-----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, ObSqEyNyqLIOuoFWK6YnKAfdDB9xPuflxB/f1enrlJo4cAn31EvfZddBf+zi0+3m dOzgDuSEOpIaNshbFIAlaw== 0000950144-96-001447.txt : 19960402 0000950144-96-001447.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950144-96-001447 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESPONSE ONCOLOGY INC CENTRAL INDEX KEY: 0000763098 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 621212264 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09922 FILM NUMBER: 96542482 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-K 1 RESPONSE ONCOLOGY INC. 10-K 12-31-95 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X Annual Report Pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995. or Transition Report Pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 [No Fee Required] For the Transition Period ----------------- Commission file number -------- RESPONSE ONCOLOGY, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Tennessee 62-1212264 ------------------------ ------------------------ (State of incorporation) (I.R.S. Employer ID No.) 1775 Moriah Woods Blvd., Memphis, TN 38117 - ---------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (901) 761-7000. Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- --------------------- Common Stock, par value $.01 per share . . . . . . . . NASDAQ National Market Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated in Part III of this Form 10-K or any Amendment to this form 10-K _____ As of February 15, 1996, 7,371,589 shares of Common Stock of Response Oncology, Inc. were outstanding and the aggregate market value of such Common Stock held by nonaffiliates was $40,074,876 based on the closing sale price of $16.1875 as of that date. Portions of Registrant's Proxy Statement for use in connection with the Annual Meeting of Shareholders to be held on May 16, 1996 are incorporated by reference into Part III of this report, to the extent set forth therein, if such Proxy Statement is filed with the Securities and Exchange Commission on or before April 30, 1996. If such Proxy Statement is not filed by such date, the information required to be presented in Part III will be filed as an amendment to this report under cover of a Form 8. The exhibits for this Form 10-K are listed on Page 14. 2 PART I ITEM 1. BUSINESS The Company The Company is a comprehensive cancer management company. The Company provides advanced cancer treatment services under the direction of over 300 independent oncologists; manages the practices of oncologists with whom the Company has affiliated; and conducts clinical cancer research on behalf of pharmaceutical manufacturers. CANCER TREATMENT SERVICES The Company provides advanced cancer treatments and related services, principally on an outpatient basis, through its IMPACT(R) (IMPlementing Advanced Cancer Treatments) Centers. Each IMPACT(R) Center provides its Medical Directors/Cancer Specialists with a fully integrated delivery system for implementation of advanced cancer protocols. As of February 15, 1996, the Company owned or operated in joint ventures with hospitals 43 IMPACT(R) Centers in 21 states, providing advanced treatment capabilities and facilities to over 300 medical oncologists. Commencing in 1995, the Company shifted its emphasis from wholly owned IMPACT(R) Centers typically located away from hospitals in close proximity to suburban oncology practices to joint ventures with hospitals which provide the physical facilities wherein the IMPACT(R) Center is operated. Each IMPACT(R) Center is staffed by experienced oncology nurses, pharmacists, laboratory technologists, and other support personnel to deliver outpatient services under the direction of private practicing oncologists. IMPACT(R) Center services include preparation and collection of stem cells, administration of high- dose chemotherapy, reinfusion of stem cells and delivery of broad- based supportive care. IMPACT(R) Center personnel extend the support mechanism into the patient's home, further reducing the dependence on hospitalization. The advantages of this system to the physician and patient include (i) convenience of the local treatment facility; (ii) specialized on-site laboratory and pharmacy services, including home pharmacy support; (iii) access to the Company's clinical trials program to provide ongoing evaluation of current cancer treatment; (iv) specially trained medical and technical staff; (v) patient education and support materials through computer, video and staff consultation; and (vi) reimbursement assistance. ONCOLOGY PRACTICE MANAGEMENT SERVICES The Company announced during the year ended December 31, 1995, its plans to engage in physician practice management within the specialty of medical oncology and hematology. On January 2, 1996, the Company acquired the assets of, and Page 2 3 entered into a long-term management services agreement with Oncology Hematology Group of South Florida, P.A. (the "Group"). The Group, consisting of nine physicians, is located on the campus of Baptist Hospital in Miami, Florida. Under the management services agreement, the Company receives a management fee to manage the non-medical aspects of the practice and to coordinate practice enhancement opportunities with the physicians. Improvements are expected through a professional focus on management and managed care relationships, economies of scale, and the addition of new services. The Group is the Company's first physician group under such a practice management relationship. As of February 15, 1996, the Company had announced the receipt of two additional non-binding letters of intent for physician practice management relationships, and that it was in early negotiations with several additional groups. In late 1995, the Company contracted with an independent physician association of oncologists in Palm Beach, Broward, Dade and Monroe Counties in South Florida for the purpose of marketing the services of such oncologists to managed care organizations. CANCER RESEARCH SERVICES The Company also utilizes its database to provide various types of data to pharmaceutical companies regarding the use of their products. The IMPACT(R) Center network and the Company's database make the Company ideally suited to this process. The Company is currently participating in several projects with pharmaceutical manufacturers to furnish data in connection with FDA applications for post-FDA approval marketing studies. Revenue from these contracts helps to underwrite the Company's clinical trials expenses. Such relationships with pharmaceutical companies may allow the Company earlier access to drugs and therapies. Competition As a result of growing interest among oncologists and the more widely recognized efficacy of high-dose chemotherapy treatments, the competitive environment in the field is starting to heighten. Most community hospitals with a commitment to cancer treatment are evaluating their need to provide high dose treatments, and other entities are competing with the Company in providing high-dose services similar to those offered by the Company. Such competition has long been contemplated by the Company, and is indicative of the evolution of this field. While the Company believes that the demand for high dose chemotherapy services is sufficiently large to support several significant providers of these services, it is subject to increasing competitive risks from these entities. In addition, the Company is aware of at least two competitors specializing in the management of oncology practices, and several health care companies with established operating histories and Page 3 4 significantly greater resources than the Company are also providing at least some management services to oncologists. There are certain other companies, including hospitals, large group practices, and outpatient care centers, that are expanding their presence in the oncology market and may have access to greater resources than the Company. Furthermore, organizations specializing in home and ambulatory infusion care, radiation therapy, and group practice management compete in the oncology market. The Company's revenue depends on the continued success of its affiliated physician groups. These physician groups face competition from several sources, including sole practitioners, single and multi-specialty groups, hospitals and managed care organizations. Government Regulation The Company's services are subject to federal and state licensing requirements in each of the states in which it operates. In order to maintain such licensure, the Company must comply with applicable regulations and is subject to periodic compliance inspections by health care regulators. The Company is, to the best of management's knowledge, in compliance with applicable state and federal licensing requirements. The law regulating healthcare providers varies among states. Accordingly, the Company approaches its network expansion on a state by state basis in order to determine whether the institution and operation is feasible under the laws of the target state. Healthcare regulation is a rapidly evolving area of law. There can be no assurance that the Company's ability to open or operate its treatment facilities will not be adversely affected by changes in applicable federal or state law (such as certificate of need laws) or by administrative interpretation of existing law. Some protocols which the Company may desire to implement may be subject to regulatory approval by the Food and Drug Administration ("FDA") due to the drugs or combination of drugs used in the protocols. In most instances, such approval will be sought by manufacturers of the drugs; however, the Company may occasionally participate in such an approval process. The majority of patients referred to the Centers are covered by a third party insurer. The Company receives very little of its revenue from Medicare since patients eligible for Medicare generally are not medically eligible by virtue of their age for high-dose treatment protocols. The Company believes that its method of compensating its Medical Directors complies with the federal Medicare anti-kickback law and the Stark self-referral law and similar state regulations. Such regulations at the federal level prohibit any form of compensation to physicians intended to induce the referral of Medicare or Page 4 5 Medicaid patients and the referral of such patients to an entity for designated health services in which the physician has a financial relationship. Certain states have enacted broader regulations precluding such referrals with respect to non-Medicare and Medicaid payers. The Company believes that it has structured its compensation arrangements with its Medical Directors pursuant to federal "safe harbor" regulations, and in compliance with applicable state regulations. However there can be no assurance that future government regulations will not impact the Company's compensation arrangements with its Medical Directors. The Company would attempt to restructure its Medical Director payments in a manner which complies with any future regulation. Business History and Past Operations The Company was incorporated on June 26, 1984 under the laws of the State of Tennessee. The name was changed to Response Oncology, Inc. effective November 2, 1995. In fiscal 1989, after suffering losses since incorporation of over $30 million, the Company adopted a plan of restructuring and reorganization of its business operations away from patient-funded research activities to the development and operation of outpatient cancer Centers specializing in technology advanced cancer treatment programs for oncologists. Liability Exposure Like all companies operating in the healthcare industry, the Company faces an inherent risk of exposure to liability claims. While the Company has taken what it believes to be appropriate precautions, there can be no assurance that it will avoid significant liability exposure. The Company has obtained liability insurance, but there can be no assurance that it will be able to continue to obtain coverage at affordable rates or that such coverage will be adequate in the event of a successful liability claim. Since inception, the Company has not incurred any professional or general liability claims or losses, and as of December 31, 1995, the Company was not aware of any pending claims. Employees As of February 15, 1996 the Company employed approximately 340 persons, approximately 309 of whom were full-time employees. The employees are not covered by any collective bargaining agreements. The Company believes that its labor relations are good. ITEM 2. PROPERTIES As of February 15, 1996 the Company leased 26,000 square feet of space at 1775 Moriah Woods Boulevard in Memphis, Tennessee, where the Company's headquarters are located. The lease expires in Page 5 6 1998. The Company also leases all facilities housing the Company's IMPACT(R) Centers, as well as the facilities of the Miami Practice. Management believes that the Company's properties are well maintained and suitable for its business operations. The Company may lease additional space in connection with the development of future treatment facilities. ITEM 3. LEGAL PROCEEDINGS The Company is not involved in any material pending legal proceedings. ITEM 4. MATTERS SUBMITTED TO STOCKHOLDERS' VOTE A Special Meeting of Shareholders of the Company was held November 1, 1995 for the purpose of approving an amendment to the Company's charter (i) decreasing the number of shares of Common Stock that the Company is authorized to issue from 60,000,000 shares, par value $.002 per share, to 30,000,000 shares, par value $.01 per share, with a corresponding reclassification of the Company's Common Stock pursuant to which each share of issued and outstanding Common Stock of the Company held by each holder thereof will be reclassified, converted and changed into one-fifth (1/5) of an issued and outstanding share of Common Stock, with each fractional share resulting from such conversion being redeemed by the Company for cash; and (ii) changing the name of the Company to "Response Oncology, Inc." Holders of 34,927,615 shares were eligible to vote and 23,687,506 shares were represented at the meeting. The amendment was approved by 100% of the voting securities present. PART II ITEM 5. MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS The Company's common stock is quoted on The NASDAQ Stock Market's National Market System under the symbol "ROIX". Prior to October 26, 1995, the common stock was listed on the American Stock Exchange under the symbol "RTK". As of February 15, 1996 the Company's common stock was held by approximately 648 shareholders of record. The Company has not paid any cash dividends on the common stock since its inception. The Board of Directors does not intend to pay cash dividends on the common stock in the foreseeable future, but intends to retain all earnings, if any, for use in the Company's business. The following tables set forth, for the periods indicated, the high and low sale prices for the Company's common stock. All prices are adjusted to give effect to a reverse stock split effected by the Company on November 2, 1995. Page 6 7
