Document:

<PAGE>   1
                                                                    EXHIBIT 10.1

                            INVESTOR RIGHTS AGREEMENT

         Investor Rights Agreement dated as of February ___, 2001 (this
"Agreement"), among ILEX Oncology, Inc., a Delaware corporation ("ILEX" or the
"Company"), and Valorous Trading PTE, Craig Bentzen, Jean-Charles Roguet, Mong
Lan Nguyen and Eric Niesor (collectively, the "Stockholders" or, if singular, a
"Stockholder").

                              PRELIMINARY STATEMENT

         The Company and the Stockholders are parties to a Share Purchase
Agreement dated February ___, 2001 (the "Purchase Agreement"), pursuant to which
the Stockholders are being issued ______ shares (the "Shares") of common stock,
$0.01 par value ( "Common Stock") of the Company. The Company desires to grant
certain registration rights to the Stockholders in connection with the issuance
of such Shares. Therefore, in consideration of the mutual representations and
agreements set forth in this Agreement and the Purchase Agreement, the Company
and the Stockholders agree as follows:

                                    ARTICLE I
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         1.1 ILEX represents and warrants that it has provided to each
Stockholder the definitive proxy statement filed with the Securities and
Exchange Commission (the "SEC" or "Commission") in connection with the annual
meeting of stockholders of ILEX held on May 25, 2000 and copies of ILEX's Annual
Report on Form 10-K for the year ended December 31, 1999, ILEX's quarterly
reports on Form 10-Q for the quarters ended March 31, June 30 and September 30,
2000, and ILEX's current reports on Form 8-K dated February 24, March 7,
September 15, November 1, and December 14, 2000, (such documents collectively
referred to herein as the "SEC Documents"), each as filed with the Commission
under the Securities Exchange Act of 1934, as amended (the "1934 Act"). ILEX has
provided each Stockholder with the complete financial statements of ILEX for the
fiscal years ended December 31, 1997, 1998 and 1999, respectively (the
"Financial Statements"). ILEX has provided each Stockholder with a summary
description of the terms of the Common Stock. ILEX has offered to make available
to each Stockholder upon request at any time all exhibits filed by ILEX with the
SEC as part of any of the reports filed therewith. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the Commission promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of ILEX included in the SEC Documents comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission with respect thereto, have
been prepared in accordance with generally accepted accounting principles in the
United States applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the consolidated
financial position of ILEX and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (except in the case of interim period financial information
for normal year-end adjustments).

<PAGE>   2

                                   ARTICLE II
               REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS

         2.1      Each Stockholder represents and warrants that:

         (i) Such Stockholder recognizes and understands that the Shares to be
issued to the Stockholders pursuant to this Agreement have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), the 1934 Act or
under the securities laws of any nation or state (collectively, the "Securities
Laws"). The Shares are not being so registered in reliance upon exemptions from
the 1933 Act and the Securities Laws which are predicated, in part, on the
representations, warranties and agreements of each Stockholder contained herein.

         (ii) Such Stockholder represents and warrants that (i) such Stockholder
has business knowledge and experience, such experience being based on actual
participation therein, (ii) such Stockholder is capable of evaluating the merits
and risks of an investment in the Shares and the suitability thereof as an
investment therefor, (iii) the Shares to be acquired by such Stockholder in
connection with this Agreement will be acquired solely for investment and not
with a view toward resale or redistribution in violation of the Securities Laws,
(iv) such Stockholder's residence and domicile is set forth on Annex 2.1 hereto,
(v) in connection with the transactions contemplated hereby, no assurances have
been made concerning the future results of as to the value of the Shares and
(vi) each Stockholder is an "accredited investor" within the meaning of
Regulation D promulgated by the SEC pursuant to the 1933 Act.

         (iii) Such Stockholder is aware of the limitations on the transfer or
disposition of the Shares, that the Shares must be held indefinitely unless the
transfer thereof is registered under the Securities Laws or an exemption from
registration is available and that no exemption from registration is likely to
become available for at least one year from the date of acquisition of the
Shares. Such Stockholder has been advised as to the provisions of Rules 144 and
145 as promulgated by the SEC under the 1933 Act and has been advised of the
applicable limitations thereof. Such Stockholder acknowledges that ILEX is
relying upon the truth and accuracy of the representations and warranties in
this Section 2.1 by such Stockholder in consummating the transactions
contemplated by the Purchase Agreement without registering the Shares under the
Securities Laws.

         (iv) Such Stockholder has been furnished with the SEC Documents and a
summary description of the terms of the Shares, and ILEX has made available to
each Stockholder the opportunity to ask questions and receive answers concerning
the terms and conditions of the transactions contemplated by the Purchase
Agreement and this Agreement and to obtain any additional information for the
purpose of verifying the accuracy of information furnished to such Stockholder
as set forth herein or for the purpose of considering the transactions
contemplated hereby. ILEX has offered to make available to each Stockholder upon
request at any time all exhibits filed by ILEX with the SEC as part of any of
the reports filed therewith.

         (v) Each Stockholder agrees that, prior to the sale of any of the
Shares pursuant to an effective registration statement under the 1933 Act as
contemplated by Article III, the certificates

                                      -2-
<PAGE>   3

representing such Stockholder's Shares to be acquired pursuant to the Purchase
Agreement will be imprinted with the following legend, the terms of which are
specifically agreed to:

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
         APPLICABLE STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" AS
         THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. NEITHER THE SECURITIES
         NOR ANY INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED,
         PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
         REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS OR
         AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN
         THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
         REASONABLY SATISFACTORY TO THE COUNSEL FOR THIS CORPORATION, IS
         AVAILABLE.

