UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
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[_] CONFIDENTIAL, FOR USE OF THE
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RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
US ONCOLOGY, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notes:
[LOGO]
US ONCOLOGY
US ONCOLOGY, INC.
16825 Northchase Drive, Suite 1300
Houston, Texas 77060
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
We cordially invite you to attend the 2002 Annual Meeting of Stockholders
of US Oncology, Inc. The meeting will be held on Thursday, May 9, 2002, at 8:00
a.m., local time, at the Wyndham Hotel Greenspoint, 12400 Greenspoint Drive,
Houston, Texas. At the meeting we will:
1. Elect four Class III directors to the Board of Directors;
2. Vote on a proposal to approve the US Oncology, Inc. 2002 Key Executive
Performance Stock Option Plan;
3. Vote on a proposal to ratify the appointment of PricewaterhouseCoopers
LLP as US Oncology's independent accountants; and
4. Transact any other business as may properly come before the meeting.
Stockholders who owned US Oncology stock at the close of business on
Tuesday, April 2, 2002, may attend and vote at the meeting. If you cannot attend
the meeting, you may vote by completing the enclosed proxy card as instructed
and mailing the proxy card in the enclosed postage-prepaid envelope. Any
stockholder attending the meeting may vote in person, even though he or she has
already returned a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
Leo E. Sands
Leo E. Sands
Executive Vice President and Secretary
Houston, Texas
April 8, 2002
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YOUR VOTE IS IMPORTANT
Whether or not you expect to attend the meeting in person, we urge you to sign,
date, and return the enclosed proxy at your earliest convenience. This will
ensure the presence of a quorum at the meeting. Promptly signing, dating and
returning the proxy will save us the expense and extra work of additional
solicitation. Enclosed for that purpose is an addressed envelope for which no
postage is required if mailed in the United States. Sending in your proxy will
not prevent you from voting your stock at the meeting if you desire to do so, as
your proxy is revocable at your option.
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US ONCOLOGY, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
Our Board of Directors is soliciting proxies for the 2002 Annual Meeting
of Stockholders. This proxy statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully.
Voting materials, which include this proxy statement, the proxy card and
the 2001 Annual Report to Stockholders, will be mailed to stockholders on or
about April 11, 2002. Our principal executive offices are located at 16825
Northchase Drive, Suite 1300, Houston, Texas 77060. Our telephone number is
(832) 601-8766. Throughout this proxy statement, we may refer to US Oncology,
Inc. as "US Oncology" or the "Company".
US Oncology will pay the costs of soliciting proxies from stockholders. We
have engaged Georgeson & Company, a proxy solicitation firm, to assist in the
solicitation of proxies from our stockholders. We will pay the fees of such
firm, which are expected to be $9,500, plus their out-of-pocket expenses. We may
also reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding the voting materials to the
beneficial owners. Directors, officers and regular employees of US Oncology may
solicit proxies on behalf of US Oncology, without additional compensation,
personally or by telephone.
QUESTIONS AND ANSWERS
Q: Who can vote at the meeting?
A: The Board set April 2, 2002 as the record date for the meeting. All
stockholders who owned US Oncology common stock on April 2, 2002 may attend
and vote at the meeting. Each stockholder is entitled to one vote for each
share of common stock held by that stockholder on all matters to be voted on.
On April 2, 2002, approximately 93.4 million shares of US Oncology common
stock were outstanding.
Q: How many votes does US Oncology need to hold the meeting?
A: Shares are counted as present at the meeting if you:
. are present and vote in person at the meeting; or
. have properly submitted a proxy card.
A majority of US Oncology's outstanding shares of common stock as of the
record date must be present at the meeting, in person or by proxy, in order
to hold the meeting and conduct business. This is called a quorum. For the
purposes of determining a quorum, abstentions and broker non-votes will be
included as present at the meeting.
Q: What proposals will be voted on at the meeting?
A: There are three proposals scheduled to be voted on at the meeting:
. Election of Class III directors; and
. Approval of the US Oncology, Inc. 2002 Key Executive Performance Stock
Option Plan; and
. Ratification of PricewaterhouseCoopers LLP as US Oncology's independent
accountants.
Q: What is the voting requirement to approve each of the proposals?
A: For the election of the Class III Directors, the four individuals receiving
the highest number of "FOR" votes will be elected. The proposal to approve
the US Oncology, Inc. 2002 Key Executive Performance Stock Option Plan
requires the affirmative vote of a majority of the shares present at the
meeting, either in person or by proxy, and entitled to vote. The proposal to
ratify the appointment of PricewaterhouseCoopers LLP as US Oncology's
independent accountants requires the affirmative vote of a majority of the
shares present at the meeting, either in person or by proxy, and entitled to
vote.
Q: How are votes counted?
