-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D30VhPE3MyCCEOfLrfI3kPKxWOI4QGjhpA5blqkuHv+hIo02DPLXkADHjCdd1FWs Z7Iz7E7zNcTYQJ84wQ7Huw== /in/edgar/work/0000950144-00-013943/0000950144-00-013943.txt : 20001116 0000950144-00-013943.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950144-00-013943 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESPONSE ONCOLOGY INC CENTRAL INDEX KEY: 0000763098 STANDARD INDUSTRIAL CLASSIFICATION: [8093 ] IRS NUMBER: 621212264 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09922 FILM NUMBER: 768869 BUSINESS ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 BUSINESS PHONE: 9017617000 MAIL ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 FORMER COMPANY: FORMER CONFORMED NAME: RESPONSE TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BIOTHERAPEUTICS INC DATE OF NAME CHANGE: 19891221 10-Q 1 g65249e10-q.txt RESPONSE ONCOLOGY, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 or __ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------------------ Commission file number 0-15416 ------------------------------- RESPONSE ONCOLOGY, INC. (Exact name of registrant as specified in its charter) Tennessee 62-1212264 ----------------- ------------------ (State or Other Jurisdiction (I. R. S. Employer of Incorporation or Organization) Identification No.) 1805 Moriah Woods Blvd., Memphis, TN 38117 ------------------------------------ ---------- (Address of principal executive offices) (Zip Code) (901) 761-7000 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 Par Value, 12,290,406 shares as of November 8, 2000. 2 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page Consolidated Balance Sheets, September 30, 2000 and December 31, 1999 .......................................................... 3 Consolidated Statements of Operations for the Three Months Ended September 30, 2000 and September 30, 1999 ......................................................... 4 Consolidated Statements of Operations for the Nine Months Ended September 30, 2000 and September 30, 1999 ............................................................................ 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and September 30, 1999 ......................................................... 6 Notes to Consolidated Financial Statements .............................................................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................................................................... 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk ................................................................................. 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings ................................................................................. 21 Item 2. Changes in Securities and Use of Proceeds ......................................................... 21 Item 3. Defaults Upon Senior Securities ................................................................... 21 Item 4. Submission of Matters to a Vote of Security Holders ............................................... 21 Item 5. Other Information ................................................................................. 21 Item 6. Exhibits and Reports on Form 8-K .................................................................. 21 Signatures ................................................................................................... 22
-2- 3 PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands)
September 30, 2000 December 31, 1999 ASSETS (Unaudited) (Note 1) - ------ ----------- -------- CURRENT ASSETS Cash and cash equivalents $ 7,857 $ 7,195 Accounts receivable, less allowance for doubtful accounts of $2,602 and $2,632 11,292 16,007 Pharmaceuticals and supplies 2,960 3,485 Prepaid expenses and other current assets 3,778 4,778 Due from affiliated physician groups 16,279 16,884 Deferred income taxes 344 114 --------- --------- TOTAL CURRENT ASSETS 42,510 48,463 --------- --------- Property and equipment, less accumulated depreciation and amortization of $13,470 and $12,366 3,601 4,222 Deferred charges, less accumulated amortization of $267 and $86 209 380 Management service agreements, less accumulated amortization of $10,407 and $8,206 63,129 66,113 Other assets 518 467 --------- --------- TOTAL ASSETS $ 109,967 $ 119,645 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 12,811 $ 15,665 Accrued expenses and other liabilities 3,535 5,440 Current portion of notes payable 35,233 3,745 Current portion of capital lease obligations 272 267 --------- --------- TOTAL CURRENT LIABILITIES 51,851 25,117 Notes payable, less current portion 807 35,445 Capital lease obligations, less current portion 374 580 Deferred income taxes 9,512 9,802 Minority interest 977 924 STOCKHOLDERS' EQUITY Series A convertible preferred stock, $1.00 par value (aggregate involuntary liquidation preference $183) authorized 3,000,000 shares; issued and outstanding 16,631 shares at each period end 17 17 Common stock, $.01 par value, authorized 30,000,000 shares; issued and outstanding 12,290,406 and 12,270,406 shares, respectively 123 123 Paid-in capital 102,011 101,979 Accumulated deficit (55,705) (54,342) --------- --------- 46,446 47,777 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 109,967 $ 119,645 ========= =========
See accompanying notes to consolidated financial statements. -3- 4 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollar amounts in thousands except for share data)
Three Months Ended ------------------ September 30, September 30, 2000 1999 ---- ---- NET REVENUE $ 29,727 $ 32,589 COSTS AND EXPENSES Salaries and benefits 5,087 6,209 Pharmaceuticals and supplies 20,382 19,600 Other operating costs 1,996 2,787 General and administrative 1,558 1,634 Depreciation and amortization 1,166 1,143 Interest 892 799 Provision for doubtful accounts 119 461 ------------ ------------ 31,200 32,633 ------------ ------------ LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (1,473) (44) Minority owners' share of net earnings (55) (220) ------------ ------------ LOSS BEFORE INCOME TAXES (1,528) (264) Income tax benefit (581) (100) ------------ ------------ NET LOSS TO COMMON STOCKHOLDERS ($ 947) ($ 164) ============ ============ LOSS PER COMMON SHARE: Basic ($ 0.08) ($ 0.01) ============ ============ Diluted ($ 0.08) ($ 0.01) ============ ============ Weighted average number of common shares: Basic 12,290,406 11,966,597 ============ ============ Diluted 12,290,406 11,966,597 ============ ============
See accompanying notes to consolidated financial statements. -4- 5 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollar amounts in thousands except for share data)
Nine Months Ended ----------------- September 30, September 30, 2000 1999 ---- ---- NET REVENUE $ 99,952 $ 102,951 COSTS AND EXPENSES Salaries and benefits 15,910 19,218 Pharmaceuticals and supplies 68,450 59,843 Other operating costs 6,666 8,905 General and administrative 4,272 5,002 Depreciation and amortization 3,449 3,380 Interest 2,548 2,505 Provision for doubtful accounts 405 1,156 ------------ ------------ 101,700 100,009 ------------ ------------ EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST (1,748) 2,942 Minority owners' share of net earnings (445) (606) ------------ ------------ EARNINGS (LOSS) BEFORE INCOME TAXES (2,193) 2,336 Income tax provision (benefit) (830) 888 ------------ ------------ NET EARNINGS (LOSS) TO COMMON STOCKHOLDERS ($ 1,363) $ 1,448 ============ ============ EARNINGS (LOSS) PER COMMON SHARE: Basic ($ 0.11) $ 0.12 ============ ============ Diluted ($ 0.11) $ 0.12 ============ ============ Weighted average number of common shares: Basic 12,287,660 11,982,250 ============ ============ Diluted 12,287,660 12,006,954 ============ ============
See accompanying notes to consolidated financial statements. -5- 6 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollar amounts in thousands)
Nine Months Ended ----------------- September 30, September 30, 2000 1999 ---- ---- OPERATING ACTIVITIES Net earnings (loss) to common stockholders ($1,363) $ 1,448 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 3,449 3,380 Deferred income taxes (249) - - - Provision for doubtful accounts 405 1,156 Gain on sale of property and equipment (38) - - - Minority owners' share of net earnings 445 606 Changes in operating assets and liabilities: Accounts receivable 4,310 2,971 Pharmaceuticals and supplies, prepaid expenses and other current assets 1,520 1,899 Deferred charges and other assets 113 88 Due from affiliated physician groups 190 (489) Accounts payable, accrued expenses and other liabilities (3,956) (1,259) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,826 9,800 INVESTING ACTIVITIES Proceeds from sale of property and equipment 47 - - - Purchase of equipment (579) (596) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (532) (596) FINANCING ACTIVITIES Proceeds from exercise of stock options 32 - - - Distributions to joint venture partners (392) (593) Financing costs incurred - - - (416) Principal payments on notes payable (3,071) (1,978) Principal payments on capital lease obligations (201) (224) ------- ------- NET CASH USED IN FINANCING ACTIVITIES (3,632) (3,211) INCREASE IN CASH AND CASH EQUIVALENTS 662 5,993 Cash and cash equivalents at beginning of period 7,195 1,083 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,857 $ 7,076 ======= =======
See accompanying notes to consolidated financial statements. -6- 7 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in Response Oncology, Inc. and Subsidiaries' (the "Company's") annual report on Form 10-K for the year ended December 31, 1999. Net Revenue: The Company's net patient service revenue includes charges to patients, insurers, government programs and other third-party payers for medical services provided. Such amounts are recorded net of contractual adjustments and other uncollectible amounts. Contractual adjustments result from the differences between the amounts charged for services performed and the amounts allowed by government programs and other public and private insurers. The Company's revenue from practice management affiliations includes a fee equal to practice operating expenses incurred by the Company (which excludes expenses that are the obligation of the physicians, such as physician salaries and benefits) and a management fee either fixed in amount or equal to a percentage of each affiliated oncology group's adjusted net revenue or net operating income. In certain affiliations, the Company may also be entitled to a performance fee if certain financial criteria are satisfied. Pharmaceutical sales to physicians are recorded based upon the Company's contracts with physician groups to manage the pharmacy component of the groups' practice. Revenue recorded for these contracts represents the cost of pharmaceuticals plus a fixed or percentage fee. Clinical research revenue is recorded based upon the Company's contracts with certain pharmaceutical companies to manage clinical trials and is generally measured on a per patient basis for monitoring and collection of data. The following table is a summary of net revenue by source for the respective three and nine month periods ended September 30, 2000 and 1999.