Year Ended December 31, 1994 High Low First Quarter 14 3/8 8 1/8 Second Quarter 15 5/8 8 3/4 Third Quarter 16 1/4 11 1/4 Fourth Quarter 13 3/4 8 1/8 Year Ended December 31, 1995 High Low First Quarter 12 1/2 8 1/2 Second Quarter 13 3/4 9 1/16 Third Quarter 21 1/4 7 1/2 Fourth Quarter 20 15
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31 Eight Months Ended -------------------------------------------------------- December 31 1995 1994 1993 1992 1991 (2) -------------------------------------------------------- ------------------ Net revenue and other income $44,579,809 $38,470,852 $37,884,573 $28,042,748 $ 8,920,716 Net earnings (loss) 2,314,358 (2,346,487) 699,533 590,801 (369,311) Net earnings (loss) to common 2,310,533 (2,349,311) 696,611 584,464 (581,573) shareholders Total assets 24,765,271 21,036,715 25,877,066 17,099,507 10,274,464 Long-term debt and lease obligations 15,492 28,878 184,631 319,695 260,753 Earnings (loss) per common share (1) $.32 $(.34) $.10 $.09 $(.15)
Notes: (1) On November 2, 1995, the Company effected a one-for-five reverse split of its common stock. Earnings (loss) per common share computations have been restated to retroactively reflect the reverse split. (2) In 1991, the Company changed its fiscal year from April 30 to December 31, resulting in an eight month period ended December 31, 1991. Page 7 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is an integrated cancer management company that offers patients a complete network of cancer care resources from the time of initial diagnosis. The Company positioned itself as a beneficiary of healthcare reform by (i) emphasizing cost-effective cancer treatments, primarily through the use of outpatient facilities and incorporation of the most recent technological advancements, and (ii) being a national healthcare provider focused on uniform delivery of complex cancer technologies in the management of potentially curable cancers. The Company's commitment to its clinical trials program provides a mechanism to monitor treatment outcomes, improve future treatment regimens, and provide a means of objectively selecting patients most likely to benefit from such treatments. Finally, the Company's expanding national network of Centers facilitates relationships with the insurance industry to manage these intensive and complex therapies in a cost-effective manner. At December 31, 1995, the Company's network consisted of 27 wholly owned IMPACT(R) Centers. While fully staffed and equipped IMPACT(R) Centers are appropriate for many medical centers, other communities have hospitals with existing capacity in their outpatient cancer treatment centers, providing an alternative to a stand-alone IMPACT(R) Center. By joining the hospital's staff and facilities with the Company's protocols, databasing, and expertise, the Company and such hospitals are able to jointly market and provide high-dose therapies. At December 31, 1995, there were 14 such hospital-affiliate programs. For hospital- affiliated Centers, the Company offers two types of business structures. The first structure entails a management relationship with the hospital whereby a management fee is paid to the Company. The second structure entails a joint ownership with the hospital of a newly created entity, whereby profits from the entity accrue to the Company and the hospital. The Company anticipates that additional hospital-affiliate Centers will become operational in 1996. RESULTS OF OPERATIONS 1995 Compared to 1994 The Company recorded net earnings of $2,314,000 compared to a loss of $2,346,000 for the year ended December 31, 1994. The significant improvement in operations in 1995 compared to 1994 is attributable to increased revenues from the increased referrals of high-dose chemotherapy patients, including the establishment of additional IMPACT(R) Centers, principally in joint venture with hospitals, and the further development of physician investigator studies for the pharmaceutical industry. Page 8 9 Net revenue increased $6,046,000, or 16%, from 1994 to 1995. In addition to an approximate $2 million increase in net revenues from services to patients to $33.6 million in 1995, sales of pharmaceuticals to physicians increased by $3.3 million to $9.8 million, and revenues from physician investigator studies in 1995, the first year of significant revenues generated from this source, amounted to $665,000. Operating expenses increased $1,134,000, or 4%, from 1994 to 1995. Operating expenses consist primarily of payroll costs, pharmaceutical and laboratory expenses, medical director fees, rent expense, and other operational costs. These expenses are expected to display a high degree of variability in proportion to Center revenues. Operating expenses as a percentage of net revenue were 74% and 83% for the years ended 1995 and 1994, respectively. This decrease is primarily attributable to operating efficiencies at higher levels of Center activity and certain fixed operating expenses being spread over a larger revenue base. Lab and pharmacy expense, which represents the largest component of operating expenses, increased $1,662,000, or 10%, from 1994 to 1995. The increase is primarily due to an increase in patient referrals and pharmaceutical supply expense related to sales to physicians. A reduction in medical director fees and other operating expenses of $528,000 was realized during 1995. General and administrative costs increased $1,226,000, or 29%, from 1994 to 1995. Salaries and benefits, which represent the largest component of general and administrative expenses, were $3,285,000 in 1995 and $2,213,000 in 1994. The increase is primarily due to management incentive compensation relative to significant improvement in operations and general increases in salaries and benefits. General and administrative costs as a percentage of net revenue were 12% and 11% in 1995 and 1994, respectively. Depreciation expense decreased $140,000 from 1994 to 1995. The decrease is primarily attributable to many prior capital expenditures becoming fully depreciated. Amortization expense decreased $249,000 from 1994 to 1995 due to the startup costs of many Centers being fully amortized after a two-year operational period. The provision for doubtful accounts decreased $422,000 from 1994 to 1995. The provision as a percentage of net revenue was 5% and 7% for 1995 and 1994, respectively. The decrease is attributable to a higher proportion of contracted patient accounts, improved collections performance and an increase in revenues from physician sales, hospital management fees, and contract research for which collection is more certain. The Company's collection experience in 1995 and 1994 may not be indicative of future periods. Page 9 10 Tax net operating loss carryforwards were utilized to fully offset 1995 taxable income. As of December 31, 1995, the Company had available net operating loss carryforwards totaling approximately $7 million of which approximately $5.5 million are subject to certain annual limitations due to a change in ownership for tax purposes in 1990. The use of net operating loss carryforwards is also dependent upon future taxable income. See Note E to the consolidated financial statements. 1994 Compared to 1993 The Company reported a net loss of $2,346,000 in 1994 compared to net earnings of $700,000 in 1993. Several specific factors contributed to the loss in 1994. The Company treated fewer candidates with metastatic breast cancer, many of whose clinical profiles indicated that they were not likely to sufficiently benefit from high-dose treatment. Metastatic breast cancer patients have historically comprised a significant portion of the Company's patient base. The Company believes that the use of its data to redirect poor risk patients from high-dose treatments is unprecedented in the field and will lead to more favorable relationships with third party payors. One of the Company's most active Centers experienced a temporary downturn in utilization during the first half of the year. Such undulations in activity among cancer practices are not uncommon, and operations of the affected Center returned to normal levels during the latter part of the year. The Company also experienced losses from special situations at several Centers which are not expected to recur. The IMPACT(R) Center in Dayton, Ohio, ceased operations due to an unfavorable Certificate of Need ruling by the state. The Dayton Center had a net loss from operations of approximately $280,000 during 1994. The IMPACT(R) Center of Atlanta, Georgia, was converted to a hospital-managed Center during 1994. The operating loss from this Center was approximately $126,000 in 1994. The Company also realized a loss of $168,000 during the development stage of a Center in Seattle, Washington, which did not open. The loss primarily related to payroll costs for a nurse coordinator and an operating lease for space. Newer Centers yielded total losses of $91,000 in 1994. Net revenue increased $555,000, or 1%, from 1993 to 1994. Patient referrals in 1994 failed to increase in line with the Company's Center capacity due to the Company's decision to discontinue treatment for certain metastatic breast cancer patients, resulting in a marginal increase in revenue. Operating expenses increased $2,015,000, or 7%, from 1993 to 1994. Operating expenses as a percentage of net revenue were 83% and 79% Page 10 11 for the years ended 1994 and 1993, respectively. The increase in 1994 is primarily attributable to increases in pharmaceutical sales to physicians. The Company provides a wholesaler service to physicians; therefore, revenue from these sales has a lower margin than IMPACT(R) Center revenue. Physician sales were $6,479,000 in 1994 and $4,311,000 in 1993. Lab and pharmacy expense, which represents the largest component of operating expenses, increased $1,821,000, or 12%, from 1993 to 1994. The increase is primarily due to pharmaceutical supply expense related to sales to physicians. In addition, increases in salaries and benefits from the hiring of Center coordinators at hospital-affiliate programs and other operational personnel also contributed to the increase in operating expenses in 1994. General and administrative costs increased $1,395,000, or 48%, from 1993 to 1994. Salaries and benefits, which represent the largest component of general and administrative expenses, were $2,213,000 in 1994 and $1,553,000 in 1993. General and administrative costs as a percentage of net revenue were 11% and 8% in 1994 and 1993, respectively. The increase in 1994 is due to greater investments in the corporate infrastructure, primarily medical and scientific management, during a period of minimal revenue growth. Depreciation expense increased $371,000 from 1993 to 1994. The increase is primarily attributable to capital expenditures related to the establishment of new Centers. Amortization expense decreased $163,000 from 1993 to 1994 due to the startup costs of many Centers being fully amortized after a two-year operational period. The provision for doubtful accounts increased $58,000 from 1993 to 1994. The provision as a percentage of net revenue was 7% for both periods. Significant bad debt recoveries were experienced during 1993. The Company's collection experience in 1994 and 1993 may not be indicative of future periods. The Company's wholly owned subsidiary, Response Tech Healthcare Corporation, was an equal partner with Advanced Oncology Services ("AOS"), a wholly owned subsidiary of another publicly traded company, Cancer Treatment Holdings, Inc. ("CTHI"), in IMPACT(R) Healthcare Services ("IHS" or the "Hollywood Center"). During the year ended December 31, 1993, the Company learned that CTHI and AOS had taken certain actions with respect to the operations of the partnership which, in the Company's belief, materially affected the profitability and ongoing operations of the partnership. The Company filed suit against CTHI and AOS with a binding settlement agreement reached during the year ended December 31, 1994 between the Company and CTHI and AOS. CTHI has relinquished its interest in the Hollywood Center to the Company. The Company's ownership of all of the assets and assumption of the operations of the Center became effective January 8, 1994, resulting in a gain on net assets of approximately $54,000. Page 11 12 A loss of $71,000 was recorded for the Company's interest in the partnership's loss for the twelve months ended December 31, 1993. Beginning in 1994, the results of operations of the Hollywood Center were reported consistently with the other Centers, rather than by the equity method. Because the Company had operating losses for both tax and financial reporting purposes, no provision for income taxes for 1994 was recognized. Tax net operating loss carryforwards were utilized to fully offset 1993 taxable income. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1995, the Company's working capital was $15,753,000 with current assets of $20,637,000 and current liabilities of $4,884,000. Cash and cash equivalents and short- term investments represented $4,556,000 of the Company's current assets. At December 31, 1995, the Company had a $2.5 million revolving bank line of credit secured by eligible accounts receivable, bearing interest at the bank's prime rate plus one percent, or 9.5% at December 31, 1995. The available credit under the line was increased March 1, 1996 to $5 million subject to renewal on April 1, 1996. Primarily as a result of positive cash flow from operating activities, the Company had no borrowings under its line of credit as of December 31, 1995. The maximum outstanding during the year was $827,534 at a rate of 10%. Capital expenditures of $1,330,000 for the year ended December 31, 1995 were primarily associated with the expansion of the Company's network of IMPACT(R) and hospital-based Centers. The capital expenditures were funded with cash from operations. No material commitments for capital expenditures currently exist. The Company is committed to future minimum lease payments under operating leases of $5.1 million for administrative and operational facilities. The Company announced during the year ended December 31, 1995, its plans to engage in physician practice management within the specialty of medical oncology and hematology. On January 2, 1996, the Company acquired the assets of, and entered into a long-term management services agreement with Oncology Hematology Group of South Florida, P.A. (the "Group"). The total consideration was approximately $12.1 million, approximately $5.3 million of which was paid in cash, approximately $6.0 million paid in the form of the Registrant's long-term unsecured interest-bearing amortizing promissory note and the balance being paid over 16 calendar quarters at the rate of $50,000 per quarter. The Group, consisting of nine physicians, is located on the campus of Baptist Hospital in Miami, Florida. Page 12 13 Under the management services agreement, the Company receives a management fee to manage the non-medical aspects of the practice and to coordinate practice enhancement opportunities with the physicians. Improvements are expected through a professional focus on management and managed care relationships, economies of scale, and the addition of new services. The Group is the Company's first physician group under such a practice management relationship. As of February 15, 1996, the Company had announced the receipt of two additional non-binding letters of intent for physician practice management relationships, and that it was in early negotiations with several additional groups. The Company is currently evaluating means of optimally financing the anticipated acquisitions, and it is contemplated that such acquisitions will be financed through combinations of debt and equity. NEW ACCOUNTING STANDARDS In March and October, 1995, the Financial Accounting Standards Board issued Statements No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and No. 123, "Accounting for Stock-Based Compensation." Both Statements are effective in 1996, and neither is currently expected to have a significant effect on the financial statements of the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This item is submitted in a separate section of this report (see pages 18 through 37). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The information required by this item with respect to the executive officers and directors of the Company is incorporated herein by reference to the sections entitled "Executive Officers" and "Nominees for Election as Directors" in the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held May 16, 1996. Page 13 14 ITEM 11. EXECUTIVE COMPENSATION The information required by this item with respect to executive compensation is incorporated herein by reference to the section entitled "Executive Compensation" in the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held May 16, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item with respect to executive compensation is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners, Directors and Management" in the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held May 16, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the section entitled "Certain Transactions" in the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held May 16, 1996. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) and (2) -- The response to this portion of Item 14 is submitted as a separate section of this report. (A)(3) LISTING OF EXHIBITS 2(a) Stock Purchase Agreement between the Registrant and stockholders of Oncology Hematology Group of South Florida (filed as Exhibit 10(m) to Registrant's Form 8-K/A filed January 17, 1996 (File No. 0-15416) and incorporated herein by reference) 3(a) Charter (1) 3(b) Bylaws (2) 4 Trust Indenture, Deed of Trust and Security Agreement dated April 3, 1990 (3) 10(a)* Registrant's 1985 Stock Option Plan, as amended** (4) 10(b) Standard Commercial Sales Contract, dated May 24, 1990, among Equisouth, Inc., The Gradd Company and the Registrant (3) 10(c) Deed of Trust Note dated June 12, 1990 due from Equisouth, Inc. regarding purchase money mortgage in Sale Contract listed in 10(b) above (5) 10(d) Partnership Agreement of Impact Healthcare Services, a Florida general partnership, dated December 13, 1989, between Advance Oncology Consultants, Inc. and Response Tech Healthcare Corporation, a wholly-owned Page 14 15 subsidiary of the Registrant, as amended by an Addendum dated February 15, 1990 (3) 10(e) Partnership Agreement and Agreement Among Friends Health Services, a Florida general partnership, dated January 1990, among Advanced Oncology Services, Inc., Friends Health Services, Inc. and Response Tech Healthcare Corporation, a wholly-owned Subsidiary of the Registrant (3) 10(f) Contract for Sale of Real Estate dated August 8, 1990, to Bruce Callahan d.b.a. Landmark Distributors for real estate located at 316 Eddy Lane, Franklin, Tennessee (5) 10(g) Agreement for sale of assets of the Registrant's Newport Beach, California satellite laboratory to Hoag Memorial Hospital/Presbyterian, dated September 14, 1990 (5) 10(h) Securities Purchase Agreement dated September 26, 1990 between the Registrant and Investor (5) 10(i) Amendment to Securities Purchase Agreement dated July 25, 1991 (reference 10(h) above) (5) 10(j)* Registrant's 1990 Non-Qualified Stock Option Plan, as amended** (6) 10(k)* Employment agreement between the Registrant and William H. West, M.D. dated January 1, 1992** 10(l)* Employment agreement between the Registrant and Joseph T. Clark dated July 1, 1995** 10(l)* Employment agreement between the Registrant and Daryl P. Johnson dated January 1, 1992** 10(m) Stock Purchase Agreement between the Registrant and stockholders of Oncology Hematology Group of South Florida (filed as Exhibit 10(m) to Registrant's Form 8-K/A filed January 17, 1996 (File No. 0-15416) and incorporated herein by reference) 10(n) Service Agreement between the Registrant and stockholders of Oncology Hematology Group of South Florida (filed as Exhibit 10(n) to Registrant's Form 8-K/A filed January 17, 1996 (File No. 0-15416) and incorporated herein by reference) 10(o)* Amendment to 1990 Registrant's Non-Qualified Stock Option Plan adopted April 20, 1995 10(p)* Employment agreement between the Registrant and Charles H. Weaver, M.D. dated July 1, 1995** 11 Statement RE: Computation of Per Share Earnings (Loss) 13 Annual Report to Shareholders for year ended December 31, 1995 -- to be filed 23 Consent of Independent Auditors 27 Financial Data Schedule -- as filed electronically by the Registrant (for SEC use only) 99(a) Definitive Proxy Statement for Annual Meeting of Shareholders to be held May 16, 1996 -- to be filed * These documents may be obtained by stockholders of Registrant upon written request to: Response Oncology, Inc., 1775 Moriah Woods Blvd., Memphis, Tennessee 38117 ** Management Compensatory Plan - --------------------- Page 15 16 (1) Incorporated by reference to the Registrant's 1989 10-K, dated July 31, 1989 (2) Incorporated by reference to the Registrant's Registration Statement on Form S-1 under the Securities Act of 1933 (file No. 33-5016) effective April 21, 1986 (3) Incorporated by reference in the initial filing of the Registrants' 1990 10-K, dated July 18, 1990, filed July 20, 1990 and amended on September 19, 1990 (4) Incorporated by reference to the Registrant's Registration Statement on Form S-8 under the Securities Act of 1933 (File No. 33-21333) effective April 26, 1988 (5) Incorporated by reference to the Registrant's 1991 10-K, dated July 26, 1991 (6) Incorporated by reference to the Registrant's Registration Statement on Form S-8 under the Securities Act of 1933 (File No. 33-45616) effective February 11, 1992 (B) Reports on Form 8-K filed in the fourth quarter of 1995: Form 8-K dated October 25, 1995 Item 5. Other Events Press release announcing reverse stock split; move to NASDAQ National Market; name change; engagement of Smith Barney; and plans to acquire physician practices. (C) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. (D) Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate section of this report. Page 16 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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/Joseph T. Clark -------------------------- Joseph T. Clark, President, Chief Executive Officer, and Director Date: March 29, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. By: /s/ Frank M. Bumstead By: /s/ P. Anthony Jacobs ------------------------------- ------------------------------ Frank M. Bumstead P. Anthony Jacobs Vice-Chairman of the Board Director Date: March 29, 1996 Date: March 29, 1996 By: /s/Joseph T. Clark By: /s/Daryl P. Johnson ------------------------------- ------------------------------- Joseph T. Clark Daryl P. Johnson President, Chief Executive Vice President, Secretary Officer, and Director and Chief Financial Officer Date: March 29, 1996 Date: March 29, 1996 By: /s/Debbie K. Elliott By: /s/James R. Seward ------------------------------- ------------------------------- Debbie Elliott James R. Seward Controller and Principal Director Accounting Officer Date: March 29, 1996 Date: March 29, 1996 By: /s/William H. West, M.D. ------------------------------- William H. West, M.D. Chairman of the Board Date: March 29, 1996 Page 17 18 FORM 10-K -- ITEM 14 (a)(1) and (2) RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES INDEX OF FINANCIAL STATEMENTS The following consolidated financial statements of Response Oncology, Inc. and subsidiaries are included in Item 8.
Page ---- Consolidated Balance Sheets as of December 31, 1995 and 1994 20 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 22 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 23 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 24 Notes to Consolidated Financial Statements 25
The following consolidated financial statement schedule of Response Oncology, Inc. and subsidiaries is included in Item 14(d): Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or are not applicable, and therefore have been omitted. Page 18 19 Independent Auditors' Report The Board of Directors Response Oncology, Inc. We have audited the accompanying consolidated balance sheets of Response Oncology, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. Our audits also included a financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Response Oncology, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. KPMG PEAT MARWICK LLP Memphis, Tennessee January 23, 1996 Page 19 20 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 ----------------------------- 1995 1994 ---------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,204,558 $ 2,922,266 Short-term investments 361,718 100,000 Accounts receivable, less allowances for doubtful accounts of $2,079,788 and $3,934,794 13,934,810 12,399,569 Supplies 1,119,671 941,481 Prepaid expenses 550,287 324,637 Other current assets 465,738 97,878 ----------- ----------- TOTAL CURRENT ASSETS 20,636,782 16,785,831 PROPERTY AND EQUIPMENT--at cost, less accumulated depreciation and amortization 3,822,425 4,020,799 OTHER ASSETS Deferred charges, less accumulated amortization 186,528 152,520 Other assets 119,536 77,565 ----------- ----------- 306,064 230,085 ----------- ----------- TOTAL ASSETS $24,765,271 $21,036,715 =========== ===========
See accompanying notes to consolidated financial statements. Page 20 21 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 ---------------------------- 1995 1994 ---------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 3,690,937 $ 3,249,147 Accrued expenses 1,134,688 1,023,163 Notes payable --- 71,558 Capital lease obligations 58,501 157,030 ----------- ---------- TOTAL CURRENT LIABILITIES 4,884,126 4,500,898 CAPITAL LEASE OBLIGATIONS 15,492 28,878 MINORITY INTEREST 23,056 --- STOCKHOLDERS' EQUITY Series A Convertible Preferred Stock, $1.00 par value, authorized 3,000,000 shares; issued and outstanding 27,833 and 28,333 shares at December 31, 1995 and 1994, respectively 27,833 28,333 Common Stock, $.01 par value, authorized 30,000,000 shares; issued and outstanding 7,371,589 shares and 6,964,431 shares at December 31, 1995 and 1994, respectively 73,716 69,644 Paid-in capital 60,054,215 59,036,487 Accumulated deficit (40,313,167) (42,627,525) ----------- ----------- 19,842,597 16,506,939 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,765,271 $21,036,715 =========== ===========
See accompanying notes to consolidated financial statements. Page 21 22 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31 ----------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Net revenue $44,297,798 $38,251,304 $37,696,594 Other income--principally interest 282,011 219,548 187,979 ----------- ----------- ----------- 44,579,809 38,470,852 37,884,573 Costs and expenses: Operating 32,892,728 31,758,314 29,743,675 General and administrative 5,512,306 4,285,810 2,891,150 Depreciation and amortization 1,736,055 2,124,877 1,916,543 Interest 16,860 120,653 92,476 Provision for doubtful accounts 2,105,696 2,527,685 2,469,968 ----------- ----------- ----------- 42,263,645 40,817,339 37,113,812 ----------- ----------- ----------- EARNINGS (LOSS) BEFORE MINORITY INTEREST AND EQUITY IN EARNINGS (LOSS) OF UNCONSOLIDATED AFFILIATE 2,316,164 (2,346,487) 770,761 Minority owners' share of net earnings (1,806) --- --- Equity in loss of unconsolidated affiliate --- --- (71,228) ----------- ----------- ----------- NET EARNINGS (LOSS) 2,314,358 (2,346,487) 699,533 Common Stock Dividend to Preferred Stockholders (3,825) (2,824) (2,922) ----------- ----------- ----------- NET EARNINGS (LOSS) TO COMMON STOCKHOLDERS $ 2,310,533 $(2,349,311) $ 696,611 =========== =========== =========== EARNINGS (LOSS) PER COMMON SHARE $ .32 $ (0.34) $ 0.10 =========== =========== =========== Weighted average number of shares 7,171,274 6,953,157 7,176,880 =========== =========== ===========
See accompanying notes to consolidated financial statements. Page 22 23 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock Common Stock ------------------------ -------------------------- Par Value Par Value $(1.00 Per $(.01 Per Shares Share) Shares Share) ------- ----------- ----------- ----------- Balances at December 31, 1992 35,468 $35,468 32,410,076 $64,820 Net earnings Exercise of common stock warrants and options 130,000 260 Exercise of common stock rights, net of offering expenses paid 2,117,887 4,236 Conversion of preferred stock (5,900) (5,900) 5,407 11 Dividend on preferred stock 1,612 3 ------ ------ ---------- ------ Balances at December 31, 1993 29,568 29,568 34,664,982 69,330 Net loss Exercise of common stock warrants and options 154,500 309 Conversion of preferred stock (1,235) (1,235) 1,130 2 Dividend on preferred stock 1,545 3 ------ ------- --------- ------- Balances at December 31, 1994 28,333 $28,333 34,822,157 $69,644 Net earnings Exercise of common stock warrants and options 497,000 4,068 Conversion of preferred stock (500) (500) 458 1 Dividend on preferred stock 306 3 One-for-five reverse split (27,948,332) ------ ------- --------- ------- Balances at December 31, 1995 27,833 $27,833 7,371,589 $73,716 ====== ======= ========== ======= Total Paid-In Accumulated Stockholders' Capital Deficit Equity ----------- ------------ ----------- Balances at December 31, 1992 $53,132,253 $(40,980,571) $12,251,970 Net earnings 699,533 699,533 Exercise of common stock warrants and options 62,240 62,500 Exercise of common stock rights, net of offering expenses paid 5,761,250 5,765,486 Conversion of preferred stock 5,889 0 Dividend on preferred stock (3) 0 ----------- ------------ ----------- Balances at December 31, 1993 58,961,629 (40,281,038) 18,779,489 Net loss (2,346,487) (2,346,487) Exercise of common stock warrants and options 73,628 73,937 Conversion of preferred stock 1,233 0 Dividend on preferred stock (3) 0 ----------- ------------ ----------- Balances at December 31, 1994 $59,036,487 $(42,627,525) $16,506,939 Net earnings 2,314,358 2,314,358 Exercise of common stock warrants and options 1,017,232 1,021,300 Conversion of preferred stock 499 0 Dividend on preferred stock (3) 0 One-for-five reverse split 0 ----------- ------------ ----------- Balances at December 31, 1995 $60,054,215 $(40,313,167) $19,842,597 =========== ============ ===========