A: You may vote either "FOR" or "AGAINST" each nominee for the Board of
Directors. You may vote "FOR," "AGAINST" or "ABSTAIN" on either the proposal
to approve the Company's 2002 Key Executive Performance Stock Option Plan or
the proposal to ratify the appointment of PricewaterhouseCoopers LLP as US
Oncology's independent
2
accountants. If you abstain from voting on the approval of the US Oncology,
Inc. 2002 Key Executive Performance Stock Option Plan or ratification of
the Company's independent accountants, those abstentions will be counted as
part of the total number of votes cast on those proposals in determining
whether those proposals have received enough favorable votes, whereas
broker non-votes will not be counted. This means that abstentions will have
the same effect as a vote against those proposals, whereas broker non-votes
will not affect the outcome of those proposals. If you just sign your proxy
card with no further instructions, your shares will be counted as a vote
"FOR" each director, "FOR" the approval of the US Oncology, Inc. 2002 Key
Executive Performance Stock Option Plan, and "FOR" the ratification of the
appointment of PricewaterhouseCoopers LLP as US Oncology's independent
accountants. If you do not vote and you hold your shares in a brokerage
account in your broker's name (this is called "street name"), your shares
will not be counted in the tally of the number of shares cast "FOR,"
"AGAINST" or "ABSTAIN" on any proposal where your broker does not have
discretionary authority to vote. However, these shares may be counted for
the purpose of establishing a quorum at the meeting. Voting results will be
tabulated and certified by our transfer agent, American Stock Transfer &
Trust Company.
Q: How can I vote my shares in person at the meeting?
A: Shares held directly in your name as the stockholder of record may be voted
in person at the meeting. If you choose to do so, please bring the enclosed
proxy card or proof of identification to the meeting. If you hold your
shares in street name, you must request a legal proxy from your stockbroker
in order to vote at the meeting.
Q: How can I vote my shares without attending the meeting?
A: Whether you hold shares directly as a stockholder of record or beneficially
in street name, you may vote without attending the meeting. You may vote by
granting a proxy or, for shares held in street name, by submitting voting
instructions to your broker or nominee. Please refer to the summary
instructions included on your proxy card. For shares held in street name,
the voting instruction card will be included by your broker or nominee. You
may vote your shares by mail by signing your proxy card or, for shares held
in the street name, by following the voting instruction card included by
your broker or nominee and mailing in the enclosed potage-prepaid envelope.
If you provide specific voting instructions, your shares will be voted as
you have instructed.
Q: How can I change my vote after I return my proxy?
A: You may revoke your proxy and change your vote at any time before the final
vote at the meeting. You may do this by signing a new proxy card with a
later date or by attending the meeting and voting in person. Attending the
meeting will not revoke your proxy unless you specifically request it.
Q: What is US Oncology's voting recommendation?
A: Our Board of Directors recommends that you vote your shares "FOR" each of
the nominees to the Board, "FOR" the approval of the US Oncology, Inc. 2002
Key Executive Performance Stock Option Plan, and "FOR" the ratification of
the appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants.
Q: Where can I find the voting results of the meeting?
A: The preliminary voting results will be announced at the meeting. The final
results will be published in our quarterly report on Form 10-Q for the
quarter ended June 30, 2002.
3
PROPOSAL NO. 1
ELECTION OF CLASS III DIRECTORS
General
Our Board of Directors is divided into three classes. Each class serves
three years, with the terms of office of the respective classes expiring in
successive years. The present term of office for the Class III directors expires
at the 2002 Annual Meeting. At the Annual Meeting, stockholders will vote for
the four nominees for Class III director listed below. Each of the nominees is
currently one of our Class III directors. The term of each of the Class III
directors elected at the meeting will continue until the annual meeting of
stockholders in 2005 or until his successor has been duly elected and qualified.
Nominees to Serve a Three-Year Term Expiring at the 2005 Annual Meeting (Class
III Directors)
Name of Director Age Principal Occupation Director Since
- ---------------- --- -------------------- --------------
Russell L. Carson 57 General Partner of Welsh, Carson, Anderson & Stowe, 1992
an investment partnership.
Richard B. Mayor 67 Of Counsel, Andrews & Kurth, Mayor, Day, Caldwell & 1993
Keeton L.L.P., a law firm.
Boone Powell, Jr. 64 Retired President and Chief Executive Officer of 1999
Baylor Health Care System.
R. Dale Ross 54 Chairman of the Board of Directors and Chief 1992
Executive Officer of US Oncology.
Russell L. Carson is a director of Select Medical Corporation, a health care
company. Mr. Carson is also a director of various privately held health care
companies.
Richard B. Mayor was a partner in the Houston law firm Mayor, Day, Caldwell &
Keeton, L.L.P. since its formation in February 1982 until December 1998 and of
counsel to that firm from January 1999 until its merger with Andrews & Kurth
L.L.P. in October 2001. Andrews & Kurth, Mayor, Day, Caldwell & Keeton L.L.P.
serves as outside counsel to us.
Boone Powell, Jr. was President and Chief Executive Officer of Baylor Health
Care System from 1980 until 2000, and Chairman from 2000 to 2001. Mr. Powell
serves as an active member of Voluntary Hospitals of America. He is a director
of Abbott Laboratories, United Surgical Partners International and Comerica
Bank - Texas and is a fellow of the American College of Health Care Executives.
Mr. Powell was previously a director of Physician Reliance Network, Inc.
R. Dale Ross has been Chairman of the Board of Directors and Chief Executive
Officer of US Oncology since December 1992.
Vote Required for Approval
The four nominees receiving the highest number of votes will be elected as
Class III directors.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH
OF THE NOMINEES LISTED ABOVE. DULY EXECUTED PROXIES WILL BE SO VOTED UNLESS A
CONTRARY INDICATION IS MADE.
4
Continuing Directors
The following describes current directors of the Company whose terms will
continue after the annual meeting.
