREEMENT. Subject to the foregoing, Contractor represents that Contractor shall, within sixty days after execution of this agreement, use its best efforts to determine whether the Contractor's Office of Technology Transfer or the principal investigators named in the initial Task Orders have any actual knowledge that any of the work to be done under this agreement, or any of the goods, services, materials, products, processes, information, or data to be furnished hereunder as indicated in Attachment 1, the Statement of Work, will infringe or is claimed to infringe, any proprietary or intellectual property rights of third parties. As additional Task Orders are entered into hereunder, the Contractor will make similar inquiries of the principal investigators named therein as to actual knowledge of infringement or claims of infringement, and will, if appropriate, make additional investigation as to infringement matters within the Office of Technology Transfer in light of the specific scopes of work agreed to for those new Task Orders. If, prior to or during the performance of a task order Contractor learns of any such infringement or claim thereof relating to that Task Order, Contractor will promptly notify sponsor. If during the term hereof Sponsor raises specific questions related to possible claims of infringement, Contractor will, upon request, use its best efforts to determine what actual knowledge Contractor's Office of Technology Transfer or applicable principal investigators have that is pertinent to the matter in question, and will disclose that pertinent information to Sponsor. The Contractor shall use its best reasonable efforts to provide the services under each Task Order as described therein. Neither the Government, DOE, Contractor, nor persons acting on their behalf will be responsible, irrespective of causes, for failure: (1) to perform the work, (2) provide the services, or (3) furnish the materials or information hereunder at any particular time or in any specific manner. If at any time Sponsor believes that Contractor is not using its best reasonable efforts in the performance the work hereunder or is performing contrary to this agreement or a Task Order, or if the Sponsor has any other problem with the performance of the Contractor hereunder, Sponsor shall be entitled to bring the problem to the attention of the Assistant Manager for Laboratories of the DOE Oak Ridge Operations Office (the "Assistant Manager"). The Assistant Manager shall hear the matter within a reasonable time, in a manner deemed appropriate by the Assistant Manager, and the Contractor agrees to comply with any decision that the Assistant Manager may, in his sole discretion, issue to the Contractor with respect to the matter. This right of Sponsor to present a matter for decision to the Assistant Manager is in addition to, and not in lieu of, Sponsor's right to seek alternate dispute resolution under Article XX, and any other rights of Sponsor under this agreement, but nothing in this Article creates any enforceable right against DOE. Article X. GENERAL INDEMNITY (DEVIATION) ------------------------------ The Sponsor agrees to indemnify and hold harmless the Government, the Department, the Contractor and persons acting on their behalf from all liability, including costs and expenses incurred, to any person, including the Sponsor, for injury to or death of persons or other living things or injury to or destruction of property arising out of the performance of the Agreement by the Government, the Department, the Contractor, or persons acting on their behalf, or arising out of the use of the services performed, materials supplied, or information given hereunder by any person including the Sponsor. The foregoing indemnity shall not, however, apply to liability directly resulting from the fault or negligence of the Government, the Department, the Contractor, or persons acting on their behalf. Article XI. PRODUCT LIABILITY INDEMNITY (DEVIATION) --------------------------------------- Except for any liability resulting from any willful misconduct or negligent acts or omissions of the Government or the Contractor, the Sponsor agrees to indemnify the Government and defend Contractor against any claim or proceeding and pay all damages, costs, and expenses, including attorney's fees, arising from personal injury or property damage occurring as a result of the making, using, or selling of a product, process, or service by or on behalf of the Sponsor, its assignees, or licensees, which was derived from the work performed under this Work for Others Agreement. In respect to this Article, neither the Government nor the Contractor shall be considered assignees or licensees of the Sponsor, as a result of reserved Government and Contractor rights. The indemnity set forth in this paragraph shall apply only if the Sponsor shall have been informed as soon and as completely as practical by the Contractor and/or the Government of the action alleging such claim and shall have been given an opportunity, to the maximum extent afforded by applicable laws, rules, or regulations, to participate in and control its defense, and the Contractor and/or Government shall have provided all reasonably available information and reasonable assistance requested by the Sponsor. No settlement of an action against the Contractor and/or Government for which the Sponsor would be responsible shall be made without the consent of the Sponsor and of the Contractor and the Government (whenever