Such Stockholder understands and agrees that appropriate stop transfer notations
will be placed in the records of ILEX and with its transfer agent in respect of
the securities which are to be issued to such Stockholder pursuant to the
Purchase Agreement. ILEX shall reissue promptly unlegended certificates and
remove any stop-transfer instructions at the request of a Stockholder if (i)
such Stockholder shall have obtained an opinion of counsel at such Stockholder's
expense (which counsel may be counsel to ILEX) reasonably acceptable to ILEX to
the effect that the subject Shares or a portion of the subject Shares may
lawfully be transferred without registration, qualification or legend or (ii)
such Shares are sold pursuant to an effective registration statement under the
1933 Act as contemplated by Article III.

         2.2 None of the representations, warranties or statements contained in
this Agreement, the Purchase Agreement or in the Annexes thereto and hereto or
in any of the other documents provided for in the Purchase Agreement contains
any untrue statement of a material fact or omits to state any material fact
necessary to make any of such representations, warranties or statements or
information therein, in the light of the circumstances under which they were
made, not misleading. Any liability for any breach of this Section 2.2 shall be
limited to the same extent as provided in Article V of the Purchase Agreement.

                                   ARTICLE III
                               REGISTRATION RIGHTS

         3.1 Registration Rights. As soon after the date of the Closing of the
transactions contemplated in the Purchase Agreement as is reasonably
practicable, but no later than 60 days from such date, the Company will use its
best efforts to file a registration statement on Form S-3 (or any successor to
Form S-3) with the Commission and such applications or other filings as required
under applicable state securities or blue sky laws sufficient to permit the
public offering of the Shares to be made on a continuous basis pursuant to Rule
415 under the 1933 Act, and shall use its best efforts to cause such
registration statement to be declared effective so that the Shares will be
registered for

                                       -3-
<PAGE>   4

the offering on such Form. Notwithstanding the foregoing, the Company shall not
be obligated to effect a registration (i) in any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the 1933 Act; or (ii) if the Company shall furnish to the
Stockholders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of the Company the filing
of a registration statement would require the disclosure of material information
that the Company has a bona fide business purpose for preserving as confidential
and that is not then otherwise required to be disclosed, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed 180 days from the date of such notice;
provided, however, that the right not to effect a registration of the Shares
pursuant to this Section 3.1(ii) shall not be exercised by the Company more than
once.

         3.2 Registration Procedures and Expenses. As provided in Section 3.1
hereof, the Company shall, as expeditiously as is reasonably practicable, do
each of the following:

                  (a) prepare and file with the SEC a registration statement
with respect to the Shares and, subject to the limitations under Section 3.1
hereof, use its best efforts to cause such registration statement to become
effective and remain effective for two years as provided herein;

                  (b) cooperate with the Stockholders and any underwriter who
shall sell the Shares in connection with their review of the Company made in
connection with such registration, and in the case of any underwritten offering
of the Shares, enter into and perform its obligations under an indemnity
agreement in usual and customary form;

                  (c) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the earlier to occur of the sale of all of the Shares by the Stockholders
or the second anniversary of the effectiveness of the registration statement,
and to comply with the provisions of the 1933 Act and the 1934 Act, with respect
to the disposition of all the Shares covered by such registration statement for
such period;

                  (d) furnish to the Stockholders such number of copies of the
prospectus forming a part of such registration statement (including each
preliminary prospectus), in conformity with the requirements of the 1933 Act,
and such other documents as the Stockholders may reasonably request in order to
facilitate the disposition of the Shares;

                  (e) notify the Stockholders, at any time when the registration
statement or any amendment thereto or any prospectus relating to the Shares is
required to be delivered under the 1933 Act, of the happening of any event as a
result of which such registration statement or prospectus forming a part of such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, as promptly as practicable prepare and file with
the Commission, and furnish to the Stockholder a reasonable number of copies of,
such supplement to or amendment of such registration

                                       -4-
<PAGE>   5

statement or prospectus that may be necessary so that, as thereafter delivered
to the purchasers of the Shares, such registration statement or prospectus shall
not include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;

                  (f) notify each Stockholder (i) when such registration
statement, or any post-effective amendment to such registration statement, shall
have become effective, or any amendment of or supplement to the prospectus used
in connection therewith shall have been filed, (ii) of any request by the SEC to
amend such registration statement or to amend or supplement such prospectus or
for additional information, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of such registration statement or of any order
preventing or suspending the use of any preliminary prospectus or the initiation
or threatening of any proceedings for any of such purposes and (iv) of the
suspension of the qualification of such securities for the offering or sale in
any jurisdiction, or of the institution of any proceedings for any such
purposes; and

                  (g) use its reasonable best efforts to obtain the lifting of
any stop order that might be issued suspending the effectiveness of such
registration statement or any order preventing or suspending the use of any
preliminary prospectus.

         3.3 Agreement by each Stockholder. In the event that each Stockholder
participates, pursuant to this Article 3, in the offering of the Shares, such
Stockholder shall:

                  (a) furnish the Company all material information reasonably
requested by the Company concerning the Stockholder and the proposed method of
sale or other disposition of the Shares and such other information and
undertakings as shall be reasonably required in connection with the preparation
and filing of the registration statement covering the Shares in order to ensure
full compliance with the 1933 Act and the rules and regulations of the SEC
thereunder;

                  (b) make no further sales or other dispositions, or offers
therefor, of the Shares under such registration statement if, during the
effectiveness of such registration statement, the Company shall have notified
such Stockholder that an intervening event has occurred which, in the opinion of
counsel to the Company, makes the prospectus included in such registration
statement no longer comply with the 1933 Act, until such time as each
Stockholder has received from the Company copies of a new, amended or
supplemented prospectus complying with the 1933 Act, which prospectus shall be
delivered to the Stockholders by the Company as soon as practicable after the
filing of such new, amended or supplemented prospectus.

