-----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, AJj6TuUW5CoqCOhHUl+WYvrEjBPOFkRXxllamK9D4A/ieS3U+n6l7Va5OtOURSL4 v0oIjfEpaJV9dC+amda12Q== 0000950144-98-006541.txt : 19980518 0000950144-98-006541.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950144-98-006541 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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-Q SEC ACT: SEC FILE NUMBER: 001-09922 FILM NUMBER: 98626122 BUSINESS ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 BUSINESS PHONE: 9017617000 MAIL ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 FORMER COMPANY: FORMER CONFORMED NAME: RESPONSE TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BIOTHERAPEUTICS INC DATE OF NAME CHANGE: 19891221 10-Q 1 RESPONSE ONCOLOGY FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to -------- ------------ Commission file number 0-15416 -------------- RESPONSE ONCOLOGY, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Tennessee 62-1212264 - --------------------------------- ------------------- (State or Other Jurisdiction (I. R. S. Employer of Incorporation or Organization) Identification No.) 1775 Moriah Woods Blvd., Memphis, TN 38117 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (901) 761-7000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 Par Value, 12,021,828 shares as of April 25, 1998. - 1 - 2 INDEX PART I. FINANCIAL INFORMATION
Page ---- Item 1. Financial Statements Consolidated Balance Sheets, March 31, 1998 and December 31, 1997------------------------------------------------------------------3 Consolidated Statements of Earnings for the Three Months Ended March 31, 1998 and March 31, 1997---------------------------------------------------------------------4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and March 31, 1997 --------------------------------------------------------------------5 Notes to Consolidated Financial Statements----------------------------------------------------------------------------------6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations-----------------------------------------------------------------------------------------9 PART II. OTHER INFORMATION Item 5. Market Information and Related Stockholder Matters---------------------------------------------------12 Item 6. Exhibits and Reports on Form 8-K --------------------------------------------------------------------12 Signatures -----------------------------------------------------------------------------------------------------13
- 2 - 3 PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands)
March 31, 1998 December 31, 1997 (Unaudited) (Note 1) --------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 476 $ 2, 425 Accounts receivable, less allowance for doubtful accounts of $2,238 and $3,130 19,771 16,910 Supplies and pharmaceuticals 2,812 2,772 Prepaid expenses and other current assets 6,374 4,219 Due from affiliated physician groups 15,361 14,823 --------- --------- TOTAL CURRENT ASSETS 44,794 41,149 Property and equipment, less accumulated depreciation and amortization of $10,062 and $9,727 3,570 3,555 Deferred charges, less accumulated amortization of $428 and $513 350 386 Management service agreements, less accumulated amortization of $4,706 and $4,016 102,666 103,054 Deferred income taxes 2,618 2,618 Other assets 1,074 931 --------- --------- TOTAL ASSETS $ 155,072 $ 151,693 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 10,788 $ 9,751 Accrued expenses and other liabilities 5,774 4,370 Current portion of notes payable 37,837 8,537 Current portion of capital lease obligations 48 45 --------- --------- TOTAL CURRENT LIABILITIES 54,447 22,703 Capital lease obligations, less current portion 27 44 Notes payable, less current portion 5,591 35,399 Deferred income taxes 26,348 26,162 Minority interest 718 1,037 STOCKHOLDERS' EQUITY Series A convertible preferred stock, $1.00 par value, authorized 3,000,000 shares; issued and outstanding 27,233 shares at each period end, liquidating preference $11.00 per share 27 27 Common Stock, $.01 par value, authorized 30,000,000 shares; issued and outstanding 12,021,828 and 11,972,358 shares, respectively 120 120 Paid-in capital 101,703 101,402 Accumulated deficit (33,909) (35,201) --------- --------- 67,941 66,348 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 155,072 $ 151,693 ========= =========
See accompanying notes to consolidated financial statements. - 3 - 4 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (Dollar amounts in thousands except for share data)
Three Months Ended ---------------------------------- March 31, 1998 March 31, 1997 -------------- -------------- NET REVENUE $ 29,595 $ 24,365 COSTS AND EXPENSES Salaries and benefits 5,871 5,117 Pharmaceuticals and supplies 15,030 11,168 Other operating costs 2,958 2,576 General and administrative 1,469 1,122 Depreciation and amortization 1,090 1,311 Interest 704 1,104 Provision for doubtful accounts 219 376 ----------- ----------- 27,341 22,774 ----------- ----------- EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 2,254 1,591 Minority owners' share of net earnings 170 192 ----------- ----------- EARNINGS BEFORE INCOME TAXES 2,084 1,399 Provision for income taxes 792 532 ----------- ----------- NET EARNINGS $ 1,292 $ 867 =========== =========== EARNINGS PER COMMON SHARE: Basic $ 0.11 $ 0.09 =========== =========== Diluted $ 0.11 $ 0.09 =========== =========== Weighted average number of common shares: Basic 12,008,254 10,088,418 =========== =========== Diluted 12,217,188 10,149,178 =========== ===========
See accompanying notes to consolidated financial statements. - 4 - 5 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollar amounts in thousands)
Three Months Ended ---------------------------------- March 31, 1998 March 31, 1997 -------------- -------------- OPERATING ACTIVITIES Net earnings $ 1,292 $ 867 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 1,090 1,311 Provision for doubtful accounts 219 376 Minority owners' share of net earnings 170 192 Changes in operating assets and liabilities net of effect of acquisitions: Accounts receivable (3,080) (2,910) Supplies and pharmaceuticals, prepaid expenses and other current assets (2,128) (505) Deferred charges and other assets (139) 54 Due from affiliated physician groups (538) (1,959) Accounts payable and accrued expenses 2,440 1,284 ------- ------- NET CASH USED IN OPERATING ACTIVITIES (674) (1,290) INVESTING ACTIVITIES Purchase of equipment (350) (240) Distribution to joint venture partner (489) -- Acquisition of non-medical assets of affiliated physician groups (39) -- ------- ------- NET CASH USED IN INVESTING ACTIVITIES (878) (240) FINANCING ACTIVITIES Bank overdraft -- 783 Financing costs incurred -- (18) Proceeds from exercise of stock options 300 -- Proceeds from notes payable -- 7,151 Principal payments on notes payable (685) (7,784) Proceeds from note payable to parent -- 1,005 Principal payments on capital lease obligations (12) (22) ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (397) 1,115 DECREASE IN CASH AND CASH EQUIVALENTS (1,949) (415) Cash and cash equivalents at beginning of period 2,425 415 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 476 $ -- ======= =======
See accompanying notes to consolidated financial statements. - 5 - 6 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1998 NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements by generally accepted accounting principles. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts have been reclassified for comparative purposes with no effect on net earnings. Operating results for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in Response Oncology, Inc. and Subsidiaries' (the "Company's") annual report on Form 10-K for the year ended December 31, 1997. Net Revenue: The following table is a summary of net revenue by source for the respective three month periods ended March 31, 1998 and 1997. Patient services revenue is recorded net of contractual allowances and discounts of $1,355,000 and $1,701,000 for the quarters ended March 31, 1998 and 1997, respectively. The Company's revenue from practice management affiliations includes a fee equal to practice operating expenses incurred by the Company (which excludes expenses that are the obligation of the physicians, such as physician salaries and benefits) and a management fee either fixed in amount or equal to a percentage of each affiliated oncology group's adjusted net revenue or net operating income. In certain affiliations, the Company may also be entitled to a performance fee if certain financial criteria are satisfied.