See accompanying notes to consolidated financial statements. Page 23 24 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 --------------------------------- 1995 1994 1993 ------------- -------------- -------------- OPERATING ACTIVITIES Net earnings (loss) $2,314,358 $(2,346,487) $ 699,533 Adjustments to reconcile net earnings (loss) from operations: Depreciation and amortization of property and equipment 1,583,901 1,719,693 1,348,446 Amortization of deferred charges and other assets 152,154 405,184 568,097 Loss on disposal of equipment --- 51,000 Provision for losses on accounts receivable 2,105,696 2,527,685 2,469,968 Equity in loss of unconsolidated affiliate --- --- 71,228 Minority owners' share of net income 1,806 --- --- Changes in assets and liabilities: Accounts receivable (3,640,937) 160,879 (9,982,300) Supplies, prepaid expenses, and other current assets (771,700) 624,343 (795,559) Deferred charges and other assets (206,883) (79,306) (388,029) Accounts payable and accrued expenses 553,315 20,862 943,146 ---------- ----------- -------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,091,710 3,083,853 (5,065,470) INVESTING ACTIVITIES Purchase of equipment (1,330,490) (585,637) (1,113,577) Proceeds from sale of equipment --- 23,541 Hollywood Center net assets assumed in excess of investment basis --- (53,396) --- Distributions from unconsolidated affiliate --- --- 189,000 Sale (Purchase) of short-term investments (261,718) --- 564,043 ---------- ----------- -------------- NET CASH USED IN INVESTING ACTIVITIES (1,592,208) (615,492) (360,534) FINANCING ACTIVITIES Proceeds from rights offering, net of expenses paid --- --- 5,765,486 Proceeds from exercise of stock options and warrants 1,021,300 73,937 62,500 Net (payments on) proceeds from notes payable (71,558) 59,420 (17,097) Net proceeds from (repayment of) line of credit --- (2,419,507) 1,449,486 Principal payments on capital lease obligations (166,952) (360,576) (495,736) ---------- ---------- --------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 782,790 (2,646,726) 6,764,639 ---------- ----------- --------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,282,292 (178,365) 1,338,635 Cash and cash equivalents at beginning of period 2,922,266 3,100,631 1,761,996 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,204,558 $ 2,922,266 $ 3,100,631 ========== =========== ===========
See accompanying notes to consolidated financial statements. Page 24 25 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 NOTE A--SIGNIFICANT ACCOUNTING POLICIES Response Oncology is a comprehensive cancer management company which owns and/or operates a network of outpatient treatment centers or IMPACT Centers, which provide stem cell supported high- dose chemotherapy and other advanced cancer treatment services under the direction of practicing oncologists; owns the assets of and manages oncology practices; and conducts clinical cancer research on behalf of pharmaceutical manufacturers. The Company, formerly known as Response Technologies, Inc., changed its name to Response Oncology, Inc. effective November 2, 1995. The Company is a subsidiary of Seafield Capital Corporation ("Seafield"). On February 10, 1995, Seafield announced its retention of a financial advisor to evaluate and recommend steps to enhance the value of Seafield to its shareholders. Any transaction pursued by Seafield will be likely to result in a significant change in the Company's ownership. Principles of Consolidation and Basis of Presentation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and majority-owned or controlled joint ventures. An investment in an affiliated company in which the Company did not have a controlling interest was accounted for by the equity method prior to January 8, 1994 (see Note J--Investment in Affiliate). All significant intercompany accounts and transactions have been eliminated in consolidation. Cash Equivalents: All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. Short-Term Investments: Short-term investments consist of certificates of deposit maturing in less than one year. These investments are carried at cost which approximates market. Supplies: Supplies are recorded at lower of cost (first-in, first-out) or market. Property and Equipment: Property and equipment are stated at cost. Depreciation and amortization are provided by the straight- line method over the estimated useful lives which range from three to ten years. Deferred Charges: Deferred charges consist primarily of startup costs representing direct and incremental expenses incurred prior to the operational date of a new IMPACT Center which are Page 25 26 capitalized and amortized from the operational date over a period of two years. Startup costs of $92,826, $70,546, and $273,405 were incurred for the years ended December 31, 1995, 1994, and 1993, respectively. Accumulated amortization of deferred charges was $65,807 and $253,621 at December 31, 1995 and 1994, respectively. Net Revenue: Net revenues primarily consist of charges for patient services rendered at IMPACT(R) Centers based on established billing rates less allowances and discounts for patients covered by contractual programs. Payments received under these programs, which are generally based on predetermined rates, are generally less than the established billing rates and the differences are recorded as contractual allowances or policy discounts. Net patient service revenue is net of contractual adjustments and policy discounts of $4,224,008, $3,893,813, and $3,331,765 for the years ended December 31, 1995, 1994, and 1993, respectively. Also included in net revenue are sales of pharmaceuticals to physicians of $9,806,000, $6,479,000, and $4,311,000 for the years ended December 31, 1995, 1994, and 1993, respectively. In addition, net revenue for the year ended December 31, 1995 includes $665,000 from clinical research activities. Income Taxes: Under FASB Statement No. 109, "Accounting for Income Taxes", the liability method is used whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Net Earnings (Loss) Per Common Share: Net earnings (loss) per common share has been computed based upon the weighted average number of shares of common stock outstanding during the period, plus (in periods in which they have a dilutive effect) common stock equivalents, primarily stock options and warrants. Fully diluted earnings per share are not disclosed as the effect of assuming the conversion of the preferred stock is clearly immaterial. All share and per share amounts have been restated to reflect a one-for-five reverse split effected November 2, 1995. Fair Value of Financial Instruments: The carrying amounts of all asset and liability financial instruments approximate their estimated fair values at December 31, 1995. Fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial Page 26 27 statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Standards: In March and October, 1995, the Financial Accounting Standards Board issued Statements No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of," and No. 123, "Accounting for Stock-Based Compensation." Both Statements are effective in 1996, and neither is currently expected to have a significant effect on the financial statements of the Company. NOTE B-- PROPERTY AND EQUIPMENT Balances of major classes of property and equipment are as follows:
December 31 ---------------------- 1995 1994 Lab and pharmacy equipment $4,213,633 $3,486,203 Furniture and office equipment 2,903,692 2,574,752 Equipment under capital leases 1,558,064 1,502,079 Leasehold improvements 1,382,766 1,109,594 ---------- ---------- 10,058,155 8,672,628 Less allowances for depreciation and amortization (6,235,730) (4,651,829) ---------- ---------- $3,822,425 $4,020,799 ========== ==========
Purchases of equipment reflected in the "Consolidated Statements of Cash Flows" of $1,330,000, $586,000, and $1,114,000 for the years ended December 31, 1995, 1994, and 1993, respectively, do not include purchases included in accounts payable of $24,000, $0, and $32,000 for the respective periods or property acquired under capital lease transactions of $55,000, $0, and $338,000, respectively. NOTE C--DEBT The Company had a $2.5 million revolving bank line of credit, secured by eligible accounts receivable, bearing interest at the bank's prime rate plus one percent, or 9.5%, at December 31, 1995. The available credit under the line was increased to $5 million on March 1, 1996. The line, which expires April 1, 1996, is expected to be renewed for additional one year terms. There were no borrowings outstanding under the line of credit at December 31, 1995 and 1994. Total interest paid by the Company for all debt obligations, Page 27 28 including interest associated with capital lease obligations, was $16,860, $130,253, and $82,875 during the years ended December 31, 1995, 1994, and 1993, respectively. NOTE D--LEASES The Company leases certain office facilities and equipment under lease agreements with original terms ranging from one to ten years that generally provide for one or more renewal options. Interest has been imputed on capital leases at rates of 6% to 12%. Accumulated amortization of assets recorded under capital leases totaled $1,000,565 and $741,805 at December 31, 1995 and 1994, respectively. Amortization of leased assets is included in depreciation and amortization expense. Total rental expense under operating leases amounted to $1,799,657, $1,791,391, and $1,362,161 for the years ended December 31, 1995, 1994, and 1993, respectively. The Company is generally obligated to the lessors for its proportionate share of operating expenses of the leased premises. At December 31, 1995, future minimum lease payments under capital and operating leases with initial terms of one year or more are as follows:
Capital Operating Leases Leases -------- ---------- Fiscal year ended December 31: 1996 $63,878 $1,367,412 1997 13,279 1,000,743 1998 2,589 636,454 1999 --- 522,915 2000 --- 492,867 Thereafter --- 1,092,158 ------- ---------- Total minimum payments 79,746 $5,112,549 Less imputed interest 5,753 ========== ------- Present value of minimum rental payments $73,993 Less current installments under capital lease obligations 58,501 ------- Obligations under capital leases excluding current installments $15,492 ========
NOTE E -- INCOME TAXES The actual tax expense for the years ended December 31, 1995, 1994 and 1993, respectively, differs from the expected tax expense for those years (computed by applying the federal corporate tax rate of 34% to earnings before minority interest and equity in earnings of unconsolidated affiliate) as follows: Page 28 29
1995 1994 1993 -------- --------- -------- Computed expected tax expense (benefit) 787,000 (798,000) 262,000 Non-deductible expenses 13,000 10,000 3,000 Utilization of net operating loss carryforwards (800,000) --- (265,000) Loss for which no benefit was provided --- 788,000 --- -------- -------- -------- Actual income tax expense $ 0 $ 0 $ 0 ======== ======== ========
The approximate tax effects of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax assets and deferred tax liabilities are as follows:
December 31 1995 1994 ----------- ----------- Deferred tax assets: Net operating loss carryforwards $ 2,366,000 $ 2,955,000 Reserve for bad debts 409,000 713,000 Excess book depreciation/amortization 547,000 423,000 Excess book expense accruals 152,000 92,000 Other 41,000 8,000 ----------- ----------- Total deferred assets 3,515,000 4,191,000 Valuation allowance (3,515,000) (4,191,000) ----------- ----------- Net deferred tax assets $ 0 $ 0 =========== ==========
The amount of income that the Company may offset in future years by the net operating loss carryforwards incurred prior to an ownership change in 1990 will be limited, by the application of the Internal Revenue Code Section 382, to approximately $475,000 annually through the year 2005. The unused portion of the net operating losses may be carried forward and realized in future years subject to this limitation. The net operating loss carryforwards incurred subsequent to the October 31, 1990 ownership change are available to fully offset future earnings of the Company and expire in the years 2005 through 2009. As of December 31, 1995, the Company had available net operating loss carryforwards totaling approximately $7 million of which approximately $5.5 million are subject to certain annual limitations due to a change in ownership for tax purposes in 1990. The use of net operating loss carryforwards is also dependent upon future taxable income. Page 29 30 NOTE F-- COMMON STOCK, CONVERTIBLE PREFERRED STOCK, WARRANTS, AND OPTIONS Common Stock: On November 1, 1995, an amendment to the Company's charter was approved at a special meeting of shareholders decreasing the number of authorized shares from 60,000,000 shares, $.002 par value, to 30,000,000 shares, $.01 par value, with a corresponding reclassification to which each issued and outstanding share was reclassified, converted, and changed into one-fifth (1/5) of an issued and outstanding share. The amendment became effective November 2, 1995. The one-for-five reverse split resulted in the reduction of 27,948,332 outstanding shares of common stock. Accordingly, all references in the financial statements to weighted average shares outstanding, per share amounts and stock option plan data have been restated to reflect the reverse split. The Company has reserved 1,012,743 shares of its common stock for issuance upon the exercise of options or the conversion of Convertible Preferred Stock. On June 21, 1993, the Company issued 2,117,887 shares of common stock pursuant to a rights offering to its shareholders of record on March 12, 1993. Each shareholder as of that date was issued a nontransferable right to purchase one share of common stock for every ten shares owned. The purchase price was $2.75 per right, which was equal to 90% of the average closing price of the common stock for the ten trading days immediately prior to the record date. Seafield exercised 1,873,500 rights, its proportionate share. In addition, officers and directors of the Company exercised approximately 108,000 rights. Proceeds to the Company, net of offering expenses of $66,000, amounted to $5,758,000. Additionally, 497,000, 154,500, and 130,000 shares of common stock were issued pursuant to the exercise of warrants and employee stock options during the years ended December 31, 1995, 1994, and 1993, respectively. Proceeds to the Company amounted to $1,021,300, $73,937, and $62,500 for the respective periods. At December 31, 1995, Seafield's ownership interest in the Company was approximately 56%. Convertible Preferred Stock: The shares of Series A Convertible Preferred Stock have the following rights and restrictions: (a) a preference in the event of liquidation equal to $11.00 per share; (b) the right to convert into the number of shares of common stock equal to the stated value of shares surrendered $(11.00) divided by the conversion price of $60.00 -- subject to certain adjustments; (c) the right to receive dividends in the form of common stock at the rate of .011 share of common stock per annum per share payable annually each year commencing January 15, 1988; (d) the shares are redeemable at the Company's option at $11.00 per share; and (e) holders of the preferred stock will not be entitled to vote. The conversion price and common stock dividend Page 30 31 rate have been adjusted for the effect of the one-for-five reverse split. During the years ended December 31, 1995, 1994, and 1993, 500, 1,235, and 5,900 shares of Series A Convertible Preferred Stock were converted into 458, 1,130, and 5,407 shares of common stock, respectively. As of December 31, 1995, 27,833 Convertible Preferred Stock shares remain outstanding. In December 1995, September 1994, and October 1993, the Board of Directors approved a common stock dividend of 306, 1,545, and 1,612 shares to the holders of the Series A Convertible Preferred Stock of record as of December 15, 1995, 1994, and 1993 that was paid January 1996, 1995, and 1994, respectively. The market value of the common stock distributed was approximately $3,000 at each period. The dividends have been reflected in the "Statement of Operations" and the weighted average number of common shares in the determination of net earnings (loss) to common stockholders and the earnings (loss) per common share calculations. The par value of the common stock distributed was charged to paid-in capital. Options: The 1985 Stock Option Plan (the "1985 Plan"), as amended in fiscal year 1988, allows for granting of incentive stock options, nonqualified stock options, and stock appreciation rights of up to 122,000 shares of common stock to eligible officers and key employees of the Company at an exercise price of not less than the fair market value of the common stock on the date of grant for an incentive stock option and not less than 85% of the fair market value of the common stock on the date of grant for a nonqualified stock option. The 1985 Plan expired during the current year; no additional shares are available for grant. A summary of transactions under the 1985 Plan is as follows:
Number of Option Price Shares Per Share ---------- ------------------ Outstanding at December 31, 1992 and December 31, 1993 65,160 $1.875 - $23.75 Granted 14,600 11.875 Exercised 3,900 1.875 - 11.875 Expired or cancelled 500 11.875 Outstanding at December 31, 1994 75,360 Exercised 560 1.875 - 11.875 Expired or cancelled 600 11.875 Outstanding at December 31, 1995 74,200 $1.875 - $23.75
At December 31, 1995, 65,820 shares were exercisable under the plan. Page 31 32 The 1990 Nonqualified Stock Option Plan (the "1990 Plan"), as amended in 1995, allows for the granting of nonqualified stock options, up to 1,125,000 options, to eligible officers, directors, key employees, and consultants of the Company at an exercise price of not less than the market price of the common stock on the date of grant. A summary of transactions under the 1990 Plan is as follows:
Number of Option Price Shares Per Share ---------- ---------------- Outstanding at December 31, 1992 255,700 $1.5625 - $23.75 Granted 335,800 10.00 - 18.125 Exercised 2,000 2.50 Expired or cancelled 157,950 10.625 - 23.75 ------- Outstanding at December 31, 1993 431,550 1.5625 - 23.75 Granted 132,500 9.6875 - 13.4375 Exercised 4,000 2.50 Expired or cancelled 500 23.75 ------- Outstanding at December 31, 1994 559,550 Granted 400,900 8.4375 - 16.875 Exercised 12,800 1.5625 - 10.00 Expired or cancelled 14,210 10.00 - 13.75 ------- Outstanding at December 31, 1995 933,440 $1.5625 - $16.875 =======
At December 31, 1995, 396,210 shares were exercisable and 172,000 shares were available for future grant under the plan. NOTE G--BENEFIT PLAN The Company established a 401(k) Profit Sharing Plan (the "Plan") which allows qualifying employees electing membership to defer a portion of their income on a pretax basis through contributions to the Plan. For each dollar of employee contributions, the Company makes a discretionary percentage matching contribution to the Plan. In addition, eligible employees share in any additional discretionary contributions which are based upon the profitability of the Company. All contributions made by the Company are determined by the Company's Board of Directors. For the Plan year ended December 31, 1995, the approved matching percentage is twenty-five percent (25%) up to a maximum of $1,000 per employee. The expense recognized for the years ended December 31, 1995, 1994, and 1993 for Company contributions to the Plan totaled $99,265, $75,572, and $40,885, respectively. Page 32 33 NOTE H--RELATED PARTY TRANSACTIONS The West Clinic: The Company's IMPACT(R) Center in Memphis, Tennessee is located adjacent to The West Clinic, P.C., a private practicing oncology group, of which the Company's Chairman is a shareholder. Arrangements exist between the Company and the West Clinic for providing space and other support services to the Company. During the years ended December 31, 1995, 1994, and 1993, the Company expensed $59,000, $108,000, and $166,000, respectively, relating to these arrangements. In addition, during the years ended December 31, 1995, 1994, and 1993, the Company recognized net revenue of $3,032,000, $2,026,000, and $1,725,000, respectively, for sales of pharmaceuticals to The West Clinic and, at December 31, 1995 and 1994, had a related accounts receivable balance of $636,000 and $281,000. The pricing policy with respect to sales of pharmaceuticals to the West Clinic is consistent with sales to physicians at other Centers. NOTE I--COMMITMENTS AND CONTINGENCIES With respect to professional and general liability risks, the Company currently maintains an insurance policy that provides coverage during the policy period ending August 1, 1996, 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 $50,000,000 umbrella policy with respect to potential general liability claims. Since inception, the Company has incurred no professional or general liability losses and as of December 31, 1995 the Company was not aware of any pending professional or general liability claims. NOTE J--INVESTMENT IN AFFILIATE The Company's wholly owned subsidiary, Response Tech Healthcare Corporation, was an equal partner with Advanced Oncology Services ("AOS"), a wholly owned subsidiary of another publicly traded company, Cancer Treatment Holdings, Inc. ("CTHI"), in IMPACT(R) Healthcare Services ("IHS" or the "Hollywood Center"). During the year ended December 31, 1993, the Company learned that CTHI and AOS had taken certain actions with respect to the operations of the partnership which, in the Company's belief, materially affected the profitability and ongoing operations of the partnership. The Company filed suit against CTHI and AOS with a binding settlement agreement reached during the year ended December 31, 1994 between the Company and CTHI and AOS. CTHI has relinquished its interest in the Hollywood Center to the Company. The Company's ownership of all of the assets and assumption of the operations of the Center became effective January 8, 1994. The Company received capital distributions of $189,000 for the Page 33 34 year ended December 31, 1993. Beginning in 1994, the financial position and results of operations of the Hollywood Center are consolidated with the Company. NOTE K--SUBSEQUENT EVENT On January 2, 1996, the Company acquired the assets of, and entered into a long-term management services agreement with Oncology Hematology Group of South Florida, P.A. (the "Group"). The total consideration was approximately $12.1 million, approximately $5.3 million of which was paid in cash, approximately $6.0 million paid in the form of the Registrant's long-term unsecured interest-bearing amortizing promissory note and the balance being paid over 16 calendar quarters at the rate of $50,000 per quarter. The Group, consisting of nine physicians, is located on the campus of Baptist Hospital in Miami, Florida. Under the management services agreement, the Company receives a management fee to manage the non-medical aspects of the practice and to coordinate practice enhancement opportunities with the physicians. Improvements are expected through a professional focus on management and managed care relationships, economies of scale, and the addition of new services. The Group is the Company's first physician group under such a practice management relationship. As of February 15, 1996, the Company had announced the receipt of two additional non-binding letters of intent for physician practice management relationships, and that it was in early negotiations with several additional groups. Page 34 35 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
Col. A Col. B Col. C Col. D Col. E Additions ------------------------------ Balance at Charged Beginning to Costs Charged to Other Deductions-- Balance at Classification of Period and Expenses Accounts--Describe Describe (1) End of Period - ------------------------- ---------- ------------ ------------------ ------------ ------------- Year ended December 31, 1995: Deducted from asset accounts: Allowance for doubtful accounts--accounts receivable $3,934,794 $2,105,696 $3,960,702 $2,079,788 ---------- ---------- ---------- ---------- Year ended December 31, 1994: Deducted from asset accounts: Allowance for doubtful accounts--accounts receivable $3,799,610 $2,527,685 $2,392,501 $3,934,794 ---------- ---------- ---------- ---------- Year ended December 31, 1993: Deducted from asset accounts: Allowance for doubtful accounts--accounts receivable $2,063,271 $2,469,968 $ 733,629 $3,799,610 ---------- ---------- ---------- ----------
(1) Accounts written off, net of recoveries. Page 35 EX-10.(L) 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10(l) EMPLOYMENT AGREEMENT THIS AGREEMENT is made January __, 1996, effective as of July 1, 1995, by and between RESPONSE ONCOLOGY, INC., a Tennessee corporation (the "Company"), and JOSEPH T. CLARK (the "Executive"). WHEREAS, the Company is engaged in the business of providing advanced cancer treatment services; and WHEREAS, the Company desires to employ the Executive to devote full time to the business of the Company and to continue as the President and Chief Operating Officer of the Company; and WHEREAS, the Executive desires to be employed on the terms and subject to the conditions hereinafter stated. NOW, THEREFORE, in consideration of the mutual covenants contained in this Employment Agreement, the parties hereby agree as follows: 1 POSITION AND RESPONSIBILITIES During the Term of this Employment Agreement, the Executive shall perform such duties for such compensation and subject to such terms and conditions as are hereinafter set forth. 2 TERM AND DUTIES 2.1 Term; Extension. The term of this Employment Agreement (the "Term of this Employment Agreement") will commence as of July 1, 1995, and shall continue through December 31, 1997. On the first and each successive anniversary of the effective date of this Employment Agreement, the Term of this Employment Agreement shall be extended for an additional one (1) year period, unless either party gives notice no later than such anniversary date of such party's intent not to extend the Term of this Employment Agreement. Termination of the Executive's employment pursuant to this Employment Agreement shall be governed by Sections 4 and 5. 2.2 Duties. The Executive shall devote substantially all of his time and attention and best efforts during normal business hours to the Company's affairs. The Executive shall have such duties and responsibilities as are assigned to him from time to time by the Board of Directors. As of the effective date of this Employment Agreement, the Executive shall continue to possess and assume senior operating authority and responsibility as Chief Executive Officer of the Company, consistent with directions from the Board of Directors of the Company. 2.3 Location. The duties of the Executive shall be performed at such locations and places as may be directed by the Board of Directors. 3 COMPENSATION AND BENEFITS 3.1 Base Compensation. The Company shall pay the Executive a base salary ("Base Salary") of $200,000 per annum, subject to applicable withholdings. Base Salary shall be payable according to the 2 customary payroll practices of the Company but in no event less frequently than once each month. The Base Salary shall be reviewed annually and shall be subject to increase or decrease according to the policies and practices adopted by the Board of Directors from time to time; provided, however, that in no event shall the Base Salary for any year be decreased by more than five percent (5%) from the immediately preceding year's Base Salary as a result of any such annual review. 3.2 Annual Incentive Awards. The Company will pay the Executive annual incentive compensation of up to 100% of his Base Salary, in accordance with policies and based on performance targets established annually by the Compensation Committee of the Board of Directors. 3.3 Additional Benefits. The Executive will be entitled to participate in all employee benefit plans or programs and receive all benefits and perquisites to which any salaried employees are eligible under any existing or future plans or programs established by the Company for salaried employees. The Executive will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with program provisions. These may include group hospitalization, health, dental care, life or other insurance, tax qualified pension, car allowance, savings, thrift and profit sharing plans, termination pay programs, sick leave plans, travel or accident insurance, disability insurance, and contingent compensation plans, including capital accumulation programs, restricted stock programs, stock purchase programs and stock options plans. Nothing in this Agreement will preclude the Company from amending or terminating any of the plans or programs applicable to salaried employees or senior executives. The Executive will be entitled to an annual paid vacation as established by the Board of Directors. 3.4 Business Expenses. The Company will reimburse the Executive for all reasonable travel and other expenses incurred by the Executive in connection with the performance of his duties and obligations under this Employment Agreement. 3.5 Withholding. The Company may directly or indirectly withhold from any payments under this Employment Agreement all federal, state, city or other taxes that shall be required pursuant to any law or governmental regulation. 4 DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE 4.1 Payment in Event of Death. In the event of the death of the Executive during the Term of this Employment Agreement, the Company's obligation to make payments under this Employment Agreement shall cease as of the date of death, except for earned but unpaid Base Salary and incentive compensation which will be paid on a pro-rated basis for that year. The 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 Employment Agreement, other than "key man" life insurance benefits. 