Three Months Ended Nine Months Ended (In Thousands) September 30, September 30, -------------- ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net patient service revenue $ 2,661 $ 6,778 $ 10,921 $ 22,704 Practice management service fees 18,753 16,679 57,955 50,981 Pharmaceutical sales to physicians 8,199 8,926 30,618 28,031 Clinical research revenue 114 206 458 1,235 -------- -------- -------- -------- $ 29,727 $ 32,589 $ 99,952 $102,951 ======== ======== ======== ========
Revenue is recognized when earned. Sales and related cost of sales are generally recognized upon delivery of goods or performance of services. -7- 8 Net Earnings (Loss) Per Common Share: A reconciliation of the basic earnings (loss) per share and the diluted earnings (loss) per share computations is presented below for the three and nine month periods ended September 30, 2000 and 1999. (Dollar amounts in thousands except per share data)
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Weighted average shares outstanding 12,290,406 11,966,597 12,287,660 11,982,250 Net effect of dilutive stock options and warrants based on the treasury stock method - - -(A) - - -(A) - - -(A) 24,704 ---------- ---------- ---------- ----------- Weighted average shares and common stock equivalents 12,290,406 11,966,597 12,287,660 12,006,954 ========== ========== ========== =========== Net earnings (loss) ($ 947) ($ 164) ($ 1,363) $ 1,448 ========== ========== ========== =========== Diluted per share amount ($ 0.08) ($ 0.01) ($ 0.11) $ 0.12 ========== ========== ========== ===========
(A) Stock options and warrants are excluded from the weighted average number of common shares due to their anti-dilutive effect. NOTE 2 -- NOTES PAYABLE The terms of the Company's original lending agreement provided for a $42.0 million Credit Facility, to mature in June 2002, to fund the Company's working capital needs. The Credit Facility, originally comprised of a $35.0 million Term Loan Facility and a $7.0 million Revolving Credit Facility, is collateralized by the assets of the Company and the common stock of its subsidiaries. The Credit Facility bears interest at a variable rate equal to LIBOR plus an original spread between 1.375% and 2.5%, depending upon borrowing levels. The Company was also obligated to a commitment fee of .25% to .5% of the unused portion of the Revolving Credit Facility. At September 30, 2000, $34.5 million aggregate principal was outstanding under the Credit Facility with a current interest rate of approximately 10.1%. The Company is subject to certain affirmative and negative covenants which, among other things, originally required that the Company maintain certain financial ratios, including minimum fixed charge coverage, funded debt to EBITDA and minimum net worth. This original lending agreement was subsequently and significantly amended in both November 1999 and March 2000 as described below. In November 1999, the Company and its lenders amended certain terms of the Credit Facility. As a result of this amendment, the Revolving Credit Facility was reduced from $7.0 million to $6.0 million and the interest rate was adjusted to LIBOR plus a spread of 3.25%. The Company's obligation for commitment fees was adjusted from a maximum of .5% to .625% of the unused portion of the Revolving Credit Facility. Repayment of the January 1, 2000 quarterly installment was accelerated. In addition, certain affirmative and negative covenants were added or modified, including minimum EBITDA requirements for the fourth quarter of 1999 and the first quarter of 2000. Compliance with certain covenants was also waived for the quarters ended September 30, 1999 and December 31, 1999. On March 30, 2000, the Company and its lenders again amended various terms of the Credit Facility. As a result of this amendment, certain affirmative and negative covenants were added (including minumum quarterly cash flow requirements through March 2001), and certain other existing covenants were modified. -8- 9 Additionally, certain principal repayment terms were modified and certain future and current compliance with specific covenants was waived. Finally, the maturity date of the Credit Facility was accelerated to June 2001. The Company expects to have a longer-term facility in place prior to the June 2001 maturity date, but there can be no assurances that such facility will in fact be consummated. During the third quarter of 2000, the Company did not meet certain financial covenants of the Credit Facility, including those related to minimum cash flow requirements. This occurred primarily due to further erosion in high dose chemotherapy volumes. As a result of this event of default, the Company's lenders adjusted the interest rates on the outstanding principal to the default rate of prime plus 3% (currently 12.5%) and terminated any obligation to advance additional loans or issue letters of credit. The Company does not anticipate that the termination of the lenders obligation to advance additional loans or letters of credit will have an immediate impact on operations. Under the terms of the Credit Facility, additional remedies available to the lenders (as long as an event of default exists and has not been cured) include acceleration of all principal and accrued interest outstanding, the right to foreclose on related security interests in the assets of the Company and stock of its subsidiaries, and the right of setoff against any monies or deposits that the lenders have in their possession. The Company has submitted revised financial projections and its specialty pharmaceutical business plan to its lenders seeking approval to deploy additional capital and personnel to the development of the new business. The Company has also engaged in discussions with certain investment banking firms to assist in the procurement of equity financing. Management is seeking from the lenders, after evaluating the information provided by the Company, a forbearance agreement for some period of time while the Company pursues its desired strategy. Additionally, the Company and its lenders are evaluating other strategies to improve the cash flow of the Company. There can be no assurances that the Company will be successful in obtaining additional equity funding, renegotiating certain terms of the Credit Facility, or refinancing the existing debt. The Company's lenders continue to reserve all rights and remedies available to them under the terms of the Credit Facility. If the Company's lenders exercise the rights and remedies as described above, the Company would be forced to seek formal reorganization protection. The Company enters into LIBOR-based interest rate swap agreements ("Swap Agreement") with the Company's lender as required by the terms of the Credit Facility. In June 2000, the Company entered into a new Swap Agreement effective July 1, 2000. Amounts hedged under this most recent Swap Agreement accrue interest at the difference between 7.24% and the ninety-day LIBOR rate and are settled quarterly. The Company has hedged $17.0 million under the terms of the Swap Agreement. The Swap Agreement matures on July 1, 2001. The installment notes payable to affiliated physicians and physician practices were issued as partial consideration for the practice management affiliations. Principal and interest under the long-term notes may, at the election of the holders, be paid in shares of common stock of the Company based on conversion prices ranging from $11.50 to $16.97. NOTE 3 -- INCOME TAXES Upon the consummation of the physician practice management affiliations, the Company recognized deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of purchased assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. NOTE 4 -- COMMITMENTS AND CONTINGENCIES With respect to professional and general liability risks, the Company currently maintains an insurance policy -9- 10 that provides coverage during the policy period ending August 1, 2001, on a claims-made basis, for $1,000,000 per claim in excess of the Company retaining $25,000 per claim, and $3,000,000 in the aggregate. Costs of defending claims are in addition to the limit of liability. In addition, the Company maintains a $10,000,000 umbrella policy with respect to potential professional and general liability claims. Since inception, the Company has incurred no professional or general liability losses and, as of September 30, 2000, the Company was not aware of any pending professional or general liability claims that would have a material adverse effect on the Company's financial condition or results of operations. NOTE 5 -- DUE FROM AFFILIATED PHYSICIANS Due from affiliated physicians consists of management fees earned and payable pursuant to the management service agreements ("Service Agreements"). In addition, the Company may also fund certain working capital needs of the affiliated physicians from time to time. NOTE 6 -- SEGMENT INFORMATION The Company's reportable segments are strategic business units that offer different services. The Company has three reportable segments: IMPACT Services, Physician Practice Management and Cancer Research Services. The IMPACT Services segment provides stem cell supported high dose chemotherapy and other advanced cancer treatment services under the direction of practicing oncologists as well as compounding and dispensing pharmaceuticals to certain medical oncology practices. The Physician Practice Management segment owns the assets of and manages oncology practices. The Cancer Research Services segment conducts clinical cancer research on behalf of pharmaceutical manufacturers. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company's annual audited consolidated financial statements except that the Company does not allocate corporate interest expense, taxes or corporate overhead to the individual segments. The Company evaluates performance based on profit or loss from operations before income taxes and unallocated amounts. The totals per the schedules below will not and should not agree to the consolidated totals. The differences are due to corporate overhead and other unallocated amounts which are reflected in the reconciliation to consolidated earnings (loss) before income taxes. (In thousands)
Physician IMPACT Practice Cancer Research Services Management Services Total -------- ---------- -------- ----- For the three months ended September 30, 2000: Net revenue $ 10,860 $ 18,753 $ 114 $ 29,727 Total operating expenses 11,120 16,585 109 27,814 -------- -------- -------- -------- Segment contribution (loss) (260) 2,168 5 1,913 Depreciation and amortization 107 1,001 - - - 1,108 -------- -------- -------- -------- Segment profit (loss) ($ 367) $ 1,167 $ 5 $ 805 ======== ======== ======== ======== Segment assets $ 13,775 $ 83,516 $ 1,149 $ 98,440 ======== ======== ======== ======== Capital expenditures $ 29 $ 41 - - - $ 70 ======== ======== ======== ========
-10- 11
Physician IMPACT Practice Cancer Research Services Management Services Total -------- ---------- -------- ----- For the three months ended September 30, 1999: Net revenue $ 15,704 $ 16,679 $ 206 $ 32,589 Total operating expenses 13,898 14,707 440 29,045 -------- -------- -------- -------- Segment contribution (loss) 1,806 1,972 (234) 3,544 Depreciation and amortization 134 955 - - - 1,089 -------- -------- -------- -------- Segment profit (loss) $ 1,672 $ 1,017 ($ 234) $ 2,455 ======== ======== ======== ======== Segment assets $ 21,098 $ 89,112 $ 2,054 $112,264 ======== ======== ======== ======== Capital expenditures - - - $ 300 - - - $ 300 ======== ======== ======== ========
Reconciliation of consolidated loss before income taxes:
2000 1999 ---- ---- Segment profit $ 805 $ 2,455 Unallocated amounts: Corporate salaries, general and administrative 1,372 1,922 Corporate depreciation and amortization 59 54 Corporate interest expense 902 743 ------- ------- Loss before income taxes ($1,528) ($ 264) ======= =======
(In thousands)
Physician IMPACT Practice Cancer Research Services Management Services Total -------- ---------- -------- ----- For the nine months ended September 30, 2000: Net revenue $41,539 $57,955 $ 458 $99,952 Total operating expenses 40,523 50,622 446 91,591 ------- ------- ------- ------- Segment contribution 1,016 7,333 12 8,361 Depreciation and amortization 304 2,975 - - - 3,279 ------- ------- ------- ------- Segment profit $ 712 $ 4,358 $ 12 $ 5,082 ======= ======= ======= ======= Segment assets $13,775 $83,516 $ 1,149 $98,440 ======= ======= ======= ======= Capital expenditures $ 180 $ 311 - - - $ 491 ======= ======= ======= =======