(In thousands) Three Months Ended March 31, -------------------------- 1998 1997 ------- ------- Net patient services revenue $ 8,459 $8,754 Practice management service fees 14,060 10,875 Pharmaceutical sales to physicians 5,857 4,153 Physician investigator studies 1,219 583 ======= ======= $29,595 $24,365 ======= =======
Net Earnings Per Common Share: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which changes the computation and presentation of earnings per share. SFAS 128 requires the presentation of basic and diluted earnings per share, replacing primary and fully diluted earnings per share previously required. Earnings per share for all prior years presented have been presented in accordance with SFAS 128. - 6 - 7 A reconciliation of the basic earnings per share and the diluted earnings per share computation is presented below for the three months ended March 31, 1998 and 1997. (Dollar amounts in thousands except per share data)
Three Months Ended March 31, ---------------------------------- 1998 1997 ----------- ----------- Weighted average shares outstanding 12,008,254 10,088,418 Net effect of dilutive stock options and warrants based on the treasury stock method 208,934 60,760 ----------- ----------- Weighted average shares and common stock equivalents 12,217,188 10,149,178 ----------- ----------- Net earnings $ 1,292 $ 867 =========== =========== Diluted per share amount $ 0.11 $ 0.09 =========== ===========
NOTE 2 -- PARENT COMPANY Prior to July 25, 1997 Response Oncology was a subsidiary of Seafield Capital Corporation ("Seafield"). On July 1, 1997, Seafield's Board of Directors declared a dividend to Seafield's shareholders of all shares of common stock of Response owned by Seafield. For each shareholder of record on July 11, 1997, 1.2447625 shares of Response common stock were distributed on July 25, 1997 for each share of Seafield common stock outstanding. The distribution of all shares of Response stock held by Seafield to Seafield's shareholders was effected as a dividend. The Seafield shareholders paid no consideration for any shares of Response stock received in the distribution. NOTE 3 -- NOTES PAYABLE The Company has a $45.0 million Credit Facility to fund the Company's acquisition and working capital needs. The Credit Facility, comprised of a $35.0 million Acquisition Facility and a $10.0 million Working Capital Facility, is collateralized by the common stock of the Company's subsidiaries. The Credit Facility bears interest at a variable rate equal to LIBOR plus a spread between 1.5% and 2.125%, depending upon borrowing levels. At March 31, 1998, $29.2 million aggregate principal was outstanding under the Credit Facility with a current interest rate of approximately 8.2%. The Credit Facility contains affirmative and negative covenants which, among other things, require that the Company maintain certain financial ratios, including minimum fixed charges coverage, funded debt to EBITDA, net worth and current ratio. On March 31, 1998, the Credit Facility was modified and amended, effective April 21, 1997, to provide for redefinitions of certain restrictive covenants. In May 1997, the Company entered into a LIBOR based interest rate swap agreement ("Swap Agreement") with an affiliate of the Company's primary lender as required by the terms of the Credit Facility. Amounts hedged under the Swap Agreement accrue interest at the difference between 6.42% and the thirty-day LIBOR rate and are settled monthly. As of March 31, 1998, approximately 51% of the Company's outstanding principal balance under the Credit Facility was hedged under the Swap Agreement. The Swap Agreement matures in March 1999 and is cancelable at the lender's option after July 1998. Additionally, long-term unsecured amortizing promissory notes bearing interest at rates from 4% to 9% were issued as partial consideration for the practice management affiliations. Principal and interest under the long-term notes may, at the election of the holders, be paid in shares of common stock of the Company based upon - 7 - 8 conversion rates ranging from $13.75 to $17.50. The unpaid principal amount of the long-term notes was $14.0 million at March 31, 1998. NOTE 4 -- INCOME TAXES Upon the consummation of the physician practice management affiliations, the Company recognized deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of purchased assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. NOTE 5 -- 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, 1998, on a claims-made basis, for $1,000,000 per claim in excess of the Company retaining $25,000 per claim, and $3,000,000 in the aggregate. Costs of defending claims are in addition to the limit of liability. In addition, the Company maintains a $10,000,000 umbrella policy with respect to potential general liability claims. Since inception, the Company has incurred no professional or general liability losses and as of March 31, 1998, the Company was not aware of any pending professional or general liability claims. The Company has a commitment to lease medical equipment under 54 month operating leases. Annual rentals under this commitment approximate $560,000. NOTE 6 -- DUE FROM AFFILIATED PHYSICIANS Due from affiliated physicians consists of management fees earned and payable pursuant to the management service agreements ("Service Agreements"). In addition, the Company may also fund certain working capital needs of the affiliated physicians from time to time. NOTE 7 -- NEW ACCOUNTING STANDARDS As of January 1, 1998, the Company adopted Statement 130, "Reporting Comprehensive Income." Statement 130 establishes new rules for the reporting and display of comprehensive income and its components. The adoption of this Statement had no impact on the Company's net income or shareholder's equity. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires that the Company report financial and descriptive information about its reportable segments. Financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. This statement also requires that the Company report descriptive information about the way the operating segments were determined, the products and services provided by the operating segments, differences between the measurements used in reporting segment information and those used in the Company's financial statements, and changes in the measurement of segment amounts from period to period. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. The adoption of this statement will provide additional disclosures in the financial statements for the year ended December 31, 1998. - 8 - 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Response Oncology, Inc. (the "Company") is a comprehensive cancer management company. The Company provides advanced cancer treatment services through outpatient facilities known as IMPACT(R) Centers under the direction of practicing oncologists; owns the assets of and manages the nonmedical aspects of oncology practices; and conducts clinical research on behalf of pharmaceutical manufacturers. Approximately 400 medical oncologists are associated with the Company through these programs. The Company opened 4 new centers in the quarter ended March 31, 1998 bringing the total network to 52 IMPACT(R) Centers. The network includes 28 wholly owned centers, 15 managed programs, and 9 centers owned and operated in joint venture with a host hospital. In January 1996, the Company implemented a diversification strategy into physician practice management. As of March 31, 1998 the practice management division included affiliations with 44 physicians in 12 medical oncology practices in Florida and Tennessee. The Company has sought deep geographic penetration in its markets believing that significant market share is crucial to achieving efficiencies, revenue enhancements, and marketing of complete cancer services to diverse payors including managed care. Pursuant to Service Agreements, the Company provides management services that extend to all nonmedical aspects of the operations of the affiliated practices. The Company is responsible for providing facilities, equipment, supplies, support personnel, and management and financial advisory services. The Company's resulting revenue from Service Agreements include a fee equal to practice operating expenses incurred by the Company and a management fee either fixed in amount or equal to a percentage of each affiliated practice's adjusted net revenue or operating income. In certain affiliations, the Company may also be entitled to a performance fee if certain financial criteria are satisfied. RESULTS OF OPERATIONS The Company recorded net earnings for the quarter ended March 31, 1998 of $1,292,000 or $0.11 per diluted share compared to net earnings of $867,000 or $ 0.09 per diluted share for the same period in 1997. Earnings before income taxes for the quarter ended March 31, 1998 were $2,084,000 compared to $1,399,000 for the same period of 1997. Net revenue for the quarter ended March 31, 1998 was $29,595,000 compared to $24,365,000 for the quarter ended March 31, 1997, an increase of $5,230,000 or 21%. Growth in net revenue for the quarter ended March 31, 1998 was driven by; an increase in revenue from the practice management division, increased pharmaceutical sales to physicians and increased revenues from the clinical research division. For the first quarter, practice management fees increased by 29%, from $10,875,000 in 1997 to $14,060,000 in 1998. The number of physicians in practice management relationships with the Company increased from 38 on March 31, 1997 to 44 on March 31, 1998. Pharmaceutical sales to physicians increased $1,704,000 or 41% from the first quarter of 1997 to the first quarter of 1998. Revenue from the clinical research division increased 109% from the three month period ended March 31, 1997 to the three month period ended March 31, 1998 for an increase of $636,000. While salaries and benefits expense increased $754,000 for the quarter ended March 31, 1998 over the same period in 1997, the expense as a percentage of net revenue decreased from 21% for the first quarter of 1997 to 20% for the first quarter of 1998. - 9 - 10 Pharmaceuticals and supplies expense increased by $3,862,000 or 35% for the quarter ended March 31, 1998 over the corresponding period in 1997. The Company attributes the increase primarily to growth in the practice management division as well as a significant increase in pharmaceutical sales to physicians. Interest expense was $704,000 for the first quarter of 1998 as compared to $1,104,000 for the first quarter of 1997, a decrease of $400,000 as a result of the conversion of the note payable to Seafield to shares of the Company's common stock during the first quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company's working capital was $(9.7) million with current assets of $44.8 million and current liabilities of $54.4 million. Cash and cash equivalents represented $.5 million of the Company's current assets. Current liabilities includes the entire principal balance under the Company's Acquisition facility which is due in March 1999. Cash used in operating activities was $.7 million in the first quarter of 1998 compared to cash used in operating activities of $1.3 million for the same period in 1997. Cash used in investing activities was $.9 million and $.2 million for the quarters ended March 31, 1998 and 1997, respectively. Cash used in financing activities was $.4 million for the first quarter of 1998 and provided by financing activities was $1.1 million for the same period in 1997. The Company has a $45.0 million Credit Facility to fund the Company's acquisition and working capital needs. The Credit Facility, comprised of a $35.0 million Acquisition Facility and a $10.0 million Working Capital Facility, is collateralized by the common stock of the Company's subsidiaries. The Credit Facility bears interest at a variable rate equal to LIBOR plus a spread between 1.5% and 2.125%, depending upon borrowing levels. At March 31, 1998, $29.2 million aggregate principal was outstanding under the Credit Facility with a current interest rate of approximately 8.2%. The Credit Facility contains affirmative and negative covenants which, among other things, require that the Company maintain certain financial ratios, including minimum fixed charges coverage, funded debt to EBITDA, net worth and current ratio. On March 31, 1998, the Credit Facility was modified and amended, effective April 21, 1997, to provide for redefinitions of certain restrictive covenants. In May 1997, the Company entered into a LIBOR based interest rate swap agreement ("Swap Agreement") with an affiliate of the Company's primary lender as required by the terms of the Credit Facility. Amounts hedged under the Swap Agreement accrue interest at the difference between 6.42% and the thirty-day LIBOR rate and are settled monthly. As of March 31, 1998, approximately 51% of the Company's outstanding principal balance under the Credit Facility was hedged under the Swap Agreement. The Swap Agreement matures in March 1999 and is cancelable at the lender's option after July 1998. Additionally, long-term unsecured amortizing promissory notes bearing interest at rates from 4% to 9% were issued as partial consideration for the practice management affiliations. Principal and interest under the long-term notes may, at the election of the holders, be paid in shares of common stock of the Company based upon conversion rates ranging from $13.75 to $17.50. The unpaid principal amount of the long-term notes was $14.0 million at March 31, 1998. In October 1996, the Company procured a $23.5 million credit facility from Seafield (the "Seafield Facility") to finance acquisitions and for working capital. At December 31, 1996, $22.5 million was outstanding under the Seafield Facility at an interest rate of 8%. On February 26, 1997, the $23.5 million loan and accrued interest of $.6 million was converted into 3,020,536 shares of the Company's common stock at a rate of $8 per share. - 10 - 11 The Company has a commitment to lease medical equipment in 1998 under 54 month operating leases. Annual rentals under this commitment approximate $560,000. IMPACT OF YEAR 2000 The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer program that has date sensitive software may recognize a date using "00" as the year 1900 rather than as the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has recently assessed its internal computer systems and believes that the current systems used will properly utilize dates beyond December 31, 1999. The Company has been informed that their outside software vendors are in the process of studying the year 2000 issue. Upon completion of the vendors' studies which are expected in late 1998, the Company will determine the extent to which it is vulnerable to the third parties' failure to remediate their own year 2000 issues and the costs associated with resolving this issue. - 11 - 12 PART II - OTHER INFORMATION ITEM 5 MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS On July 1, 1997, Seafield's Board of Directors declared a dividend to Seafield's shareholders of all shares of common stock of Response owned by Seafield. For each shareholder of record on July 11, 1997, 1.2447625 shares of Response common stock were distributed on July 25, 1997 for each share of Seafield common stock outstanding. The distribution of all shares of Response stock held by Seafield to Seafield's shareholders was effected as a dividend. The Seafield shareholders paid no consideration for any shares of Response stock received in the distribution. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 10.1 Employment Agreement effective as of January 1, 1998 by and between Response Oncology, Inc., a Tennessee corporation and Kenneth L. Scott. 10.2 Employment Agreement effective as of January 1, 1998 by and between Response Oncology, Inc. and Joseph T. Clark. 10.3 Employment Agreement effective as of January 1, 1998 by and between Response Oncology, Inc. and Carlton Sedberry 10.4 Employment Agreement effective as of January 1, 1998 by and between Response Oncology, Inc. and Mary E. Clements 10.5 Employment Agreement effective as of January 1, 1998 by and between Response Oncology, Inc. and William H. West, M.D. 10.6 Employment Agreement effective as of January 1, 1998 by and between Response Oncology, Inc. and Charles Weaver, M.D. 27 Financial Data Schedule (for SEC use only) - 12 - 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Response Oncology, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RESPONSE ONCOLOGY, INC. By: /s/ Mary E. Clements -------------------------------------- Mary E. Clements Chief Financial Officer and Principal Accounting Officer Date: May 15, 1998 By: /s/ Dena L. Mullen -------------------------------------- Dena L. Mullen Director of Finance Date: May 15, 1998 By: /s/ Peter A. Stark -------------------------------------- Peter A. Stark Controller Date: May 15, 1998 -13- EX-10.1 2 EMPLOYMENT AGREEMENT - KENNETH L. SCOTT 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS AGREEMENT is made April 21, 1998, effective as of January 1, 1998, by and between RESPONSE ONCOLOGY, INC., a Tennessee corporation (the "Company"), and KENNETH L. SCOTT (the "Executive"). WHEREAS, the Company is engaged in the business of providing advanced cancer treatment services; WHEREAS, the Company desires to employ the Executive to devote full time to the business of the Company and to continue as the 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 January 1, 1998, and shall continue through December 31, 2000. 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 Chief Executive Officer. As of the effective date of this Employment Agreement, the Executive shall continue to possess and assume senior operating authority and responsibility as Chief Operating Officer of the Company, consistent with directions from the Chief Executive Officer of the Company. 2 2.3 Location. The duties of the Executive shall be performed in the general geographic location where the Executive maintains his principal office at the time of execution hereof. 3 COMPENSATION AND BENEFITS 3.1 Base Compensation. The Company shall pay the Executive a base salary ("Base Salary") of $185,000 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 according to the policies and practices adopted by the Board of Directors from time to time. 3.2 Annual Incentive Awards. The Company will pay the Executive annual incentive compensation ("Incentive Bonus") 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 employee is eligible under any existing or future plan or program established by the Company for salaried employees, including, without limitation, all plans developed for executive officers of the Company. The Executive will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with program provisions. These plans or programs 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 executive officers. 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 upon the Executive's submitting proper documentation in accordance with Company policies for expense reimbursement. 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. - 2 - 3 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 Bonus 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 the greater of (i) the remaining Term of this Agreement or (ii) twelve (12) months from the date of such termination. All other compensation will cease except for earned but unpaid Incentive Bonus awards which would be payable on a pro-rated basis for the year in which the disability occurred, through the date of termination. 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. - 3 - 4 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; Constructive Termination. 5.1.1 WITHOUT A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause (hereinafter defined) or a Constructive Termination (as 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 the following: (a) in a lump sum upon such termination an amount equal to 100% of the sum of the Executive's combined (i) Base Salary as in effect at the time of the termination and (ii) the average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination; and (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. 5.1.2 UPON A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause or Constructive Termination within one (1) year following a Change in Control, the Company will pay to the Executive the following: (a) in a lump sum upon such termination an amount equal to the sum of (i) 200% of the Executive's combined (A) Base Salary as in effect at the time of the termination and (B) average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination, and (ii), to the extent that such foregoing 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) constitutes an "excess parachute payment" within the meaning of Section 280G, the amount, if any, of (A) such "excess parachute payment" multiplied by a fraction, the numerator of which is the number one (1.00) and the denominator of which is (I) the number one (1.00) minus (II) the effective tax rate under Section 280G applicable to the Executive expressed as a decimal, minus (B) the amount of such "excess parachute payment" (such amount being sometimes hereinafter called the "Excise Tax Gross-Up"); and - 4 - 5 (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. Notwithstanding the provisions of the foregoing subparagraph (a), if the Excise Tax Gross- Up required to be paid by the Company to all other employees of the Company ("Affected Employees") shall exceed $5,000,000 (the "Gross-Up Limitation"), then the amount of Excise Tax Gross-Up payable to the Executive shall be an amount equal to $5,000,000 times a fraction, the numerator of which shall be the amount of Excise Tax Gross-Up computed for the Executive before consideration of the Gross-Up Limitation, and the denominator of which shall be the aggregate Excise Tax Gross-Up computed for all Affected Employees before consideration of the Gross-Up Limitation. 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 Bonus, 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 at the time of termination. 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. 5.3 Definitions. For purposes of this Employment Agreement, the following terms have the following meanings: 5.3.1 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%." 5.3.2 "Constructive Termination" means termination of the Executive's employment by the Executive (a) from a declined reassignment of a job that is not the equivalent of his then current position as set forth herein (in responsibility, compensation or geographic area of service), or (b) on account of conduct by the Company or the Board that constitutes continuous and material interference by the Company or the Board with the Executive's performance of his duties as set forth in Section 2 hereof or the intentional or material breach by the Company of this Agreement. The - 5 - 6 Executive shall have a period of one (1) year after termination of his employment to assert against the Company that he suffered a Constructive Termination, and after the expiration of such one year period, the Executive shall be deemed to have irrevocably waived the right to such assertion. 5.3.3 "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. 5.3.4 "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, 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 - 7 6.3 Noncompetition. 6.3.1 DURING THE TERM OF EMPLOYMENT. The Executive will not Compete with the Company (as defined in Section 6.3.4 hereafter) at any time while he is employed by the Company or receiving payments from the Company. 6.3.2 VOLUNTARY TERMINATION; TERMINATION WITHOUT CAUSE; TERMINATION WITH CAUSE; CONSTRUCTIVE TERMINATION. In the event of a Voluntary Termination, Termination With Cause, Termination Without Cause, or Constructive Termination, with or without a Change in Control, the Executive will not Compete with the Company for a period of one (1) year from the date of such termination; 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. 6.3.3 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; provided, however, that the term "Compete with the Company" shall not include ownership (without any more extensive relationship) of a less than a five percent (5%) interest in any publicly-held corporation or other business entity. 6.3.4 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 INDEMNIFICATION OF EXECUTIVE 7.1 Indemnification of Executive In Third Party Proceedings. The Company shall indemnify Executive, if Executive was or is a party, or is threatened to be made a party to any third party proceeding, by reason of the fact that Executive was or is an authorized representative of the Company, against expenses, judgments, fines and amounts paid in settlement actually and - 7 - 8 reasonably incurred by Executive in connection with such third party proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal third party proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that Executive did not act in good faith and in a manner which he reasonably believed to be in or not opposed to, the best interests of the Company, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful. 7.2 Indemnification of Executive in Corporate Proceedings. The Company shall indemnify Executive if he was or is a party or is threatened to be made a party to any corporate proceeding, by reason of the fact that he was or is an authorized representative of the Company, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such corporate proceeding, if he acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which the Executive shall have been adjudged to be liable to the Company unless and only to the extent that a court of competent jurisdiction or the court in which such corporate proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Executive is fairly and reasonably entitled to indemnity for such expenses which a court of competent jurisdiction shall deem proper. 7.3 Mandatory Indemnification of Executive. To the extent that the Executive has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. 7.4 Determination of Entitlement to Indemnification. Any indemnification under Section 7.1, 7.2 or 7.3 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Executive is proper in the circumstances because he has either met the applicable standard of conduct set forth in Section 7.1 or 7.2 or has been successful on the merits or otherwise as set forth in Section 7.3 and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such third party or corporate proceeding; or (b) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (c) by the stockholders. - 8 - 9 7.5 Advancing Expenses. Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of Executive by the Company in advance of the final disposition of such third party or corporate proceeding upon receipt of an undertaking by or on behalf of the Executive to repay such amount if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company as authorized in this Section 7. The financial ability of the Executive to make a repayment contemplated by this section shall not be a prerequisite to the making of an advance. 7.6 Certain Terms. For purposes of this Section 7: (a) "corporate proceeding" shall mean any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor or investigative proceeding by the Company; (b) "criminal third party proceeding" shall include any action or investigation which could or does lead to a third party proceeding that could result in criminal penalties, and any such proceeding; (c) "expenses" shall include, but not be limited to, attorneys' fees and disbursements; (d) "fines" shall include, but not be limited to, any excise taxes assessed on a person with respect to an Executive benefit plan; (e) "not opposed to the best interests of the Company" shall include actions taken in good faith and in a manner the Executive reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan; (f) "other enterprises" shall include employee benefit plans; (g) "party" to a proceeding shall include a person who gives testimony or is similarly involved in such proceeding; (h) "third party proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Company. 