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         [Confidential treatment has been requested for portions of this
exhibit. The confidential portions have been redacted and are denoted by [**].
The confidential portions have been separately filed with the Securities and
Exchange Commission.]


                                                                    EXHIBIT 10.4


                               SERVICE AGREEMENT


         THIS AGREEMENT (the "Agreement") is effective this 30th day of June,
1997 (the "Effective Date"), by and between ILEX ONCOLOGY, INC., a Delaware
corporation with its principal office located at 11550 I.H. 10 West, Suite 300,
San Antonio, Bexar County, Texas 78230 ("ILEX") and PRN RESEARCH, INC., a Texas
corporation with its principal office located at 5420 LBJ Freeway, Suite 900,
Dallas, Dallas County, Texas 75240 ("PRN").

                                    Recitals

         A.      ILEX is in the business of, among other things, providing CRO
Services (as defined hereinafter).

         B.      PRN is in the business of providing Site Services (as defined
hereinafter).

         C.      ILEX and PRN desire to establish a relationship pursuant to
which they will provide services for and to each other, and they shall jointly
provide services to third parties.

                                   Agreements

         In consideration of the mutual promises and covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Parties agree as follows:

         1.      Definitions. The following terms shall have the meanings
provided below unless otherwise provided herein or unless the context otherwise
requires:

                 "Affiliate(s)" of a party shall mean any person, corporate or
         otherwise, controlled by or under common control as such party. For
         purposes of this definition, "control" means the ownership, beneficial
         or otherwise, of greater than 50% of the ownership interests of a
         person.

                 "CRO" shall mean an entity providing CRO Services.

                 "CRO Revenue" shall mean the total gross revenues earned by
         ILEX and its Affiliates from providing CRO Services, less discounts,
         sales taxes and bad debts written off, as determined according to
         generally accepted accounting principals and historical accounting
         practices of ILEX, consistently applied; provided, however, that (i)
         if ILEX or any of its Affiliates sponsors a clinical trial or has a
         royalty, ownership or other equity interest in the compound subject to
         a clinical trial, then for purposes of determining CRO Revenue, the
         total gross revenues from providing CRO Services shall be deemed to
         include an amount for conducting such clinical trials equal to the
         then normal or customary fees charged by ILEX for similar services in
         clinical trials in which neither ILEX nor any of its Affiliates has a
         royalty or ownership interest in the compound subject to such clinical
         trial, and (ii) in the event ILEX merges with or otherwise


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         acquires the assets or operations of another CRO (the "Acquired CRO"),
         then there shall thereafter be deducted from CRO Revenue during each
         Milestone Year (as defined hereinafter), or pro rata portion thereof,
         the revenues from CRO Services of the Acquired CRO for the fiscal year
         of the Acquired CRO immediately preceding such merger or acquisition.

                 "CRO Services" shall mean the following services in connection
         with managing and sponsoring oncology clinical research trials: (i)
         site selection and management, (ii) data collection, (iii) study
         monitoring, (iv) pharmacoeconomic assistance, (v) medical writing,
         (vi) statistical programming and analysis, and (vii) preparation of
         regulatory documents.

                 "Site Services" shall mean the following services provided for
         pharmaceutical and biotechnology companies and CRO's: obtaining
         physicians to conduct oncology clinical research trials and enroll
         patients in such trials, providing support personnel for such trials
         and collecting data from such trials.

                 "Subsidiary" means, for any person (the "Parent"), any
         corporation or other entity (including, without limitation, any
         partnership or joint venture) of which at least a majority of the
         securities or other ownership interests having by the terms thereof
         ordinary voting power to elect a majority of the board of directors or
         other persons having similar powers and/or performing similar
         functions of such corporation or other entity (irrespective of whether
         or not at any time securities or other ownership interests of any
         class or classes of such corporation or other entity shall have or
         might have voting power by reason of the happening of any contingency)
         is at the time directly or indirectly owned or controlled by such
         person or one or more Subsidiaries of such person.

                 "TMO" shall mean a trial management organization which
         contracts with pharmaceutical and biotechnology companies and CROs to
         provide Site Services and certain administrative services to clinical
         trial sites who have an affiliation with such organization.

         2.      Services To Be Offered By PRN. PRN agrees to and shall provide
the following services to ILEX and/or third parties, as the context so
indicates:

                 a.       PRN shall be available at its own cost and expense to
         provide Site Services for all oncology clinical research trials for
         which CRO Services are provided by ILEX and which are approved by the
         Scientific Advisory Board of PRN;

                 b.       PRN shall use reasonable efforts, at the request of
         ILEX, to market or promote to pharmaceutical and biotechnology
         companies and other third parties the services jointly provided by
         ILEX (CRO Services) and PRN (Site Services); and in connection with
         such marketing and promotion, PRN shall refer pharmaceutical and
         biotechnology companies and other third parties seeking CRO Services
         to ILEX exclusively, and PRN shall cause its officers to use their
         respective reasonable efforts to identify exclusively to ILEX
         pharmaceutical and biotechnology companies and/or other third parties
         needing





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         and/or seeking CRO Services and other therapeutic developmental
         projects. In all events, the determination of whether ILEX will enter
         into any agreement with other third parties shall be within the sole
         discretion of ILEX, and PRN shall have no authority to enter into
         contracts on behalf of or otherwise bind ILEX with respect thereto.
         The marketing services of PRN referred to in this Section 2(b) are to
         be provided only in connection with PRN's normal marketing of its Site
         Services, and PRN shall not be required to spend additional funds in
         excess of its normal expenditures on promotional and marketing
         activities for clinical research. PRN has and shall retain the right
         to independently market or promote its Site Services; and

                 c.       PRN shall provide scientific review services to ILEX
         to evaluate the desirability of proposed clinical trials and potential
         physician interest in particular oncology compounds for which ILEX
         seeks to provide CRO Services.

         3.      Services To Be Provided By ILEX. ILEX agrees to and shall
provide the following services to PRN and/or third parties, as the context so
indicates:

                 a.       ILEX shall use reasonable efforts to promote, market
         and perform its CRO Services and to promote and market PRN's provision
         of Site Services in connection with ILEX's CRO Services;

                 b.       PRN shall be a preferred vendor as a clinical trial
         site on all ILEX therapeutic development projects (including all CRO
         projects);

                 c.       ILEX shall offer to PRN a right of first refusal to
         participate to the maximum extent possible in all trials and projects
         managed or sponsored by ILEX;

                 d.       ILEX shall use reasonable efforts to follow up on all
         leads provided to it by PRN pursuant to Section 2(b) above in an
         appropriate manner;

                 e.       ILEX shall use reasonable efforts to market and
         promote to pharmaceutical and biotechnology companies and other third
         parties the services jointly provided by ILEX (CRO Services) and PRN
         (Site Services); and

                 f.       ILEX agrees to and shall conduct, at its own expense,
         such marketing, advertising and promotional activities as it deems
         reasonable to further increase CRO Revenue.