Physician IMPACT Practice Cancer Research Services Management Services Total -------- ---------- -------- ----- For the nine months ended September 30, 1999: Net revenue $ 50,736 $ 50,980 $ 1,235 $102,951 Total operating expenses 44,146 43,897 1,219 89,262 -------- -------- -------- -------- Segment contribution 6,590 7,083 16 13,689 Depreciation and amortization 415 2,810 - - - 3,225 -------- -------- -------- -------- Segment profit $ 6,175 $ 4,273 $ 16 $ 10,464 ======== ======== ======== ======== Segment assets $ 21,098 $ 89,112 $ 2,054 $112,264 ======== ======== ======== ======== Capital expenditures $ 146 $ 353 $ 4 $ 503 ======== ======== ======== ========
-11- 12 Reconciliation of consolidated earnings (loss) before income taxes:
2000 1999 ---- ---- Segment profit $ 5,082 $10,464 Unallocated amounts: Corporate salaries, general and administrative 4,554 5,579 Corporate depreciation and amortization 171 155 Corporate interest expense 2,550 2,394 ------- ------- Earnings (loss) before income taxes ($2,193) $ 2,336 ======= =======
Reconciliation of consolidated assets: As of September 30, ------------------- 2000 1999 ---- ---- Segment assets Unallocated amounts: $ 98,440 $112,264 Cash and cash equivalents 7,857 7,076 Prepaid expenses and other assets 2,877 2,987 Property and equipment, net 793 897 -------- -------- Consolidated assets $109,967 $123,224 ======== ========
-12- 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Response Oncology, Inc. (the "Company") is a comprehensive cancer management company. The Company provides advanced cancer treatment services through outpatient facilities known as IMPACT(R) Centers under the direction of practicing oncologists; compounds and dispenses pharmaceuticals to certain medical oncology practices for a fee; owns the assets of and manages the nonmedical aspects of oncology practices; and conducts clinical research on behalf of pharmaceutical manufacturers. Approximately 300 medical oncologists are associated with the Company through these programs. As of September 30, 2000, the Company's total network included 37 IMPACT Centers located in 19 states and the District of Columbia. The network consists of 21 wholly owned centers, 13 managed programs, and 3 centers owned and operated in joint venture with a host hospital. In May of 1999, the results of certain breast cancer studies were released at the meeting of the American Society of Clinical Oncology (ASCO). These studies, involving the use of high dose chemotherapy, sparked controversy among oncologists, and, in the aggregate, caused confusion among patients, third-party payers, and physicians about the role of high dose chemotherapy in the treatment of breast cancer. Since the release of these data, the Company's high dose business has slowed significantly, as evidenced by a 53% decrease in high dose procedures in the first nine months of 2000 as compared to the first nine months of 1999 and a 64% decrease as compared to the first nine months of 1998. High dose procedures in the Company's wholly owned IMPACT Centers decreased 56% in the first nine months of 2000 as compared to the first nine months of 1999, while procedures in the Company's managed and joint venture Centers decreased 47% and 45%, respectively. The Company closed 12 marginal IMPACT Centers in 1999 due to decreased patient volumes and 5 additional IMPACT Centers in the first nine months of 2000. On an ongoing basis, the Company evaluates the economic feasibility of the Centers in its IMPACT network. The Company is generally able to re-deploy related assets throughout the IMPACT Center network. The Company anticipates that maturity of existing breast cancer data along with the release of new data will clarify the role of high dose therapies for breast cancer. At the 2000 ASCO annual meeting, additional data on this topic was presented by affiliates of the Company and other researchers that indicated favorable preliminary results. Despite these results, the Company has not experienced an increase in referrals of breast cancer patients. If additional follow-up data is negative, conflicting, or inconclusive, it could result in a further decrease in high dose referrals and procedures and adversely affect the financial results of this line of business. In response to this uncertainty, the Company is evaluating new diseases that could potentially be managed through the IMPACT Center network. However, there can be no assurance that other such diseases can be identified, related treatment protocols implemented, and effectively managed through the existing network. The Company is also evaluating other strategic alternatives for the IMPACT Center network. During the first quarter of 2000, the Company decided to expand into the specialty pharmaceutical business and began to put in place certain of the resources necessary for this expansion. The Company intends to leverage its expertise and resources in the delivery of complex pharmaceuticals to cancer patients into the delivery of specialty drugs to patients with a wide range of chronic, costly and complex diseases. Specifically, this will include the distribution of new drugs with special handling requirements, and is expected to involve the use of the Company's regional network of specialized pharmaceutical centers. In addition, the Company intends to use its national network of IMPACT Centers and its highly trained healthcare professionals to administer the most fragile compounds to the expanded patient population. The Company has hired an expert consultant to assist in the development of the business plan. In addition, the Company recruited a chief medical officer and a vice president of operations in the third quarter of 2000. These individuals have operating responsibilities over the existing business segments and for the development of the specialty pharmacutical business. The Company has -13- 14 also engaged in discussions with potential strategic partners, including certain pharmaceutical manufacturers, partner hospitals, and affiliated physicians. Various clinical and marketing materials have also been developed. The Company expects to treat its initial multiple sclerosis and rheumatoid arthritis patients in the fourth quarter of 2000. In its practice management relationships, the Company has predominantly used two models of Service Agreements: (i) an "adjusted net revenue" model; and (ii) a "net operating income" model. Service Agreements utilizing the adjusted net revenue model provide for payments out of practice net revenue, in the following order: (A) physician retainage (i.e. physician compensation, benefits, and perquisites, including malpractice insurance) equal to a defined percentage of net revenue ("Physician Expense"); (B) a clinic expense portion of the management fee (the "Clinic Expense Portion") equal to the aggregate actual practice operating expenses exclusive of Physician Expense; and (C) a base service fee portion (the "Base Fee") equal to a defined percentage of net revenue. In the event that practice net revenue is insufficient to pay all of the foregoing in full, then the Base Fee is first reduced, followed by the Clinic Expense Portion of the management fee, and finally, Physician Expense, therefore effectively shifting all operating risk to the Company. In each Service Agreement utilizing the adjusted net revenue model, the Company is entitled to a Performance Fee equal to a percentage of Annual Surplus, defined as the excess of practice revenue over the sum of Physician Expense, the Clinic Expense Portion, and the Base Fee. Service Agreements utilizing the net operating income model provide for a management fee equal to the sum of a Clinic Expense Portion (see preceding paragraph) plus a percentage (the "Percentage Portion") of the net operating income of the practice (defined as net revenue minus practice operating expenses). Practice operating expenses do not include Physician Expense. In those practice management relationships utilizing the net operating income model Service Agreement, the Company and the physician group share the risk of expense increases and revenue declines, but likewise share the benefits of expense savings, economies of scale and practice enhancements. Each Service Agreement contains a liquidated damages provision binding the physician practice and the principals thereof in the event the Service Agreement is terminated "for cause" by the Company. The liquidated damages are a declining amount, equal in the first year to the purchase price paid by the Company for practice assets and declining over a specified term. Principals are relieved of their individual obligations for liquidated damages only in the event of death, disability, or retirement at a predetermined age. Each Service Agreement provides for the creation of an oversight committee, a majority of whom are designated by the practice. The oversight committee is responsible for developing management and administrative policies for the overall operation of each clinic. However, under each Service Agreement, the affiliated practice remains obligated to repurchase practice assets, typically including intangible assets, in the event the Company terminates the Service Agreement for cause. In 1998 the Company recorded an impairment charge related to three under performing Service Agreements in accordance with Financial Accounting Standards Board Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of" ("SFAS No. 121"). The structure of these contracts failed over time to align physician and Company incentives, producing deteriorating returns and negative cash flows to the Company. In February 1999 and April 1999, respectively, the Company announced that it had terminated its Service Agreements with Knoxville Hematology Oncology Associates, PLLC, and Southeast Florida Hematology Oncology Group, P.A., two of the Company's three under performing net revenue model relationships. Since these were not "for cause" terminations initiated by the Company, the affiliated practices were not responsible for liquidated damages. The Company currently has no plans to terminate the Service Agreement with the third physician group. In the fourth quarter of 1999, the Company terminated its Service Agreement with one single-physician -14- 15 practice in Florida. This termination was initiated on a "for cause" basis and the Company is seeking recovery of liquidated damages. During the same period, the Company began negotiations to terminate another Service Agreement with a single-physician practice. Since this is not a "for cause" termination initiated by the Company, the affiliated practice is not responsible for liquidated damages. The Company experienced deteriorating returns on this particular Service Agreement and concluded that continuing the relationship was not economically feasible. At December 31, 1999, the Company recorded a loss contingency related to the Service Agreements and associated assets in accordance with Financial Accounting Standards Board Statement No. 5 "Accounting for Contingencies". The Company terminated the second Service Agreement in April of 2000. From time to time, the Company and its affiliated physicians disagree on the interpretation of certain provisions of the Service Agreements. The Company is currently in arbitration with one affiliated physician practice related to the economic feasibility of certain capital expenditures. The Company believes that it has a solid contractual basis for its position, but there can be no assurances that the Company will prevail in arbitration. In such event, it could have a material impact on the Company's future cash flows, specifically related to capital expenditures. During the second quarter of 2000, the Health Care Financing Administration ("HCFA"), which runs the Medicare program, announced its intent to adjust certain pharmaceutical reimbursement mechanisms. HCFA targeted dozens of drugs, principally those used for the treatment of cancer and AIDS. More specifically, Medicare utilizes the average wholesale price ("AWP") of pharmaceuticals as the benchmark for reimbursement. It is HCFA's stated position that some drug companies are reporting artificially inflated AWPs to industry guides that are used for government-reimbursement purposes resulting in overpayments by Medicare and excess profits for physicians and other providers. On September 8, 2000, HCFA announced that the previously reported reductions in reimbursement rates for oncology drugs would not be fully implemented pending a comprehensive study to develop more accurate reimbursement methodologies for cancer therapy services. However, HCFA did encourage its intermediaries to adopt a new fee schedule for selected chemotherapy agents. This reduction in reimbursement rates could potentially take effect in January 2001. Should any of these reimbursement changes occur, it would have a material adverse effect on reimbursement for certain pharmaceutical products utilized by the Company's