7.7 Insurance. The Company may purchase and maintain insurance on behalf of Executive against any liability asserted against the Executive and incurred by the Executive in such capacity, or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify Executive against such liability under the provisions of this Section 7. - 9 - 10 7.8 Scope of Section. The indemnification of Executive and advancement of expenses, as authorized by the preceding provisions of this Section 7, shall not be deemed exclusive of any other rights to which may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while employed by the Company. The indemnification and advancement of expenses provided by or granted pursuant to this Section 7 shall continue after the Executive ceases to be an authorized representative of the Company and shall inure to the benefit of his heirs, executors and administrators. 7.9 Reliance on Provisions. Executive's actions as an authorized representative of the Company shall be deemed so done in reliance upon rights of indemnification provided by this Section 7. 8 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 8 is not intended to modify or limit the rights of the Executive hereunder. 9 MISCELLANEOUS 9.1 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. 9.2 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. 9.3 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, - 10 - 11 its geographic scope or term shall be modified to such extent as may be necessary to render such covenant enforceable. 9.4 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. 9.5 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. 9.6 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. 9.7 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 11845 Southwest 44th Street, Davie, FL 33330 or such other address as may have been furnished to the Company by the Executive in writing. 9.8 Binding Agreement. This Employment Agreement shall be binding on the parties' successors, heirs and assigns. - 11 - 12 IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. RESPONSE ONCOLOGY, INC. By: -------------------------------- Frank M. Bumstead Chairman Emeritus EXECUTIVE: ------------------------------------- KENNETH L. SCOTT - 12 - EX-10.2 3 EMPLOYMENT AGREEMENT - JOSEPH CLARK 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS AGREEMENT is made April 21, 1998, effective as of January 1, 1998, 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; 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 Executive 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 January 1, 1998, and shall continue through December 31, 2000. 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 2 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 $234,000 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 according to the policies and practices adopted by the Board of Directors from time to time. 3.2 Annual Incentive Awards. The Company will pay the Executive annual incentive compensation ("Incentive Bonus") 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 employee is eligible under any existing or future plan or program established by the Company for salaried employees, including, without limitation, all plans developed for executive officers of the Company. The Executive will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with program provisions. These plans or programs 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 executive officers. 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 upon the Executive's submitting proper documentation in accordance with Company policies for expense reimbursement. 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. - 2 - 3 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 Bonus 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 the greater of (i) the remaining Term of this Agreement or (ii) twelve (12) months from the date of such termination. All other compensation will cease except for earned but unpaid Incentive Bonus awards which would be payable on a pro-rated basis for the year in which the disability occurred, through the date of termination. 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. - 3 - 4 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; Constructive Termination. 5.1.1 WITHOUT A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause (hereinafter defined) or a Constructive Termination (as 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 the following: (a) in a lump sum upon such termination an amount equal to 200% of the sum of the Executive's combined (i) Base Salary as in effect at the time of the termination and (ii) the average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination; and (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. 5.1.2 UPON A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause or Constructive Termination within one (1) year following a Change in Control, the Company will pay to the Executive the following: (a) in a lump sum upon such termination an amount equal to the sum of (i) 299% of the Executive's combined (A) Base Salary as in effect at the time of the termination and (B) average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination, and (ii), to the extent that such foregoing 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) constitutes an "excess parachute payment" within the meaning of Section 280G, the amount, if any, of (A) such "excess parachute payment" multiplied by a fraction, the numerator of which is the number one (1.00) and the denominator of which is (I) the number one (1.00) minus (II) the effective tax rate under Section 280G applicable to the Executive expressed as a decimal, minus (B) the amount of such "excess parachute payment" (such amount being sometimes hereinafter called the "Excise Tax Gross-Up"); and - 4 - 5 (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. Notwithstanding the provisions of the foregoing subparagraph (a), if the Excise Tax Gross- Up required to be paid by the Company to all other employees of the Company ("Affected Employees") shall exceed $5,000,000 (the "Gross-Up Limitation"), then the amount of Excise Tax Gross-Up payable to the Executive shall be an amount equal to $5,000,000 times a fraction, the numerator of which shall be the amount of Excise Tax Gross-Up computed for the Executive before consideration of the Gross-Up Limitation, and the denominator of which shall be the aggregate Excise Tax Gross-Up computed for all Affected Employees before consideration of the Gross-Up Limitation. 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 Bonus, 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 at the time of termination. 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. 5.3 Definitions. For purposes of this Employment Agreement, the following terms have the following meanings: 5.3.1 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%." 5.3.2 "Constructive Termination" means termination of the Executive's employment by the Executive (a) from a declined reassignment of a job that is not the equivalent of his then current position as set forth herein (in responsibility, compensation or geographic area of service), or (b) on account of conduct by the Company or the Board that constitutes continuous and material interference by the Company or the Board with the Executive's performance of his duties as set forth in Section 2 hereof or the intentional or material breach by the Company of this Agreement. The - 5 - 6 Executive shall have a period of one (1) year after termination of his employment to assert against the Company that he suffered a Constructive Termination, and after the expiration of such one year period, the Executive shall be deemed to have irrevocably waived the right to such assertion. 5.3.3 "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. 5.3.4 "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, 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 - 7 6.3 Noncompetition. 6.3.1 DURING THE TERM OF EMPLOYMENT. The Executive will not Compete with the Company (as defined in Section 6.3.4 hereafter) at any time while he is employed by the Company or receiving payments from the Company. 6.3.2 VOLUNTARY TERMINATION; TERMINATION WITHOUT CAUSE; TERMINATION WITH CAUSE; CONSTRUCTIVE TERMINATION. In the event of a Voluntary Termination, Termination With Cause, Termination Without Cause, or Constructive Termination, with or without a Change in Control, the Executive will not Compete with the Company for a period of one (1) year from the date of such termination; 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. 6.3.3 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; provided, however, that the term "Compete with the Company" shall not include ownership (without any more extensive relationship) of a less than a five percent (5%) interest in any publicly-held corporation or other business entity. 6.3.4 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 INDEMNIFICATION OF EXECUTIVE 7.1 Indemnification of Executive In Third Party Proceedings. The Company shall indemnify Executive, if Executive was or is a party, or is threatened to be made a party to any third party proceeding, by reason of the fact that Executive was or is an authorized representative of the Company, against expenses, judgments, fines and amounts paid in settlement actually and - 7 - 8 reasonably incurred by Executive in connection with such third party proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal third party proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that Executive did not act in good faith and in a manner which he reasonably believed to be in or not opposed to, the best interests of the Company, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful. 7.2 Indemnification of Executive in Corporate Proceedings. The Company shall indemnify Executive if he was or is a party or is threatened to be made a party to any corporate proceeding, by reason of the fact that he was or is an authorized representative of the Company, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such corporate proceeding, if he acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which the Executive shall have been adjudged to be liable to the Company unless and only to the extent that a court of competent jurisdiction or the court in which such corporate proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Executive is fairly and reasonably entitled to indemnity for such expenses which a court of competent jurisdiction shall deem proper. 7.3 Mandatory Indemnification of Executive. To the extent that the Executive has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. 7.4 Determination of Entitlement to Indemnification. Any indemnification under Section 7.1, 7.2 or 7.3 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Executive is proper in the circumstances because he has either met the applicable standard of conduct set forth in Section 7.1 or 7.2 or has been successful on the merits or otherwise as set forth in Section 7.3 and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such third party or corporate proceeding; or (b) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (c) by the stockholders. - 8 - 9 7.5 Advancing Expenses. Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of Executive by the Company in advance of the final disposition of such third party or corporate proceeding upon receipt of an undertaking by or on behalf of the Executive to repay such amount if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company as authorized in this Section 7. The financial ability of the Executive to make a repayment contemplated by this section shall not be a prerequisite to the making of an advance. 7.6 Certain Terms. For purposes of this Section 7: (a) "corporate proceeding" shall mean any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor or investigative proceeding by the Company; (b) "criminal third party proceeding" shall include any action or investigation which could or does lead to a third party proceeding that could result in criminal penalties, and any such proceeding; (c) "expenses" shall include, but not be limited to, attorneys' fees and disbursements; (d) "fines" shall include, but not be limited to, any excise taxes assessed on a person with respect to an Executive benefit plan; (e) "not opposed to the best interests of the Company" shall include actions taken in good faith and in a manner the Executive reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan; (f) "other enterprises" shall include employee benefit plans; (g) "party" to a proceeding shall include a person who gives testimony or is similarly involved in such proceeding; (h) "third party proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Company. 7.7 Insurance. The Company may purchase and maintain insurance on behalf of Executive against any liability asserted against the Executive and incurred by the Executive in such capacity, or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify Executive against such liability under the provisions of this Section 7. - 9 - 10 7.8 Scope of Section. The indemnification of Executive and advancement of expenses, as authorized by the preceding provisions of this Section 7, shall not be deemed exclusive of any other rights to which may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while employed by the Company. The indemnification and advancement of expenses provided by or granted pursuant to this Section 7 shall continue after the Executive ceases to be an authorized representative of the Company and shall inure to the benefit of his heirs, executors and administrators. 