         4.      Marketing Standard.       Such marketing and promotional
obligations above of each of ILEX and PRN shall be undertaken by each in a
professional manner consistent with the reputation of the other and shall be in
compliance with all applicable laws and regulations, including without
limitation those laws and regulations regulating advertising by the medical
profession.

         5.      Data Entry Interface. Subject to the terms and conditions set
forth in this Agreement, PRN agrees to allow ILEX to install and maintain data
entry interface systems at PRN's trial sites for the purpose of interfacing
between ILEX's data entry





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system and PRN's data management systems to collect and access data for ILEX's
clinical trials for which PRN is providing Site Services. Such systems shall be
installed at ILEX's own cost and expense, shall be comprised of such equipment
as ILEX in its sole discretion deems necessary, and shall be removed by ILEX at
its expense upon termination of this Agreement for any reason. Any other
provision of this section to the contrary notwithstanding, PRN shall have the
right to take all reasonable measures at ILEX's expense to ensure that patient
confidentiality is protected, and PRN shall have the right to prohibit the
installation of any equipment or the interface between ILEX's data entry system
and PRN's data management systems at any time that PRN reasonably believes that
the interface between such systems could cause any potential security issues
with respect to PRN's data management systems or any degradation of or other
adverse effect on the operations of PRN's data management systems. ILEX hereby
indemnifies and holds harmless PRN and its Affiliates and their respective
officers, directors, employees, agents and representatives against and from any
and all costs, claims, damages and expenses, including without limitation
attorneys' fees and court costs, arising out of or in any way related to ILEX's
interface of its data entry systems with PRN's data management systems.

         6.      Establishment of TMO. Any other provision of this Agreement to
the contrary notwithstanding, PRN may own an interest in or otherwise
participate in a TMO, provided that PRN shall continue to be bound by the terms
of this Agreement and further provided that, in the event such TMO engages in
any activity which, if taken by either PRN or its Affiliates, would constitute
a breach by PRN of this Agreement, then PRN shall not thereafter provide Site
Services to or through such TMO.

         7.      Fees. ILEX shall compensate and reimburse PRN and all
PRN-affiliated physicians for time spent performing services for any ILEX
managed trial in the following manner:

                 a.       In the event that the trial is subject to a
         pass-through fee arrangement based on the cost of providing Site
         Services, ILEX shall pay to PRN its normal and customary fees, and, in
         the event a third party refuses to pay or disputes such fees, ILEX
         agrees to and shall allow PRN to negotiate with such third party to
         resolve such dispute;

                 b.       In the event that the trial is subject to a fixed-fee
         arrangement for Site Services, ILEX will pay to PRN a fee equal to
         PRN's direct costs plus [**] of its costs; and

                 c.       For all scientific review services provided by PRN or
         PRN-affiliated physicians pursuant to Section 2(c) above, ILEX shall
         pay to PRN the normal and customary consulting fees of PRN and
         PRN-affiliated physicians.

                 d.       For so long as PRN has not committed a Warranty
         Breach resulting in a termination of this Agreement in accordance with
         Section 18(d) hereof, ILEX shall issue to PRN 314,600 shares of Common
         Stock (as adjusted in accordance with Section 8(g) below) on each of
         the following dates, subject to the





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         provisions of this Section 7 and provided PRN is in compliance with
         the provisions of Section 17 hereof on such date:

                          i.      July 1, 1998;
                          ii.     July 1, 1999; and
                          iii.    July 1, 2000.

                 e.       In the event ILEX has provided notice to PRN of a
         Warranty Breach in accordance with the provisions of Section 18(d)
         hereof, ILEX shall not, and shall not be required to, issue any shares
         of Common Stock pursuant to the provisions of this Section 7 unless
         and until the earlier of the following shall occur:

                          i.      such Warranty Breach shall have been cured by
                 PRN in accordance with the provisions of Section 18(d) hereof;

                          ii.     such Warranty Breach is waived by ILEX in
                 accordance with the provisions of Section 9(d) hereof; or

                          iii.    an arbitrator determines, in accordance with
                 the provisions of Section 20 and Annex A hereof, that PRN is
                 entitled to be issued such shares of Common Stock.

                 f.       In the event ILEX breaches this Agreement and such
         breach results in termination of this Agreement, then ILEX will issue
         to PRN all unissued shares of Common Stock to be issued pursuant to
         the provisions of this Section 7.

                 g.       The parties shall each have the same rights with
         respect to the shares of Common Stock to be issued pursuant to this
         Section 7 as each of the parties has pursuant to Sections 8(f) and
         8(g) hereof with respect to the shares covered by the Earn-Out.

         8.      Earn-Out Right. As additional consideration under this
Agreement and subject to the terms and conditions set forth herein, ILEX agrees
to and shall issue to PRN, up to, but not exceeding in the aggregate, 1,255,988
shares of common stock, $.01 par value, of ILEX ("Common Stock"), as adjusted
in accordance with Section 8(g) below, based upon CRO Revenue determined as of
the end of each twelve-month period (a "Milestone Year") commencing July 1,
1997, and ending June 30, 2001 (the right of PRN to receive such shares is
hereinafter called the "Earn-Out").

                 a.       PRN shall receive 313,997 shares of Common Stock (as
         adjusted in accordance with Section 8(g) below) or part thereof as
         determined in accordance with this Agreement for each Milestone Year
         if the CRO Revenue for each Milestone Year is equal to or exceeds the
         appropriate amount set forth below:

                          (i)     for the first Milestone Year ending June 30,
                 1998, $[**].





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                          (ii)    for the second Milestone Year ending June 30,
                 1999, $[**].

                          (iii)   for the third Milestone Year ending June 30,
                 2000, $[**].