either or both of the latter two parties are involved), unless required by final decree of a court of competent jurisdiction. Article XII. INTELLECTUAL PROPERTY INDEMNITY - LIMITED (DEVIATION) ----------------------------------------------------- The Sponsor shall indemnify the Government and the Contractor and their officers, agents, and employees against liability, including costs, for infringement of any United States patent, copyright, or other intellectual property arising out of any acts required or directed by the Sponsor to be performed under this Agreement to the extent such acts are not already performed at the facility. Such indemnity shall not apply to a claimed infringement which is settled without the consent of the Sponsor unless required by a court of competent jurisdiction. Sponsor shall be entitled to notice, the opportunity to defend and control the defense, and cooperation from the Contractor and the Government as more fully described in Article XI. Article XIII. NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT ----------------------------------------------------------------- The Sponsor shall report to the Department and the Contractor, promptly and in reasonable written detail, each claim of patent or copyright infringement based on the performance of this Agreement of which the Sponsor has knowledge. The Sponsor shall furnish to the Department and the Contractor, when requested by the Department or the Contractor, all evidence and information in the possession of the Sponsor pertaining to such claim. Article XIV. PATENT RIGHTS - USE OF FACILITIES (CLASS WAIVER) (DEVIATION) ------------------------------------------------------------ 1. Definitions ----------- A. "Subject Invention" means any invention or discovery of the Contractor, or, to the extent the Sponsor is performing any work under this Agreement, of the Sponsor, conceived in the course of or under this Agreement, or, in the case of an invention previously conceived by the Sponsor, first actually reduced to practice in the course of or under this Agreement. "Subject Invention" includes any art, method, process, machine, manufacture, design or composition of matter, or any new and useful improvement thereof, or any variety of plant, whether patented or unpatented under the Patent Laws of the United States of America or any foreign country. B. "Patent Counsel" means the DOE Patent Counsel assisting the procuring activity which has the administrative responsibility for the facility where the work under this Agreement is to be performed. 2. Rights of the Sponsor --------------------- Election to retain rights Subject to the provisions of paragraph 3.B. with respect to any Subject Invention reported and elected in accordance with paragraph 4. of this clause, the Sponsor may elect to obtain the entire right, title, and interest throughout the world to each Subject Invention and any patent application filed in any country on a Subject Invention and in any resulting patent secured by the Sponsor. Where appropriate, the filing of patent applications by the Sponsor is subject to DOE and other Government security regulations and requirements. Minimum License The Sponsor reserves an irrevocable, nonexclusive, paid-up license in each patent application filed in any country on a subject invention and any resulting patent in which the Sponsor does not elect to take title or in which the Government acquires title. The license shall extend to the Sponsor's domestic subsidiaries, and affiliates, if any, within the corporate structure of which the Sponsor is a part and shall include the right to grant sublicenses of the same scope as the Sponsor was legally obligated to do so at the time this agreement was entered into. The license shall be transferable only with the approval of DOE except when transferred to the successor of that part of the Sponsor's business to which the invention pertains. 3. Rights of Contractor and Government ----------------------------------- A. Assignment to either the Contractor or the Government -------------------------------------------------------------- The Sponsor agrees to assign to either the Contractor or the Government, as requested by the Contractor, the entire right, title, and interest in any country to each Subject Invention of the Sponsor and to each Subject Invention of the Contractor, where the Sponsor: (1) does not elect pursuant to this clause to retain such rights; or (2) elects to obtain title to a Subject Invention pursuant to paragraph 2. but fails to have a patent application filed in that country on the Subject Invention or decides not to continue prosecution or not to pay any maintenance fees covering the invention. B. Terms and Conditions of Waived Rights (1) To preserve the Contractor's and the Government's residual rights to Subject Inventions, and in patent applications and patents on Subject Inventions, the Sponsor shall take all actions in reporting, electing, filing on, prosecuting, and maintaining invention rights promptly, but in any event, in sufficient time to satisfy domestic and foreign statutory and regulatory time requirements, or, if the Sponsor decides not to take appropriate steps to protect the invention rights, it shall notify the Contractor in sufficient time to permit either the Contractor or the Government to file, prosecute, and maintain patent applications and any resulting patents prior to the end of such domestic or foreign statutory or regulatory time requirements. (2) The