         3.4 Allocation of Expenses. The Company shall pay the costs and
expenses in connection therewith, including, without limitation, the reasonable
attorneys' fees of one firm as counsel to the Stockholders; provided, however,
that the Stockholders shall pay all underwriting discounts, selling commissions
and stock transfer taxes attributable to the Shares under such registration
statement.

                                       -5-
<PAGE>   6

         3.5      Indemnification.

                  (a) Upon the registration of any of the Shares under the 1933
Act pursuant to Article 3 hereof, each of the Stockholders registering and
selling such shares, severally and not jointly, shall indemnify and hold
harmless the Company, each director and officer of the Company, each
underwriter, if any, and any person who controls the Company or such underwriter
within the meaning of Section 5 of the 1933 Act, and the Company's accountants
and legal counsel, against all expenses, claims, losses, damages and liabilities
(or actions or proceedings in respect thereof) including any of the foregoing
incurred in settlement of any commenced or threatened litigation, arising out of
or based upon any untrue statement (or alleged untrue statement) of any material
fact, or omission (or alleged omission) of any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading (a "Violation"), if such
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company or its underwriter by or on
behalf of such Stockholder specifically for use therein, provided that the
indemnity agreement contained in this Section 3.5(a) shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or expense if such
settlement is effected without the consent of the Stockholders, which consent
shall not be unreasonably withheld, and provided further that in no event shall
the amounts payable in indemnity by the Stockholders under this Section 3.5(a)
exceed the net proceeds received by the Stockholders in the registered offering
out of which such Violation arises.

                  (b) The Company will indemnify each Stockholder, with respect
to which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 5 of the 1933 Act, against all
expenses, claims, losses, damages and liabilities (or actions or proceedings in
respect thereof), including any of the foregoing incurred in settlement of any
commenced or threatened litigation, arising out of or based upon any Violation,
provided that the Company will not be liable to indemnify such Stockholder(s) or
a underwriter in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of a Stockholder or a underwriter specifically for use therein, provided that
the indemnity agreement contained in this Section 3.5(b) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability or expense
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld.

                  (c) Each party entitled to indemnification under this Section
3.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). Without limiting the generality of the foregoing, the Indemnified
Party may withhold its consent to any such counsel who also acts as counsel to
the Indemnifying Party (with respect to such claim or otherwise) if the
Indemnified Party reasonably

                                       -6-
<PAGE>   7

believes that there exists a conflict of interest between the Indemnified Party
and the Indemnifying Party, with respect to such claim or litigation. In such
event, the Indemnifying Party shall bear the expense of another counsel who
shall represent the Indemnified Party and any other persons or entities who have
indemnification rights from the Indemnifying Party hereunder, with respect to
such claim or litigation, and shall be selected as provided in the first
sentence of this Section 3.5(c). The Indemnified Party may participate in such
defense at such party's expense (except to the extent that the Indemnifying
Party is required to pay the expense of such counsel pursuant to this Section
3.5(c), and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, unless such failure causes material harm to
the Indemnifying Party's defense such claim or litigation. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability with respect to such claim or litigation.

                  (d) If the indemnification provided for in this Section 3.5(d)
is held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by or on
behalf of the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

                  (e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in any underwriting
agreement entered into in connection with an underwritten public offering of the
Shares are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall control.

                                   ARTICLE IV
                                  MISCELLANEOUS

         4.1 Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Stockholders relating to the subject matter hereof,
and no party shall be liable or bound to the other in any manner by any
warranties, representations or covenants except as specifically set forth
herein.

         4.2 Lockup Agreement. Each Stockholder agrees that, without the prior
written consent of the Company, he or it will not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of (a) any of
the Shares issued to him or it under the Purchase Agreement

                                       -7-
<PAGE>   8

for a period of 90 days from the Closing Date (as defined in the Purchase
Agreement); (b) more than 30 per cent of the Shares issued to him or it under
the Purchase Agreement for a period of 180 days from the Closing Date; or (c)
more than 70 per cent of the Shares issued to him or it under the Purchase
Agreement for a period of 270 days from the Closing Date. Beginning on the date
270 days from the Closing Date, each Stockholder may sell or otherwise dispose
of any Shares he or it holds, unless otherwise prohibited by the terms of this
Agreement or applicable securities laws.

         4.3 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Except as expressly provided in this Agreement, nothing
in this Agreement, express or implied, is intended to confer upon any party,
other than the parties hereto or their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.

         4.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without application of the
choice of laws provisions of such laws.

         4.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         4.6 Headings. The headings used in this Agreement are for convenience
and shall not by themselves be considered in construing or interpreting this
Agreement.

         4.7 Notices. Any notice required or permitted hereunder shall be given
in writing and shall be conclusively deemed effectively given upon either (a)
personal delivery; (b) one day after facsimile transmission to the facsimile
number indicated below and evidenced by a written record of completed
transmission to such number; (c) ten days after deposit in the United States
mail, by registered or certified mail, postage prepaid, or three days after
delivery via overnight delivery via a courier, addressed to the following
address, or to such other address as the party may designate by ten (10) days'
advance written notice to the other party:

         IF TO THE STOCKHOLDERS:

                  VALOROUS TRADING PTE

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

                                       -8-
<PAGE>   9

         WITH COPY TO:

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

                  CRAIG BENTZEN

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

         WITH COPY TO:

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

                  JAN-CHARLES ROGUET

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

         WITH COPY TO:

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

                  MONG LAN NGUYEN

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

         WITH COPY TO:

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

                                       -9-
<PAGE>   10

                  ERIC NIESOR

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

         WITH COPY TO:

                  -------------------------------

                  -------------------------------
                  Attn:
                       --------------------------
                  Facsimile No:
                               ------------------

         IF TO THE COMPANY:

                  ILEX ONCOLOGY, INC.
                  4545 Horizon Hill Blvd.
                  San Antonio, Texas 78229
                  Attn:  Ronald G. Tefteller
                  Facsimile No: (210) 949-8390

         WITH COPY TO:

                  FULBRIGHT & JAWORSKI L.L.P.
                  300 Convent Street, Suite 2200
                  San Antonio, Texas 78205
                  Attn:  Phillip M. Renfro
                  Facsimile No. (210) 270-7205

         4.8 Survival of Warranties. The warranties, representations and
covenants of the parties contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof by or
on behalf of the Stockholders; provided, however, that such representations and
warranties need only be accurate as of the date of such execution and delivery
and as of the Closing.