                          (iv)    for the fourth Milestone Year ending June 30,
                 2001, $[**].

                 b.       Adjustment. In the event that CRO Revenue does not
         reach the levels set out above in Section 8(a) in any single respective
         twelve month period (the "Milestone"), but CRO Revenue does reach at
         least [**] of the Milestone, then shares of Common Stock (as adjusted
         in accordance with Section 8(g) below) will be earned by PRN on the
         following basis: (1) if CRO Revenue reaches [**] of the Milestone, PRN
         shall receive [**] shares of Common Stock; (2) for additional CRO
         Revenue achieved toward the Milestone between the levels of [**] and
         [**] of the Milestone, PRN shall earn additional shares of Common Stock
         at the rate of [**] shares of Common Stock per percentage point of CRO
         Revenue toward the Milestone, prorated for any fractional percentage
         point; (3) for additional CRO Revenue achieved toward the Milestone
         between the levels of [**] and [**] of the Milestone, PRN shall earn
         additional shares of Common Stock at the rate of [**] shares of Common
         Stock per percentage point of CRO Revenue toward the Milestone,
         prorated for any fractional percentage point; and (4) for additional
         CRO Revenue achieved toward the Milestone between the levels of [**]
         and [**] of the Milestone, PRN shall earn additional shares of Common
         Stock at the rate of [**] shares of Common Stock per percentage point
         of CRO Revenue toward the Milestone, prorated for any fractional
         percentage point; provided, however, the maximum number of shares
         earned by PRN for each twelve month period shall be 313,997 (as
         adjusted in accordance with Section 8(g) below).

                 c.       In the event that CRO Revenue is less than the
         respective levels set out in Section 8(a) above for any single twelve
         month period (in such event, such year shall be referred to as a
         "Deficient Year"), and in the event that CRO Revenue is in excess of
         the respective level set out in Section 8(a) above for any single
         twelve month period, including as calculated according to this Section
         8(c) (in such event, such year shall be referred to as an "Excess
         Year"), then the amount of such excess CRO Revenue in any Excess Year
         shall be added to the amount of CRO Revenue in any Deficient Year
         chosen by PRN within the most recent two years. The Earn-Out will then
         be payable in accordance with the recalculated CRO Revenue for any and
         all Deficient Years, with appropriate credit given for all shares
         previously issued for any Deficient Year.

                 d.       Payment of Earn-Out.

                          i.      As soon as is practicable after the end of
                 each Milestone Year, ILEX shall direct its independent
                 certified public accountant to determine the amount of CRO
                 Revenue for that Milestone Year.  Upon receipt from its
                 independent certified public accountant of the amount of





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         CRO Revenue for that Milestone Year, ILEX shall deliver or cause to be
         delivered to PRN certificates representing the number of shares of
         Common Stock earned by PRN pursuant to the Earn-Out, including any
         adjustments made pursuant to Section 8(c) above. Such certificates
         shall be delivered no later than 100 days from the end of any such
         Milestone Year.

                          ii.     Within 45 days following the end of each
                 calendar quarter during the term of this Earn-Out, ILEX shall
                 provide PRN with a report detailing the amount of CRO Revenue
                 ILEX has earned during such quarter and year-to-date. Such
                 reports shall be in form and substance reasonably acceptable
                 to PRN. ILEX will keep complete, true and accurate books of
                 account and records for the purpose of showing the derivation
                 and calculation of CRO Revenue. Such books and records will be
                 kept at ILEX's principal place of business for at least three
                 years following the end of the calendar quarter to which they
                 pertain, and will be made available at reasonable times for
                 inspection by a representative of PRN for the purpose of
                 verifying CRO Revenue; provided, however, that ILEX shall not
                 be obligated to submit to more than two such inspections by
                 PRN in any calendar year. PRN and the representative agree to
                 and will be obliged to treat as confidential all Confidential
                 Information. Confidential Information shall mean all
                 information contained in the books, records and reports of
                 ILEX, except for:

                                  (1)      information already in the public
                 domain at the time the representative received it;

                                  (2)      information which although was
                 confidential when disclosed to the representative is later
                 disseminated by ILEX into the public domain;

                                  (3)      information which although was
                 confidential when received by the representative is
                 subsequently disseminated into public domain by a third party
                 who has not breached any duty to any other party in
                 disseminating such information; and

                                  (4)      information which is confidential
                 when given by ILEX to the representative which representative
                 or PRN is expressly authorized in writing by ILEX to use or
                 disclose thereafter.

         Such inspection shall be at the expense of PRN unless an error of more
than five percent (5%) in the amount of CRO Revenue is discovered in the course
of any such inspection, whereupon all inspection costs shall be paid by ILEX.
In the event any dispute arises out of or in connection with this Section 8,
such dispute shall be resolved pursuant to the alternative dispute resolution
provisions of Annex A attached hereto.

                 e.       In the event ILEX breaches this Agreement and such
         breach results in termination of this Agreement, then ILEX will issue
         to PRN all shares of Common Stock capable of being earned by PRN
         pursuant to the Earn-Out





                                      -7-
<PAGE>   8
         during the remainder of the term of this Agreement. In the event PRN
         breaches this Agreement and such breach results in termination of this
         Agreement, then ILEX shall not issue to PRN any shares of Common Stock
         not yet earned, including any proration thereof, by PRN. In the event
         this Agreement is terminated because it has become illegal due to
         changes in federal, state or local ordinances, then PRN shall be
         entitled to those shares of Common Stock earned pursuant to this
         Section 8 up to and through the date of such termination, with the
         Milestone for such Milestone Year in which the termination occurs
         prorated as of the date of the termination of this Agreement.

                 f.       No Rights as Stockholder. PRN shall not have rights
         as a stockholder with respect to shares covered by Earn-Out unless and
         until the date of issuance of a stock certificate for such shares;
         and, except as otherwise provided in Section 8(g) hereof, no
         adjustment for dividends or otherwise shall be made if the record date
         therefor is prior to the date of issuance of such certificate;
         provided, however, nothing contained in this Section 8(f) is intended
         to or shall waive any rights of PRN for damages in the event shares of
         Common Stock are not issued to PRN by ILEX when ILEX was obligated to
         do so.

                 g.       Changes in the Company's Capital Structure. The
         existence of the Earn-Out shall not affect in any way the right or
         power of ILEX to make or authorize any or all adjustments,
         recapitalization, reorganizations or other changes in ILEX's capital
         structure or its business, or any merger or consolidation of ILEX, or
         any issuance of bonds, debentures, preferred or prior preference stock
         ahead of or affecting the Common Stock or the rights thereof, or the
         dissolution or liquidation of ILEX, or any sale or transfer of all or
         any part of its assets or business, or any other corporate act or
         proceeding, whether of a similar character or otherwise.