Sponsor shall convey or ensure the conveyance of any executed instruments necessary to vest in either the Contractor or the Government the rights set forth in this clause. (3) With respect to any Subject Invention in which the Sponsor obtains title, the Sponsor hereby grants to the Government a non-exclusive, nontransferable, irrevocable, paid-up license to practice or have practiced by or on behalf of the United States the Subject Invention throughout the world. (4) The Sponsor shall provide the Government a copy of any patent application filed on a Subject Invention within 6 months after such application is filed, including its serial number and filing date. (5) Preference for U.S. Industry. Notwithstanding any other provision of this clause, the Sponsor agrees that neither it nor any assignee will grant to any person the exclusive right to use or sell any Subject Invention in the United States unless such person agrees that any products embodying the Subject Invention or produced through the use of the Subject Invention will be manufactured substantially in the United States. However, in individual cases, the requirement for such an agreement may be waived by DOE upon a showing by the Sponsor or its assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. (6) March-In Rights. The Sponsor agrees that with respect to any Subject Invention of the Contractor in which it has acquired title, the DOE shall retain the right to require the Sponsor to grant a responsible applicant a nonexclusive, partially exclusive, or exclusive license to use the Subject Invention in any field of use, on terms that are reasonable under the circumstances, or if the Sponsor fails to grant such a license, to grant the license itself. DOE may exercise this right only in exceptional circumstances and only if DOE determines that: (a) the action is necessary to meet health or safety needs that are not reasonably satisfied by the Sponsor; or (b) the action is necessary to meet the requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the Sponsor; or (c) such action is necessary because a licensee of the exclusive right to use or sell any Subject Invention in the United States is in breach of the agreement required by paragraph 3.B.(5). (7) The Sponsor agrees to refund any amounts received as royalty charges on any Subject Invention in procurement by or on behalf of the Government and to provide for that refund in any instrument transferring rights to any party in the invention. (8) The Sponsor agrees to include, within the specification of any United States patent applications and any patent issuing thereon covering a Subject Invention, the following statement. "The Government has rights in this invention pursuant to (specify this underlying Agreement)." 4. Invention Identification, Disclosures, and Reports --------------------------------------------------- A. The Sponsor shall furnish the Patent Counsel a written report containing full and complete technical information concerning each Subject Invention it makes within 6 months after conception or first actual reduction to practice, whichever occurs first, in the course of or under this Agreement, but in any event prior to any on sale, public use, or public disclosure of such invention known to the Sponsor. The report shall identify the contract and inventor and shall be sufficiently complete in technical detail and appropriately illustrated by sketch or diagram to convey to one skilled in the art to which the invention pertains a clear understanding to the extent known at the time of disclosure, of the nature, purpose, operation, and to the extent known, the physical, chemical, biological, or electrical characteristics of the invention. The report should also include any election of invention rights under this clause. When an invention is reported under this paragraph 4.A, it shall be presumed to have been made in the manner specified in Section (a)(1) and (2) of 42 USC 5908. B. The Contractor shall report Subject Inventions it makes in accordance with the procedures set forth in contract DE-AC05-96OR22464. In addition, the Contractor shall disclose to the Sponsor at the same time as disclosure to the Department any Subject Inventions made by the Contractor under this Agreement and the Sponsor shall notify the Department within 6 months of receipt of such disclosure by the Sponsor of any election of patent rights under this clause. With respect to Subject Inventions of which Contractor personnel are inventors, Contractor shall execute and deliver, or as appropriate, cause the inventors to execute and deliver, to Sponsor any assignments or other instruments reasonably necessary to the filing of patent applications by Sponsor, or to the perfection and confirmation of Sponsor's title in the Subject Invention. C. Requests for extension of time for election under subparagraphs A and B may be granted by Patent Counsel for good cause shown in writing. 5. Limitation of Rights ---------------------- Nothing contained in this patent rights clause shall be deemed to give the Government any rights with respect to any invention other than a Subject Invention except as set forth in the Facilities License of paragraph 6. 