Directors Serving a Term Expiring at the 2003 Annual Meeting (Class I Directors)
Name of Nominee Age Principal Occupation Director Since
- --------------- --- -------------------- --------------
J. Taylor Crandall 47 Managing Partner, Oak Hill Capital Management, Inc., 1999
an investment company.
James E. Dalton 58 President, Edinburgh Associates, Inc., a consulting 1998
company.
Burton S. Schwartz, M.D. 59 Physician, Minnesota Oncology Hematology, P.A., an 1999
oncology practice in Minneapolis, Minnesota.
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years.
J. Taylor Crandall has been Managing Partner of Oak Hill Capital Management,
Inc. since January 1999. Also, he is currently Vice President and Chief
Operating Officer of Keystone, Inc., an investment company, where he has been a
Vice President since 1986 and was formerly Chief Financial Officer. Mr. Crandall
is a director of Sunterra Corporation, Washington Mutual, Inc., American Skiing
Company, Meristar Hotels & Resorts, Inc., Meristar Hospitality Corporation and
Broadwing, Inc. Mr. Crandall was formerly a director of Physician Reliance
Network, Inc.
James E. Dalton was President and Chief Executive Officer and a director of
Quorum Health Group, Inc., a health care company from 1990 until 2001, when
Quorum was acquired by Triad Hospitals. Mr. Dalton now serves on the board of
directors of AmSouth Bank, Select Medical Corporation and Genesis Health
Ventures, Inc. He also serves on the Board of Trustees of Universal Health
Realty Income Trust and American Hospital Association. Mr. Dalton is a Fellow of
the American College of Healthcare Executives and is a past chairman of the
Federation of American Hospitals.
Burton S. Schwartz, M.D. received his medical degree from Meharry Medical
College in 1968 and is a board certified medical oncologist. Dr. Schwartz's
oncology group, Minnesota Oncology Hematology, P.A., has been managed by us
since February 1995. He is the immediate past president of that group. Dr.
Schwartz was formerly a director of Physician Reliance Network, Inc.
5
Directors Serving a Term Expiring at the 2004 Annual Meeting (Class II
Directors)
Name of Director Age Principal Occupation Director Since
- ---------------- --- -------------------- --------------
Lloyd K. Everson, M.D. 57 Director, Vice Chairman of the Board of Directors 2001
and former President of US Oncology, Inc.
Stephen E. Jones, M.D. 59 Physician, Texas Oncology, P.A., an oncology 1999
practice with locations throughout Texas.
Robert A. Ortenzio 43 President and Chief Executive Officer, Select 1992
Medical Corporation
Lloyd K. Everson was President of the Company from November 1993 until March
2001. He received his medical degree from Harvard Medical School and his
oncology training at Memorial Sloan Kettering and at the National Cancer
Institute. He is board certified in internal medicine and medical oncology.
Dr. Everson has published widely in the field of oncology and is a member of
numerous professional associations. He also has served as President of the
Association of Community Cancer Centers and as Associate Chairman for Community
Programs for the Eastern Cooperative Oncology Group. Dr. Everson resigned as
President of the Company in March 2001. In addition, in March 2001, Dr. Everson
was appointed as a director of the Company and Vice Chairman of the Board of
Directors. Dr. Everson previously served as a director of the Company from 1993
until 1999.
Stephen E. Jones, M.D. received his medical degree from Case Western Reserve
School of Medicine and post-doctoral training and education at Stanford
University. Dr. Jones is a board certified medical oncologist and internist and
a member of the American Society of Clinical Oncology and the American Society
of Hematology. Dr. Jones' practice, Texas Oncology, P.A., is managed by the
Company.
Robert A. Ortenzio has been Chief Executive Officer of Select Medical
Corporation since September 2001 and was President and Chief Operating Officer
of Select Medical Corporation since February 1997. He is also a director of
Select Medical Corporation. Prior to that time, Mr. Ortenzio was a co-founder
and president of Continental Medical Systems, Inc., a provider of comprehensive
medical rehabilitation programs and services, and a director of Horizon/CMS
Healthcare Corporation, and served in various capacities at Continental Medical
Systems, Inc. since February 1986.
Board Meetings and Committees
The Board held five meetings in 2001. Each director attended at least 75%
of the board meetings and committee meetings held during 2001 while he was a
member of the Board or relevant committee. The Board has an Audit Committee,
Compensation Committee, Nominating Committee and Executive Committee.
The functions of the Audit Committee and its activities during 2001 are
described below under the heading Report of the Audit Committee of the Board of
Directors. The Board has confirmed that all members of the Audit Committee are
"independent" and "financially literate" within the meaning of the rules of the
Nasdaq Stock Market (where our stock is traded) and that at least one member of
the Audit Committee is "financially sophisticated" within the meaning of the
rules. The Audit Committee members are Richard B. Mayor (Chairman), James E.
Dalton and Robert A. Ortenzio. The Audit Committee met seven times in 2001.
The Compensation Committee reviews and recommends compensation for our
officers and employees and recommends to the Board of Directors changes in our
incentive compensation plans. The Compensation Committee is also responsible for
the administration of our various stock option plans. The members of the
Compensation Committee are Russell L. Carson (Chairman), Robert A. Ortenzio and
Boone Powell, Jr. The Compensation Committee met four times in 2001.
The Executive Committee has all of the powers of the Board of Directors as
a whole, other than the power to amend our bylaws or to vote on any matter that
under Delaware corporate law requires stockholder approval. The members of the
Executive Committee are R. Dale Ross (Chairman), Russell L. Carson, Richard B.