4.2 Disability Compensation. Notwithstanding the disability of the Executive, the Company will continue to pay the Executive pursuant to Section 3 hereof during the Term of this Employment Agreement, unless the Executive's employment is earlier terminated in accordance with this Employment Agreement. In the event the disability continues for a period of three (3) months, the Company may thereafter terminate this Employment Agreement and the Executive's employment. Following such termination, the Company will pay the Executive amounts equal to his regular installments of Base Salary, as of the time of termination, for a period of six (6) months. All other compensation will cease except for earned but unpaid incentive compensation awards which would be payable on a pro-rated basis for the year in which the disability occurred, through the date of termination. -2- 3 4.3 Responsibilities in the Event of Disability. During the period the Executive is receiving payments following his disability and as long as he is physically and mentally able to do so, the Executive will furnish information and assistance to the Company and from time to time will make himself available to the Company to undertake assignments consistent with his position or prior position with the Company and his physical and mental health. If the Company fails to make a payment or provide a benefit required as part of this Employment Agreement, the Executive's obligation to provide information and assistance will end. 4.4 Definition of Disability. For purposes of this Employment Agreement, the term "disability" will have the same meaning as is attributed to such term, or any substantially similar term, in the Company's long term income disability plan as in effect from time to time. 4.5 Key-Man Life Insurance. Upon request by the Company, the Executive agrees to cooperate with the Company in obtaining "key man" life insurance on the life of the Executive, with death benefits payable to the Company. Such cooperation shall include the submission by the Executive to a medical examination and his response to inquiries regarding his medical history. 5 TERMINATION OF EMPLOYMENT Notwithstanding anything herein to the contrary, this Employment Agreement and the Executive's employment with the Company may be terminated by the Company at any time, subject to the terms and provisions of this Section 5. 5.1 Termination Without Cause. (a) WITHOUT A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause (hereinafter defined) and a Change in Control (hereinafter defined) shall not have occurred within one (1) year prior thereto, the Company will continue to pay the Executive amounts equal to his Base Salary, as in effect at the time of the Termination Without Cause, for the remaining Term of this Employment Agreement; provided, however, if the Executive shall give the notice referred to in Section 6.3(c), the Executive shall not be entitled to any amounts for periods after the effective date of such notice. Earned but unpaid Base Salary through the date of termination will be paid in a lump sum at such time, and pro-rated incentive compensation, if any, for the year of termination, to the date of termination, will be paid to the Executive in accordance with the Company's customary practice for payment of incentive compensation. For six (6) months following such Termination Without Cause, the Company shall reimburse the Executive for the cost of the Executive's major medical health insurance as in effect at the date of termination; provided that reimbursement for the costs of such medical insurance shall cease upon the effective date of a notice given by the Executive pursuant to Section 6.3(c). The exercisability of stock options granted to the Executive shall be governed by any applicable stock option agreements and the terms of the respective stock option plans. (b) UPON A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause within one (1) year following a Change in Control, the Company will pay to the Executive in a lump sum upon such termination an amount equal to the lesser of (i) 300% of the Executive's Base Salary as in effect at the time of the termination and (ii) the maximum amount which could be paid and not result in such amount or any other payment in the nature of compensation (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder ("Section 280G")) to or for the benefit of the Executive, or any part of such amount or other payment, constituting a "parachute payment" within the meaning of Section 280G. Earned but unpaid Base Salary through the date of termination will be paid in a lump sum at such time and pro rated incentive compensation, if any, for the year of termination, to the date of termination, will be paid to the Executive in accordance with the Company's customary practice for payment of incentive compensation. -3- 4 5.2 Termination With Cause; Voluntary Termination. If the Executive suffers a Termination with Cause or the Executive terminates his employment with the Company (a "Voluntary Termination"), then, whether or not there has been a Change in Control, the Company will not be obligated to pay the Executive any amounts of compensation or benefits following the date of termination. However, earned but unpaid Base Salary through the date of termination will be paid in a lump sum at such time, and incentive compensation, if any, for the year during which such termination occurs will be pro rated for the portion of the year prior to the date of termination and paid in accordance with the Company's customary practice for payment of incentive compensation. 5.3 Definitions. For purposes of this Employment Agreement, the following terms have the following meanings: (a) A "Change in Control" shall occur if an event or series of events occurs after the effective date of this Employment Agreement which would constitute either a change in ownership of the Company, within the meaning of Section 280G or a change in the ownership of a substantial portion of the Company's assets, within the meaning of Section 280G, but for purposes of this definition, the fair market value threshold for determining "substantial portion of the Company's assets" shall be "greater than 50%;" provided that neither a distribution of shares of Company stock by Seafield Capital Corporation ("Seafield") to its shareholders nor a sale (including a sale by Seafield) of shares of Company stock in a public offering shall constitute a change in control for purposes of this Employment Agreement. (b) "Termination With Cause" means termination of the Executive's employment by the Company, acting in good faith, by written notice to the Executive specifying the event relied upon for such termination, due to the Executive's conviction for a felony, the Executive's perpetration of a fraud, embezzlement or other act of dishonesty or the Executive's breach of a trust or fiduciary duty which materially adversely affects the Company or its shareholders. (c) "Termination Without Cause" means termination of the Executive's employment by the Company other than due to the Executive's death or disability or Termination With Cause. 6 OTHER DUTIES OF THE EXECUTIVE DURING AND AFTER THE TERM OF THIS EMPLOYMENT AGREEMENT 6.1 Additional Information. The Executive will, upon reasonable notice, during or after the Term of this Employment Agreement, furnish information as may be in his possession and cooperate with the Company as may reasonably be requested in connection with any claims or legal actions in which the Company is or may become a party. The Executive shall receive reasonable compensation for the time expended by him pursuant to this Section 6.1. 6.2 Confidentiality. The Executive recognizes and acknowledges that all information pertaining to the affairs, business, clients, customers or other relationships of the Company, as hereinafter defined, is confidential and is a unique and valuable asset of the Company. Access to and knowledge of this information are essential to the performance of the Executive's duties under this Employment Agreement. The Executive will not during the Term of this Employment Agreement or thereafter, except to the extent reasonably necessary in the performance of his duties under this Agreement, give to any person, firm, association, corporation or governmental agency any information concerning the affairs, business, clients, customers or other relationships of the Company except as required by law. The Executive will not make use of this type of information for his own purposes or for the benefit of any person or organization other than the Company. The Executive will also use his best efforts to prevent the disclosure of this information by others. All records, -4- 5 memoranda, etc. relating to the business of the Company whether made by the Executive or otherwise coming into his possession are confidential and will remain the property of the Company. 6.3 Noncompetition. (a) DURING THE TERM OF EMPLOYMENT. The Executive will not Compete with the Company (as defined in subsection (d) hereafter) at any time while he is employed by the Company or receiving payments from the Company. (b) VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. In the event of a Voluntary Termination or a Termination With Cause, the Executive will not Compete with the Company for a period consisting of the longer of (i) the remaining Term of this Employment Agreement and (ii) one (1) year; provided that if a Voluntary Termination follows a notice by the Company under Section 2.1 that the Term of this Employment Agreement will not be automatically extended, there will be no restriction on the Executive's right to Compete with the Company after the date his employment terminates. (c) TERMINATION WITHOUT CAUSE. In the event of a Termination Without Cause, the Executive will not Compete with the Company for the then remaining Term of this Employment Agreement; provided that if such Termination Without Cause occurs within one (1) year after a Change in Control, there will be no restriction on the Executive's rights to Compete with the Company after the date his employment terminates and if the Executive gives written notice to the Company that the Executive will forego payment of all amounts otherwise due to him following the effective date of such notice as a result of a Termination Without Cause, there will be no restriction on the Executive's rights to Compete with the Company following such effective date. (d) DEFINITION OF "COMPETE" WITH THE COMPANY. For the purposes of this Section 6, the term "Compete with the Company" means action by the Executive, direct or indirect, for his own account or for the account of others, either as an officer, director, stockholder, owner, partner, member, promoter, employee, consultant, advisor, agent, manager, creditor or in any other capacity, resulting in the Executive having any pecuniary interest, legal or equitable ownership, or other financial or non-financial interest in, or employment, association or affiliation with, any corporation, business trust, partnership, limited liability company, proprietorship or other business or professional enterprise that provides oncology services or management services to any oncology or hematology practice within a fifty mile radius of any location where the Company or any subsidiary or affiliate of the Company performs such services at the date of a termination of the Executive's employment or has performed such services within one year prior to such termination of employment; provided, however, that the term "Compete with the Company" shall not include ownership (without any more extensive relationship) of a less than a 5% interest in any publicly-held corporation or other business entity. (e) REASONABLENESS OF SCOPE AND DURATION; REMEDIES. The Executive acknowledges that the covenants contained herein are reasonable as to geographic and temporal scope. The Executive acknowledges that his breach or threatened or attempted breach of any provision of Section 6 would cause irreparable harm to the Company not compensable in monetary damages and that the Company 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 6 without being required to prove damages or furnish any bond or other security. 7 CONSOLIDATION, MERGER OR SALE OF ASSETS -5- 6 Nothing in this Employment Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation or organization which assumes this Employment Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or sale of assets, the term "the Company" as used herein will mean or include the other corporation or organization and this Employment Agreement shall continue in full force and effect. This Section 7 is not intended to modify or limit the rights of the Executive hereunder. 8 MISCELLANEOUS 8.1 Entire Agreement. This Employment Agreement contains the entire understanding between the Company and the Executive with respect to the subject matter and supersedes any prior employment or severance agreements between the Company and its affiliates, and the Executive. 8.2 Amendment; Waiver. This Employment Agreement may not be modified or amended except in writing signed by the parties. No term or condition of this Employment Agreement will be deemed to have been waived except in writing by the party charged with waiver. A waiver shall operate only as to the specific term or condition waived and will not constitute a waiver for the future or act on anything other than that which is specifically waived. 8.3 Severability; Modification of Covenant. Should any part of this Employment Agreement be declared invalid for any reason, such invalidity shall not affect the validity of any remaining portion hereof and such remaining portion shall continue in full force and effect as if this Employment Agreement had been originally executed without including the invalid part. Should any covenant of this Employment Agreement be unenforceable because of its geographic scope or term, its geographic scope or term shall be modified to such extent as may be necessary to render such covenant enforceable. 8.4 Effect of Captions. Titles and captions in no way define, limit, extend or describe the scope of this Employment Agreement nor the intent of any provision thereof. 8.5 Counterpart Execution. This Employment 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. 8.6 Governing Law; Arbitration. This Employment Agreement has been executed and delivered in the State of Tennessee and its validity, interpretation, performance and enforcement shall be governed by the laws of that state. Any dispute among the parties hereto shall be settled by arbitration in Memphis, Tennessee, in accordance with the rules then obtaining of the American Arbitration Association and judgment upon the award rendered may be entered in any court having jurisdiction thereof. All provisions hereof are for the protection and are intended to be for the benefit of the parties hereto and enforceable directly by and binding upon each party. Each party hereto agrees that the remedy at law of the other for any actual or threatened breach of this Employment Agreement would be inadequate and that the other party shall be entitled to specific performance hereof or injunctive relief or both, by temporary or permanent injunction or such other appropriate judicial remedy, writ or orders as may be decided by a court of competent jurisdiction in addition to any damages which the complaining party may be legally entitled to recover together with reasonable expenses of litigation, including attorney's fees incurred in connection therewith, as may be approved by such court. 8.7 Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first-class postage prepaid by -6- 7 registered mail, return receipt requested, or when delivered if by hand, overnight delivery service or confirmed facsimile transmission, to the following: (i) If to the Company, at 1775 Moriah Woods Boulevard, Memphis, Tennessee 38117, Attention: Chairman of the Compensation Committee, or at such other address as may have been furnished to the Executive by the Company in writing; or (ii) If to the Executive, at _____________________ _________________________________________ or such other address as may have been furnished to the Company by the Executive in writing. 