6. Facilities License ------------------ In addition to the rights of the Parties with respect to inventions or discoveries conceived or first actually reduced to practice in the course of or under this Agreement, the Sponsor agrees to and does hereby grant to the Government an irrevocable, non-exclusive, paid-up license in and to any inventions or discoveries regardless of when conceived or first actually reduced to practice or acquired by the Sponsor, which at any time, through completion of this Agreement, are owned or controlled by the Sponsor and are incorporated in the facility as a result of this Agreement to such an extent that the facility is not restored to the condition existing prior to the Agreement (1) to practice or to have practiced by or for the Government at the facility, and (2) to transfer such license with the transfer of the facility. The acceptance or exercise by the Government of the aforesaid rights and license shall not prevent the Government at any time from contesting the enforceability, validity, or scope of, or title to, any rights or patents herein licensed. 7. Early Termination of Agreement ------------------------------ The terms and conditions of this clause shall survive the Agreement, in the event that the Agreement is terminated before completion of the Statement of Work. Article XV. RIGHTS IN TECHNICAL DATA - USE OF FACILITY (DEVIATION) A. Definitions 1. "Generated Information" means information produced in the performance of this Agreement. 2. Proprietary Information" means information which is developed at private expense and (1) trade secrets or (2) commercial or financial information which is privileged or confidential under the Freedom of Information Act (5 USC 552 (b)(4)). The term includes information communicated orally or by other means, if the information is designated at the time of disclosure or thirty (30) days thereafter as Proprietary Information, or if it is identical to of documentary information designated as Proprietary Information, or if the recipient knows that it embodies Proprietary Information previously submitted in documentary form and appropriately designated as such. Proprietary Information includes Generated Information which is categorized and marked as Proprietary Information by Sponsor or by Contractor at Sponsor's direction. Generated Information which has not yet been categorized by Sponsor as to whether it is Proprietary Information will be treated as Proprietary Information of the Sponsor pending such categorization. Information shall be deemed appropriately marked as Proprietary Information if it is marked as "Proprietary Information" or marked with words of manifestly similar meaning such as "Confidential", "Secret", "Trade Secret" or "Proprietary". 3. "Unlimited Rights" means the right to use, disclose, reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, in any manner and for any purpose, and to have or permit others to do so. B. The Sponsor agrees to furnish to the Contractor or leave at the facility that information, if any, which is (1) essential to the performance of work by the Contractor personnel or (2) necessary for the health and safety of such personnel in the performance of the work. Any information furnished to the Contractor shall be presumed to have been delivered with Unlimited Rights unless marked as described in paragraph A.2 above; provided, that if Sponsor inadvertently delivers Proprietary Information without such markings, then (1) Sponsor shall have the right at any time to place such markings thereon, and Contractor shall cooperate fully with such effort; and (ii) Contractor shall not be liable to Sponsor for any use or disclosure of that information, in good faith, between the time of initial delivery and the time Sponsor informs Contractor that the information is Proprietary Information and should be marked as such. Once the items are so marked, they shall from that point forward be treated as Proprietary Information. C. The Sponsor may designate as Proprietary Information any Generated Information, where such data would embody trade secrets or would comprise commercial or financial information that is privileged or confidential if it were obtained from the Sponsor. Such Proprietary Information will, to the extent permitted by law, be maintained in confidence and disclosed or used by the Contractor (under suitable protective conditions) only for the purpose of carrying out the Contractor's responsibilities under this Agreement. If so authorized by Sponsor, Contractor shall, on Sponsor's behalf, use its best efforts to locate and appropriately mark all copies of Generated Information which Sponsor has designated as Proprietary Information (such designation to be either by specific reference to particular information, or categorical descriptions of types of Generated Information constituting Proprietary Information.). If information is not marked by the Contractor when delivered to the Sponsor and the Sponsor believes it should be marked, the Sponsor will mark the information itself and notify the Contractor of the omission that the Sponsor believes to have occurred and the fact that the Sponsor has affixed such marking. Until such time as any particular Generated Information has been categorized and marked as Proprietary Information , Contractor will treat it as Proprietary Information. Contractor may, at any time, request guidance from Sponsor as to whether particular information should be designated and marked as Proprietary Information. Upon completion of activities under this Agreement (or, if appropriate, upon completion of a given Task Order), such Proprietary Information and all copies thereof will be disposed of as requested by the Sponsor, at the Sponsor's expense. Before the Contractor