Mayor and Boone Powell, Jr. The Executive Committee met twice during 2001.
6
The Nominating Committee has the power to nominate directors to be voted
upon by stockholders and to fill all vacancies on the Board of Directors or any
committee. The members of the Nominating Committee are Russell L. Carson
(Chairman), R. Dale Ross, James E. Dalton, Richard B. Mayor and Boone Powell,
Jr. The Nominating Committee did not meet during 2001, but did act by unanimous
written consent with respect to nominations for directors.
Stockholder Nominations for Director
As described above, the Nominating Committee of the Board of Directors is
responsible for selecting the Board's nominees to serve as our directors.
Stockholders may also nominate individuals to serve as directors provided that
they comply with the procedures set forth in our certificate of incorporation
and bylaws.
Under our certificate of incorporation and bylaws, notice of proposed
stockholder nominations for the election of directors must be timely given in
writing to our corporate Secretary or Board of Directors prior to the meeting at
which directors are to be elected. To be timely, a notice given with respect to
any matter to be considered at an annual meeting of the stockholders (including
nominations of director candidates) must be received at our principal executive
offices at least 120 days before the anniversary of the date on which our proxy
statement was released to our stockholders in connection with the previous
year's annual meeting of stockholders or, if no annual meeting was held the
previous year or the date of the annual meeting has been changed by more than 30
days, no later than ten days following the earlier of the date a notice of
meeting is mailed or given to stockholders or the date when public disclosure of
the meeting is otherwise made.
With the notice, the stockholder must furnish the proposed nominee's
written consent to being named as a nominee for election as a director and to
serve as a director if elected. The stockholder must also provide the following
information about the proposed nominee for director:
. the name, age, business address and residential address of such
person,
. the principal occupation or employment of such person,
. the class and number of shares of our capital stock that are then
beneficially owned by such person, and
. any other information relating to such person that is required by any
law or regulation to be disclosed in solicitations of proxies for the
election of directors.
In addition, the stockholder must furnish the following information:
. the name and address, as they appear in our stock records, of such
stockholder,
. the class and number of shares of our capital stock that are then
beneficially owned by such stockholder,
. a description of all arrangements or understandings between such
stockholder and each nominee for election as a director and any other
person or persons (naming such person or persons) relating to the
nomination proposed to be made by such stockholder, and
. any other information required by any law or regulation to be provided
by a stockholder intending to nominate a person for election as a
director.
Any nominee for director may also be required, at the request of the Board
of Directors, to furnish to our corporate Secretary any other information
concerning such nominee that is required to be included in a stockholder's
notice of a proposed nomination. No person will be eligible for election as one
of our directors unless nominated in compliance with the foregoing procedures.
The chairman of a meeting of our stockholders must refuse to accept the
nomination of any person not made in compliance with the procedures described
above. Any such defective nomination will be disregarded.
Director Compensation
During 2001, each non-employee member of the Board was paid $6,000 per
quarter and $1,500 for each board meeting attended and was reimbursed for his
reasonable expenses in connection with attending board and committee meetings.
Starting in 2002, each Audit Committee member will also receive $1,500 for each
Audit Committee meeting he attends. Nonemployee directors are also eligible to
participate in US Oncology's 1993 Non-Employee Director Stock Option Plan. Under
that plan, in 2001 each director other than R. Dale Ross and Lloyd K. Everson,
M.D. was automatically granted an option to purchase 5,000 shares of US Oncology
common stock. In addition, each director other than Mr. Ross and Dr. Everson was
automatically granted an option to purchase 1,000 shares of US Oncology common
stock for each committee on which such director served.
7
Executive Officers of the Registrant
The following is a list of our executive officers.
Name, Age, and Position Experience
- ----------------------- ----------
R. DALE ROSS, age 54 Mr. Ross has been Chairman of the Board and Chief
Chairman of the Board of Directors and Chief Executive Officer since December 1992. From December
Executive Officer 1982 until April 1990, Mr. Ross was employed by HMSS,
Inc., a home infusion therapy company. Mr. Ross
founded HMSS, Inc. and served as its President and
Chief Executive Officer and as a director.
JOSEPH S. BAILES, M.D., age 45 Dr. Bailes joined US Oncology in June 1999. Prior to
Executive Vice President for Clinical Services that, he was Executive Vice President of Physician
Reliance Network, Inc. from 1993 to 1999. Dr. Bailes
was formerly a physician at Texas Oncology, P.A., our
largest affiliated physician group. He is a past
President of The American Society of Clinical Oncology
and currently serves as a director of ILEX Oncology,
Inc., a publicly-traded oncology pharmaceutical
development company.
BRUCE D. BROUSSARD, age 39 Mr. Broussard joined US Oncology in August 2000 with
Chief Financial Officer primary responsibility for financial and accounting
activities, including financial reporting, treasury and
taxation. Mr. Broussard was Chief Executive Officer of
HarborDental, a dental development company specializing
in free-standing upscale dedicated dental buildings,
from December 1997 until July 2000. From January 1996
to October 1997, he was Executive Vice President and
Chief Financial Officer of Regency Health Services,
Inc., a national chain of nursing homes and provider of
long-term health services. From 1993 to 1996, he was
the Chief Financial Officer and a director of Sun
Healthcare Group, a health care provider. Mr. Broussard
is a Certified Public Accountant. He currently serves
as a director and Audit Committee member at U.S.