7.9 Reliance on Provisions. Executive's actions as an authorized representative of the Company shall be deemed so done in reliance upon rights of indemnification provided by this Section 7. 8 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 8 is not intended to modify or limit the rights of the Executive hereunder. 9 MISCELLANEOUS 9.1 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. 9.2 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. 9.3 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, - 10 - 11 its geographic scope or term shall be modified to such extent as may be necessary to render such covenant enforceable. 9.4 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. 9.5 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. 9.6 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. 9.7 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 5931 Shady Grove Road, Memphis, TN 38120 or such other address as may have been furnished to the Company by the Executive in writing. 9.8 Binding Agreement. This Employment Agreement shall be binding on the parties' successors, heirs and assigns. - 11 - 12 IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. RESPONSE ONCOLOGY, INC. By: -------------------------------- Frank M. Bumstead Chairman Emeritus EXECUTIVE: ------------------------------------- JOSEPH T. CLARK - 12 - EX-10.3 4 EMPLOYMENT AGREEMENT - CARLTON SEDBERRY 1 EXHIBIT 10.3 EMPLOYMENT AGREEMENT THIS AGREEMENT is made April 21, 1998, effective as of January 1, 1998, by and between RESPONSE ONCOLOGY, INC., a Tennessee corporation (the "Company"), and CARLTON SEDBERRY (the "Executive"). WHEREAS, the Company is engaged in the business of providing advanced cancer treatment services; WHEREAS, the Company desires to employ the Executive to devote full time to the business of the Company and to continue as the Executive Vice President - Development 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 January 1, 1998, and shall continue through December 31, 2000. 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 Chief Executive Officer. As of the effective date of this Employment Agreement, the Executive shall continue to possess and 2 assume senior operating authority and responsibility as Executive Vice President - - Development of the Company, consistent with directions from the Chief Executive Officer 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 Chief Executive Officer. 3 COMPENSATION AND BENEFITS 3.1 Base Compensation. The Company shall pay the Executive a base salary ("Base Salary") of $115,000 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 according to the policies and practices adopted by the Board of Directors from time to time. 3.2 Annual Incentive Awards. The Company will pay the Executive annual incentive compensation ("Incentive Bonus") 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 employee is eligible under any existing or future plan or program established by the Company for salaried employees, including, without limitation, all plans developed for executive officers of the Company. The Executive will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with program provisions. These plans or programs 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 executive officers. 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 upon the Executive's submitting proper documentation in accordance with Company policies for expense reimbursement. 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. - 2 - 3 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 Bonus 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 the greater of (i) the remaining Term of this Agreement or (ii) twelve (12) months from the date of such termination. All other compensation will cease except for earned but unpaid Incentive Bonus awards which would be payable on a pro-rated basis for the year in which the disability occurred, through the date of termination. 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. - 3 - 4 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; Constructive Termination. 5.1.1 WITHOUT A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause (hereinafter defined) or a Constructive Termination (as 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 the following: (a) in a lump sum upon such termination an amount equal to 100% of the sum of the Executive's combined (i) Base Salary as in effect at the time of the termination and (ii) the average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination; and (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. 5.1.2 UPON A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause or Constructive Termination within one (1) year following a Change in Control, the Company will pay to the Executive the following: (a) in a lump sum upon such termination an amount equal to the sum of (i) 200% of the Executive's combined (A) Base Salary as in effect at the time of the termination and (B) average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination, and (ii), to the extent that such foregoing 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) constitutes an "excess parachute payment" within the meaning of Section 280G, the amount, if any, of (A) such "excess parachute payment" multiplied by a fraction, the numerator of which is the number one (1.00) and the denominator of which is (I) the number one (1.00) minus (II) the effective tax rate under Section 280G applicable to the Executive expressed as a decimal, minus (B) the amount of such "excess parachute payment" (such amount being sometimes hereinafter called the "Excise Tax Gross-Up"); and - 4 - 5 (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. Notwithstanding the provisions of the foregoing subparagraph (a), if the Excise Tax Gross- Up required to be paid by the Company to all other employees of the Company ("Affected Employees") shall exceed $5,000,000 (the "Gross-Up Limitation"), then the amount of Excise Tax Gross-Up payable to the Executive shall be an amount equal to $5,000,000 times a fraction, the numerator of which shall be the amount of Excise Tax Gross-Up computed for the Executive before consideration of the Gross-Up Limitation, and the denominator of which shall be the aggregate Excise Tax Gross-Up computed for all Affected Employees before consideration of the Gross-Up Limitation. 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 Bonus, 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 at the time of termination. 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. 5.3 Definitions. For purposes of this Employment Agreement, the following terms have the following meanings: 5.3.1 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%." 5.3.2 "Constructive Termination" means termination of the Executive's employment by the Executive (a) from a declined reassignment of a job that is not the equivalent of his then current position as set forth herein (in responsibility, compensation or geographic area of service), or (b) on account of conduct by the Company or the Board that constitutes continuous and material interference by the Company or the Board with the Executive's performance of his duties as set forth in Section 2 hereof or the intentional or material breach by the Company of this Agreement. The - 5 - 6 Executive shall have a period of one (1) year after termination of his employment to assert against the Company that he suffered a Constructive Termination, and after the expiration of such one year period, the Executive shall be deemed to have irrevocably waived the right to such assertion. 5.3.3 "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. 5.3.4 "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, 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 - 7 6.3 Noncompetition. 6.3.1 DURING THE TERM OF EMPLOYMENT. The Executive will not Compete with the Company (as defined in Section 6.3.4 hereafter) at any time while he is employed by the Company or receiving payments from the Company. 6.3.2 VOLUNTARY TERMINATION; TERMINATION WITHOUT CAUSE; TERMINATION WITH CAUSE; CONSTRUCTIVE TERMINATION. In the event of a Voluntary Termination, Termination With Cause, Termination Without Cause, or Constructive Termination, with or without a Change in Control, the Executive will not Compete with the Company for a period of one (1) year from the date of such termination; 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. 6.3.3 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; provided, however, that the term "Compete with the Company" shall not include ownership (without any more extensive relationship) of a less than a five percent (5%) interest in any publicly-held corporation or other business entity. 6.3.4 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 INDEMNIFICATION OF EXECUTIVE 7.1 Indemnification of Executive In Third Party Proceedings. The Company shall indemnify Executive, if Executive was or is a party, or is threatened to be made a party to any third party proceeding, by reason of the fact that Executive was or is an authorized representative of the Company, against expenses, judgments, fines and amounts paid in settlement actually and - 7 - 8 reasonably incurred by Executive in connection with such third party proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal third party proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that Executive did not act in good faith and in a manner which he reasonably believed to be in or not opposed to, the best interests of the Company, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful. 7.2 Indemnification of Executive in Corporate Proceedings. The Company shall indemnify Executive if he was or is a party or is threatened to be made a party to any corporate proceeding, by reason of the fact that he was or is an authorized representative of the Company, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such corporate proceeding, if he acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which the Executive shall have been adjudged to be liable to the Company unless and only to the extent that a court of competent jurisdiction or the court in which such corporate proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Executive is fairly and reasonably entitled to indemnity for such expenses which a court of competent jurisdiction shall deem proper. 7.3 Mandatory Indemnification of Executive. To the extent that the Executive has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. 7.4 Determination of Entitlement to Indemnification. Any indemnification under Section 7.1, 7.2 or 7.3 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Executive is proper in the circumstances because he has either met the applicable standard of conduct set forth in Section 7.1 or 7.2 or has been successful on the merits or otherwise as set forth in Section 7.3 and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such third party or corporate proceeding; or (b) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (c) by the stockholders. - 8 - 9 7.5 Advancing Expenses. Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of Executive by the Company in advance of the final disposition of such third party or corporate proceeding upon receipt of an undertaking by or on behalf of the Executive to repay such amount if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company as authorized in this Section 7. The financial ability of the Executive to make a repayment contemplated by this section shall not be a prerequisite to the making of an advance. 7.6 Certain Terms. For purposes of this Section 7: (a) "corporate proceeding" shall mean any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor or investigative proceeding by the Company; (b) "criminal third party proceeding" shall include any action or investigation which could or does lead to a third party proceeding that could result in criminal penalties, and any such proceeding; (c) "expenses" shall include, but not be limited to, attorneys' fees and disbursements; (d) "fines" shall include, but not be limited to, any excise taxes assessed on a person with respect to an Executive benefit plan; (e) "not opposed to the best interests of the Company" shall include actions taken in good faith and in a manner the Executive reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan; (f) "other enterprises" shall include employee benefit plans; (g) "party" to a proceeding shall include a person who gives testimony or is similarly involved in such proceeding; (h) "third party proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Company. 7.7 Insurance. The Company may purchase and maintain insurance on behalf of Executive against any liability asserted against the Executive and incurred by the Executive in such capacity, or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify Executive against such liability under the provisions of this Section 7. - 9 - 10 7.8 Scope of Section. The indemnification of Executive and advancement of expenses, as authorized by the preceding provisions of this Section 7, shall not be deemed exclusive of any other rights to which may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while employed by the Company. The indemnification and advancement of expenses provided by or granted pursuant to this Section 7 shall continue after the Executive ceases to be an authorized representative of the Company and shall inure to the benefit of his heirs, executors and administrators. 7.9 Reliance on Provisions. Executive's actions as an authorized representative of the Company shall be deemed so done in reliance upon rights of indemnification provided by this Section 7. 