8.8 Binding Agreements. This Employment Agreement shall be binding on the parties' successors, heirs and assigns. IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. RESPONSE ONCOLGY, INC. By: /s/ Frank M. Bumstead ----------------------------------- Frank M. Bumstead Chairman Emeritus EXECUTIVE: /s/ Joseph T. Clark --------------------------------------- Joseph T. Clark -7- EX-10.(O) 3 AMENDMENT TO STOCK OPTION PLAN 1 EXHIBIT 10(o) AMENDMENT NO. 2 TO THE RESPONSE TECHNOLOGIES, INC. 1990 NON-QUALIFIED STOCK OPTION PLAN This amendment to the 1990 Non-Qualified Stock Option Plan (the "Plan") of Response Technologies, Inc. (the "Corporation") was adopted by the Corporation's Board of Directors on April 20, 1995, subject to approval by the shareholders of the Corporation at the Corporation's annual meeting to be held on May 26, 1995. All capitalized terms used in this amendment shall have the meanings ascribed to such terms in the Plan. 1. Section 2 of the Plan is hereby amended by adding as subsection (d) the definition of "Change in Control" as follows: "Change in Control" means any transaction pursuant to which (i) the Corporation merges with another corporation, limited partnership, limited liability company or other business entity and is not the surviving entity; (ii) substantially all of the Corporation's assets are sold to persons or entities not affiliated with the Corporation; (iii) shares of Common Stock are issued to or acquired by persons (as defined in Section 13(d)(3) under the Securities Exchange Act of 1934), their Affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934) not affiliated with the Corporation who, immediately after such issuance or acquisition, own Common Stock comprising more than 20% of the number of shares of Common Stock issued and outstanding immediately after such issuance or acquisition; or (iv) any other transaction of a nature similar to the foregoing. The remaining subsections of Section 2 are renumbered to account for the foregoing addition. 1. Section 3 of the Plan is hereby amended by deleting the number "3,300,000" in the first sentence of section 3 and inserting the number "4,300,000" in its place. 2. Section 8(g) of the Plan is hereby amended as follows: The fourth sentence of Section 8(g) is amended to read as follows: "A dissolution or liquidation of the Corporation will cause each outstanding Option to terminate, except for Options as to which another company assumes or substitutes another Option in a transaction to which Section 425(a) of the Code is applicable; provided, however, that, as to any Options which so terminate, each holder will have the right immediately prior to such dissolution or liquidation to exercise his Options in whole or in part without regard to any provisions deferring exercise contained herein." 2 3. New Section 8(j) entitled Accelerated Vesting on Change in Control is hereby added to read as follows: Notwithstanding any other provision of this Plan or in any Option Agreement, all Options granted pursuant hereto shall vest and become immediately exercisable as of the time of occurrence of a Change in Control of the Company; provided, however, that if the Change in Control occurs in a transaction that affects the rights of any shareholder of the Corporation (i.e. a merger, share exchange, tender offer or sale of substantially all of the Corporation's assets) each Option holder shall be deemed to have exercised his or her Options immediately prior to the Change in Control with the effect that such Option holder shall be entitled to participate in such transaction. In such event, no consideration payable to shareholders of the Corporation by reason of such transaction shall be delivered to an Option holder unless and until the Option holder shall have paid the full exercise price for the shares of Common Stock with respect to which such exercise relates. EX-10.(P) 4 EMPLOYMENT AGREEMENT 1 EXHIBIT 10(p) EMPLOYMENT AGREEMENT THIS AGREEMENT is made January ___, 1996, effective as of July 1, 1995, by and between RESPONSE ONCOLOGY, INC., a Tennessee corporation (the "Company"), and CHARLES WEAVER, M.D. (the "Executive"). WHEREAS, the Company is engaged in the business of providing advanced cancer treatment services; and WHEREAS, the Company desires to employ the Executive to devote full time to the business of the Company and to continue as the Scientific Director of the Company; and WHEREAS, the Executive desires to be employed on the terms and subject to the conditions hereinafter stated. NOW, THEREFORE, in consideration of the mutual covenants contained in this Employment Agreement, the parties hereby agree as follows: SECTION 1 POSITION AND RESPONSIBILITIES During the Term of this Employment Agreement, the Executive shall perform such duties for such compensation and subject to such terms and conditions as are hereinafter set forth. SECTION 2 TERM AND DUTIES 2.1 Term; Extension. The term of this Employment Agreement (the "Term of this Employment Agreement") will commence as of July 1, 1995, and shall continue through June 30, 1997. On the first and each successive anniversary of the effective date of this Employment Agreement, the Term of this Employment Agreement shall be extended for an additional one (1) year period, unless either party gives notice no later than such anniversary date of such party's intent not to extend the Term of this Employment Agreement. Termination of the Executive's employment pursuant to this Employment Agreement shall be governed by Sections 4 and 5. 2.2 Duties. The Executive shall devote substantially all of his time and attention and best efforts during normal business hours to the Company's affairs. The Executive shall have such duties and responsibilities as are assigned to him from time to time by the Board of Directors. As of the effective date of this Employment Agreement, the Executive shall continue to possess and assume management authority and responsibility as Scientific Director of the Company consistent with general directives from the Board of Directors and Chief Executive Officer of the Company, which responsibility shall include, without limitation, responsibility for the Company's clinical program, including standard guidelines, clinical trial, publications] and relationships with physician and the Company's protocols, clinical trials and relationships with physician investigator organizations. 2.3 Location. The duties of the Executive shall be performed at such locations and places as may be directed by the Board of Directors. SECTION 3 COMPENSATION AND BENEFITS 2 3.1 Base Compensation. The Company shall pay the Executive a base salary ("Base Salary") of $218,000 per annum, subject to applicable withholdings. Base Salary shall be payable according to the customary payroll practices of the Company but in no event less frequently than once each month. The Base Salary shall be reviewed annually and shall be subject to increase or decrease according to the policies and practices adopted by the Board of Directors from time to time; provided, however, that in no event shall the Base Salary for any year be decreased by more than five percent (5%) from the immediately preceding year's Base Salary as a result of any such annual review. 3.2 Annual Incentive Awards. The Company will pay the Executive annual incentive compensation of up to 50% of his Base Salary, in accordance with policies and based on performance targets established annually by the Compensation Committee of the Board of Directors. In addition to the foregoing, the Company will pay the Executive an amount equal to four (4%) percent of all contractual research revenue, payable bi-annually on January 15 and July 15 based on contractual research revenue ("Research Revenue") received for the six month periods ended December 31 and June 30, respectively ("Research Bonus"). Upon any termination of the Executive's employment by the Company, or upon death or disability of the Executive, the Company will compute the amount of Research Revenue receivable pursuant to contracts signed by the Company prior to such termination and shall accrue the amount of Research Bonus payable to the Executive in respect thereof. Such Research Bonus shall be paid as the Research Revenue giving rise thereto is collected, notwithstanding termination of the Executive's employment. 3.3 Additional Benefits. The Executive will be entitled to participate in all employee benefit plans or programs and receive all benefits and perquisites to which any salaried employees are eligible under any existing or future plans or programs established by the Company for salaried employees. The Executive will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with program provisions. These may include group hospitalization, health, dental care, life or other insurance, tax qualified pension, car allowance, savings, thrift and profit sharing plans, termination pay programs, sick leave plans, travel or accident insurance, disability insurance, and contingent compensation plans, including capital accumulation programs, restricted stock programs, stock purchase programs and stock options plans. Nothing in this Agreement will preclude the Company from amending or terminating any of the plans or programs applicable to salaried employees or senior executives. The Executive will be entitled to an annual paid vacation as established by the Board of Directors. 3.4 Business Expenses. The Company will reimburse the Executive for all reasonable travel and other expenses incurred by the Executive in connection with the performance of his duties and obligations under this Employment Agreement. 3.5 Withholding. The Company may directly or indirectly withhold from any payments under this Employment Agreement all federal, state, city or other taxes that shall be required pursuant to any law or governmental regulation. SECTION 4 DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE 4.1 Payment in Event of Death. In the event of the death of the Executive during the Term of this Employment Agreement, the Company's obligation to make payments under this Employment Agreement shall cease as of the date of death, except for earned but unpaid Base Salary and incentive compensation which will be paid on a pro-rated basis for that year and accrued Research Bonus, which will be paid as provided in Section 3.2 above. The 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 Employment Agreement, other than "key man" life insurance benefits. 2 3 4.2 Disability Compensation. Notwithstanding the disability of the Executive, the Company will continue to pay the Executive pursuant to Section 3 hereof during the Term of this 2Employment Agreement, unless the Executive's employment is earlier terminated in accordance with this Employment Agreement. In the event the disability continues for a period of three (3) months, the Company may thereafter terminate this Employment Agreement and the Executive's employment. Following such termination, the Company will pay the Executive amounts equal to his regular installments of Base Salary, as of the time of termination, for a period of six (6) months. All other compensation will cease except for earned but unpaid incentive compensation awards which would be payable on a pro-rated basis for the year in which the disability occurred, through the date of termination and accrued Research Bonus, which will be paid as provided in Section 3.2 above. 4.3 Responsibilities in the Event of Disability. During the period the Executive is receiving payments following his disability and as long as he is physically and mentally able to do so, the Executive will furnish information and assistance to the Company and from time to time will make himself available to the Company to undertake assignments consistent with his position or prior position with the Company and his physical and mental health. If the Company fails to make a payment or provide a benefit required as part of this Employment Agreement, the Executive's obligation to provide information and assistance will end. 4.4 Definition of Disability. For purposes of this Employment Agreement, the term "disability" will have the same meaning as is attributed to such term, or any substantially similar term, in the Company's long term income disability plan as in effect from time to time. 4.5 Key-Man Life Insurance. Upon request by the Company, the Executive agrees to cooperate with the Company in obtaining "key man" life insurance on the life of the Executive, with death benefits payable to the Company. Such cooperation shall include the submission by the Executive to a medical examination and his response to inquiries regarding his medical history. SECTION 5 TERMINATION OF EMPLOYMENT Notwithstanding anything herein to the contrary, this Employment Agreement and the Executive's employment with the Company may be terminated by the Company at any time, subject to the terms and provisions of this Section 5. 5.1 Termination Without Cause. (a) WITHOUT A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause (hereinafter defined) and a Change in Control (hereinafter defined) shall not have occurred within one (1) year prior thereto, the Company will continue to pay the Executive amounts equal to his Base Salary, as in effect at the time of the Termination Without Cause, for the remaining Term of this Employment Agreement; provided, however, if the Executive shall give the notice referred to in Section 6.3(c), the Executive shall not be entitled to any amounts for periods after the effective date of such notice. Earned but unpaid Base Salary through the date of termination will be paid in a lump sum at such time, and pro-rated incentive compensation, if any, for the year of termination, to the date of termination, will be paid to the Executive in accordance with the Company's customary practice for payment of incentive compensation. Accrued Research Bonus will be paid to the Executive as provided in Section 3.2 above. For six (6) months following such Termination Without Cause, the Company shall reimburse the Executive for the cost of the Executive's major medical health insurance as in effect at the date of termination; provided that reimbursement for the costs of such medical insurance shall cease upon the effective date of a notice given by the Executive pursuant to Section 6.3(c). The exercisability of stock options granted to the Executive shall be governed by any applicable stock option agreements and the terms of the respective stock option plans. 3 4 (b) UPON A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause within one (1) year following a Change in Control, the Company will pay to the Executive in a lump sum upon such termination an amount equal to the lesser of (i) 200% of the Executive's Base Salary as in effect at the time of the termination and (ii) the maximum amount which could be paid and not result in such amount or any other payment in the nature of compensation (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder ("Section 280G")) to or for the benefit of the Executive, or any part of such amount or other payment, constituting a "parachute payment" within the meaning of Section 280G. Earned but unpaid Base Salary through the date of termination will be paid in a lump sum at such time and pro rated incentive compensation, if any, for the year of termination, to the date of termination, will be paid to the Executive in accordance with the Company's customary practice for payment of incentive compensation. Accrued Research Bonus will be paid to the Executive as provided in Section 3.2 above. 