Physical Therapy, Inc., a publicly-traded provider of
outpatient physical and occupational therapy.
ATUL DHIR, M.B; B.S., D. Phil., age 39 Dr. Dhir joined US Oncology in November 1999. As
President, Cancer Information and Research President of Cancer Information and Research Group, he
Group is responsible for our clinical trial activities,
cancer information services and transplant initiatives.
Prior to joining US Oncology, Dr. Dhir was Vice
President at Monsanto Corporation from 1996 to 1998;
President of Health Strategies Partners, a company he
founded that provided consulting services to hospitals
and physicians from 1994 to 1996; and a health care
consultant with McKinsey & Company from 1989 until
1993. Dr. Dhir holds a D. Phil. in molecular biology
from Oxford University, where he was a Rhodes Scholar.
8
GEORGE D. MORGAN, age 49 Mr. Morgan joined US Oncology in October 2000 and has
Chief Operating Officer over twenty years experience in operational and
financial management in the health care industry. At
US Oncology, he is responsible for the operational
management of our affiliated practices. Mr. Morgan
served as Executive Vice President and Chief Financial
Officer of Mariner Post-Acute Network from January 1999
until September 2000. On January 18, 2000 Mariner
Post-Acute Network and substantially all of its
subsidiaries filed voluntary petitions in the United
States Bankruptcy Court for the District of Delaware
under Chapter 11, Title 11 of the United States Code.
From September 1994 to January 1999, Mr. Morgan served
as a senior operating and senior corporate officer with
Columbia/HCA Healthcare Corporation. His positions of
responsibility included Chief Financial Officer, then
Chief Operating Officer of the Western Group from
September 1994 through April 1996; President of the
Ambulatory Surgery Division from April 1996 through
June 1998; and Senior Vice President--Managed Care from
July 1998 until January 1999.
LEO E. SANDS, age 54 Mr. Sands joined US Oncology in November 1992. He is
Executive Vice President and Secretary primarily responsible for our governmental relations,
marketing and information technology activities. Mr.
Sands is a member of the board of the National Patient
Advocacy Foundation.
PHILLIP H. WATTS, age 36 Mr. Watts joined US Oncology in January 1998 as its
General Counsel General Counsel. He has primary responsibility for
overseeing our legal operations. From September 1991
until December 1997, Mr. Watts was an attorney at
Mayor, Day, Caldwell & Keeton, L.L.P., a law firm in
Houston, Texas.
9
SECURITY OWNERSHIP OF MANAGEMENT, DIRECTORS AND CERTAIN
STOCKHOLDERS
The following table shows how much US Oncology common stock is owned as of
April 2, 2002 by each director, each executive officer named in the Summary
Compensation Table, all directors and executive officers as a group, and each
holder of 5% or more of US Oncology's common stock.
Number of Shares Owned Number of Shares that May
(including shares that may be Acquired Within Percentage of
be acquired within 60 days 60 Days Through Option Outstanding
Name through option exercises) Exercises common stock
- ---- ------------------------- --------- ------------
R. Dale Ross 2,194,754 2,194,754 2.3%
Lloyd K. Everson, M.D. 822,166 758,864 *
Bruce D. Broussard 55,000 50,000 *
Joseph S. Bailes, M.D. 607,435 500,340/(1)/ *
Atul Dhir, M.B; B.S., D. Phil 85,000 85,000 *
Leo E. Sands 360,000 360,000 *
Russell L. Carson 13,062,489/(2)/ 45,000 14.0%
J. Taylor Crandall 3,745,288/(3)/ 60,938 4.0%
James E. Dalton, Jr. 40,848 40,000 *
Stephen E. Jones, M.D. 30,190 28,000 *
Richard B. Mayor 168,454 67,000 *
Robert A. Ortenzio 62,307/(4)/ 38,000 *
Boone Powell, Jr. 116,729/(5)/ 71,930 *
Burton S. Schwartz, M.D. 48,719 25,000 *
All directors and executive officers
as a group (16 persons) 21,534,379/(2)/(3/)/(4)/(5)/ 4,454,826/(1)/ 22.0%
Welsh, Carson, Anderson & Stowe IX, L.P. 12,447,744 0 13.4%
320 Park Avenue, Suite 2500
New York, NY 10022
Dimensional Fund Advisors 6,213,867 0 6.7%
1299 Ocean Avenue, 11/th/ Floor
Santa Monica, CA 90491
Heartland Advisors, Inc. 5,863,700/(6)/ 0 6.3%
789 North Water Street
Milwaukee, WI 53202
___________________________
/*/ Less than one percent
/1/ Includes 10,000 options granted by Texas Oncology, P.A. to Dr. Bailes.
/2/ Includes 18,000 shares held by family trusts. Mr. Carson disclaims
beneficial ownership of such shares. Includes 12,447,744 shares held by
Welsh, Carson, Anderson & Stowe IX and WCAS Management Corp.
/3/ All shares (other than options) are beneficially owned by FW Physicians
Investors, L.P., an investment limited partnership ("FW Physicians"). Mr.
Crandall serves as President of Group 31, Inc., the general partner of FW
Physicians.
/4/ Excludes 14,990 shares of US Oncology common stock with respect to which
Mr. Ortenzio has a remainder interest.