         If ILEX shall effect a subdivision or consolidation of shares or other
capital readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of Common Stock outstanding, without
receiving compensation therefor in money, services or property, then (a) the
number of shares of Common Stock subject to the Earn- Out hereunder shall
thereafter be appropriately adjusted in such a manner as to entitle PRN to
receive the number and class or classes of shares of such stock or other
securities or property to which PRN would have been entitled if, immediately
prior to such subdivision, consolidation or readjustment, PRN had been the
holder of record of a number of shares of Common Stock equal to the number of
shares of Common Stock subject to the Earn-Out; (b) the number of shares then
reserved for issuance under this Earn-Out shall be adjusted by substituting for
the total number of shares of Common Stock then reserved that number of shares
of stock that would have been received by the owner of an equal number of
outstanding shares of Common Stock as the result of the event requiring the
adjustment; and (c) ILEX shall provide PRN with the notice of such subdivision
or consolidation of shares or other capital readjustment, payment of a stock
dividend, or other increase or reduction in the number of shares of Common
Stock outstanding in the same manner and at the same time as ILEX provides
notice to its stockholders of record of such capital adjustment. ILEX agrees to
and shall reserve sufficient shares of Common Stock for issuance to PRN in the
event PRN achieves the Earn-Out.





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         Except as provided herein, if ILEX is merged or consolidated with
another corporation, and such merger or consolidation results in termination of
this Agreement pursuant to Section 14 below, or if ILEX is liquidated or sells
or otherwise disposes of substantially all its assets, while any portion of the
Earn-Out remains unearned under this Agreement, as of immediately prior to the
effective date of such merger, consolidation, liquidation, sale or other
disposition, as the case may be, PRN shall be entitled, in lieu of shares of
Common Stock, the number and class or classes of shares of such stock or other
securities or property to which PRN would have been entitled if, immediately
prior to such merger, consolidation, liquidation, sale or other disposition,
PRN had been the holder of record of a number of shares of Common Stock equal
to the number of shares as to which PRN would have earned under this Agreement.

         Except as hereinbefore expressly provided, the issue by ILEX of shares
of stock of any class, or securities convertible into shares of stock of any
class, for cash or property, or for labor or services either upon direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of ILEX convertible into such shares or
other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number, class or price of shares of Common Stock
then subject to the Earn-Out.

         9.      PRN Covenants and Warranties. PRN hereby covenants and
warrants that during the term of this Agreement:

                 a.       No less than [**] dollars ($[**]) will be spent in 
         
         an calendar year on oncology clinical research activities by PRN, its
         Affiliates, or PRN-affiliated physicians, including any financial
         support provided by a non-profit community organization or foundation
         for PRN oncology clinical research activities;

                 b.       PRN will not breach this Agreement with such breach
         resulting in termination of this Agreement; and

                 c.       PRN will have a material participation in greater
         than [**] of the Commercially Feasible Clinical Trials (as defined
         hereinafter). "Commercially Feasible Clinical Trials" shall mean all
         clinical trials offered to PRN by ILEX and not rejected by the
         Clinical Research Advisory Board of PRN, or its successor, for one or
         more of the following reasons:

                          i.      The clinical trial is of no significant
                 benefit to patients;

                          ii.     The clinical trial has a poor study design;

                          iii.    Safety concerns;

                          iv.     The operational requirements of the clinical
                 trial are overly burdensome;

                          v.      PRN is engaged in a competing protocol on
                 behalf of ILEX;





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                          vi.     PRN is engaged in a competing protocol on
                 behalf of a third party, but offers to participate in ILEX's
                 protocol within a 90 day period or such other time frame as
                 may be mutually acceptable to ILEX and PRN; or

                          vii.    Lack of physician interest.

         The above covenants and warranties are hereinafter referred to as the
"PRN Warranties" or, if singular, the "PRN Warranty". Any breach of a PRN
Warranty (a "Warranty Breach") may be waived by ILEX in its sole discretion and
shall be deemed waived by ILEX if ILEX does not terminate this Agreement in
accordance with the provisions of Section 18(d) hereof, but any such waiver of
a single breach or multiple breaches shall not be a waiver of any successive
breach or breaches. In the event PRN commits a Warranty Breach during the first
36 months after the Effective Date, PRN shall not be liable to ILEX for any
damages under this Agreement.

         10.     Prohibited Activities. During the term, whether such term is
the primary term or any renewal term, of this Agreement, unless earlier
terminated pursuant to the terms of Section 19 hereof, PRN covenants and
warrants that:

                 a.       Neither PRN nor any of its Affiliates will provide
         CRO Services;

                 b.       Neither PRN nor any of its Affiliates will promote or
         market any CRO other than ILEX;

                 c.       Neither PRN nor any of its Affiliates will provide
         its Site Services in connection with any CRO other than ILEX unless
         such CRO represents to PRN or such Affiliate that it has an executed
         contractual commitment from a pharmaceutical or biotechnology company;
         provided, however, such contractual commitment cannot be contingent,
         to the best of PRN's, its Parent's or such Affiliate's executive
         officer's knowledge, upon said CRO utilizing PRN's Site Services; and

                 d.       To the extent PRN's, its Parent's or Parent of such
         Parent's executive officers have knowledge of other CROs either
         marketing PRN's services or using PRN's name in connection with any
         marketing or promotions, PRN will make to such CRO a written demand
         and request of an immediate cessation of such activities.

         11.     Board Representation.Upon execution of this Agreement, ILEX
agrees to and shall name a nominee of PRN to serve as a director of ILEX until
the next annual meeting or such other meeting in which directors of ILEX are
elected. For the first three years of the term of this Agreement, provided this
Agreement has not been terminated, at each annual meeting or other meeting in
which directors of ILEX are elected, ILEX agrees to and shall cause a nominee
of PRN (a "PRN Nominee") to be nominated for election as director of ILEX. In
the fourth year of the term of this Agreement and until this Agreement is
terminated or expires, for so long as PRN or its Affiliate owns at least
800,000 shares of Common Stock, ILEX shall cause a PRN Nominee to be nominated
for election as director of ILEX. In the event the PRN





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Nominee is not elected as a director of ILEX, ILEX agrees to and shall (i)
allow PRN to have an observer at any meeting of the board of directors of ILEX,
and (ii) provide reasonable notice of any such meeting of the board of
directors of ILEX.