8 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 8 is not intended to modify or limit the rights of the Executive hereunder. 9 MISCELLANEOUS 9.1 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. 9.2 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. 9.3 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, - 10 - 11 its geographic scope or term shall be modified to such extent as may be necessary to render such covenant enforceable. 9.4 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. 9.5 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. 9.6 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. 9.7 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 307 Fernway Cove, Memphis, TN 38117 or such other address as may have been furnished to the Company by the Executive in writing. 9.8 Binding Agreement. This Employment Agreement shall be binding on the parties' successors, heirs and assigns. - 11 - 12 IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. RESPONSE ONCOLOGY, INC. By: -------------------------------- Frank M. Bumstead Chairman Emeritus EXECUTIVE: ------------------------------------- CARLTON SEDBERRY - 12 - EX-10.4 5 EMPLOYMENT AGREEMENT - MARY E. CLEMENTS 1 EXHIBIT 10.4 EMPLOYMENT AGREEMENT THIS AGREEMENT is made April 21, 1998, effective as of January 1, 1998, by and between RESPONSE ONCOLOGY, INC., a Tennessee corporation (the "Company"), and MARY E. CLEMENTS (the "Executive"). WHEREAS, the Company is engaged in the business of providing advanced cancer treatment services; WHEREAS, the Company desires to employ the Executive to devote full time to the business of the Company and to continue as the Chief Financial 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 January 1, 1998, and shall continue through December 31, 2000. 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 Chief Executive Officer. As of the effective date of this Employment Agreement, the Executive shall continue to possess and assume senior operating authority and responsibility as Chief Financial Officer of the Company, consistent with directions from the Chief Executive Officer of the Company. 2 2.3 Location. The duties of the Executive shall be performed at such locations and places as may be directed by the Chief Executive Officer. 3 COMPENSATION AND BENEFITS 3.1 Base Compensation. The Company shall pay the Executive a base salary ("Base Salary") of $150,000 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 according to the policies and practices adopted by the Board of Directors from time to time. 3.2 Annual Incentive Awards. The Company will pay the Executive annual incentive compensation ("Incentive Bonus") 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 employee is eligible under any existing or future plan or program established by the Company for salaried employees, including, without limitation, all plans developed for executive officers of the Company. The Executive will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with program provisions. These plans or programs 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 executive officers. 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 upon the Executive's submitting proper documentation in accordance with Company policies for expense reimbursement. 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. - 2 - 3 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 Bonus 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 the greater of (i) the remaining Term of this Agreement or (ii) twelve (12) months from the date of such termination. All other compensation will cease except for earned but unpaid Incentive Bonus awards which would be payable on a pro-rated basis for the year in which the disability occurred, through the date of termination. 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. - 3 - 4 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; Constructive Termination. 5.1.1 WITHOUT A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause (hereinafter defined) or a Constructive Termination (as 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 the following: (a) in a lump sum upon such termination an amount equal to 100% of the sum of the Executive's combined (i) Base Salary as in effect at the time of the termination and (ii) the average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination; and (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. 5.1.2 UPON A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause or Constructive Termination within one (1) year following a Change in Control, the Company will pay to the Executive the following: (a) in a lump sum upon such termination an amount equal to the sum of (i) 200% of the Executive's combined (A) Base Salary as in effect at the time of the termination and (B) average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination, and (ii), to the extent that such foregoing 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) constitutes an "excess parachute payment" within the meaning of Section 280G, the amount, if any, of (A) such "excess parachute payment" multiplied by a fraction, the numerator of which is the number one (1.00) and the denominator of which is (I) the number one (1.00) minus (II) the effective tax rate under Section 280G applicable to the Executive expressed as a decimal, minus (B) the amount of such "excess parachute payment" (such amount being sometimes hereinafter called the "Excise Tax Gross-Up"); and - 4 - 5 (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. Notwithstanding the provisions of the foregoing subparagraph (a), if the Excise Tax Gross- Up required to be paid by the Company to all other employees of the Company ("Affected Employees") shall exceed $5,000,000 (the "Gross-Up Limitation"), then the amount of Excise Tax Gross-Up payable to the Executive shall be an amount equal to $5,000,000 times a fraction, the numerator of which shall be the amount of Excise Tax Gross-Up computed for the Executive before consideration of the Gross-Up Limitation, and the denominator of which shall be the aggregate Excise Tax Gross-Up computed for all Affected Employees before consideration of the Gross-Up Limitation. 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 Bonus, 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 at the time of termination. 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. 5.3 Definitions. For purposes of this Employment Agreement, the following terms have the following meanings: 5.3.1 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%." 5.3.2 "Constructive Termination" means termination of the Executive's employment by the Executive (a) from a declined reassignment of a job that is not the equivalent of his then current position as set forth herein (in responsibility, compensation or geographic area of service), or (b) on account of conduct by the Company or the Board that constitutes continuous and material interference by the Company or the Board with the Executive's performance of his duties as set forth in Section 2 hereof or the intentional or material breach by the Company of this Agreement. The - 5 - 6 Executive shall have a period of one (1) year after termination of his employment to assert against the Company that he suffered a Constructive Termination, and after the expiration of such one year period, the Executive shall be deemed to have irrevocably waived the right to such assertion. 5.3.3 "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. 5.3.4 "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, 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 - 7 6.3 Noncompetition. 6.3.1 DURING THE TERM OF EMPLOYMENT. The Executive will not Compete with the Company (as defined in Section 6.3.4 hereafter) at any time while he is employed by the Company or receiving payments from the Company. 6.3.2 VOLUNTARY TERMINATION; TERMINATION WITHOUT CAUSE; TERMINATION WITH CAUSE; CONSTRUCTIVE TERMINATION. In the event of a Voluntary Termination, Termination With Cause, Termination Without Cause, or Constructive Termination, with or without a Change in Control, the Executive will not Compete with the Company for a period of one (1) year from the date of such termination; 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. 6.3.3 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; provided, however, that the term "Compete with the Company" shall not include ownership (without any more extensive relationship) of a less than a five percent (5%) interest in any publicly-held corporation or other business entity. 6.3.4 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 INDEMNIFICATION OF EXECUTIVE 7.1 Indemnification of Executive In Third Party Proceedings. The Company shall indemnify Executive, if Executive was or is a party, or is threatened to be made a party to any third party proceeding, by reason of the fact that Executive was or is an authorized representative of the Company, against expenses, judgments, fines and amounts paid in settlement actually and - 7 - 8 reasonably incurred by Executive in connection with such third party proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal third party proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that Executive did not act in good faith and in a manner which he reasonably believed to be in or not opposed to, the best interests of the Company, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful. 7.2 Indemnification of Executive in Corporate Proceedings. The Company shall indemnify Executive if he was or is a party or is threatened to be made a party to any corporate proceeding, by reason of the fact that he was or is an authorized representative of the Company, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such corporate proceeding, if he acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which the Executive shall have been adjudged to be liable to the Company unless and only to the extent that a court of competent jurisdiction or the court in which such corporate proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Executive is fairly and reasonably entitled to indemnity for such expenses which a court of competent jurisdiction shall deem proper. 7.3 Mandatory Indemnification of Executive. To the extent that the Executive has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. 7.4 Determination of Entitlement to Indemnification. Any indemnification under Section 7.1, 7.2 or 7.3 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Executive is proper in the circumstances because he has either met the applicable standard of conduct set forth in Section 7.1 or 7.2 or has been successful on the merits or otherwise as set forth in Section 7.3 and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such third party or corporate proceeding; or (b) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (c) by the stockholders. - 8 - 9 7.5 Advancing Expenses. Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of Executive by the Company in advance of the final disposition of such third party or corporate proceeding upon receipt of an undertaking by or on behalf of the Executive to repay such amount if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company as authorized in this Section 7. The financial ability of the Executive to make a repayment contemplated by this section shall not be a prerequisite to the making of an advance. 7.6 Certain Terms. For purposes of this Section 7: (a) "corporate proceeding" shall mean any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor or investigative proceeding by the Company; (b) "criminal third party proceeding" shall include any action or investigation which could or does lead to a third party proceeding that could result in criminal penalties, and any such proceeding; (c) "expenses" shall include, but not be limited to, attorneys' fees and disbursements; (d) "fines" shall include, but not be limited to, any excise taxes assessed on a person with respect to an Executive benefit plan; (e) "not opposed to the best interests of the Company" shall include actions taken in good faith and in a manner the Executive reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan; (f) "other enterprises" shall include employee benefit plans; (g) "party" to a proceeding shall include a person who gives testimony or is similarly involved in such proceeding; (h) "third party proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Company. 7.7 Insurance. The Company may purchase and maintain insurance on behalf of Executive against any liability asserted against the Executive and incurred by the Executive in such capacity, or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify Executive against such liability under the provisions of this Section 7. - 9 - 10 7.8 Scope of Section. The indemnification of Executive and advancement of expenses, as authorized by the preceding provisions of this Section 7, shall not be deemed exclusive of any other rights to which may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while employed by the Company. The indemnification and advancement of expenses provided by or granted pursuant to this Section 7 shall continue after the Executive ceases to be an authorized representative of the Company and shall inure to the benefit of his heirs, executors and administrators. 7.9 Reliance on Provisions. Executive's actions as an authorized representative of the Company shall be deemed so done in reliance upon rights of indemnification provided by this Section 7. 8 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 8 is not intended to modify or limit the rights of the Executive hereunder. 9 MISCELLANEOUS 9.1 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. 9.2 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. 9.3 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, - 10 - 11 its geographic scope or term shall be modified to such extent as may be necessary to render such covenant enforceable. 