/5/ Does not include 2,311,054 shares owned by Baylor University Medical
Center, which is part of the Baylor Health Care System, of which Mr.
Powell is retired Chairman. Mr. Powell disclaims beneficial ownership of
such shares.
/6/ Of these shares, 4,704,500 shares may be deemed to be owned by William J.
Nasgovitz, within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as a result of his position as an officer and director of
Heartland Group, Inc.
10
Compensation of Executive Officers
The following tables set forth (i) the remuneration paid by us for the
three fiscal years ended December 31, 2001 to the Chief Executive Officer and
the four most highly compensated executive officers other than the Chief
Executive Officer, (ii) the number of shares of our common stock that are
subject to options granted to such individuals during the last fiscal year and
the hypothetical value thereof assuming specified annual rates of common stock
price appreciation and (iii) the amount realized upon the exercise of stock
options during the last fiscal year and the value at the end of the last fiscal
year of all stock options held by such individuals.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------------------ ------------
Securities
Underlying
Name and Principal Position Year Salary Bonus Other Options
- --------------------------- ---- -------- --------- -------- -------
R. Dale Ross 2001 $672,150 $184,501 $ 0 125,000
Chairman of the Board, 2000 $618,694 $172,939 $ 0 1,572,754
Chief Executive Officer, 1999 $528,592 $337,178 $ 0 700,000
and Director
Joseph S. Bailes, M.D. 2001 $318,943 $ 61,626 $ 0 75,000
Executive Vice President 2000 $308,126 $ 34,891 $ 0 50,000
1999 $291,924 $ 67,500 $76,153/(1)/ 400,000
Bruce D. Broussard 2001 $335,046 $ 49,154 $ 0 100,000
Chief Financial Officer 2000 $123,921 $ 0 $86,581/(1)/ 200,000
1999 $ 0 $ 0 $ 0 0
Atul Dhir, M.B; B.S., D. Phil. 2001 $306,103 $ 51,876 $ 0 100,000
President, 2000 $263,292 $ 8,217 $ 0 50,000
Cancer Information Research Group 1999 $ 37,500 $ 10,000 $ 0 100,000
Leo E. Sands 2001 $343,913 $ 67,625 $ 0 100,000
Executive Vice President 2000 $344,941 $ 49,640 $ 0 50,000
and Secretary 1999 $228,972 $108,258 $ 0 400,000
___________________________________
/(1)/ Relocation expenses
11
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 2001
Individual Grants
----------------------------
% of Total
Number of Options Potential Value
Securities Granted to at Assumed Annual Rates
Underlying Employees Exercise Market Value Stock Price Appreciation
Options in Fiscal Price Per Per Share Expiration for Option Term
Granted Year Share On Grant Date Date 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
R. Dale Ross 50,000 2.0% $8.45 $8.45 March 21, 2011 $265,708 $673,356
75,000 3.1% $4.12 $4.84 October 23, 2011 $282,290 $632,529
Joseph S. Bailes, M.D. 25,000 1.0% $8.45 $8.45 March 21, 2011 $132,854 $336,678
50,000 2.0% $4.12 $4.84 October 23, 2011 $188,193 $421,686
Bruce D. Broussard 50,000 2.0% $8.45 $8.45 March 21, 2011 $265,708 $673,356
50,000 2.0% $4.12 $4.84 October 23, 2011 $188,193 $421,686
Atul Dhir, M.B; B.S., D. Phil. 50,000 2.0% $8.45 $8.45 March 21, 2011 $265,708 $673,356
50,000 2.0% $4.12 $4.84 October 23, 2011 $188,193 $421,686
Leo E. Sands 50,000 2.0% $8.45 $8.45 March 21, 2011 $265,708 $673,356
50,000 2.0% $4.12 $4.84 October 23, 2011 $188,193 $421,686
2001 OPTION EXERCISES AND DECEMBER 31, 2001 OPTION VALUE TABLE
Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year End Options at Fiscal Year End(1)
Shares Acquired Value -------------------------- ----------------------------------
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
R. Dale Ross 0 $ 0 2,122,754 575,000 $ 4,489,067 $ 711,400
Joseph S. Bailes, M.D. 0 $ 0 475,340 295,000 $ 523,800 $ 521,200
Bruce D. Broussard 0 $ 0 40,000 260,000 $ 109,200 $ 607,800
Atul Dhir, M.B; B.S., D. Phil. 0 $ 0 65,000 185,000 $ 227,150 $ 468,850
Leo E. Sands 166,208 $844,492 314,000 340,000 $ 209,400 $ 521,200
(1) Based upon a closing price of the Company's common stock on December 31,
2001, as reported by The Nasdaq Stock Market, of $7.54 per share.
401(k) Plan
Effective January 1, 1994, US Oncology adopted a 401(k) plan (the "401(k)
Plan") covering substantially all employees who have completed at least 1,000
hours of service. We administer the 401(k) Plan. The plan permits covered
employees to contribute up to 15% of their annual compensation up to the maximum
legally allowable contribution per year, as adjusted for inflation, through
salary reduction on a pre-tax basis in accordance with Section 401(k) of the
Internal Revenue Code, as amended. We may make contributions to the 401(k) Plan
but are not required to do so. During 2001, we elected to match 50% of employee
contributions in cash, up to a maximum of 3% of an employee's salary and subject
to salary ceiling rules imposed by the Internal Revenue Service.