         12.     Change of Control in PRN Parent. In the event Physician
Reliance Network, Inc., a Texas corporation and the parent company of PRN ("PRN
Parent"), no longer owns at least 80% of the issued and outstanding voting
capital stock of PRN or in the event a "change of control" occurs in PRN
Parent, and ILEX determines that such event is adverse to its interests, then
ILEX may, at its sole option, terminate this Agreement. As used herein, a
"change of control" shall be deemed to have occurred if (i) any "Person" (as
such term is used in Sections 12(d) and 13(d) of the Securities Exchange Act of
1934, as amended [the "Exchange Act"]), hereafter becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of PRN Parent representing more than 40% of the combined voting
power of PRN Parent's then outstanding securities, but only if such Person is
directly or indirectly engaged in the CRO, pharmaceutical or biotechnology
business, or (ii) the stockholders of PRN Parent approve a plan of complete
liquidation of PRN Parent or an agreement of sale or disposition by PRN Parent
of all or substantially all of PRN Parent's assets.  In the event PRN Parent
obtains knowledge of any pending "change of control" of PRN Parent, PRN Parent
shall provide notice to ILEX as soon as is practical after obtaining such
knowledge.

         13.     Change of Control in ILEX. In the event a "change of control"
occurs in ILEX, and PRN determines that such "change in control" is adverse to
its interests, then PRN may, at its sole option, terminate this Agreement. As
used herein, a "change of control" shall be deemed to have occurred if (i) any
"Person" (as such term is used in Sections 12(d) and 13(d) of the Securities
Exchange Act of 1934, as amended [the "Exchange Act"]), is or becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of ILEX representing more than 40% of the combined
voting power of ILEX's then outstanding securities, but only if such Person is
directly or indirectly engaged in the physician's practice management business,
or (ii) the stockholders of ILEX approve a plan of complete liquidation of ILEX
or an agreement of sale or disposition by ILEX of all or substantially all of
ILEX's assets. In the event ILEX obtains knowledge of any pending "change of
control" of ILEX, ILEX shall provide notice to PRN as soon as is practical
after obtaining such knowledge.

         14.     Remedies. ILEX and PRN each agree neither shall seek, nor
shall either obtain, any such injunctive relief against the other party having
a duration greater than one year. The foregoing shall be without prejudice to
any other rights that ILEX or PRN may have under this Agreement, at law or in
equity, including, without limitation, the right to recover damages in
accordance with the provisions of Annex A attached hereto. All persons subject
to the Agreement expressly agree to WAIVE ANY RIGHT OR CLAIM TO PUNITIVE OR
EXEMPLARY DAMAGES of any kind, whether this right or claim could accrue NOW OR
IN THE FUTURE under applicable law.

         15.     Third Party Agreements. Subject to ILEX's obligations under
Section 3 of this Agreement, nothing contained herein or in any other agreement
is intended to or shall prohibit ILEX from arranging trial sites at other than
PRN sites. Nothing





                                      -11-
<PAGE>   12
contained herein is intended to or shall prohibit PRN from (i) providing Site
Services for another CRO if such CRO represents to PRN that it has a signed
commitment with respect to such trials from a pharmaceutical company, provided
such commitment is not contingent, to the best of PRN's or its Parent's
executive officer's knowledge, upon PRN providing Site Services, prior to any
agreement or commitment by PRN to conduct such trials, or (ii) providing Site
Services directly to pharmaceutical and biotechnology companies.

         16.     Assignment.      Neither this Agreement nor the rights of the
parties hereto shall be assignable, unless otherwise specifically provided;
provided, however, notwithstanding any other provision of this Agreement, ILEX
or PRN may assign all or part of its rights and obligations contained herein to
any of their respective Subsidiaries; provided however, no such assignment by
either party shall, or shall be deemed to, be a release of the obligations of
such party under this Agreement.

         17.     Accredited Investor.

                 a.       PRN recognizes that the Common Stock is not being
         registered under the Securities Act of 1933, as amended (the
         "Securities Act"), in reliance upon an exemption from the Securities
         Act which is predicated, in part, on the representations and
         agreements of PRN set forth in this Agreement. PRN represents and
         warrants to ILEX that it is an "accredited investor" as that term is
         defined in Rule 501(a) of the Rules and Regulations promulgated
         pursuant to the Securities Act, and that it will be an accredited
         investor at each time ILEX issues Common Stock to it under the terms
         of this Agreement, and that the Common Stock is being acquired solely
         for its own account for investment and not with a view to, or for
         offer or resale in connection with, a distribution thereof within the
         meaning of the Securities Act. PRN understands that the effect of such
         representation and warranty is that the Common Stock must be held
         indefinitely unless subsequently registered under the Securities Act
         or an exemption from such registration is available at the time for
         any proposed sale or other transfer thereof. PRN represents that it
         has consulted with its counsel in regard to the Securities Act and
         that it is fully familiar with the circumstances under which it is
         required to hold the Common Stock and the limitations upon the
         transfer or other disposition thereof. PRN acknowledges that ILEX is
         relying upon the truth and accuracy of the foregoing representations
         and warranties in issuing the Common Stock under the Securities Act.
         PRN agrees to and shall indemnify and hold ILEX harmless against all
         liabilities, costs and expenses, including reasonable attorneys' fees,
         incurred by ILEX as a result of any sale, transfer or other
         disposition by PRN of all or any part of the Common Stock in violation
         of the Securities Act.

                 b.       Legend. The certificates representing the Common
         Stock shall bear the following legend:

         "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
         INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD OR





                                      -12-
<PAGE>   13
         TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
         THEREFROM UNDER SAID ACT."