         4.9 Amendments and Waivers. Except as expressly provided in this
Agreement, any provision of this Agreement may be amended only by the mutual
written agreement of the parties and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only in a written document executed by the
waiving party.

                                      -10-
<PAGE>   11

         4.10 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.

         [The remainder of this page intentionally left blank.]

                                      -11-
<PAGE>   12

         IN WITNESS WHEREOF the parties have executed this Agreement effective
as of the day and year first above written.

                                     ILEX ONCOLOGY, INC.

                                     By:
                                        ---------------------------------------
                                              Richard L. Love
                                              President

                                     STOCKHOLDERS:

                                     VALOROUS TRADING PTE

                                     By:
                                        ---------------------------------------
                                     Name:
                                          -------------------------------------
                                     Title:
                                           ------------------------------------

                                     ------------------------------------------
                                     Craig Bentzen

                                     ------------------------------------------
                                     Jean-Charles Roguet

                                     ------------------------------------------
                                     Mong Lan Nguyen

                                     ------------------------------------------
                                     Eric Niesor

                                      S-1<PAGE>   1
                                                                    EXHIBIT 4.7

                        INTEGRATED SECURITY SYSTEMS, INC.

                           9.00% Convertible Debenture

$2,300,000                                                                No. 1

                        Date of Issue: December 31, 1996

         Integrated Security Systems, Inc. (a Delaware corporation hereinafter
referred to as the "Company" or "Borrower") is indebted to and, for value
received, herewith promises to pay to:

                          River Oaks Trust Company, FBO
               Renaissance Capital Growth & Income Fund III, Inc.

or to its order, (together with any assignee, jointly or severally, the "Holder"
or "Lender") on or before December 1, 2003 (the "Due Date") (unless this
Debenture shall have been sooner called for redemption or presented for
conversion as herein provided), the sum of Two Million Three Hundred Thousand
Dollars ($2,300,000) (the "Principal Amount") and to pay interest on the
Principal Amount at the rate of nine percent (9.00%) per annum as provided
herein. In furtherance thereof, and in consideration of the premises, the
Borrower covenants, promises and agrees as follows:

         1. Interest: Interest on the Principal Amount outstanding from time to
time shall accrue at the rate of 9.00% per annum and be payable in monthly
installments commencing February 1, 1997, and subsequent payments shall be made
on the first day of each month thereafter until the Principal Amount and all
accrued and unpaid interest shall have been paid in full. Overdue principal and
interest on the Debenture shall, to the extent permitted by applicable law, bear
interest at the rate of 9.00% per annum. All payments of both principal and
interest shall be made at the address of the Holder hereof as it appears in the
books and records of the Borrower, or at such other place as may be designated
by the Holder hereof.

         2. Maturity: If not sooner redeemed or converted, this Debenture shall
mature on December 1, 2003 at which time all then remaining unpaid principal,
interest and any other charges then due under the Loan Agreement shall be due
and payable in full.

         3. Mandatory Principal Installments: If this Debenture is not sooner
redeemed or converted as provided hereunder, Borrower shall pay to Holder,
commencing on December 1,

                                      - 1 -

<PAGE>   2

1999, and the first day of each successive month thereafter prior to maturity,
mandatory principal redemption installments, each of such installments to be in
the amount of Ten Dollars ($10) per Thousand Dollars ($1,000) of the then
remaining principal amount of the Debenture and further, at maturity, shall make
a final installment of all of the remaining unpaid Principal Amount balance due
plus the amount of any unpaid interest and other charges then due. Each of such
installments shall be applied in partial redemption of the Debenture when
received by Holder.

         4. Mandatory Redemption in the Event of Certain Changes: If at any time
after the date hereof (i) the Common Stock is not listed for exchange on the
NASDAQ National Market ("National Market"), the New York Stock Exchange
("NYSE"), the American Stock Exchange ("AMEX"), or quoted on the NASDAQ Small
Cap System ("Small Cap System"), or (ii) any Person acquires more than a
majority of the Common Stock, the Debenture shall, at the option of the Holder
upon thirty (30) days notice to the Borrower, be redeemed at the greater of (y)
market value of the Debenture or (z) at 111% of par prior to November 1, 1997,
thereafter at 123% of par until November 1, 1998, thereafter at 137% of par
until November 1, 1999, thereafter at 152% of par until November 1, 2000 and
thereafter at 167% of par.

         5. Redemption: (a) On any interest payment date, and after prior
irrevocable notice as provided for below, the outstanding principal amount of
this Debenture is redeemable, in whole but not in part, at 120% of par if the
following conditions are satisfied: (i) The closing bid price for the Common
Stock averages at least $4.00 per share for the 21 consecutive trading days
prior to the irrevocable notice and the Common stock is listed or quoted on the
National Market, the Small Cap System, AMEX or NYSE; (ii) the $4.00 bid price is
supported by a minimum of 30 times fully diluted net earnings per share of
Common Stock in the aggregate for the last four consecutive fiscal quarters
preceding the date of irrevocable notice, excluding any extraordinary gains of
the Borrower; (iii) the average (20 days) daily trading volume shall be no less
than 10,000 shares; and (iv) the Borrower shall have filed a registration
statement covering the shares of Common Stock issuable upon conversion of the
Debentures. The foregoing earnings per share and bid price tests shall be duly
adjusted for share splits, stock dividends, mergers, consolidations, and other
recapitalizations.