affiliated physicians in the practice management division. Consequently, the Company's management fee in its practice management relationships would be materially reduced. Based on annualized 2000 utilization, the Company estimates that the reduction in reimbursement for the selected chemotherapy agents would result in a $.4 million reduction in EBITDA in 2001. This estimate assumes there is no change in the disease types or payer mix, that no substitute or alternative drugs are utilized, and that the change is implemented on January 1, 2001. The Company has received a delisting notification from the Nasdaq Stock Market for failure to maintain a minimum bid price of $1.00 over the last 30 consecutive trading days as required under the maintenance standards of the Nasdaq National Market. The Company has 90 calendar days, or until January 30, 2001, to regain compliance with this rule by obtaining a bid price on its common stock of at least $1.00 for a minimum of 10 consecutive trading days. There can be no assurances that the Company will regain compliance with this requirement or remain in compliance with other Nasdaq maintenance standards for the continued listing of the Company's common stock. RESULTS OF OPERATIONS Net revenue decreased 9% to $29.7 million for the quarter ended September 30, 2000, compared to $32.6 million for the quarter ended September 30, 1999. The $4.1 million, or 61%, decrease in IMPACT Center -15- 16 revenue and $.7 million, or 8%, decrease in pharmaceutical sales to physicians was partially offset by a $2.1 million, or 12%, increase in practice management service fees. Net revenue was $100.0 million for the nine months ended September 30, 2000, compared to $103.0 million for the same period in 1999. IMPACT Center revenue decreased by $11.8 million, or 52%, and clinical research revenue decreased by $.8 million, or 63%. Pharmaceutical sales to physicians increased $2.6 million, or 9%, while practice management service fees increased $7.0 million, or 14%. The decrease in high dose chemotherapy revenues continues to reflect the confusion and related pullback in breast cancer admissions resulting from the high dose chemotherapy/breast cancer study results presented at ASCO in May 1999. In addition, the Company experienced a decline in insurance approvals on the high dose referrals obtained. The increase in pharmaceutical sales to physicians for the nine months ended September 30, 2000 is due to growth and increased drug utilization by the physicians serviced under these agreements. The decrease in pharmaceutical sales to physicians for the quarter ended September 30, 2000 is due to the termination of pharmaceutical sales agreements with two physician practices effective July 1, 2000. Clinical research revenue decreased primarily as a result of a decline in the number of research studies being conducted by the Company and a decrease in patient accruals on open studies. The Company is currently evaluating its strategy and business plan relative to standard and high dose chemotherapy clinical trials. Finally, the increase in practice management service fees is due to growth in utilization of both ancillary and non-ancillary services, and occurred despite a 5% and 10% decrease in the number of physicians under management agreements between the quarter and nine months ended September 30, 2000, as compared to the same periods in 1999. On a same-physician basis, practice management service fees increased 16% and 21% for the quarter and nine months ended September 30, 2000, as compared to the same periods in 1999. Salaries and benefits costs decreased $1.1 million, or 18%, from $6.2 million for the third quarter of 1999 to $5.1 million in 2000. For the nine months ended September 30, salaries and benefits costs decreased $3.3 million, or 17%, from $19.2 million in 1999 to $15.9 million for the same period in 2000. The decrease is primarily due to the termination of certain Service Agreements, the modification of a Service Agreement which resulted in a change in the manner in which physician compensation is recorded, the closing of various IMPACT Centers and a reduction in corporate staffing. Pharmaceuticals and supplies expense increased $.8 million, or 4%, and $8.6 million, or 14%, for the quarter and nine months ended September 30, 2000 as compared to the same periods in 1999. The increase is primarily related to increased volume in pharmaceutical sales to physicians and greater utilization of new chemotherapy agents with higher costs in the practice management division, thus causing a decrease in the overall operating margin. Pharmaceuticals and supplies as a percent of net revenue was 69% and 60% for the quarters ended September 30, 2000 and 1999, respectively. For the nine months ended September 30, 2000 and 1999, pharmaceuticals and supplies expense as a percentage of net revenue was 68% and 58%, respectively. General and administrative expenses decreased $.1 million, or 6%, from $1.6 million in the third quarter of 1999 to $1.5 million in the third quarter of 2000. For the nine months ended September 30, general and administrative expenses decreased $.7 million, or 14%, from $5.0 million in 1999 to $4.3 million for the same period in 2000. The decrease is primarily due to the closure of various IMPACT Centers and the termination of certain Service Agreements. In addition, the Company terminated its Service Agreement with a single-physician practice during the second quarter of 2000. This termination resulted in the receipt of a $.2 million settlement that reduced general and administrative expenses in the second quarter of 2000. Other operating expenses decreased $.8 million, or 29%, from $ 2.8 million for the third quarter of 1999 to $2.0 million for the third quarter of 2000. For the nine months ended September 30, other operating expenses decreased $2.2 million, or 25%, from $8.9 million in 1999 to $6.7 million for the same period in 2000. Other operating expenses consist primarily of medical director fees, purchased services related to global case rate contracts, rent expense, and other operational costs. The decrease is primarily due to the closure of various IMPACT Centers and lower purchased services and physician fees as a result of lower IMPACT and cancer research volumes as compared to the quarter and nine months ended September 30, 1999. -16- 17 For the third quarter of 2000, all operating and general expenses other than those related to pharmaceuticals and supplies were reduced by $2.0 million, or 19%, as compared with those of the third quarter of 1999. For the nine months ended September 30, 2000, operating and general expenses, other than those for pharmaceuticals and supplies, were reduced by $6.3 million, or 19%, over those of the first nine months of 1999. These reductions reflect cost reduction and containment steps put in place in the first quarter of 2000, the closure of 7 IMPACT Centers, and lower patient volumes. EBITDA (earnings before interest, taxes, depreciation and amortization) decreased $1.2 million, or 71%, to $.5 million for the quarter ended September 30, 2000 as compared to $1.7 million for the quarter ended September 30, 1999. For the nine months ended September 30, EBITDA decreased $4.4 million, or 54%, to $3.8 million in 2000, as compared to $8.2 million for the same period in 1999. The reduction is principally due to the decrease in IMPACT Center and cancer research volumes as compared to the same periods in 1999. EBITDA from the IMPACT services segment decreased $2.1 million, or 114%, and $5.6 million, or 85%, for the quarter and nine months ended September 30, 2000 as compared to the same periods in 1999. The decrease is primarily due to a decrease in breast cancer referral volumes and high dose chemotherapy procedures. In addition the Company experienced a decline in insurance approvals on the high dose referrals obtained. During the second quarter of 2000, the Company received notices of termination of pharmaceutical sales agreements from two physician practices effective July 1, 2000. The EBITDA contribution from these agreements totalled $.2 million for the six months ended June 30, 2000. While the Company is currently marketing these services to other physician practices, there can be no assurance that new agreements will be executed to replace the EBITDA contributed by the terminated agreements. EBITDA from the physician practice management segment increased 10% for the quarter ended September 30, 2000 and 4% for the nine months ended September 30, 2000 as compared to the same periods in 1999. The lower increase in EBITDA for the nine months ended September 30, 2000 is principally due to increases in pharmaceutical and supply costs, increases in contractual adjustments, and the termination and modification of certain Service Agreements. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, the Company's working capital was ($9.4) million with current assets of $42.5 million and current liabilities of $51.9 million. The Company's Credit Facility matures on June 30, 2001. Consequently, the entire outstanding principal balance on the Company's Credit Facility is classified as a current liability at September 30, 2000. Cash and cash equivalents represented $7.9 million of the Company's current assets. Cash provided by operating activities was $4.8 million in the first nine months of 2000 compared to $9.8 million for the same period in 1999. This decrease is largely attributable to the $1.4 million net loss incurred by the Company in the first nine months of 2000 as compared to $1.5 million in net earnings for the first nine months of 1999. This decrease is also due to the timing of inventory purchases and payments of accounts payable, tempered by improved collections on accounts receivable and amounts due from affiliated physician groups. Cash used in investing activities, principally related to the purchase of equipment, was $.5 million for the nine months ended September 30, 2000 and $.6 million for the same period in 1999. Cash used in financing activities was $3.6 million for the nine months ended September 30, 2000 and $3.2 million for the same period in 1999. This increase is primarily attributable to an increase in principal payments on notes payable during the first nine months of 2000, tempered by larger distributions to joint venture partners and financing costs incurred during the first nine months of 1999. The terms of the Company's original lending agreement provided for a $42.0 million Credit Facility, to mature in June 2002, to fund the Company's working capital needs. The Credit Facility, originally comprised of a $35.0 million Term Loan Facility and a $7.0 million Revolving Credit Facility, is collateralized by the assets of the Company and the common stock of its subsidiaries. The Credit Facility bears interest at a variable rate equal -17- 18 to LIBOR plus an original spread between 1.375% and 2.5%, depending upon borrowing levels. The Company was also obligated to a commitment fee of .25% to .5% of the unused portion of the Revolving Credit Facility. At September 30, 2000, $34.5 million aggregate principal was outstanding under the Credit Facility with a current interest rate of approximately 10.1%. The Company is subject to certain affirmative and negative covenants which, among other things, originally required that the Company maintain certain financial ratios, including minimum fixed charge coverage, funded debt to EBITDA and minimum net worth. This original lending agreement was subsequently and significantly amended in both November 1999 and March 2000 as described below. In November 1999, the Company and its lenders amended certain terms of the Credit Facility. As a result of this amendment, the Revolving Credit Facility was reduced from $7.0 million to $6.0 million and the interest rate was adjusted to LIBOR plus a spread of 3.25%. The Company's obligation for commitment fees was adjusted from a maximum of .5% to .625% of the unused portion of the Revolving Credit Facility. Repayment of the January 1, 2000 quarterly installment was accelerated. In addition, certain affirmative and negative covenants were added or modified, including minimum EBITDA requirements for the fourth quarter of 1999 and the first quarter of 2000. Compliance with certain covenants was also waived for the quarters ending September 30, 1999 and December 31, 1999. On March 30, 2000, the Company and its lenders again amended various terms of the Credit Facility. As a result of this amendment, certain affirmative and negative covenants were added (including minimum quarterly cash flow requirements through March 2001), and certain other existing covenants were modified. Additionally, certain principal repayment terms were modified and certain