releases data associated with this Agreement to anyone, the Sponsor will be afforded the opportunity to review that data to ascertain whether it is Proprietary Information and to mark it as such. D. The Government and Contractor agree to not disclose Proprietary Information that is properly marked, or Generated Information that has not yet been categorized by the Sponsor as to whether it is Proprietary Information to anyone other than the Sponsor without written approval of the Sponsor, except to Government employees who are subject to the statutory provisions against disclosure of confidential information set forth in the Trade Secrets Act (18 USC 1905). The Government and Contractor shall have the right, at reasonable times up to 3 years after the termination or completion of the Agreement, to inspect any information designated as Proprietary Information by the Sponsor, for the purpose of verifying that such information has been properly identified as Proprietary Information. E. By, or within ninety (90) days after, the date of termination or expiration of this Agreement, Sponsor shall request the removal of all of its Proprietary Information from the facility, at the Sponsor's expense, and when such request is made Contractor shall assemble and deliver to the Sponsor the original and all copies of such information and the Sponsor shall accept it and shall then be responsible for its removal from the facility. The Government and Contractor shall have Unlimited Rights in any information which is not removed from the facility by Sponsor after delivery by Contractor to Sponsor as described above, or which is not requested by Sponsor to be assembled and delivered to Sponsor by Contractor within the time limit described above. Notwithstanding the foregoing, by mutual consent, Sponsor may allow Contractor or the Government to retain copies of Proprietary Information without compromising its status as such; for example, the information might be needed for follow-on tasks hereunder or for other projects to be undertaken by the Contractor or the Government with Sponsor's consent. The Government and Contractor shall have Unlimited Rights in any Proprietary Information which is incorporated into the facility or equipment under this Agreement at Sponsor's request, to such extent that the facility or equipment is not restored to the condition existing prior to such incorporation. F. The Sponsor agrees that the Contractor will provide to the Department a nonproprietary description of the work performed under this Agreement. G. The Government shall have Unlimited Rights in all Generated Information produced or information provided by the Parties under this Agreement, except for information which is disclosed in a Subject Invention disclosure being considered for patent protection, or which is Proprietary Information. H. Copyrights ---------- The Sponsor may assert copyright in any of its Generated Information, and may also require the Contractor, at the Sponsor's expense, to register copyright and/or to assign to Sponsor copyright in any Generated Information produced by the Contractor and designated by the Sponsor. Subject to the other provisions of this clause, including particularly those relating to Proprietary Information, and to the extent that copyright is asserted, the Government reserves for itself a royalty-free, world-wide, irrevocable, non-exclusive license for Governmental purposes to publish, distribute, translate, duplicate, exhibit, prepare derivative works, and perform any such data assigned to the Sponsor. I. The terms and conditions of this clause shall survive the Agreement. Article XVI. ASSIGNMENT (DEVIATION) ---------------------- Neither this Agreement nor any interest therein or claim thereunder shall be assigned or transferred by either Party, except as authorized in writing by the other Party to this Agreement, which authorization shall not be unreasonably withheld or delayed, provided, the Contractor may transfer it to the Department, or its designee, with notice of such transfer to the Sponsor, and the Contractor shall have no further responsibilities except for the confidentiality, use, and/or non-disclosure obligations of this Agreement. In the event Contractor proposes to disapprove any assignment or transfer by Sponsor, Sponsor shall have the right to appeal that decision to the Director of the DOE Oak Ridge Office of Partnerships and Program Development, and Contractor shall comply with a decision, if any, by such Director that this Agreement shall be assigned or transferred as requested by Sponsor. Further provided, however, that nothing in this Article creates any enforceable right against DOE. Article XVII. SIMILAR OR IDENTICAL SERVICES ----------------------------- The Government and/or Contractor shall have the right to perform similar or identical services in the Statement of Work (SOW) for other Sponsors as long as the Sponsor's Proprietary Information is not utilized. Article XVIII. EXPORT CONTROL -------------- Each Party is responsible for its own compliance with laws and regulations governing export control. Article XIX. TERMINATION (DEVIATION) ----------------------- Performance of work under this Agreement may be terminated at any time by either Party, without liability, except as provided above, upon giving a thirty (30) day written notice to the other Party. [Confidential Treatment Requested], provided however, that the Contractor shall have the right to terminate if the Sponsor shall have