         (b) The Borrower may exercise this right to redeem prior to maturity by
giving notice (the "Redemption Notice") thereof to the holder of this Debenture
as such name appears on the books of the Borrower, which notice shall specify
the terms of redemption (including the place at which the holder may obtain
payment), the total principal amount to be redeemed (such principal amount plus
the premium thereon herein called the "Redemption Amount") and the date for
redemption (the "Redemption Date"), which date shall not be less than 90 days
nor more than 120 days after the date of the notice. On the Redemption Date, the
Borrower shall pay all accrued unpaid interest on the Debenture up to and
including the Redemption Date, and shall pay to the holder a dollar amount equal
to the Redemption Amount. In the case of Debentures called for redemption, the
conversion rights will expire at the close of business on the Redemption Date.

                                      - 2 -

<PAGE>   3

         6. Conversion Right: The holder of this Debenture shall have the right,
at holder's option, at any time, to convert all, or, in multiples of $10,000,
any part of this Debenture into such number of fully paid and nonassessable
shares of common stock, $0.01 par value, of Integrated Security Systems, Inc.
(the "Common Stock") as shall be provided herein. The holder of this Debenture
may exercise the conversion right by giving written notice (the "Conversion
Notice") to Borrower of the exercise of such right and stating the name or names
in which the stock certificate or stock certificates for the shares of Common
Stock are to be issued and the address to which such certificates shall be
delivered. The Conversion Notice shall be accompanied by the Debenture. The
number of shares of Common Stock that shall be issuable upon conversion of the
Debenture shall equal the face amount of the Debenture divided by the Conversion
Price as defined below and in effect on the date the Conversion Notice is given;
provided, however, that in the event that this Debenture shall have been
partially redeemed, shares of Common Stock shall be issued pro rata, rounded to
the nearest whole share. Conversion shall be deemed to have been effected on the
date the Conversion Notice is received (the "Conversion Date"). Within 20
business days after receipt of the Conversion Notice, Borrower shall issue and
deliver by hand against a signed receipt therefor or by United States registered
mail, return receipt requested, to the address designated in the Conversion
Notice, a stock certificate or stock certificates of Borrower representing the
number of shares of Common Stock to which Holder is entitled and a check or cash
in payment of all interest accrued and unpaid on the Debenture up to and
including the Conversion Date. The conversion rights will be governed by the
following provisions:

         (a) Conversion Price: On the issue date hereof and until such time as
an adjustment shall occur, the Conversion price shall be $1.0 per share;
provided, however, that the Conversion Price shall be subject to adjustment at
the times, and in accordance with the following provisions:

         (i) Adjustment for Issuance of Shares at less than the Conversion
Price: If and whenever any Additional Common Stock shares shall be issued by
Borrower (the "Stock Issue Date") for a consideration per share less than the
Conversion Price, then in each such case the initial Conversion Price shall be
reduced to a new Conversion Price in an amount equal to the consideration per
share received by Borrower for the additional shares of Common Stock then issued
and the number of shares issuable to Holder upon conversion shall be
proportionately increased; and, in the case of shares issued without
consideration, the initial Conversion Price shall be reduced in amount and the
number of shares issued upon conversion shall be increased in an amount so as to
maintain for the Holder the right to convert the Debenture into shares equal in
amount to the same percentage interest in the Common Stock of Integrated
Security Systems, Inc. as existed for the Holder immediately proceeding the
Stock Issue Date.

         (ii) Sale of Shares: In case of the issuance of Additional Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of the cash received by
Borrower for such shares, after any compensation or discount in the sale,
underwriting or purchase thereof by underwriters or dealers

                                     - 3 -

<PAGE>   4

or others performing similar services or for any expenses incurred in connection
therewith. In case of the issuance of any shares of Additional Common Stock for
a consideration part or all of which shall be other than cash, the amount of the
consideration therefor, other than cash, shall be deemed to be the then fair
market value of the property received.

         (iii) Reclassification of Shares: In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock issued in
such reclassification shall be deemed to have been issued for a consideration
other than cash. Shares of Additional Common Stock issued by way of dividend or
other distribution on any class of stock of Borrower shall be deemed to have
been issued without consideration.

         (iv) Split up or Combination of Shares: In case issued and outstanding
shares of Common Stock shall be subdivided or split up into a greater number of
shares of the Common Stock, the Conversion Price shall be proportionately
decreased, and in case issued and outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Price
shall be proportionately increased, such increase or decrease, as the case may
be, becoming effective at the time of record of the split-up or combination, as
the case may be.

         (v) Exceptions: The term "Additional Common Stock" herein shall mean
all shares of Common Stock hereafter issued by Borrower (including Common Stock
in the treasury of Borrower), except (A) Common Stock issued upon the conversion
of any of the Debentures; (B) Common Stock issued upon exercise of any warrants
or stock purchase options issued and outstanding as of the date of this
Debenture; (C) Common Stock issued pursuant to exercise of authorized or
outstanding options under any currently existing incentive stock option plan for
the officers, directors, and certain other key personnel as defined in said
stock option plans of Borrower as currently established; (D) Common Stock issued
pursuant to the conversion of Preferred Stock currently outstanding at its
current conversion price; (E) Issuance of the first 700,000 shares of Common
Stock sold or issued for less than the Conversion Price.

         (b) Adjustment for Mergers; Consolidations, Etc.:

         (i) In the event of distribution to all Common Stock holders of any
stock, indebtedness of Borrower or assets (excluding cash dividends or
distributions from retained earnings) or other rights to purchase securities or
assets, then, after such event, the Debentures will be convertible into the kind
and amount of securities, cash and other property which the holder of the
Debentures would have been entitled to receive if the holder owned the Common
Stock issuable upon conversion of the Debentures immediately prior to the
occurrence of such event.