future and current compliance with specific covenants was waived. Finally, the maturity date of the Credit Facility was accelerated to June 2001. The Company expects to have a longer-term facility in place prior to the June 2001 maturity date, but there can be no assurances that such facility will in fact be consummated. During the third quarter of 2000, the Company did not meet certain financial covenants of the Credit Facility, including those related to minimum cash flow requirements. This occurred primarily due to further erosion in high dose chemotherapy volumes. As a result of this event of default, the Company's lenders adjusted the interest rates on the outstanding principal to the default rate of prime plus 3% (currently 12.5%) and terminated any obligation to advance additional loans or issue letters of credit. The Company does not anticipate that the termination of the lenders obligation to advance additional loans or letters of credit will have an immediate impact on operations. Under the terms of the Credit Facility, additional remedies available to the lenders (as long as an event of default exists and has not been cured) include acceleration of all principal and accrued interest outstanding, the right to foreclose on related security interests in the assets of the Company and stock of its subsidiaries, and the right of setoff against any monies or deposits that the lenders have in their possession. The Company has submitted revised financial projections and its specialty pharmaceutical business plan to its lenders seeking approval to deploy additional capital and personnel to the development of the new business. The Company has also engaged in discussions with certain investment banking firms to assist in the procurement of equity financing. Management is seeking from the lenders, after evaluating the information provided by the Company, a forbearance agreement for some period of time while the Company pursues its desired strategy. Additionally, the Company and its lenders are evaluating other strategies to improve the cash flow of the Company. There can be no assurances that the Company will be successful in obtaining additional equity funding, renegotiating certain terms of the Credit Facility, or refinancing the existing debt. The Company's lenders continue to reserve all rights and remedies available to them under the terms of the Credit Facility. If the Company's lenders exercise the rights and remedies as described above, the Company would be forced to seek formal reorganization protection. The Company enters into LIBOR-based interest rate swap agreements ("Swap Agreement") with the Company's lender as required by the terms of the Credit Facility. In June 2000, the Company entered into a new Swap Agreement effective July 1, 2000. Amounts hedged under this most recent Swap -18- 19 Agreement accrue interest at the difference between 7.24% and the ninety-day LIBOR rate and are settled quarterly. The Company has hedged $17.0 million under the terms of the Swap Agreement. The Swap Agreement matures on July 1, 2001. Long-term unsecured amortizing promissory notes bearing interest at rates from 4% to 9% were issued as partial consideration for the practice management affiliations consummated in 1996. Principal and interest under the long-term notes may, at the election of the holders, be paid in shares of common stock of the Company based upon conversion rates ranging from $11.50 to $16.97. The unpaid principal amount of the long-term notes was $1.5 million at September 30, 2000. HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996 The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), required that standards be developed for the privacy and protection of individually identifiable health information. As directed by HIPAA, the federal government recently proposed detailed regulations to protect individual health information that is maintained or transmitted electronically from improper access, alteration or loss. Final regulations are expected sometime this year. To date, only the transactions and code sets standards have been finalized. The Company expects that health care organizations will be required to comply with the new standards 24 months after the date of adoption. The Company is currently assessing preliminary HIPAA issues, with detailed compliance and integration measures taking place in 2001 and 2002. Because only certain elements of the HIPAA regulations have been finalized, the Company has not been able to determine the impact of the new standards on its financial position or results. The Company does expect to incur costs to evaluate and implement the rules, and will be actively evaluating such costs and their impact on its financial position and operations. NEW ACCOUNTING STANDARD The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires all entities to report derivative securities at fair value on the balance sheet. The Company has performed a preliminary review of the applicability of SFAS No. 133 and believes that the adoption of this standard, when effective, will not have a significant impact on the Company's financial statements. FORWARD-LOOKING STATEMENTS With the exception of historical information, the matters discussed in this filing are forward-looking statements that involve a number of risks and uncertainties. The actual future results of the Company could differ significantly from those statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: (i) a continued decline in high dose chemotherapy referrals due to the high dose chemotherapy breast cancer results; (ii) difficulty in transitioning operating responsibilities to new members of senior management; (iii) continued decline in margins for cancer drugs; (iv) reductions in third-party reimbursement from managed care plans and private insurance resulting from stricter utilization and reimbursement standards; (v) the inability of the Company to recover all or a portion of the carrying amounts of the cost of service agreements, resulting in an additional charge to earnings; (vi) the Company's dependence upon its affiliations with physician practices, given that there can be no assurance that the practices will remain successful or that key members of a particular practice will remain actively employed; (vii) changes in government regulations; (viii) risk of professional malpractice and other similar claims inherent in the provision of medical services; (ix) the Company's dependence on the ability and experience of its executive officers; (x) -19- 20 the Company's inability to raise additional capital or refinance existing debt; (xi) the exercise of the lender's remedies as a result of the Company's event of default; and (xii) potential volatility in the market price of the Company's common stock. The Company cautions that any forward-looking statement reflects only the beliefs of the Company or its management at the time the statement is made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's primary market risk exposure is to changes in interest rates obtainable on its Credit Facility. The Company's interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower its overall borrowing costs by selecting interest periods for traunches of the Credit Facility that are more favorable to the Company based on the current market interest rates. The Company has the option of fixing current interest rates for interest periods of 1, 2, 3 or 6 months. The Company is also a party to a LIBOR based interest rate swap agreement ("Swap Agreement"), effective date July 1, 2000, with the Company's lender as required by the terms of the Credit Facility. Amounts hedged under the Swap Agreement accrue interest at the difference between 7.24% and the ninety-day LIBOR rate and are settled quarterly. The Swap Agreement matures July 1, 2001. The Company does not enter into derivative or interest rate transactions for speculative purposes. At September 30, 2000, $34.5 million aggregate principal was outstanding under the Credit Facility with a current interest rate of approximately 10.1%. The Company does not have any other material market-sensitive financial instruments. -20- 21 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES During the third quarter of 2000, the Company did not meet certain financial covenants of the Credit Facility (as amended), including those related to minimum cash flow requirements. At September 30, 2000, $34.5 million aggregate principal and approximately $435,000 in accrued interest was outstanding under the Credit Facility. There was no arrearage in the payment of principal and interest on the date of filing this report. For further information concerning defaults with respect to the Company's indebtedness, please refer to Note 2 of the Company's financial statements or "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 10(v) Employment Agreement between Registrant and Nelson M. Braslow, M.D. 27 Financial Data Schedule (for SEC use only) -21- 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Response Oncology, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RESPONSE ONCOLOGY, INC. By: /s/ Peter A. Stark ----------------------------------- Peter A. Stark Chief Financial Officer and Principal Accounting Officer Date: November 14, 2000 By: /s/ Anthony M. LaMacchia ----------------------------------- Anthony M. LaMacchia President and Chief Executive Officer Date: November 14, 2000 -22- EX-10.V 2 g65249ex10-v.txt EMPLOYMENT AGREEMENT BETWEEN REGISTRANT & BRASLOW 1 EXHIBIT 10(v) RESPONSE ONCOLOGY, INC. EMPLOYMENT AGREEMENT FOR CHIEF MEDICAL OFFICER THIS AGREEMENT (the "AGREEMENT") is made as of the 18Th day of September 2000 (hereinafter "EFFECTIVE DATE") by and between Response Oncology, Inc. ("ROI"), and Nelson Braslow ("EXECUTIVE"). RECITALS WHEREAS, ROI desires to employ Executive as the Chief Medical Officer of ROI; and, WHEREAS, Executive desires to be employed by ROI pursuant to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the promises and mutual covenants hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT. Subject to the terms and conditions of this Agreement, ROI hereby employs Executive and Executive hereby accepts employment from ROI as Chief Medical Officer, commencing on the Effective Date for the term specified in Section 6.1 hereof. 2. DUTIES. Executive shall devote his best efforts and his full business and professional time, energy and skill to the service of ROI and promotion of its interests in his capacity as Chief Medical Officer. Executive will carry out duties commensurate with and required by such position, and will assume senior operating authority and responsibility for ROI, subject to and in accordance with directions, instructions, and requests from the Chief Executive Officer and the Board of Directors. Executive agrees not to engage in any other related business, nor to engage in the practice of his profession to any extent whatsoever, except pursuant to this Agreement, without the express prior written consent of ROI. 3. COMPENSATION AND BENEFITS. 3.1 BASE COMPENSATION. ROI shall pay Executive a base salary ("BASE SALARY") of two hundred and twenty-five thousand dollars ($225,000) per year, subject to applicable withholdings. Base Salary shall be payable according to the customary payroll practices of ROI but in no event less frequently than once each month. The Base Salary shall be reviewed annually and shall be subject to an adjustment according to the policies and practices adopted by the Board of Directors from time to time. 3.2 ANNUAL INCENTIVE BONUS. ROI will pay Executive an annual incentive bonus ("INCENTIVE BONUS"), if any, have up to forty percent (40%) of Executive's Base Salary at the end of each year. The Incentive Bonus will be based, in the sole and absolute discretion of the Board of Directors, on the Board's evaluation of Executive's performance and on performance targets established annually by the Board. 3.3 ADDITIONAL BENEFITS. Executive will be entitled to participate in all employee benefit plans or programs and receive all benefits and perquisites to which any salaried employee is eligible under any existing or future plan or program established by ROI for salaried employees, including, without limitation, all plans developed for executive officers of ROI, to the extent permissible under the terms and provisions of such plans or programs. These plans or programs may include group hospitalization, health, dental care, life or other insurance, tax qualified pension, and savings plans. Executive specifically acknowledges and agrees to adhere to the Company executive paid-time-off plan as described in exhibit A attached hereto. Executive will also be entitled to additional payments for (a) continuing medical education; (b) professional licensure; and (c) professional dues and subscriptions as fully described on exhibit B. Nothing in this Agreement will preclude ROI from amending or terminating any of the plans or programs applicable to salaried employees or executive officers. 