12
Limitation of Liability; Indemnification of Officers and Directors
Our certificate of incorporation provides that none of our directors shall
be personally liable to us or our stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to us or our stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) in respect of unlawful dividend payments or stock redemptions or
repurchases as provided in Section 174 of the Delaware General Corporation Law
(the law of the Company's state of incorporation) or (iv) for any transaction
from which the director derived an improper personal benefit. The effect of
these provisions is to eliminate our rights and the rights of our stockholders
(through stockholders' derivative suits on behalf of US Oncology) to recover
monetary damages against a director for breach of fiduciary duty as a director
(including breaches resulting from grossly negligent behavior), except in the
situations described above. The Securities and Exchange Commission has taken the
position that the provision will have no effect on claims arising under federal
securities laws.
Our bylaws provide that we will indemnify our directors and officers to the
fullest extent permissible under Delaware law. These indemnification provisions
require us to indemnify such persons against certain liabilities and expenses to
which they may become subject by reason of their service as a director or
officer of US Oncology or any of its affiliated enterprises. The provisions
also set forth certain procedures, including the advancement of expenses, that
apply in the event of a claim for indemnification. We maintain director and
officer liability insurance.
Employment Contracts and Change in Control Agreements
We have entered into employment agreements with each of the executive
officers named in the summary compensation table above. Generally, the
employment agreements have three year terms, establish the executive's base
salary and contain a noncompetition agreement for a period of one year following
termination. We can terminate each employment agreement at any time for "cause,"
as defined in the employment agreement. The employee can terminate upon 30 days
written notice. Each agreement can also be terminated if the employee is
disabled or unable to perform his assigned duties for a continuous period of six
months. In the event we terminate the employee without cause or the employee
terminates for cause, we will continue to pay the employee a salary for a period
of the greater of the remaining term of employment or one year following such
termination. Upon a "change in control" the term of employment would be extended
for an additional three years from the date of the change in control. The
employee may terminate without cause, between three and six months after a
"change in control", and receive one year's severance. A "change of control"
occurs for purposes of the employment agreements if (i) the transfer of
beneficial ownership of a majority of the outstanding US Oncology shares to any
person, entity, or group (as defined in Section 13(d)(3)of the Securities
Exchange Act of 1934, as amended); (ii) our stockholders prior to any merger,
consolidation or other transaction do not continue to own at least fifty percent
(50%) of the surviving entity following such merger, consolidation or other
transaction; (iii) we sell all or substantially all of our assets to another
entity that is not our subsidiary; (iv) we are materially or completely
liquidated; or (v) during any consecutive two-year period, individuals who
constituted our Board of Directors (together with any new directors whose
election by the Board of Directors or whose nomination for election by our
stockholders was approved by a vote of at least three quarters of the directors
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in office. A
"change of control" shall not be deemed to have occurred in the event of a
tender offer, leveraged buyout, leveraged recapitalization or similar
transaction in which the then Chief Executive Officer participates directly or
indirectly as an investor or participant in such transaction.
Severance Arrangements
Effective March 2001, Dr. Lloyd Everson resigned his position as our
President. In connection with the resignation, Dr. Everson became a part-time
employee and will continue to provide leadership over physician communications
and public policy initiatives. He was also appointed as a director and as Vice
Chairman of the Board of Directors. In connection with the resignation, we
agreed to pay Dr. Everson the severance benefits available under his employment
agreement in effect at the time of resignation, which entitles him to continue
to receive his base salary in effect on his date of resignation until January 1,
2003.
13
REPORT OF COMPENSATION COMMITTEE OF THE BOARD
ON EXECUTIVE COMPENSATION
The following is the Report of the Compensation Committee of US Oncology
describing the compensation policies and rationale applicable to US Oncology's
executive officers. This information shall not be deemed to be "soliciting
material" or to be "filed" with the Securities and Exchange Commission nor shall
this information be incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that US Oncology specifically incorporates it by
reference into a filing.
The Compensation Committee consists (and consisted throughout 2001) of
Russell L. Carson, Robert A. Ortenzio and Boone Powell, Jr. None of them is
employed by the Company. Each of them is also an "outside director," as defined
under Section 162(m) of the Internal Revenue Code, and a "non-employee
director," as defined under Section 16(b) of the Securities Exchange Act.
Compensation Philosophy And Committee Charter. US Oncology's philosophy in
setting its compensation policies for executive officers is to maximize
stockholder value over time. The Compensation Committee sets US Oncology's
compensation policies for executive officers, including the Chief Executive
Officer, and evaluates the performance of the officers. Under its charter, the
Committee is responsible for ensuring that the Company is able to attract and
retain qualified people to serve as officers and in key management positions
through the effective use of competitive compensation, benefits and management
development programs. The Committee strongly believes that executive
compensation should be directly linked to improvements in corporate performance
and increases in stockholder value and should be consistent with US Oncology's
business strategy. US Oncology needs to hire and retain high-quality, talented
individuals to serve as officers and employees. To that end, US Oncology offers
compensation that is designed to be competitive and to reward superior
individual and company performance with superior levels of compensation. The
Compensation Committee is expected to counsel the Chief Executive Officer
regarding employment and compensation matters, to develop, review and evaluate
policies and make recommendations with respect to benefit plans and programs or
other compensation arrangements, to review and approve discretionary grants
under the Company's stock option plans and to report to stockholders in the
proxy statement on the Company's compensation policies. The Committee reports
and makes recommendations to US Oncology's Board of Directors.