         (ii) In case of any capital reorganization, reclassification of the
stock of Borrower (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of shares), this Debenture shall
be convertible into the kind and number of shares of

                                     - 4 -

<PAGE>   5

stock or other securities or property of Borrower to which the holder of the
Debenture would have been entitled to receive if the holder owned the Common
Stock issuable upon conversion of the Debenture immediately prior to the
occurrence of such event. The provisions of the immediately foregoing sentence
shall similarly apply to successive reorganizations, reclassifications,
consolidations, exchanges, leases, transfers or other dispositions or other
share exchanges.

         (iii) The term "Fair Market Value", as used herein, is the value
ascribed to consideration other than cash as determined by the Board of
Directors of Borrower in good faith, which determination shall be final,
conclusive and binding. If the Board of Directors shall be unable to agree as to
such fair market value, then the issue of fair market value shall be submitted
to arbitration under and pursuant to the rules and regulations of the American
Arbitration Association, and the decision of the arbitrators shall be final,
conclusive and binding, and a final judgment may be entered thereon; provided,
however, that such arbitration shall be limited to determination of the fair
market value of assets tendered in consideration for the issue of Common Stock.

         (iv) Notice of Adjustment. (A) In the event Borrower shall propose to
take any action which shall result in an adjustment in the Conversion Price,
Borrower shall give notice to the Holder of this Debenture, which notice shall
specify the record date, if any, with respect to such action and the date on
which such action is to take place. Such notice shall be given on or before the
earlier of 10 days before the record date or the date which such action shall be
taken. Such notice shall also set forth all facts (to the extent known) material
to the effect of such action on the Conversion Price and the number, kind or
class of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon conversion of
this Debenture. (B) Following completion of an event wherein the Conversion
Price shall be adjusted, Borrower shall furnish to the holder of this Debenture
a statement, signed by the Chief Executive Officer and the Secretary of the
Borrower, of the facts creating such adjustment and specifying the resultant
adjusted Conversion Price then in effect which statement shall constitute and
amendment to this Debenture.

         7. One Time Adjustment to Conversion Price. If (y) the Borrower has
failed to achieve minimum projections as provided in the business plan, which
minimum projections are the achievement of year end 1997 net sales of
$16,500,000 and net income after tax of $2,000,000 and (z) the average closing
bid price of the Common Stock for the 21 consecutive trading days following
Borrower's public press release of the 1997 fiscal year end financial results
(such average closing bid price herein referred to as the "1997 Conversion Price
Adjustment Bid Price") is a price less than the then existing Conversion Price,
then the Conversion Price shall be adjusted downward to an amount equal to
seventy-five percent (75%) of the said 1997 Conversion Price Adjustment Bid
Price. The adjustment shall only be utilized to adjust the Conversion Price to a
lesser amount than the prior existing Conversion Price. If an adjustment is
required pursuant to Section 7, then the Borrower shall furnish to the holder of
this Debenture a statement, signed by the Chief Executive Officer and the
Secretary of Borrower, of

                                     - 5 -

<PAGE>   6

the facts creating such adjustment and specifying the resultant adjusted
Conversion Price then in effect, which statement shall continue an amendment to
The Debenture.

         8. Reservation of Shares: Borrower warrants and agrees that it shall at
all times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock or treasury shares of common
stock necessary to effect conversion of this Debenture.

         9. Registration Rights. Shares issued upon conversion of this Debenture
shall be restricted from transfer by the holder except if and unless the shares
are duly registered for sale pursuant to the Securities Act of 1933, as amended,
or the transfer is duly exempt from registration.

         The Holder has certain rights with respect to the registration of
shares of Common Stock issued upon the conversion of this Debenture pursuant to
the terms of the Loan Agreement. Borrower agrees that a copy of the Loan
Agreement with all amendments, additions or substitutions therefor shall be
available to the Holder at the offices of Borrower.

         10. Taxes: The Borrower shall pay any documentary or other
transactional taxes attributable to the issuance or delivery of this Debenture
or the shares of Common Stock issued upon conversion by the Holder (excluding
any federal, state or local income taxes and any franchise taxes or taxes
imposed upon the Holder by the jurisdiction, or any political subdivision
thereof, under which such Holder is organized or is qualified to do business.)

         11. Default:

         (a) Event of Default: An "Event of Default" shall exist if any one or
more of the following events (herein collectively called "Event of Default")
shall occur and be continuing:

         (i) Borrower shall fail to pay (or shall state in writing an intention
not to pay or its inability to pay), not later than 10 days after the due date,
any installment of interest on or principal of, any installment of interest on
or principal of, any Debenture of any fee, expense or other payment required
hereunder;

         (ii) Any representation or warranty made under the Loan Agreement, or
any of the other Loan Documents, or in any certificate or statement furnished or
made to Lender pursuant hereto or in connection herewith or with the Loans
hereunder, shall prove to be untrue or inaccurate in any material respect as of
the date on which such representation or warranty is made;

         (iii) Default in the performance of any of the covenants or agreements
of Borrower of its Subsidiaries, if any, contained under the Loan Agreement,
Security Agreement, Pledge Agreement, or in any of the other Loan Documents,
which default is not remedied within thirty

                                     - 6 -

<PAGE>   7

(30) days after written notice thereof to Borrower from Lender, provided that
such 30 day grace period shall not apply to default of any payment requirement
or notice covenant made by Borrower;

         (iv) Default shall occur in the payment of any Material Indebtedness
(other than the Obligation) of the Borrower or its Subsidiaries, if any, or
default shall occur in respect of any note, loan agreement or credit agreement
relating to any such Indebtedness, and such default shall continue for more than
the period of grace, if any, specified therein and any such Indebtedness shall
become due before its stated maturity by acceleration of the maturity thereof or
shall become due by its terms and shall not be promptly paid or extended;