3.4 BUSINESS EXPENSES. ROI will reimburse Executive for all reasonable travel and other 1 2 expenses incurred by Executive in connection with the performance of his duties and obligations under this Agreement upon Executive's submitting proper documentation in accordance with ROI's policies for expense reimbursement. 3.5 WITHHOLDING. ROI may directly or indirectly withhold from any payments under this Agreement all federal, state, city, or other taxes that shall be required pursuant to any law or governmental regulation. 3.6 RELOCATION. ROI shall reimburse Executive for qualified moving expenses. Such moving expenses include (1) the transportation of household goods and personal effects and (2) travel (including lodging and automobile costs, but not meals) to the new residence. The Executive will be subject to the Company's policy regarding relocation which requires that three bids be submitted from nationally recognized relocation companies, one of which shall be from North American Van Lines, the Company's preferred mover. In the event that the Executive elects not to use North American Van Lines, the Company will only reimburse Executive the average of the two lowest bids. A relocation bonus ("RELOCATION BONUS") will be paid to Executive in two installments as follows: (1) Upon Executive's commencement of employment and establishment of residency, an amount equal to the difference between twenty-three thousand dollars ($23,000) and the actual moving expenses reimbursed to Executive will be due and payable. In the event that the sum of the qualified moving expenses exceed $8,500.00 then such excess shall be added to the $23,000.000 to arrive at a new amount.; and (2) On April 1, 2001, provided that Executive is actively employed by ROI and in good standing, an additional bonus of Thirty-nine thousand seven hundred dollars ($39,700.00) will be paid to Executive. Additionally, if Executive makes an offer to purchase a home in the Memphis area, ROI will make a loan available to Executive before closing on that home for the lesser of twenty percent (20%) of the purchase price or fifty thousand dollars ($50,000). Annual interest on the loan shall be fixed at the thirty (30) year Treasury bill interest rate, as published in the Wall Street Journal on the date the loan is funded plus one percentage point. Executive shall pay installments of interest monthly, on or before the first day of each month, beginning with the first month after ROI funding of the loan. Interest shall accrue from the Issue Date on the principal amount. Executive shall pay the principal amount to ROI at the earlier of closing upon the sale of Executive's home in Pennsylvania or 12 months from the funding of the loan. In the event that this Agreement is terminated for any reason other than material breach by Executive, Executive agrees to pay ROI all principal, together with interest due, upon the earlier of: the closing on the sale of the home or twelve (12) months from the effective date of termination. If the Executive is terminated for material breach by the Executive or for cause by ROI, Executive agrees to pay ROI all principal, together with interest due, within 30 days of the termination. Executive also agrees to execute and record a second deed of trust in ROI's name as security for the loan within thirty (30) days after Executive receives the loan amount from ROI. Executive will also execute an appropriate note in favor of ROI to evidence his loan payment obligation. 3.7 STOCK OPTIONS. Executive shall be granted stock options for one hundred thousand (100,000) shares of ROI's common stock vesting over a period of three (3) years. Thirty-three thousand three hundred and thirty-three (33,333) shares shall vest at the end of each twelve (12) months of employment, with the total being fully vested after three (3) years of employment. The exercise price for each share subject to the options shall be equal to the closing price of ROI shares on September 5, 2000. In the event of a merger, liquidation or Change in Control (as that term is defined in Section 6.2.3), the portion of the 100,000 shares, which has not vested prior to the effective date of the merger, liquidation or Change of Control, shall vest as of that effective date. In the event the Board of Directors makes additional stock options available to management personnel, Executive will be eligible for such options provided, however, that Executive's performance is then satisfactory as determined by the Board of Directors or their designee in their or his sole discretion. Notwithstanding anything to the contrary in this Agreement, Executive will forfeit the right to exercise and shall return and deliver to ROI all vested but unexercised stock options if Executive, whether during his employment or at any time afterward, breaches any fiduciary duty owed to ROI or engages in any non-negligent conduct for which Executive may be immediately terminated pursuant to Section 6.2.2 of this Agreement. 4. DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE. 4.1 PAYMENT IN EVENT OF DEATH. In the event of the death of Executive during the term of this Agreement, ROI's obligation to make payments under this Agreement shall cease as of the date of death, except for earned but unpaid Base Salary and Incentive Bonus, which will be paid on a pro-rated basis for that year. 2 3 Executive's designated beneficiary will be entitled to receive the proceeds of any life or other insurance or other death benefit programs provided or referred to in this Agreement, other than "key man" life insurance benefits. 4.2 DISABILITY COMPENSATION. Notwithstanding the disability of Executive, ROI will continue to pay Executive pursuant to Section 3 hereof during the term of this Agreement, unless the Executive's employment is earlier terminated in accordance with this Agreement. In the event the disability continues for a period of three (3) months, ROI may thereafter terminate this Agreement and the Executive's employment. Following such termination, ROI will pay Executive amounts equal to his regular installments of Base Salary, as of the time of termination, for a period of the greater of (a) the remaining term of this Agreement or (b) twelve (12) months from the date of such termination. ROI will consider making reasonable accommodations to Executive's disability in accordance with applicable laws where required. 4.3 RESPONSIBILITIES IN THE EVENT OF DISABILITY. During the period Executive is receiving payments following his disability and as long as he is physically and mentally able to do so, Executive will furnish information and assistance to ROI and from time to time will make himself available to ROI to undertake assignments consistent with his position or prior position with ROI. If ROI fails to make a payment or provide a benefit required as part of this Agreement, Executive's obligation to provide information and assistance will end. 4.4 DEFINITION OF DISABILITY. For purposes of this Agreement, the term "disability" will have the same meaning as is attributed to such term, or any substantially similar term, in ROI's long term income disability plan as in effect from time to time. 4.5 KEY MAN LIFE INSURANCE. Upon request by ROI, Executive agrees to cooperate with ROI in obtaining "key man" life insurance on the life of Executive with death benefits payable to ROI. Such cooperation shall include the submission by Executive to a medical examination and his response to inquiries regarding his medical history. 5. CONFIDENTIALITY; CORPORATE OPPORTUNITIES. 5.1 CONFIDENTIAL INFORMATION DEFINED. The term "CONFIDENTIAL INFORMATION" means any proprietary or non-public knowledge, idea or information, in any form (whether tangible or intangible, oral, written, electronic or otherwise), pertaining in any manner to the business or operations of ROI or its clients or customers, including but not limited to records, files, software, know-how, technical information, processes, plans, data, activities, research, development(s), technology, trade secrets, proprietary information, methods, specifications, notes, summaries, studies, analysis, instructions, designs, graphs, drawings, services, products, inventions, computer files, data, research, patient lists or records, forms, documents, business plans, budgets, schedules, projections, cost analyses, markets or marketing information, banking or credit relationships, payroll and other financial or business information. Confidential Information does not include any information, knowledge, or idea which (i) is generally known in ROI's or any relevant trade or industry; (ii) is part of Executive's general knowledge prior to his employment by ROI; (iii) is disclosed to Executive by a third party who rightfully possesses the information (without confidential or proprietary restriction) and did not learn of it, directly or indirectly, from ROI; or (iv) is required by law to be publicly disclosed or is publicly disclosed pursuant to judicial or administrative proceedings. 5.2 PROTECTION OF CONFIDENTIAL INFORMATION. During the term of this Agreement, Executive covenants and agrees that he will hold all Confidential Information in strictest confidence and will not directly or indirectly disclose, or permit to be disclosed, any Confidential Information to any person, firm, corporation, or other business organization or use any Confidential Information except as required by Executive's responsibilities or in the course of carrying out Executive's duties pursuant to this Agreement. Additionally, for five (5) years following termination of this Agreement, Executive covenants and agrees that he will not directly or indirectly disclose, or permit to be disclosed, any Confidential Information to any person, firm, corporation, or other business organization or use any Confidential Information for any purpose except as permitted in writing by ROI. 5.3 OWNERSHIP OF CONFIDENTIAL INFORMATION. Executive recognizes and agrees that all Confidential Information and all other notes, records, files, patient lists, forms and other documents and the like relating to ROI's business, and all computer files, programs and information which Executive prepares, uses, has, 3 4 obtains, or otherwise comes into contact with during the term of this Agreement will be and remain ROI's sole property, and shall not be removed from ROI's offices except as required in the course of Executive's work, and shall be returned and delivered to ROI upon termination of this Agreement or earlier if requested by ROI. After termination of this Agreement or at any other time requested by ROI, Executive shall not retain any copies, abstracts, sketches or other physical embodiment of any items which embody, reflect, contain or evidence Confidential Information. Executive acknowledges that any use or disclosure of Confidential Information outside the scope of his employment would cause irreparable and continuing injury to ROI for which no award of monetary damages would be adequate, and that injunctive relief for ROI would be appropriate, in addition to any other rights ROI may have, to restrain and bar any such use or disclosure or threatened use or disclosure. Executive hereby waives any requirement that ROI submit proof of the economic value of any trade secret or post a bond or other security. 5.4 CORPORATE OPPORTUNITIES. If Executive becomes aware of any possible or existing idea, enterprise, transaction, venture or opportunity which is or may be related in any way to the past, present or prospective business of ROI or which may be within the scope of any reasonable expansion of ROI's business(es) ("CORPORATE OPPORTUNITY"), Executive covenants and agrees that he shall promptly and fully present the Corporate Opportunity to ROI. Executive acknowledges and agrees that ROI shall determine, in its sole discretion, whether to pursue any such Corporate Opportunity and that Executive shall not pursue for his own benefit or disclose to any third party any Corporate Opportunity without prior written consent from ROI. If Executive pursues any Corporate Opportunity without written approval from ROI, ROI shall have the right to terminate this Agreement pursuant to Section 6.2.2(b). 5.5 FORMER EMPLOYER INFORMATION. Executive agrees that he will not, during employment with ROI, improperly use or disclose any proprietary information or trade secrets of any former employer or other person or entity and that Executive will not bring onto the premises of ROI any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity. 5.6 REMEDIES. Nothing in this Section 5 is intended to limit, nor shall it limit, any remedy of ROI otherwise available under applicable statutory or other law. 6. TERM AND TERMINATION. 