         18.     Duration and Termination.

                 a.       The primary term of this Agreement shall be for the
         period beginning upon the Effective Date and ending December 31, 2007,
         unless sooner terminated in accordance with the provisions of this
         Agreement.  Unless earlier terminated in accordance with the
         procedures outlined herein, upon expiration of the primary term and of
         each successive renewal term hereunder, this Agreement shall
         thereafter be automatically renewed and extended for a term of one (1)
         year each, or such other term as may be agreed upon by ILEX and PRN,
         effective as of the expiration date of the immediately preceding term
         hereunder.

                 b.       Termination of this Agreement may be accomplished by
         either party hereto giving written notice to the other party hereto of
         its intent to terminate this Agreement not less than 180 days before
         the expiration of the primary term or any successive term hereunder.

                 c.       Either party hereto may terminate this Agreement
         immediately, without prior notice of any kind, in the event of the
         following:

                          i.      except as otherwise provided in Section 17
                 hereof, if the other party hereto transfers or assigns or
                 attempts to transfer or assign, whether by operation of law or
                 otherwise, this Agreement, or any rights hereunder, without
                 such first party's prior written consent; or

                          ii.     upon the bankruptcy or insolvency of the
                 other party, or if the other party is unable to pay its debts
                 as they are currently due, or makes or attempts to make an
                 assignment of assets, accounts receivable or business for the
                 benefit of creditors, or if a trustee or receiver is appointed
                 to administer its business. Each of ILEX and PRN agrees to and
                 shall immediately notify the other of the happening of the
                 foregoing events or circumstances.

                 d.       ILEX may terminate this Agreement immediately upon a
         Warranty Breach by giving written notice to PRN; provided that (i)
         ILEX provides PRN with a written notice of such Warranty Breach; (ii)
         PRN does not cure such breach within 30 days after receipt of written
         notice of such Warranty Breach, unless such breach is incurable within
         30 days, in which event PRN shall be required (A) to make reasonable
         efforts, in form and substance acceptable to ILEX, to cure such
         breach, and (B) to complete said cure within 180 days after receipt of
         written notice of such Warranty Breach; and (iii) such written
         termination notice is given within 60 days after any applicable cure
         period.

                 e.       In the event of a breach of this Agreement other than
         a Warranty Breach, either party hereto may terminate this Agreement
         upon 30 days written notice in the event the other party materially
         breaches this Agreement and does





                                      -13-
<PAGE>   14
         not cure such breach within 30 days receipt of written notice of
         breach, unless such breach is incurable within 30 days, in which event
         such party attempting to cure shall be required to make reasonable
         efforts to cure such breach. Notwithstanding any other provision
         contained herein, in the event either party hereto breaches their
         obligations under Sections 2 and 3 of this Agreement, then the parties
         agree to use dispute resolution procedures as set out in Annex A
         attached hereto. Once a resolution settling any such dispute is
         adopted by the parties or issued by the arbitrator(s), then if either
         party breaches such resolution, then the other party may terminate
         this Agreement upon 30 days written notice.

         19.     Legal Relationship and Indemnification.

                 a.       Relationship. The relationship of ILEX and PRN shall
         be that of independent contractors.  Accordingly, each party hereto,
         and its agents or employees shall under no circumstances be considered
         agents or employees of the other party hereto. Each party hereto shall
         be solely responsible for any claims, damages or lawsuits arising out
         of its acts or those of its employees, servants or agents, or any of
         them. Neither party hereto shall have the right or authority, nor
         shall either party attempt, to enter into contracts or commitments in
         the name, or on behalf, of the other party hereto, or to bind the
         other party hereto in any manner or respect whatsoever.

                 b.       Indemnification by PRN. PRN hereby agrees to PROTECT,
         INDEMNIFY AND HOLD ILEX HARMLESS from any and all claims, suits,
         actions, penalties, assessments, damages or losses of any kind or
         description, for damages or injuries to person or property (including
         that of ILEX) received or sustained through or on account of any act,
         omission or representation of PRN, its agents, third party sales
         representatives, servants or employees, or any breach, default or
         omission under or in connection with this Agreement by PRN, its
         agents, third party sales representatives, servants or employees, and
         to reimburse any expenses, penalties or costs incurred by ILEX in
         defending any such claim, suit or action.

                 c.       Indemnification by ILEX. ILEX hereby agrees to
         PROTECT, INDEMNIFY AND HOLD PRN HARMLESS from any and all claims,
         suits, actions, penalties, assessments, damages or losses of any kind
         or description, for damages or injuries to person or property
         (including that of PRN) received or sustained through or on account of
         any act, omission or representation of ILEX, its agents, third party
         sales representatives, servants or employees, or any breach, default
         or omission under or in connection with this Agreement by ILEX, its
         agents, third party sales representatives, servants or employees, and
         to reimburse any expenses, penalties or costs incurred by PRN in
         defending any such claim, suit or action.

                 d.       Other Rights and Remedies Not Affected. The
         indemnification rights of the Parties under this Agreement are
         independent of and in addition to such rights and remedies as the
         Parties may have at law or in equity or otherwise for any
         misrepresentations, breach of warranty or failure to fulfill any





                                      -14-
<PAGE>   15
         agreement or covenant hereunder on the part of any party hereto,
         including without limitation the right to seek specific performance,
         rescission or restitution, none of which rights or remedies shall be
         affected or diminished hereby.

         20.     Arbitration. Except as otherwise provided herein, any claim,
dispute or controversy of any nature whatsoever, including but not limited to
tort claims and contract disputes between the parties to this Agreement arising
out of or related to the terms and conditions of this Agreement, including the
implementation, applicability or interpretation thereof, shall be resolved in
accordance with the dispute resolution procedures set forth in Annex A attached
hereto.

         21.     Force Majeure.

                 a.       Neither party hereto shall be responsible for any
         loss or damage to the other party hereto in case such first party is
         unable to fulfill the whole or any part of its obligations hereunder,
         or is prevented or delayed from fulfilling the same, due to act of
         God, war or hostilities (whether war be declared or not), invasion,
         act of foreign enemies, rebellion, revolution, insurrection, military
         usurpation of power, civil war or riot, the unavailability of labor or
         materials, strike, lockout, commotion, disorder, flood, tempest,
         earthquake or other case beyond the reasonable control of such party.

                 b.       The parties agree that all rights and obligations
         contained herein are subject to limitations which may be imposed by
         regulatory agencies, customer requirements, or industry standards (the
         "Limitations").  ILEX and PRN each shall use their respective
         reasonable efforts to avoid or limit any and all Limitations on their
         respective full performance of this Agreement, but in the event
         Limitations are imposed, the neither party shall be deemed to be in
         breach of this Agreement to the extent such breach is a result of the
         imposition of Limitations.

                 c.       Upon the occurrence of any event or circumstance
         described in subsection (a) or (b) of this Section 21, the party whose
         performance hereunder is affected thereby shall notify the other party
         hereto immediately. The rights and obligations of either party under
         this Agreement shall be suspended only for the duration and extent of
         such event or circumstance and at the time that such event or
         circumstance shall cease to exist, the rights and obligations of the
         parties hereto shall continue in full force and effect.

         22.     Governing Law. ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF
ILEX AND ANY STOCKHOLDER OF ILEX WILL BE GOVERNED BY THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL
LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS.