         (v) Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the Borrower in accordance with the
respective terms thereof or shall in any way be terminated or become or be
declared ineffective or inoperative or shall in any way whatsoever cease to give
or provide the respective rights, titles, interests, remedies, powers or
privileges intended to be created thereby;

         (vi) Borrower or its Subsidiaries, if any, shall (A) apply for a
consent to the appointment of a receiver, trustee, custodian, intervenor or
liquidator of itself, or of all or substantially all of such Person's assets,
(B) file a voluntary petition in bankruptcy, admit in writing that such Person
is unable to pay such Person's debts as they become due or generally not pay
such Person's debts as they become due, (C) make a general assignment for the
benefit of creditors, (D) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, (E) file an answer admitting the material allegations of, or consent to,
or default in answering, a petition filed against such Person in any bankruptcy,
reorganization or insolvency proceeding, or (F) take corporate action for the
purpose of effecting any of the foregoing;

         (vii) An involuntary petition or complaint shall be filed against
Borrower or any of its Subsidiaries seeking bankruptcy or reorganization of such
Person or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or all or substantially all of such Person's assets,
and such petition or complaint shall not have been dismissed within sixty (60)
days of the filing thereof or an order, order for relief, judgment or decree
shall be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of Borrower
or its Subsidiary, if any, or appointing a receiver, custodian, trustee,
intervenor or liquidator of such Person, or of all or substantially all of such
Person's assets;

         (viii) Any final judgment(s) for the payment of money in excess of the
sum of $250,000 in the aggregate shall be rendered against Borrower or any
Subsidiary and such judgment or judgments shall not be satisfied or discharged
at least ten (10) days prior to the date on which any of its assets could be
lawfully sold to satisfy such judgment;

                                     - 7 -

<PAGE>   8

         (ix) The failure of Borrower to issue and deliver shares of Common
Stock as provided herein upon conversion of the Debenture; or

         (x) The failure to submit Lender's nominee, if any, for election to the
Board of Directors of Borrower for any reason other than good cause.

         (b) Remedies Upon Event of Default: If an Event of Default shall have
occurred and be continuing, then Lender may exercise any one or more of the
following rights and remedies, and any other remedies provided in any of the
Loan Documents, as Lender in its sole discretion, may deem necessary or
appropriate:

         (i) declare the unpaid Principal Amount (after application of any
payments or installments received by Lender) of, and all interest then accrued
but unpaid on, the Debentures and any other liabilities hereunder to be
forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives;

         (ii) reduce any claim to judgment; and/or

         (iii) without notice of default or demand, pursue and enforce any of
Lender's rights and remedies under the Loan Documents, or otherwise provided
under or pursuant to any applicable law or agreement, all of which rights may be
specifically enforced.

         (c) Remedies Nonexclusive: Each right, power or remedy of the holder
hereof upon the occurrence of any Event of Default as provided for in this
Debenture or now or hereafter existing at law or in equity or by statute shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy provided for in this Debenture or now or hereafter existing at
law or in equity or by statute, and the exercise or beginning of the exercise by
the holder or transferee hereof of any one or more of such rights, powers or
remedies shall not preclude the simultaneous or later exercise by the holder of
any or all such other rights, powers or remedies.

         (d) Expenses: Upon the occurrence of a Default or an Event of Default,
which occurrence is not cured within the notice provisions, if any provided
therefor, Borrower agrees to pay and shall pay all costs and expenses (including
Lender's attorney's fees and expenses) reasonably incurred by Lender in
connection with the preservation and enforcement of Lender's rights under the
Loan Agreement, the Debentures, or any other Loan Document.

         12. Failure to Act and Waiver. No failure or delay by the holder hereof
to require the performance of any term or terms of this Debenture or not to
exercise any right or any remedy shall constitute a waiver of any such term or
of any right or of any default, nor shall such delay or failure preclude the
holder hereof from exercising any such right, power or remedy at any later

                                     - 8 -

<PAGE>   9

time or times. By accepting payment after the due date of any amount payable
under this Debenture, the holder hereof shall not be deemed to waive the right
either to require payment when due of all other amounts payable, or to later
declare a default for failure to effect such payment of any such other amount.
The failure of the holder of this Debenture to give notice of any failure or
breach of the Borrower under this Debenture shall not constitute a waiver of any
right or remedy in respect of such continuing failure or breach or any
subsequent failure or breach.

         13. Consent to Jurisdiction. The Borrower hereby agrees and consents
that any action, suit or proceeding arising out of this Debenture may be brought
in any appropriate court in the State of Texas including the United States
District Court for the Northern District of Texas, or in any other court having
jurisdiction over the subject matter, all at the sole election of the Holder
hereof, and by the issuance and execution of this Debenture the Borrower
irrevocably consents to the jurisdiction of each such court. The Borrower hereby
irrevocably appoints CT Corporation, Dallas, Texas, as agent for the Borrower to
accept service of process for and on behalf of the Borrower in any action, suit
or proceeding arising out of this Debenture. Except for default in payment of
interest or principal when and as they become due, and except as otherwise
specifically set forth herein or otherwise agreed to in writing by the parties,
any action dispute, claim or controversy (all such herein called "Dispute")
between or among the parties as to the facts or the interpretation of the
Debenture shall be resolved by arbitration as set forth in Section 12.05 of the
Loan Agreement.

         14. Holder's Right to Request Multiple Debentures. The Holder shall,
upon written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into two or more
units, each of such to be in such amounts as shall be requested; provided
however that no Debentures shall be issued in denominations of face amount less
than $10,000.00.