6.1 TERM. This Agreement shall commence on the Effective Date and remain in effect for an initial period of two (2) years unless terminated earlier by either party. Thereafter, this Agreement shall automatically renew for successive one (1) year terms, unless either party provides notice of its intent not to renew at least ninety (90) calendar days prior to the end of the initial or any renewal term. 6.2 TERMINATION. 6.2.1 TERMINATION FOR MATERIAL BREACH. Either party may terminate this Agreement if a material breach by the other party of any term or condition of this Agreement remains uncured for ten business (10) days after the breaching party's receipt of written notice of such breach from the non-breaching party. A material breach by Executive shall include any refusal to comply with the directions of the Board of Directors or Chief Executive Officer or with ROI's policies and procedures. 6.2.2 IMMEDIATE TERMINATION FOR CAUSE. ROI shall have the absolute right at any time, upon written notice to Executive, to terminate Executive immediately for cause upon the happening of any one or more of the following events whether or not any such event also constitutes a material breach of any provision of this Agreement: (A) Executive's bad faith or gross negligence in the performance of his duties hereunder; Executive's repeated neglect or non-performance of his duties hereunder; Executive's intentional nonperformance of such duties; Executive's intentional malfeasance or willfully poor performance of his duties; any intentional act or omission that the Executive knew or should have known would injure the reputation of ROI; any willful or intentional act, beyond the scope of Executive's duties hereunder, which materially and negatively affects 4 5 ROI's financial condition; or willful misconduct pertaining to any aspect of Executive's employment with ROI; (B) Executive's breach of trust or of fiduciary duty (including but not limited to improper disclosure or use of Confidential Information or a Corporate Opportunity), as reasonably determined by the President and/or Board of Directors of ROI; (C) Executive's fraud, misappropriation, embezzlement or other act of dishonesty (including any misrepresentation made by Executive to ROI during employment or discovery of one made to ROI prior to employment), or conviction of or entering a plea of nolo contendere to any felony or any misdemeanor involving dishonesty, fraud, substance abuse or distribution of controlled substances. 6.2.3 TERMINATION IN THE EVENT OF CHANGE IN CONTROL. In the event this Agreement is terminated by ROI within one (1) year following a Change in Control (as that phrase is defined below) ROI will pay to Executive an amount equal to the then-current Base Salary plus an amount equal to the prior year's Incentive Bonus. Notwithstanding the foregoing, if Executive has not received the Incentive Bonus because Executive has not been employed for at least one (1) year, then Executive shall receive payment equal to the then-current Base Salary plus the Incentive Bonus prorated based on the number of months employed. In either event, such payment shall be divided into 12 equal monthly installments with the first payment being made within 60 calendar days of the termination. A "CHANGE IN CONTROL" shall occur if an event or series of events occurs after the effective date of this Agreement which would constitute either a change in ownership of ROI, within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations promulgated there under ("SECTION 280G"), or a change in the ownership of a substantial portion of ROI's assets, within the meaning of Section 280G (but for purposes of this definition, the fair market value threshold for determining "a substantial portion of ROI's assets" shall be "greater than fifty percent"). 6.2.4 TERMINATION WITHOUT CAUSE. Both ROI and Executive may terminate this agreement without cause and in the absence of material breach on one hundred twenty (120) days' written notice to the other party. In the event that ROI terminates Executive without cause and in the absence of material breach, then ROI shall pay Executive the lesser of one (1) year's base salary plus the annualized amount of the prior year's bonus, if any, or a prorated amount of the Executive's base pay and bonus based upon the time remaining in the Executive's agreement. In the event that the Company provides executive with notice regarding non-renewal of the employment agreement it is mutually agreed and understood that during the last three months of employment the Executive will devote significant time and effort to job placement. 6.2.5 TERMINATION FOR MATERIAL BREACH OR WITH CAUSE; VOLUNTARY TERMINATION. If the Executive is terminated for material breach or with cause pursuant to Sections 6.2.1 or 6.2.2, or Executive terminates this Agreement in the absence of a material breach by ROI (regardless of whether there has been a Change in Control), ROI will not be obligated to pay Executive any compensation or Incentive Bonus following the effective date of termination but will pay Executive earned but unpaid Base Salary through the effective date of termination. In the event of non-renewal, ROI will pay Executive all compensation earned and any Incentive Bonus determined through the end of the contract term. Any amounts due to Executive under 6.2.4 or 6.2.5 will be paid within thirty calendar (30) days of the effective date of termination, unless otherwise required by law. The exercisability of stock options granted to Executive shall be governed by any applicable stock option agreements and the terms of the respective stock option plans. 7. DISPUTE RESOLUTION. 7.1 ARBITRATION PROCEDURE. Any controversy, claim, or dispute arising out of or relating to this Agreement (including but not limited to the interpretation, construction, or enforcement of any of the terms of this Agreement or the breach of any provision of it) shall be settled by arbitration administered by the American Arbitration Association ("AAA") under its Commercial Dispute Resolution Procedures, modified to the extent, if any, that the arbitration rules are inconsistent with the terms of this Section 7. All such arbitration proceedings shall take place in and be conducted in Memphis, Tennessee, and shall be conducted by one arbitrator selected in 5 6 accordance with the arbitration rules. The arbitrator shall issue a written opinion setting forth the arbitrator's findings of fact and conclusions of law. The arbitrator shall have no authority to award punitive or other damages beyond the prevailing parties' actual damages and shall not, in any event, make any ruling, finding, or award that does not conform to the terms and conditions of this Agreement. The parties agree that the decision of the arbitrator shall be final, binding, and conclusive. The parties agree that the arbitration award may be enforced in any court having jurisdiction thereof by the filing of a petition to enforce said award. All expenses (e.g., the filing fees and arbitrators' fees) of the arbitration shall be shared equally by the parties. Each party, however, shall bear the expense of its own counsel, experts, witnesses, and preparation and presentation of proof. 7.2 EQUITABLE REMEDIES AVAILABLE. Notwithstanding any provision in Section 7.1 and in addition to the rights and procedures available to the parties pursuant to Section 7.1, either party may at any time seek injunctive relief, whether temporary, preliminary, or permanent, and/or an order or judgment for specific performance from any state or federal court properly having jurisdiction over the matters then in dispute and located in Memphis, Tennessee. Executive and ROI each consent to personal jurisdiction and venue of a court of competent jurisdiction sitting in Memphis, Tennessee for purposes of any action or proceeding contemplated by this Section 7. The parties agree that a final order or judgment in any such action or proceeding shall, to the extent permitted by applicable law, be conclusive and may be enforced in other jurisdictions by suit on the order or judgment or in any other manner provided by applicable law related to the enforcement of judgments. 8. COVENANT NOT TO COMPETE OR SOLICIT. 8.1 DURING THE TERM OF EMPLOYMENT. As an inducement to ROI to enter into this Agreement and in consideration of the amounts payable to Executive hereunder, Executive covenants and agrees not to Compete with ROI (as defined in Section 8.3) at any time while he is employed by ROI or receiving any payments from ROI. 8.2 VOLUNTARY TERMINATION; TERMINATION WITH OR WITHOUT CAUSE. As a further inducement to ROI to enter into this Agreement and in consideration of the amounts payable to Executive hereunder, Executive covenants and agrees that, in the event of a voluntary termination of this Agreement by Executive for any reason other than for material breach by ROI subject to the exception below, or in the event of termination by ROI with cause or for material breach (all regardless of a Change in Control), he will not Compete with ROI for a period of one (1) year from the date of such termination; provided, however, that if a voluntary termination by Executive follows a notice by ROI under Section 6.1 that the term of this Agreement will not be automatically extended or if ROI terminates this Agreement without cause and in the absence of a material breach by Executive, there will be no restriction on Executive's right to Compete with ROI after the effective date of termination. The one-year period of non-competition set forth in this Section 8.2 shall be extended by the duration of any violation by Executive of this covenant. Executive also covenants that he will not at any time during or after his employment by ROI disparage ROI or any of its shareholders, directors, officers, employees or agents. 8.3 DEFINITION OF "COMPETE WITH ROI". For the purposes of this Section 8, the term "Compete with ROI" means any action(s) by Executive, direct or indirect, for his own account or for the account of any other person or entity, either as an officer, director, stockholder, owner, partner, member, promoter, employee, consultant, advisor, agent, manager, creditor or in any other capacity, resulting in Executive having any pecuniary interest, legal or equitable ownership, or other financial or non-financial interest in (including but not limited to lending of Executive's name), or employment, association or affiliation with, any corporation, business trust, partnership, limited liability company, proprietorship or other business or professional enterprise (including self-employment) that (a) provides outpatient cancer services or services otherwise competitive with or to any of those provided by ROI or any affiliate or planned on Executive's date of termination to be provided by ROI or any affiliate (including but not limited to oncology-related services or management services to any oncology or hematology practice) within a twenty-five (25) mile radius of any location where ROI or any subsidiary or affiliate of ROI performs oncology-related, management or other services at the effective date of a termination of Executive's employment and which location generated either net revenue or pre-tax profit equal to or greater than ten (10) percent of the net revenues or ten (10) percent of ROI's total EBITDA in the year prior to termination, (b) solicits from any supplier or customer of ROI or diverts or attempts to divert from ROI (or any affiliate) any 6 7 business of any kind in which ROI or its affiliate is engaged or is similar to that in which ROI or its affiliate is engaged or plans on the date of Executive's termination to be engaged (including but not limited to the solicitation of or interference with any of ROI's suppliers or customers), or (c) employs or solicits for employment or work as an independent contractor or otherwise any person employed by ROI during that person's employment by ROI and for one year thereafter; provided, however, that the term "Compete with ROI" shall not include ownership (without any more extensive relationship) of less than a five percent (5%) interest in any publicly-held corporation or other business entity. Executive acknowledges that U.S. Oncology, Salick Health Care, Inc., Accredo Health, Inc., Priority Healthcare, Inc., and Caremark RX are among the entities which provide "outpatient cancer services" and/or services otherwise competitive with or to any of those contemplated or provided by ROI as of the date of execution of this Agreement. 