5.2 Termination With Cause; Voluntary Termination. If the Executive suffers a Termination with Cause or the Executive terminates his employment with the Company (a "Voluntary Termination"), then, whether or not there has been a Change in Control, the Company will not be obligated to pay the Executive any amounts of compensation or benefits following the date of termination. However, earned but unpaid Base Salary through the date of termination will be paid in a lump sum at such time, and incentive compensation, if any, for the year during which such termination occurs will be pro rated for the portion of the year prior to the date of termination and paid in accordance with the Company's customary practice for payment of incentive compensation. 5.3 Definitions. For purposes of this Employment Agreement, the following terms have the following meanings: (a) A "Change in Control" shall occur if an event or series of events occurs after the effective date of this Employment Agreement which would constitute either (1) a change in ownership of the Company, within the meaning of Section 280G or (2) a change in the ownership of a substantial portion of the Company's assets, within the meaning of Section 280G, but for purposes of this definition, the fair market value threshold for determining "substantial portion of the Company's assets" shall be "greater than 50%;" provided that neither a distribution of shares of Company stock by Seafield Capital Corporation ("Seafield") to its shareholders nor a sale (including a sale by Seafield) of shares of Company stock in a public offering shall constitute a change in control for purposes of this Employment Agreement. (b) "Termination With Cause" means termination of the Executive's employment by the Company, acting in good faith, by written notice to the Executive specifying the event relied upon for such termination, due to the Executive's conviction for a felony, the Executive's perpetration of a fraud, embezzlement or other act of dishonesty or the Executive's breach of a trust or fiduciary duty which materially adversely affects the Company or its shareholders. (c) "Termination Without Cause" means termination of the Executive's employment by the Company other than due to the Executive's death or disability or Termination With Cause. SECTION 6 OTHER DUTIES OF THE EXECUTIVE DURING AND AFTER THE TERM OF THIS EMPLOYMENT AGREEMENT 6.1 Additional Information. The Executive will, upon reasonable notice, during or after the Term of this Employment Agreement, furnish information as may be in his possession and cooperate with the Company as may reasonably be requested in connection with any claims or legal actions in which the Company 4 5 is or may become a party. The Executive shall receive reasonable compensation for the time expended by him pursuant to this Section 6.1. 6.2 Confidentiality. The Executive recognizes and acknowledges that all information pertaining to the affairs, business, clients, customers or other relationships of the Company, as hereinafter defined, is confidential and is a unique and valuable asset of the Company. Access to and knowledge of this information are essential to the performance of the Executive's duties under this Employment Agreement. The Executive will not during the Term of this Employment Agreement or thereafter, except to the extent reasonably necessary in the performance of his duties under this Agreement, give to any person, firm, association, corporation or governmental agency any information concerning the affairs, business, clients, customers or other relationships of the Company except as required by law. The Executive will not make use of this type of information for his own purposes or for the benefit of any person or organization other than the Company. The Executive will also use his best efforts to prevent the disclosure of this information by others. All records, memoranda, etc. relating to the business of the Company whether made by the Executive or otherwise coming into his possession are confidential and will remain the property of the Company. 6.3 Noncompetition. (a) DURING THE TERM OF EMPLOYMENT. The Executive will not Compete with the Company (as defined in subsection (d) hereafter) at any time while he is employed by the Company or receiving payments from the Company. (b) VOLUNTARY TERMINATION; TERMINATION WITH CAUSE. In the event of a Voluntary Termination or a Termination With Cause, the Executive will not Compete with the Company for a period consisting of the longer of (i) the remaining Term of this Employment Agreement and (ii) one (1) year; provided that if a Voluntary Termination follows a notice by the Company under Section 2.1 that the Term of this Employment Agreement will not be automatically extended, there will be no restriction on the Executive's right to Compete with the Company after the date his employment terminates. (c) TERMINATION WITHOUT CAUSE. In the event of a Termination Without Cause, the Executive will not Compete with the Company for the then remaining Term of this Employment Agreement; provided that if such Termination Without Cause occurs within one (1) year after a Change in Control, there will be no restriction on the Executive's rights to Compete with the Company after the date his employment terminates and if the Executive gives written notice to the Company that the Executive will forego payment of all amounts otherwise due to him following the effective date of such notice as a result of a Termination Without Cause, there will be no restriction on the Executive's rights to Compete with the Company following such effective date. (d) DEFINITION OF "COMPETE" WITH THE COMPANY. For the purposes of this Section 6, the term "Compete with the Company" means action by the Executive, direct or indirect, for his own account or for the account of others, either as an officer, director, stockholder, owner, partner, member, promoter, employee, consultant, advisor, agent, manager, creditor or in any other capacity, resulting in the Executive having any pecuniary interest, legal or equitable ownership, or other financial or non-financial interest in, or employment, association or affiliation with, any corporation, business trust, partnership, limited liability company, proprietorship or other business or professional enterprise that provides oncology services or management services to any oncology or hematology practice within a fifty mile radius of any location where the Company or any subsidiary or affiliate of the Company performs such services at the date of a termination of the Executive's employment or has performed such services within one year prior to such termination of employment; provided, however, that the term "Compete with the Company" shall not include (i) the continuation of any medical practice that the Executive was conducting when his employment by the Company 5 6 is terminated, or (ii) ownership (without any more extensive relationship) of a less than a 5% interest in any publicly-held corporation or other business entity. (e) REASONABLENESS OF SCOPE AND DURATION; REMEDIES. The Executive acknowledges that the covenants contained herein are reasonable as to geographic and temporal scope. The Executive acknowledges that his breach or threatened or attempted breach of any provision of Section 6 would cause irreparable harm to the Company not compensable in monetary damages and that the Company 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 6 without being required to prove damages or furnish any bond or other security. SECTION 7 CONSOLIDATION, MERGER OR SALE OF ASSETS Nothing in this Employment Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation or organization which assumes this Employment Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or sale of assets, the term "the Company" as used herein will mean or include the other corporation or organization and this Employment Agreement shall continue in full force and effect. This Section 7 is not intended to modify or limit the rights of the Executive hereunder. SECTION 8 MISCELLANEOUS 8.1 Entire Agreement. This Employment Agreement contains the entire understanding between the Company and the Executive with respect to the subject matter and supersedes any prior employment or severance agreements between the Company and its affiliates, and the Executive. 8.2 Amendment; Waiver. This Employment Agreement may not be modified or amended except in writing signed by the parties. No term or condition of this Employment Agreement will be deemed to have been waived except in writing by the party charged with waiver. A waiver shall operate only as to the specific term or condition waived and will not constitute a waiver for the future or act on anything other than that which is specifically waived. 8.3 Severability; Modification of Covenant. Should any part of this Employment Agreement be declared invalid for any reason, such invalidity shall not affect the validity of any remaining portion hereof and such remaining portion shall continue in full force and effect as if this Employment Agreement had been originally executed without including the invalid part. Should any covenant of this Employment Agreement be unenforceable because of its geographic scope or term, its geographic scope or term shall be modified to such extent as may be necessary to render such covenant enforceable. 8.4 Effect of Captions. Titles and captions in no way define, limit, extend or describe the scope of this Employment Agreement nor the intent of any provision thereof. 8.5 Counterpart Execution. This Employment 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. 8.6 Governing Law; Arbitration. This Employment Agreement has been executed and delivered in the State of Tennessee and its validity, interpretation, performance and enforcement shall be governed by the laws of that state. Any dispute among the parties hereto shall be settled by arbitration in Memphis, 6 7 Tennessee, in accordance with the rules then obtaining of the American Arbitration Association and judgment upon the award rendered may be entered in any court having jurisdiction thereof. All provisions hereof are for the protection and are intended to be for the benefit of the parties hereto and enforceable directly by and binding upon each party. Each party hereto agrees that the remedy at law of the other for any actual or threatened breach of this Employment Agreement would be inadequate and that the other party shall be entitled to specific performance hereof or injunctive relief or both, by temporary or permanent injunction or such other appropriate judicial remedy, writ or orders as may be decided by a court of competent jurisdiction in addition to any damages which the complaining party may be legally entitled to recover together with reasonable expenses of litigation, including attorney's fees incurred in connection therewith, as may be approved by such court. 8.7 Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first-class postage prepaid by registered mail, return receipt requested, or when delivered if by hand, overnight delivery service or confirmed facsimile transmission, to the following: (i) If to the Company, at 1775 Moriah Woods Boulevard, Memphis, Tennessee 38117, Attention: Chairman of the Compensation Committee, or at such other address as may have been furnished to the Executive by the Company in writing; or (ii) If to the Executive, at _____________________ _____________________________________________ or such other address as may have been furnished to the Company by the Executive in writing. 8.8 Binding Agreements. This Employment Agreement shall be binding on the parties' successors, heirs and assigns. IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. RESPONSE ONCOLOGY, INC. By: /s/ Frank M. Bumstead ----------------------------------- Frank M. Bumstead Chairman Emeritus EXECUTIVE: /s/ Charles Weaver, M.D. --------------------------------------- Charles Weaver, M.D. 7 EX-11 5 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
Year Ended December 31 1995 1994 1993 ---------- ---------- --------- (Amounts in thousands except per share data) Net earnings (loss) per common share: Weighted average shares outstanding 7,002 6,953 6,724 Net effect of dilutive stock options and warrants based on the treasury stock method (2) 164 --- 448 Weighted average shares and common stock equivalents 7,166 6,953 (1) 7,172 Net earnings (loss) $2,314 $(2,346) $ 700 Common stock dividend to preferred stockholders (3) (3) (3) (3) Net earnings (loss) to common stockholders $2,311 $(2,349) $ 697 Per share amount (4) $ .32 $ (.34) $ .10
(1) The per share computation in 1994 is based on the weighted average number of shares outstanding. No effect has been given to shares issuable upon the exercise of options and warrants or conversion of preferred stock as such inclusion would be anti-dilutive. (2) The fully diluted per share computation would be the same as primary since the average market price was greater or immaterially different than the ending price for the years ended December 31, 1995 and 1993. (3) In December 1995, September 1994 and October 1993, the Board of Directors approved a Common Stock dividend of 306, 1,545, and 1,612 shares to the stockholders of record of Series A Convertible Preferred Stock as of December 15, 1995, 1994 and 1993 that was paid January 1996, 1995 and 1994, respectively. The market value of the Common Stock distributed as of each period was approximately $3,000. (4) The assumed conversion of the preferred stock would have an immaterial effect (less than 1/10 of $.01) in all periods, and therefore that calculation has been omitted. (5) All share and per share amounts have been restated to reflect a one-for-five reverse split effected November 2, 1995. EX-23 6 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23 Accountants' Consent The Board of Directors Response Oncology, Inc. We consent to incorporation by reference in the Registration Statement (No. 33-45616) on Form S-8 and the Registration Statement (No. 33-21333) on Form S-8 of Response Oncology, Inc. of our report dated January 23, 1996, relating to the consolidated balance sheets of Response Oncology, Inc. and subsidiaries as of December 31, 1995, 1994, and the related consolidated statements of operation, stockholders' equity, and cash flows for the three years then ended, which report appears in the December 31, 1995 annual report on Form 10-K of Response Oncology, Inc. KPMG Peat Marwick LLP Memphis, Tennessee March 27, 1996 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 4,205 362 16,015 2,080 1,120 20,637 10,058 6,236 24,765 4,884 0 0 28 74 19,741 24,765 0 44,580 0 40,141 0 2,106 17 2,311 0 0 0 0 0 2,311 .32 .32
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