         15. Transfer. This Debenture may be transferred on the books of the
Borrower by the registered Holder hereof, or by Holder's attorney duly
authorized in writing, only upon (i) delivery to the Borrower of a duly executed
assignment of the Debenture, or part thereof, to the proposed new Holder, along
with a current notation of the amount of payments received and net Principal
Amount yet unfunded, and presentment of such Debenture to the Borrower for issue
of a replacement Debenture, or Debentures, in the name of the new Holder, (ii)
the designation by the new Holder of the Lender's agent for notice, such agent
to be the sole party to whom Borrower shall be required to provide notice when
notice to Lender is required hereunder and who shall be the sole party
authorized to represent Lender in regard to modification or waivers under the
Debenture, the Loan Agreement, or other Loan Documents; and any action, consent
or waiver, (other than a compromise of principal and interest), when given or
taken by Lender's agent for notice, shall be deemed to be the action of the
holders of a majority in amount of the Principal Amount of the Debentures, as
such holders are recorded on the books of the Borrower, and (iii) in compliance
with the legend to read "The Securities represented by this Debenture have not
been registered under the Securities Act of 1933, as amended ("Act"), or
applicable

                                     - 9 -

<PAGE>   10

state securities laws ("State Acts") and shall not be sold, hypothecated,
donated or otherwise transferred unless the Company shall have received an
opinion of Legal Counsel for the Company, or such other evidence as may be
satisfactory to Legal Counsel for the Company, to the effect that such transfer
shall not require registration under the Act and the State Acts.

         The Borrower shall be entitled to treat any holder of record of the
Debentures as the Holder in fact thereof and of the Debenture and shall not be
bound to recognize any equitable or other claim to or interest in this Debenture
in the name of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of Texas.

         16. Notices. All notices and communications under this Debenture shall
be in writing and shall be either delivered in person or by overnight service
such as FedEx and accompanied by a signed receipt thereof, or mailed first-class
United States certified mail, return receipt requested, postage prepaid, and
addressed as follows: (i) if to the Borrower at its address for notice as stated
in the Loan Agreement; and (ii) if to the Holder of this Debenture, to the
address (a) of such Holder as it appears on the books of the Borrower, or (b) in
the case of a partial assignment to one or more Holders, to the Lender's agent
for notice, as the case may be. Any notice of communication shall be deemed
given and received as of the date of such delivery if delivered; or if mailed,
then three days after the date of mailing.

         17. Maximum Interest Rate. Regardless of any provision contained in
this Debenture, Lender shall never be entitled to receive, collect or apply as
interest on the Debenture any amount in excess of interest calculated at the
Maximum Rate, and, in the event that Lender ever receives, collects or applies
as interest any such excess, the amount which would be excessive interest shall
be deemed to be a partial prepayment of principal and treated hereunder as such;
and, if the principal amount of the Debenture is paid in full, any remaining
excess shall forthwith be paid to Borrower. In determining whether or not the
interest paid or payable under any specific contingency exceeds interest
calculated at the Maximum Rate, Borrower and Lender shall, to the maximum extent
permitted under applicable law, (i) characterize any non principal payment as an
expense, fee or premium rather than as interest; (ii) exclude voluntary
prepayments and the effects thereof; and (iii) amortize, pro rate, allocate and
spread, in equal parts, the total amount of interest throughout the entire
contemplated term of the Debenture; provided that, if the Debenture is paid and
performed in full prior to the end of the full contemplated term hereof, and if
the interest received for the actual period of existence thereof exceeds
interest calculated at the Maximum Rate, Lender shall refund to Borrower the
amount of such excess or credit the amount of excess against the principal
amount of the Debenture and, in such event, Lender shall not be subject to any
penalties provided by any laws for contracting for, charging, taking, reserving
or receiving interest in excess of interest calculated at the Maximum Rate.

         "Maximum Rate" shall mean, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day that at any time, or
from time to time, may be contracted for, taken, reserved, charged or received
on the Indebtedness evidenced by the Debenture under the laws which are
presently in effect of the United States of America and the State of Texas or

                                     - 10 -

<PAGE>   11

by the laws of any other jurisdiction which are or may be applicable to the
holders of the Debenture and such Indebtedness or, to the extent permitted by
law, under such applicable laws of the United States of America and the State of
Texas or by the laws of any other jurisdiction which are or may be applicable to
the holder of the Debenture and which may hereafter be in effect and which allow
a higher maximum nonusurious interest rate than applicable laws now allow.

         18. Rights under Loan Agreement. This Debenture is issued pursuant to
that certain Convertible Debenture Loan Agreement dated December 31,1996 by and
between Integrated Security Systems, Inc. and certain guarantors and Renaissance
Capital Growth & Income Fund III, Inc. and Renaissance US Growth & Income Trust
PLC as Lenders, (the "Loan Agreement"), and the holders hereof are entitled to
all the rights and benefits, and are subject to all the obligations of Lender
under said agreement, including the maximum interest rates limitations as
specified in Section 11.07 thereof. Both Borrower, Guarantor and Lenders have
participated in the negotiation and preparation of the Loan Agreement and of
this Debenture. Borrower agrees that a copy of the Loan Agreement with all
amendments, additions and substitutions therefor shall be available to the
Holders at the offices of Borrower.

         19. Defined Terms. Capitalized Terms used but not defined herein shall
have the meaning given them in the Loan Agreement.

         20. Governing Law. This Debenture shall be governed by and construed
and enforced in accordance with the laws of the State of Texas, or, where
applicable, the laws of the United States.

         IN WITNESS WHEREOF, the undersigned Borrowers have caused this
Debenture to be duly issued and executed on the Date above stated.

                                  BORROWER

                                  Integrated Security Systems, Inc.

                                  By: /s/ GERALD K. BECKMANN
                                     ------------------------------------------
                                          Gerald K. Beckmann, President

                               Attest by: /s/ HOLLY J. BURLAGE
                                         --------------------------------------
                                         Holly J. Burlage, Assistant Secretary

                                     - 11 -

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