9.4 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. 9.5 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. 9.6 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. 9.7 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 1666 Galloway, Memphis, TN 38112 or such other address as may have been furnished to the Company by the Executive in writing. 9.8 Binding Agreement. This Employment Agreement shall be binding on the parties' successors, heirs and assigns. - 11 - 12 IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. RESPONSE ONCOLOGY, INC. By: -------------------------------- Frank M. Bumstead Chairman Emeritus EXECUTIVE: ------------------------------------- MARY E. CLEMENTS - 12 - EX-10.5 6 EMPLOYMENT AGREEMENT - WILLIAM H. WEST, MD 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT THIS AGREEMENT is made April 21, 1998, effective as of January 1, 1998, by and between RESPONSE ONCOLOGY, INC., a Tennessee corporation (the "Company"), and WILLIAM H. WEST, M.D. (the "Executive"). WHEREAS, the Company is engaged in the business of providing advanced cancer treatment services; WHEREAS, the Company desires to employ the Executive to devote full time to the business of the Company and to continue as the Chairman of the Board of Directors 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 January 1, 1998, and shall continue through December 31, 2000. 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 2 senior operating authority and responsibility as Chairman of the Board of Directors 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 $234,000 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 according to the policies and practices adopted by the Board of Directors from time to time. 3.2 Annual Incentive Awards. The Company will pay the Executive annual incentive compensation ("Incentive Bonus") 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 employee is eligible under any existing or future plan or program established by the Company for salaried employees, including, without limitation, all plans developed for executive officers of the Company. The Executive will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with program provisions. These plans or programs 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 executive officers. 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 upon the Executive's submitting proper documentation in accordance with Company policies for expense reimbursement. 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. - 2 - 3 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 Bonus 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 the greater of (i) the remaining Term of this Agreement or (ii) twelve (12) months from the date of such termination. All other compensation will cease except for earned but unpaid Incentive Bonus awards which would be payable on a pro-rated basis for the year in which the disability occurred, through the date of termination. 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. - 3 - 4 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; Constructive Termination. 5.1.1 WITHOUT A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause (hereinafter defined) or a Constructive Termination (as 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 the following: (a) in a lump sum upon such termination an amount equal to 200% of the sum of the Executive's combined (i) Base Salary as in effect at the time of the termination and (ii) the average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination; and (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. 5.1.2 UPON A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause or Constructive Termination within one (1) year following a Change in Control, the Company will pay to the Executive the following: (a) in a lump sum upon such termination an amount equal to the sum of (i) 299% of the Executive's combined (A) Base Salary as in effect at the time of the termination and (B) average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination, and (ii), to the extent that such foregoing 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) constitutes an "excess parachute payment" within the meaning of Section 280G, the amount, if any, of (A) such "excess parachute payment" multiplied by a fraction, the numerator of which is the number one (1.00) and the denominator of which is (I) the number one (1.00) minus (II) the effective tax rate under Section 280G applicable to the Executive expressed as a decimal, minus (B) the amount of such "excess parachute payment" (such amount being sometimes hereinafter called the "Excise Tax Gross-Up"); and - 4 - 5 (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. Notwithstanding the provisions of the foregoing subparagraph (a), if the Excise Tax Gross- Up required to be paid by the Company to all other employees of the Company ("Affected Employees") shall exceed $5,000,000 (the "Gross-Up Limitation"), then the amount of Excise Tax Gross-Up payable to the Executive shall be an amount equal to $5,000,000 times a fraction, the numerator of which shall be the amount of Excise Tax Gross-Up computed for the Executive before consideration of the Gross-Up Limitation, and the denominator of which shall be the aggregate Excise Tax Gross-Up computed for all Affected Employees before consideration of the Gross-Up Limitation. 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 Bonus, 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 at the time of termination. 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. 5.3 Definitions. For purposes of this Employment Agreement, the following terms have the following meanings: 5.3.1 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%." 5.3.2 "Constructive Termination" means termination of the Executive's employment by the Executive (a) from a declined reassignment of a job that is not the equivalent of his then current position as set forth herein (in responsibility, compensation or geographic area of service), or (b) on account of conduct by the Company or the Board that constitutes continuous and material interference by the Company or the Board with the Executive's performance of his duties as set forth in Section 2 hereof or the intentional or material breach by the Company of this Agreement. The - 5 - 6 Executive shall have a period of one (1) year after termination of his employment to assert against the Company that he suffered a Constructive Termination, and after the expiration of such one year period, the Executive shall be deemed to have irrevocably waived the right to such assertion. 5.3.3 "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. 5.3.4 "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, 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 - 7 6.3 Noncompetition. 6.3.1 DURING THE TERM OF EMPLOYMENT. The Executive will not Compete with the Company (as defined in Section 6.3.4 hereafter) at any time while he is employed by the Company or receiving payments from the Company. 6.3.2 VOLUNTARY TERMINATION; TERMINATION WITHOUT CAUSE; TERMINATION WITH CAUSE; CONSTRUCTIVE TERMINATION. In the event of a Voluntary Termination, Termination With Cause, Termination Without Cause, or Constructive Termination, with or without a Change in Control, the Executive will not Compete with the Company for a period of one (1) year from the date of such termination; 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. 6.3.3 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; provided, however, that the term "Compete with the Company" shall not include ownership (without any more extensive relationship) of a less than a five percent (5%) interest in any publicly-held corporation or other business entity. 6.3.4 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 INDEMNIFICATION OF EXECUTIVE 7.1 Indemnification of Executive In Third Party Proceedings. The Company shall indemnify Executive, if Executive was or is a party, or is threatened to be made a party to any third party proceeding, by reason of the fact that Executive was or is an authorized representative of the Company, against expenses, judgments, fines and amounts paid in settlement actually and - 7 - 8 reasonably incurred by Executive in connection with such third party proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal third party proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that Executive did not act in good faith and in a manner which he reasonably believed to be in or not opposed to, the best interests of the Company, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful. 7.2 Indemnification of Executive in Corporate Proceedings. The Company shall indemnify Executive if he was or is a party or is threatened to be made a party to any corporate proceeding, by reason of the fact that he was or is an authorized representative of the Company, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such corporate proceeding, if he acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which the Executive shall have been adjudged to be liable to the Company unless and only to the extent that a court of competent jurisdiction or the court in which such corporate proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Executive is fairly and reasonably entitled to indemnity for such expenses which a court of competent jurisdiction shall deem proper. 7.3 Mandatory Indemnification of Executive. To the extent that the Executive has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. 7.4 Determination of Entitlement to Indemnification. Any indemnification under Section 7.1, 7.2 or 7.3 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Executive is proper in the circumstances because he has either met the applicable standard of conduct set forth in Section 7.1 or 7.2 or has been successful on the merits or otherwise as set forth in Section 7.3 and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such third party or corporate proceeding; or (b) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (c) by the stockholders. - 8 - 9 7.5 Advancing Expenses. Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of Executive by the Company in advance of the final disposition of such third party or corporate proceeding upon receipt of an undertaking by or on behalf of the Executive to repay such amount if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company as authorized in this Section 7. The financial ability of the Executive to make a repayment contemplated by this section shall not be a prerequisite to the making of an advance. 7.6 Certain Terms. For purposes of this Section 7: (a) "corporate proceeding" shall mean any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor or investigative proceeding by the Company; (b) "criminal third party proceeding" shall include any action or investigation which could or does lead to a third party proceeding that could result in criminal penalties, and any such proceeding; (c) "expenses" shall include, but not be limited to, attorneys' fees and disbursements; (d) "fines" shall include, but not be limited to, any excise taxes assessed on a person with respect to an Executive benefit plan; (e) "not opposed to the best interests of the Company" shall include actions taken in good faith and in a manner the Executive reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan; (f) "other enterprises" shall include employee benefit plans; (g) "party" to a proceeding shall include a person who gives testimony or is similarly involved in such proceeding; (h) "third party proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Company. 7.7 Insurance. The Company may purchase and maintain insurance on behalf of Executive against any liability asserted against the Executive and incurred by the Executive in such capacity, or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify Executive against such liability under the provisions of this Section 7. - 9 - 10 7.8 Scope of Section. The indemnification of Executive and advancement of expenses, as authorized by the preceding provisions of this Section 7, shall not be deemed exclusive of any other rights to which may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while employed by the Company. The indemnification and advancement of expenses provided by or granted pursuant to this Section 7 shall continue after the Executive ceases to be an authorized representative of the Company and shall inure to the benefit of his heirs, executors and administrators. 7.9 Reliance on Provisions. Executive's actions as an authorized representative of the Company shall be deemed so done in reliance upon rights of indemnification provided by this Section 7. 8 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 8 is not intended to modify or limit the rights of the Executive hereunder. 9 MISCELLANEOUS 9.1 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. 9.2 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. 9.3 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, - 10 - 11 its geographic scope or term shall be modified to such extent as may be necessary to render such covenant enforceable. 9.4 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. 9.5 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. 9.6 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. 9.7 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 4354 Walnut Grove Road, Memphis, TN 38117 or such other address as may have been furnished to the Company by the Executive in writing. 9.8 Binding Agreement. This Employment Agreement shall be binding on the parties' successors, heirs and assigns. - 11 - 12 IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. RESPONSE ONCOLOGY, INC. By: -------------------------------- Frank M. Bumstead Chairman Emeritus EXECUTIVE: ------------------------------------- WILLIAM H. WEST, M.D. - 12 - EX-10.6 7 EMPLOYMENT AGREEMENT - CHARLES WEAVER, MD 1 EXHIBIT 10.6 EMPLOYMENT AGREEMENT THIS AGREEMENT is made April 21, 1998, effective as of January 1, 1998, 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; WHEREAS, the Company desires to employ the Executive to devote full time to the business of the Company and to continue as the Chief Medical 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 January 1, 1998, and shall continue through December 31, 2000. 