                                      -15-
<PAGE>   16
         23.     Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be effective (a) upon receipt
if by personal delivery, (b) one day after timely prepaid deposit with a
reputable overnight courier service, or (c) upon completion of a telephone call
confirming receipt of transmission by facsimile, addressed as follows:

         If to ILEX:

                 ILEX Oncology, Inc.
                 11550 I.H. 10 West, Suite 300
                 San Antonio, Texas 78230-1064
                 Telephone: 210-949-8212
                 Facsimile: 210-949-8227
                 Attention: President

         If to PRN:

                 Physician Reliance Network, Inc.
                 Two Lincoln Center
                 5420 LBJ Freeway, Suite 900
                 Dallas, Texas 75240
                 Telephone: 972-392-8700
                 Facsimile: 972-387-0563
                 Attention: General Counsel

         24.     Intellectual Property. The parties each acknowledge that
ownership and/or control, as applicable, of any and all patents, techniques,
processes, methods and other know-how developed, invented or created by either
party shall be the sole and exclusive property of such party.

         25.     Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement, a provision as similar in its
terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.

         26.     Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and any respective successors and assigns.

         27.     Amendment. This Agreement may not be amended or modified
unless such amendment or modification is in writing and signed by the parties.


                         [signatures on following page]





                                      -16-
<PAGE>   17
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple original counterparts effective as of June 30, 1997.


                                        ILEX ONCOLOGY, INC.
                                        a Delaware corporation


                                        By:
                                           ------------------------------
                                           James R. Koch, Vice President 
                                           and Chief Financial Officer




                                        PRN RESEARCH, INC.
                                        a Texas corporation


                                        By:
                                           ------------------------------
                                        Name:
                                             ----------------------------
                                        Its:
                                            -----------------------------
                                          
                                          





                                      -17-
<PAGE>   18
                                    ANNEX A

                         ALTERNATIVE DISPUTE RESOLUTION


         All disputes between the parties relating to this Agreement shall be
settled among the parties by the following procedures. For purposes hereof, the
parties shall mean ILEX Oncology, Inc. (and its Affiliates and permitted
successors and assigns), on one side, and PRN Research, Inc. (and its
Affiliates and permitted successors and assigns), on the other:

         1.      NEGOTIATION

                 1.1      Within thirty (30) days of the incurred acts,
occurrences and/or omissions giving rise to the dispute, the aggrieved party
shall give detailed written notice to the other party of the aggrieved party's
specific complaint including the amount of actual damages and expenses,
including attorneys' fees, claimed or incurred by the aggrieved party. The
aggrieved party shall include copies of all documents which support its claims.

                 1.2      Within thirty (30) days after receipt of the notice,
the party receiving the notice shall tender to the other party a written
response, including an offer of settlement, if appropriate. Any offer of
settlement not accepted with thirty (30) days of receipt by the aggrieved party
shall be deemed to have been rejected.

                 1.3      The tender of an offer of settlement is not an
admission of engaging in an unlawful act or practice or of liability.

                 1.4      In the event the parties are unable to settle their
disputes after following the procedures set forth above, with fifteen (15) days
thereafter, the parties shall submit their disputes to mediation.

         2.      MEDIATION

                 2.1      Consent to Mediator. Both parties shall share equally
in the naming of the mediator. The mediator shall act as an advocate for
resolution and shall use his or her best efforts to assist the parties in
reaching a mutually acceptable settlement.

                 2.2      Conditions Precedent to Serving as Mediator. The
mediator shall not serve as a mediator in any dispute in which he or she has
any financial or personal interest in the result of the mediation. Prior to
accepting an appointment, the mediator shall disclose any circumstance likely
to create a presumption of bias or prevent a prompt meeting with the parties.
In the event that the parties disagree as to whether the mediator shall serve,
the mediator shall not serve.

                 2.3      Authority of Mediator. The mediator does not have the
authority to decide any issue for the parties, but will attempt to facilitate
the voluntary resolution





                                      -18-
<PAGE>   19
of the dispute by the parties. The mediator is authorized to conduct joint and
separate meetings with the parties and to offer suggestions to assist the
parties in achieving settlement. If necessary, the mediator may also obtain
expert advice concerning technical aspects of the dispute, provided that the
parties agree and assume the expenses of obtaining such advice. Arrangements
for obtaining such advice shall be made by the mediator or the parties, as the
mediator shall determine. Likewise, the mediator may request the limited
production of documents from both parties in defense of their respective
claims. The mediator shall not disclose the parties in defense of their
respective claims. The mediator shall not disclose the actual documents without
the consent of the offering party. However, in his or her discussions with the
respective parties after first obtaining the consent of the disclosing party,
the mediator will be permitted to share with the other party summary oral
information from any such documents.

                 2.4      Length of Mediation. Mediation proceedings shall not
extend beyond two (2) days, without the consent of the parties.

                 2.5      Commitment to Participate in Good Faith. The parties
further agree that at any time following the mediation process but prior to the
initiation of binding arbitration, the president or a senior level executive of
the respective companies shall meet or confer telephonically in one last effort
to resolve the dispute. During each phase of the alternative dispute evaluation
process, the parties agree to act in good faith to settle the dispute, if
possible.

         3.      ARBITRATION.

                 3.1      All claims, disputes, controversies and other matters
in question arising out of or relating to the Agreement or to the alleged
breach thereof shall be settled by Negotiation between the parties as described
in Section 1 of this Annex A or by Mediation between the parties as described
in Section 2 of this Annex A. If such negotiation and mediation are
unsuccessful, the parties agree to submit to binding arbitration. The parties
agree the arbitration shall be administered by the American Arbitration
Association ("AAA") and conducted in accordance with its Commercial Arbitration
Rules (the "Rules"), except as otherwise provided in accordance with procedures
set forth in Sections 3.2 through 3.3 (xiii) of this Annex A or as the parties
may otherwise agree.

                 3.2      Notice. Notice of demand for binding arbitration
shall be given in writing to the other party pursuant to the Agreement.