failed to advance the funds required by Article IV and failed to cure the same within thirty (30) days after written notice to Sponsor of the default. In the event of termination, the Sponsor shall be responsible for the Contractor's costs through the effective date of termination which are either (a) incurred in the performance of tasks which the Sponsor has specifically requested Contractor to perform after the notice of termination is given, such as completing experiments in process, providing the Sponsor with the research data generated through the date of termination, to finalize required reporting, etc, or (b) are necessary closeout costs, including but not limited to costs to shut down any experiment in process which Sponsor does not wish completed or which cannot be completed prior to termination, to pack and ship surplus material and equipment, to finish categorizing Generated Information as provided for in Article XV, and to assemble Generated Information and Proprietary Information for transmittal to Sponsor; but in no event shall the Sponsor's cost responsibility exceed the total cost to the Sponsor as described in Article III, above. Closeout costs do not include costs for transitioning personnel. It is agreed that any obligations of the Parties regarding Proprietary Information or other intellectual property will remain in effect, despite early termination of the Agreement. Article XX. ALTERNATE DISPUTE RESOLUTION (DEVIATION) ---------------------------------------- Step 1. NEGOTIATION The Parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement by negotiating between executives and/or officials who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for administration of this contract. Either Party may give the other Party written notice of any dispute not resolved in the normal course of business. Within 15 days after delivery of the notice, the receiving Party shall submit to the other a written response. The notice and the response shall include (a) a statement of each Party's position and a summary of arguments supporting that position, and (b) the name and title of the executive or official who will represent that Party and of any other person(s) who will accompany the executive or official. Within 30 days after delivery of the disputing Party's notice, the executives of both Parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. If the matter has not been resolved within 60 days of the disputing Party's notice, or if the Parties fail to meet within 30 days, either party initiate mediation of the controversy or claim as provided hereafter. All negotiations pursuant to this Agreement are confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and state rules of evidence. Step 2. MEDIATION In the event the dispute has not been resolved by negotiation as provided herein, the Parties agree to participate in a one day mediation, using a mutually agreed upon mediator. The mediator will not render a decision, but will assist the Parties in reaching a mutually satisfactory agreement. The Parties agree to equally split the costs of the mediation. The first mediation session shall commence within 30 days from agreement on the selection of mediator. The Parties may contact the DOE Office of Dispute Resolution with questions or for assistance with selection of neutrals or samples of Agreements to Mediate. All meditations are confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and state rules of evidence. Step 3. ARBITRATION Any dispute not otherwise satisfactorily resolved may, by mutual agreement, be submitted to arbitration, provided that both parties shall bear their own costs of arbitration and further provided that such arbitration shall be binding only if the Parties have previously agreed upon the limits of the awards that may result from arbitration, pursuant to the Administrative Dispute Resolution Act through the American Arbitration Association, Jams/Endispute Center for Public Resources, United States Arbitration and Mediation, or other reputable ADR provider. Article XXI. CERTIFICATION Sponsor certifies that to the best of its knowledge and belief the analysis or other work or services to be provided hereunder cannot reasonably or practicably be conducted in private facilities or with private equipment reasonably available. IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT NO. ERD-99-1731 FOR LOCKHEED MARTIN ENERGY RESEARCH CORPORATION Name: /s/ Frank V. Damiano ----------------------------------- Title: Sr. Contracts Admin ----------------------------------- Date: March 25, 1999 ----------------------------------- FOR THERAGENICS CORPORATION Name: /s/ Bruce W. Smith ------------------------------------ Title: Executive V/P & CFO ------------------------------------ Date: March 25, 1999 ------------------------------------ ON BEHALF OF THE DEPARTMENT OF ENERGY Name: /s/ James A. Reafsnyder ------------------------------------ James A. Reafsnyder, Director Title: Office of Partnerships and Program Development ---------------------------------------------- Date: March 25, 1999 ------------------------------------- EX-27 4 FDS -- QUARTER ENDING MARCH 31, 1999
5 3-mos DEC-31-1999 JAN-01-1999 MAR-31-1999 $23,589,146 9,522,224 4,142,954 34,957 790,290 38,877,736 53,866,057 7,911,553 92,813,211 3,247,699 0 0 0 294,350 0 92,813,211 9,139,219 9,164,219 3,379,785 4,926,077 3,491 0 6,139 4,512,223 1,631,700 2,880,523 0 0 0 2,880,523 .10 .10
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