8.4 REASONABLENESS OF SCOPE AND DURATION; REMEDIES. Executive acknowledges that the covenants contained herein are fair and reasonable as to geographic, professional and temporal scope and are reasonably required to protect the interests of ROI. Executive acknowledges that his breach or threatened or attempted breach of any provision of Section 8 would cause irreparable harm to ROI not compensable in monetary damages and that ROI shall be entitled, in addition to all other applicable remedies, to a temporary and permanent injunction and a decree for specific performance of the terms of Section 8 without being required to prove damages or furnish any bond or other security. 8.5 SEVERABILITY. The covenants in this Section 8 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. If any covenant in this Section 8 is held to be unreasonable, arbitrary or against public policy, such covenant will be considered to be divisible with respect to geographic, professional and temporal scope, and such lesser geographic, professional or temporal scope, or all of them, as a court or arbitrator of competent jurisdiction or authority may determine to be reasonable, not arbitrary, and not against public policy, will be effective, binding, and enforceable against Executive. 8.6 NOTICE OF OTHER EMPLOYMENT. Executive will, while any covenant under this Section 8 is in effect, give written notice to ROI within ten calendar (10) days after accepting any other employment of the identity of that employer. ROI may notify such employer that Executive is bound by this Agreement and furnish such employer with a copy of this Agreement or relevant portions of it. 9. INDEMNIFICATION OF EXECUTIVE. ROI shall maintain directors' and officers' liability insurance and shall maintain any other insurance policies necessary to indemnify Executive, if Executive was or is a party to any third party proceeding, by reason of the fact that Executive was or is an authorized representative of ROI, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Executive in connection with such third party proceeding so long as Executive acted in good faith and in a manner he reasonably believed to be in the best interest of ROI and, with respect to criminal third party proceedings, had no reasonable cause to believe such conduct was unlawful. To the extent that Executive has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, Executive shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. 10. MISCELLANEOUS. 10.1 ASSIGNMENT. Executive agrees that he will not assign, sell, transfer, delegate or otherwise dispose of or transfer, whether voluntarily or involuntarily, any rights or obligations under this Agreement. Any purported assignment, transfer or delegation shall be null and void. Nothing in this Agreement shall prevent: the consolidation of ROI with, or its merger into, any other corporation; the sale or exchange by ROI of all or any of its stock to or with a third party; the sale by ROI of all or substantially all of its properties or assets; or the assignment by ROI of this Agreement and the performance of its obligations hereunder to any successor in interest, parent, subsidiary or affiliate. 10.2 BINDING AGREEMENT. Subject to Section 10.1, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, legal representatives, successors and permitted assigns. 10.3 AMENDMENT. No change or modification of this Agreement shall be valid or binding 7 8 upon the parties unless and until the same is in writing and signed by both parties. 10.4 NOTICE. Any notice to be provided pursuant to this Agreement shall be in writing and shall be provided by hand delivery or certified mail, return receipt requested to the addresses listed below or to such other address as may have been furnished to the other party in writing: 8 9 Notices to ROI: Response Oncology, Inc. 1805 Moriah Woods Boulevard Memphis, Tennessee 38117 Attn: Chief Executive Officer Notices to Employee: Nelson Braslow, M.D. Any notice provided pursuant to this Agreement shall be effective as of the earlier of the date received or within three (3) business days after mailing by certified mail, return receipt requested. Either party, by written notice to the other party, may change the address, persons, or entities to whom notice is to be provided. 10.5 HEADINGS. The headings, captions, and titles appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of the Agreement or any paragraph or provision therein. 10.6 WAIVER OF BREACH. The waiver by either party of a breach or violation of any provision of this Agreement shall not operate as or be construed to be a waiver of any subsequent breach of this Agreement. Further, neither party shall be deemed to have waived any provision of or right under this Agreement unless such waiver is set forth in writing signed by the party against whom waiver is asserted. No failure to exercise and no delay in exercising any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy or power provided herein or by law or in equity. 10.7 SEVERABILITY. If any one or more of the provisions of this Agreement is ruled to be wholly or partly invalid or unenforceable by a court or other government body of competent jurisdiction then: (a) the validity and enforceability of all provisions of this Agreement not ruled to be invalid or unenforceable shall be unaffected; (b) the effect of the ruling shall be limited to the jurisdiction of the court or other government body making the ruling; (c) the provision(s) held wholly or partly invalid or unenforceable shall be deemed amended, and the Court or other government body is authorized to amend and to reform the provision(s) to the minimum extent necessary to render it valid and enforceable in conformity with the parties' intent as manifested in this Agreement and a provision having a similar economic effect shall be substituted; and (d) if the ruling and/or the controlling principle of law or equity leading to the ruling is subsequently overruled, modified, or amended by legislative, judicial, or administrative action, then the provision(s) in question as originally set forth in this Agreement shall be deemed valid and enforceable to the maximum extent permitted by the new controlling principal of law or equity. 10.8 APPLICABLE LAW. The construction, interpretation, and enforcement of this Agreement shall at all times and in all respects be governed by the laws of the State of Tennessee, without reference to Tennessee's choice of law or conflict of law provisions or principles. 10.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supercedes any prior written or oral agreement pertaining to the subject matter hereof. No change or modification of this Agreement shall be valid or binding upon the parties unless and until the same is in writing and signed by the party against whom enforcement of such change or modification is sought. 10.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.11 COVENANTS AND UNDERTAKINGS OF SECTIONS 5 AND 8; INJUNCTIVE RELIEF FOR BREACH OR THREATENED BREACH. The covenants and undertakings of Executive in Sections 5 and 8 are essential elements of this Agreement, and without Executive's agreement to comply with such covenants, ROI would not have employed him and entered into this Agreement. ROI and Executive have independently consulted their respective counsel and have been 9 10 advised in all respects concerning the reasonableness and propriety of such covenants, with specific regard to the nature of the business conducted by ROI. Executive's covenants and agreements in Sections 5 and 8 are independent covenants and the existence of any claim against ROI by Executive under this Agreement or otherwise will not excuse Executive's breach of any covenant or agreement in Section 5 or 8. The parties agree that in the event of any breach or threatened breach of any of the covenants or undertakings of Sections 5 or 8, the damage or imminent damage to the value and goodwill of ROI's business will be irreparable and extremely difficult to estimate, making any remedy at law or in monetary damages inadequate. Accordingly, the parties agree that ROI shall be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any such provisions by Executive, in addition to any other relief (including damages) available to ROI under this Agreement or under applicable law. 10.12 EXECUTIVE'S REPRESENTATIONS AND WARRANTIES. Executive represents and warrants that the execution and delivery of this Agreement by Executive do not, and the performance by Executive of his obligations hereunder will not, with or without the giving of notice or the passage of time, or both: (a) violate any judgment, writ, injunction or order of any court, arbitrator or governmental agency applicable to Executive; or (b) conflict with, result in the breach of any provision of or the termination of, or constitute a default under, any agreement to which Executive is a party or by which Executive is or may be bound. IN WITNESS WHEREOF, the parties have executed this Agreement by their duly authorized representatives as of the Effective Date. RESPONSE ONCOLOGY, INC. EXECUTIVE Signature: /s/ Anthony LaMacchia Signature: /s/ Nelson Braslow, M.D. ------------------------- ------------------------------ Name: Anthony LaMacchia Name: Nelson Braslow, M.D. Title: Chief Executive Officer Date: August 7, 2000 Date: August 9, 2000 ------------------------- ------------------------------- 10 11 RESPONSE ONCOLOGY, INC. EMPLOYMENT AGREEMENT FOR CHIEF MEDICAL OFFICER ADDITIONAL BENEFITS - EXHIBIT A This policy was adopted by ROI on July 1, 2000 and as such the draft is being reviewed and the formal text will be finalized within the next two weeks. The significant elements of the policy are the following: - Executives will take time off for vacation, sick, holiday, education, etc. in accordance with their responsibilities and work schedule, however there is no specific minimum or maximum time allotted. Vacation request time exceeding four weeks in a twelve month period will require the approval of the CEO. - No specific for sick time, however disabilities will be coordinated with our disability plan. - No time will accrue for vacation, holiday, or sick and as such no pay-outs will occur annually or at time of separation. The spirit of the policy is to allow the executive flexibility and to minimize the record keeping. 11 12 RESPONSE ONCOLOGY, INC. EMPLOYMENT AGREEMENT FOR CHIEF MEDICAL OFFICER ADDITIONAL BENEFITS - EXHIBIT B Certain expenses incurred by the Executive for licensure, professional dues and subscriptions to professional publications may be reimbursed by the Company. Subject to the restrictions herein noted and the Company's general guidelines for expense reimbursement, such reimbursement(s) will be paid directly to the Executive upon submission of a properly completed expense report. Licensure - The Company will reimburse the Executive for the fee associated with renewing/maintaining his medical license in one state. Board re-certification - If the Company requires the Executive to maintain a Board certification, the Company will reimburse the Executive for reasonable expenses associated with the re-certification process. In any event, Executive will be entitled for reimbursement of one board re-certification of his choice. Continuing Education - The Company will reimburse expenses for continuing medical education as long as the Executive exercises reasonable discretion in course selection. That is, the Executive is expected to choose courses that relate specifically to the Company's business and to exercise prudent judgement in selecting courses with respect to geographic location. The calendar year limitation is $4,000.00 that shall include associated airfare, hotel and incidental expenses. Professional Association Dues - Subject to the approval of the Chief Executive Officer or his designee, dues for three professional associations specifically related to the Company's business may be reimbursed up to a combined annual limit of $1,000.00. Professional Journals and Books - The Executive can subscribe to professional journals that specifically relate to the Company's business. The calendar year limitation is $1,000.00. Note: If the publication is already part of our clinical library of shared corporate resources and the Executive chooses to have his own subscription, reimbursement may not be available. 12 EX-27 3 g65249ex27.txt FINANCIAL DATA SCHEDULE
5 0000763098 RESPONSE ONCOLOGY 1,000 U.S. DOLLARS 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 7,857 0 13,894 2,602 2,960 42,510 17,071 13,470 109,967 51,851 0 0 17 123 46,306 109,967 99,952 99,952 68,450 101,700 0 405 2,548 (2,193) (830) (1,363) 0 0 0 (1,363) (.11) (.11)
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