                 3.3      Binding Arbitration. Upon filing of a notice of
demand for binding arbitration by either party, arbitration shall be commenced
and conducted as follows:

                          (i)     Arbitrator. All claims, disputes,
controversies, and other matters (collectively "matters") in question shall be
referred to and decided and settled by an arbitrator that has been found
acceptable by the parties. Selection of the arbitrator shall be made within ten
(10) business days after the date of filing of a demand for arbitration. In the
event the parties cannot agree on the selection of the arbitrator within ten
(10) business days of delivery of the written notice invoking





                                      -19-
<PAGE>   20
arbitration, then each party shall select an arbitrator, and the two
arbitrators shall have ten (10) business days following their selection to
select an arbitrator. In the event the two arbitrators can not select a third
arbitrator within ten (10) business days, then the arbitrator shall be selected
pursuant to the Rules.

                          (ii)    Cost of Arbitration. The cost of arbitration
proceedings, including without limitation the arbitrator's compensation and
expenses, hearing room charges, court reporter transcript charges etc., shall
be borne by the parties equally or otherwise as the arbitrator may determine.
The arbitrator may award the prevailing party its reasonable attorneys' fees
and costs incurred in connection with the arbitration. The arbitrator is
specifically instructed to award attorneys' fees for instances of abuse in the
discovery process.

                          (iii)   Location of Proceedings. The arbitration
proceedings shall be held in Austin, Texas, unless the parties agree otherwise.

                          (iv)    Pre-hearing Discovery. The parties shall have
the right to conduct and enforce pre- hearing discovery in accordance with the
then current Federal Rules of Civil Procedure, subject to these limitations:

                          (a) Each party may serve no more than one set of 
                 interrogatories limited to fifty items;

                          (b) Each party may depose the other party's expert
                 witnesses who will be called to testify at the hearing, plus
                 two fact witnesses without regard to whether they will be
                 called to testify (each party will be entitled to a total of
                 not more than 24 hours of depositions of the other party's
                 witnesses), provided however, that the arbitrator may provide
                 for additional depositions upon showing of good cause; and

                          (c) Document discovery and other discovery shall be
                 under the control of and enforceable by the arbitrator.

                          (v)     Discovery disputes. All discovery disputes
shall be decided by the arbitrator. The arbitrator is empowered;

                          (a) to issue subpoenas to compel pre-hearing document
                 or deposition discovery;

                          (b) to enforce the discovery rights and obligations 
                 of the parties; and

                          (c) to otherwise control the scheduling and conduct
                 of the proceedings.

         Notwithstanding any contrary foregoing provisions, the arbitrator
shall have the power and authority to, and to the fullest extent practicable
shall, abbreviate arbitration discovery in a manner which is fair to all
parties in order to expedite the conclusion of each alternative dispute
resolution proceeding.





                                      -20-
<PAGE>   21
                          (vi)    Pre-hearing Conference. Within fifteen (15)
days after selection of the arbitrator or as soon thereafter as is mutually
convenient to the arbitrator, the arbitrator shall hold a pre-hearing
conference to establish schedules for completion of discovery, for exchange of
exhibit and witness lists, for arbitration briefs, for the hearing, and to
decide procedural matters and all other questions that may be presented.

                          (vii)   Hearing Procedures. The hearing shall be
conducted to preserve its privacy and to allow reasonable procedural due
process. Rules of evidence need not be strictly followed, and the hearing shall
be streamlined as follows:

                          (a) Documents shall be self-authenticating, subject
                 to valid objection by the opposing party;

                          (b) Expert reports, witness biographies, depositions,
                 and affidavits may be utilized, subject to the opponent's
                 right of a live cross-examination of the witness in person;

                          (c) Charts, graphs, and summaries shall be utilized
                 to present voluminous data, provided (i) that the underlying
                 data were made available to the opposing party thirty (30)
                 days prior to the hearing, and (ii) that the preparer of each
                 chart, graph, or summary is available for explanation and live
                 cross-examination in person;

                          (d) The hearing should be held on consecutive
                 business days without interruption to the maximum extent
                 practicable; and

                          (e) The arbitrator shall establish all other
                 procedural rules for the conduct of the arbitration in
                 accordance with the Rules.

                          (viii) Governing Law. This arbitration provision
shall be governed by, and all rights and obligations specifically enforceable
under and pursuant to, the Federal Arbitration Act (9 U.S.C. Section 1, et
seq.).  All disputes under this Agreement shall be construed and interpreted in
accordance with the laws of the State of Texas.  No conflict-of-laws rule or
law that might refer such construction or interpretation to the laws of another
jurisdiction shall be considered.

                          (ix)    Consolidation. No arbitration shall include,
by consolidation, joinder, or in any other manner, any additional person not a
party to the Agreement, except by written consent of both parties containing a
specific reference to this Agreement.

                          (x)     Award. The arbitrator is empowered to render
an award of general compensatory damages but is not empowered to award
equitable relief (including, without limitations, injunctive relief),
exemplary, special or punitive damages. The award rendered by the arbitrator
(1) shall be final; (2) shall not constitute a basis for collateral estoppel as
to any issue; and (3) shall not be subject to vacation or modification, except
to the extent provided by the Rules. Judgment upon the award rendered by the
arbitrator or arbitrators may be enforced in any court having jurisdiction
thereof.

                          (xi)    Waiver of Any Right to Punitive or Exemplary
Damages. All persons subject to the Agreement expressly agree to WAIVE ANY
RIGHT OR CLAIM TO SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES of any kind, whether
this





                                      -21-
<PAGE>   22
right or claim could accrue NOW OR IN THE FUTURE under applicable law. However,
in the event a court determines that the express waiver set forth in Section
3(xi) of this Annex A is unenforceable, then the arbitrator, and not a court,
shall determine if punitive or exemplary damages should be awarded and, if
awarded, the amount thereof.

         4.      CONFIDENTIALITY. The parties hereto will maintain the
existence substance and result of any proceedings hereunder in confidence, and
the mediators/arbitrators, prior to any proceedings hereunder, will sign an
agreement whereby the mediator/arbitrators agree to keep the existence,
substance and result of any proceedings hereunder and all information presented
by the parties in confidence.

         5.      SEVERABILITY. In the event any court or other tribunal
concludes any portion of this Annex A to be void or otherwise unenforceable for
any reason, the remainder of this Annex A shall survive and is deemed
severable, such that the parties' express purpose to arbitrate any unresolved
controversy shall be recognized and given effect.

         6.      NO ADMISSION. The tender or acceptance of any offer of
settlement and the statement of any party or its officers, directors,
representatives, or agents made during or in connection with any negotiations,
mediation proceedings, or arbitration proceedings or hearings shall not be an
admission of liability, engaging in an unlawful act or practice, or breach of
any agreement, obligation or duty.





                                      -22-