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 Chief Executive Officer of the Company. As of the effective date of this Employment Agreement, the Executive shall continue to possess and assume senior operating authority and responsibility as Chief Medical Officer of the Company, consistent with directions from the Chief Executive Officer of the Company. 2 2.3 Location. The duties of the Executive shall be performed at such locations and places as may be directed by the Chief Executive Officer. 3 COMPENSATION AND BENEFITS 3.1 Base Compensation. The Company shall pay the Executive a base salary ("Base Salary") of $226,750 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 according to the policies and practices adopted by the Board of Directors from time to time. 3.2 Annual Incentive Awards. The Company will pay the Executive annual incentive compensation ("Incentive Bonus") 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 employee is eligible under any existing or future plan or program established by the Company for salaried employees, including, without limitation, all plans developed for executive officers of the Company. The Executive will participate to the extent permissible under the terms and provisions of such plans or programs in accordance with program provisions. These plans or programs 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 executive officers. 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 upon the Executive's submitting proper documentation in accordance with Company policies for expense reimbursement. 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. - 2 - 3 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 Bonus 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 the greater of (i) the remaining Term of this Agreement or (ii) twelve (12) months from the date of such termination. All other compensation will cease except for earned but unpaid Incentive Bonus awards which would be payable on a pro-rated basis for the year in which the disability occurred, through the date of termination. 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. - 3 - 4 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; Constructive Termination. 5.1.1 WITHOUT A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause (hereinafter defined) or a Constructive Termination (as 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 the following: (a) in a lump sum upon such termination an amount equal to 100% of the sum of the Executive's combined (i) Base Salary as in effect at the time of the termination and (ii) the average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination; and (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. 5.1.2 UPON A CHANGE IN CONTROL. If the Executive suffers a Termination Without Cause or Constructive Termination within one (1) year following a Change in Control, the Company will pay to the Executive the following: (a) in a lump sum upon such termination an amount equal to the sum of (i) 200% of the Executive's combined (A) Base Salary as in effect at the time of the termination and (B) average Incentive Bonus for the two (2) calendar years immediately preceding the year of termination, and (ii), to the extent that such foregoing 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) constitutes an "excess parachute payment" within the meaning of Section 280G, the amount, if any, of (A) such "excess parachute payment" multiplied by a fraction, the numerator of which is the number one (1.00) and the denominator of which is (I) the number one (1.00) minus (II) the effective tax rate under Section 280G applicable to the Executive expressed as a decimal, minus (B) the amount of such "excess parachute payment" (such amount being sometimes hereinafter called the "Excise Tax Gross-Up"); and - 4 - 5 (b) for the greater of (i) the remaining term of this Employment Agreement or (ii) twelve (12) months following such Termination Without Cause or Constructive Termination, 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. 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. Notwithstanding the provisions of the foregoing subparagraph (a), if the Excise Tax Gross- Up required to be paid by the Company to all other employees of the Company ("Affected Employees") shall exceed $5,000,000 (the "Gross-Up Limitation"), then the amount of Excise Tax Gross-Up payable to the Executive shall be an amount equal to $5,000,000 times a fraction, the numerator of which shall be the amount of Excise Tax Gross-Up computed for the Executive before consideration of the Gross-Up Limitation, and the denominator of which shall be the aggregate Excise Tax Gross-Up computed for all Affected Employees before consideration of the Gross-Up Limitation. 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 Bonus, 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 at the time of termination. 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. 5.3 Definitions. For purposes of this Employment Agreement, the following terms have the following meanings: 5.3.1 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%." 5.3.2 "Constructive Termination" means termination of the Executive's employment by the Executive (a) from a declined reassignment of a job that is not the equivalent of his then current position as set forth herein (in responsibility, compensation or geographic area of service), or (b) on account of conduct by the Company or the Board that constitutes continuous and material interference by the Company or the Board with the Executive's performance of his duties as set forth in Section 2 hereof or the intentional or material breach by the Company of this Agreement. The - 5 - 6 Executive shall have a period of one (1) year after termination of his employment to assert against the Company that he suffered a Constructive Termination, and after the expiration of such one year period, the Executive shall be deemed to have irrevocably waived the right to such assertion. 5.3.3 "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. 5.3.4 "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, 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 - 7 6.3 Noncompetition. 6.3.1 DURING THE TERM OF EMPLOYMENT. The Executive will not Compete with the Company (as defined in Section 6.3.4 hereafter) at any time while he is employed by the Company or receiving payments from the Company. 6.3.2 VOLUNTARY TERMINATION; TERMINATION WITHOUT CAUSE; TERMINATION WITH CAUSE; CONSTRUCTIVE TERMINATION. In the event of a Voluntary Termination, Termination With Cause, Termination Without Cause, or Constructive Termination, with or without a Change in Control, the Executive will not Compete with the Company for a period of one (1) year from the date of such termination; 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. 6.3.3 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; provided, however, that the term "Compete with the Company" shall not include ownership (without any more extensive relationship) of a less than a five percent (5%) interest in any publicly-held corporation or other business entity. 6.3.4 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 INDEMNIFICATION OF EXECUTIVE 7.1 Indemnification of Executive In Third Party Proceedings. The Company shall indemnify Executive, if Executive was or is a party, or is threatened to be made a party to any third party proceeding, by reason of the fact that Executive was or is an authorized representative of the Company, against expenses, judgments, fines and amounts paid in settlement actually and - 7 - 8 reasonably incurred by Executive in connection with such third party proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal third party proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that Executive did not act in good faith and in a manner which he reasonably believed to be in or not opposed to, the best interests of the Company, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful. 7.2 Indemnification of Executive in Corporate Proceedings. The Company shall indemnify Executive if he was or is a party or is threatened to be made a party to any corporate proceeding, by reason of the fact that he was or is an authorized representative of the Company, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such corporate proceeding, if he acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which the Executive shall have been adjudged to be liable to the Company unless and only to the extent that a court of competent jurisdiction or the court in which such corporate proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Executive is fairly and reasonably entitled to indemnity for such expenses which a court of competent jurisdiction shall deem proper. 7.3 Mandatory Indemnification of Executive. To the extent that the Executive has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. 7.4 Determination of Entitlement to Indemnification. Any indemnification under Section 7.1, 7.2 or 7.3 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Executive is proper in the circumstances because he has either met the applicable standard of conduct set forth in Section 7.1 or 7.2 or has been successful on the merits or otherwise as set forth in Section 7.3 and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such third party or corporate proceeding; or (b) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (c) by the stockholders. - 8 - 9 7.5 Advancing Expenses. Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of Executive by the Company in advance of the final disposition of such third party or corporate proceeding upon receipt of an undertaking by or on behalf of the Executive to repay such amount if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company as authorized in this Section 7. The financial ability of the Executive to make a repayment contemplated by this section shall not be a prerequisite to the making of an advance. 7.6 Certain Terms. For purposes of this Section 7: (a) "corporate proceeding" shall mean any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor or investigative proceeding by the Company; (b) "criminal third party proceeding" shall include any action or investigation which could or does lead to a third party proceeding that could result in criminal penalties, and any such proceeding; (c) "expenses" shall include, but not be limited to, attorneys' fees and disbursements; (d) "fines" shall include, but not be limited to, any excise taxes assessed on a person with respect to an Executive benefit plan; (e) "not opposed to the best interests of the Company" shall include actions taken in good faith and in a manner the Executive reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan; (f) "other enterprises" shall include employee benefit plans; (g) "party" to a proceeding shall include a person who gives testimony or is similarly involved in such proceeding; (h) "third party proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Company. 7.7 Insurance. The Company may purchase and maintain insurance on behalf of Executive against any liability asserted against the Executive and incurred by the Executive in such capacity, or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify Executive against such liability under the provisions of this Section 7. - 9 - 10 7.8 Scope of Section. The indemnification of Executive and advancement of expenses, as authorized by the preceding provisions of this Section 7, shall not be deemed exclusive of any other rights to which may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while employed by the Company. The indemnification and advancement of expenses provided by or granted pursuant to this Section 7 shall continue after the Executive ceases to be an authorized representative of the Company and shall inure to the benefit of his heirs, executors and administrators. 7.9 Reliance on Provisions. Executive's actions as an authorized representative of the Company shall be deemed so done in reliance upon rights of indemnification provided by this Section 7. 8 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 8 is not intended to modify or limit the rights of the Executive hereunder. 9 MISCELLANEOUS 9.1 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. 9.2 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. 9.3 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, - 10 - 11 its geographic scope or term shall be modified to such extent as may be necessary to render such covenant enforceable. 9.4 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. 9.5 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. 9.6 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. 9.7 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 6291 N. Whitmar Place, Memphis, TN 38120 or such other address as may have been furnished to the Company by the Executive in writing. 9.8 Binding Agreement. This Employment Agreement shall be binding on the parties' successors, heirs and assigns. - 11 - 12 IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. RESPONSE ONCOLOGY, INC. By: -------------------------------- Frank M. Bumstead Chairman Emeritus EXECUTIVE: ------------------------------------- CHARLES WEAVER, M.D. - 12 - EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 476 0 22,009 2,238 2,812 44,794 13,632 10,062 155,072 54,447 43,428 0 27 120 67,794 155,072 29,595 29,595 23,460 23,460 2,958 219 704 2,254 792 1,292 0 0 0 1,292 .11 0.11
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