Components Of Executive Compensation. The Compensation Committee focuses
primarily on the following three components in forming compensation packages for
executive officers:
. Base Salary
. Incentive Bonuses
. Long-Term Incentives
Base Salary. Base salary levels are intended to be competitive with
companies in US Oncology's peer group for employees in similar geographical
locations. Salary levels are based upon the executive's background,
qualifications and job performance at US Oncology.
Incentive Bonuses. During 2001, cash bonuses were awarded based upon
achievement of individual and Company goals. The primary basis for awarding
cash bonuses has been the achievement of earnings per share goals for a given
year.
Long-Term Incentives. Stock-based incentives are used to motivate officers
to achieve US Oncology's longer-term goals. US Oncology has generally placed
greater emphasis on stock-based incentives than on cash bonuses in its
compensation strategy for executive officers and will continue to do so.
Company and individual performance results are considered when determining
discretionary stock-based incentive awards, although no pre-determined
performance criteria are utilized. During the fiscal year ended December 31,
2001, the Committee awarded stock options to selected officers and key employees
under the 1993 Key Employee Stock Option Plan in amounts generally consistent
with the Committee's practice in recent prior years. By relying on long-term
stock-based compensation, US Oncology puts a significant portion of each
executive officer's total compensation at risk, based upon the financial
performance of US Oncology. Furthermore, each executive's personal net worth
may increase with any long-term appreciation of US Oncology's stock. In this
manner, US Oncology seeks to align the long-term interests of its executive
officers with the interests of US Oncology and its stockholders.
14
For 2002 the Committee intends to continue its present performance-based
compensation strategy, but with more focus on measurable financial objectives as
described below. Our compensation philosophy will continue to reward
performance for broad-based employees tied to both corporate goals and
individual benchmarks, but will focus executive compensation almost exclusively
on corporate financial targets.
Compensation Of The Chief Executive Officer. Compensation of the Chief
Executive Officer is intended to be competitive with compensation paid by
companies in US Oncology's peer group in similar geographical locations. The
Chief Executive Officer's salary in 2001 was based upon the Compensation
Committee's evaluation of his performance and US Oncology's performance, and the
achievement of specified goals. Company performance is measured by, among other
things, corporate net earnings, revenues and a comparison to US Oncology's peer
group. Measurements used to evaluate the Chief Executive Officer, in addition
to earnings, include stock price performance and development of sound strategic,
operating and expansion plans.
Omnibus Budget Reconciliation Act Of 1993. The Omnibus Budget
Reconciliation Act of 1993 (the "Budget Act") imposes a limit of $1,000,000,
with certain exceptions, that a publicly held corporation may deduct in any year
for the compensation paid to each of its five most highly compensated officers.
The Committee intends to try to comply with the provisions of the Budget Act
that would preserve the deductibility of executive compensation payments to the
greatest extent possible under US Oncology's compensation policy. However,
1,000,000 of the options granted to Mr. Ross during 2000 were granted pursuant
to a plan that has not been approved by the Company's stockholders.
Accordingly, under the Budget Act, compensation expense attributable to option
exercises under that plan in excess of $1,000,000 in any one year would not be
deductible by the Company for federal income tax purposes.
New Incentive Compensation Plans For 2002. Following the engagement of an
executive compensation consultant, a review of current policies, and a survey of
other compensation practices in the health care industry, the Committee designed
and adopted two new compensation plans in early 2002. The Committee intends
that both plans will reward strategic, long-term value creation, as measured by
objective financial targets. The annual performance incentive plan will award
cash bonuses to a broad range of employees, including executive officers. For
executives, bonuses will be based entirely on meeting objective financial
targets that have been set for growth in EBITDA (earnings before interest,
taxes, depreciation and amortization) and improvement in return on invested
capital, commonly known as "ROIC," as well as participation in the Company's
comprehensive compliance program and adherence to its corporate code of conduct.
The 2002 Key Executive Performance Stock Option Plan is being submitted to
stockholders for their approval at the annual meeting and is described in detail
below. Vesting of initial options to be granted under this plan is also based
on meeting objective ROIC targets during the next seven fiscal years, rather
than being based on the passage of time or on short-term earnings per share or
stock price targets. The Committee believes that ROIC and EBITDA together
constitute a broader measure of the economic health and growth of the Company,
incorporating profitability, asset productivity, long-term capital investment
strategy, and returns to stockholders (which would be expected in the form of
increased stock price).
Russell L. Carson, Chairman
Robert A. Ortenzio
Boone Powell, Jr.
15
PERFORMANCE GRAPH
The graph below compares the value as of the last trading day of each of
the five years ending with 2001 of $100 invested on December 31, 1996 in (a) US
Oncology common stock; (b) the Nasdaq Stock Market Index and (c) the Nasdaq
Health Services Index, an index that includes all U.S. and Canadian health care
service companies listed on the Nasdaq Stock Market. The values calculated
assume the reinvestment of all dividends. The information contained in the
performance graph shall not be deemed "soliciting material" or to be "filed"
with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the Securities Act or the
Exchange Act, as amended, except to the extent that US Oncology specifically
incorporates it by reference into such a filing. The stock price performance on
the following graph is not necessarily indicative of future stock price
performance.
[GRAPH]
Cumulative Total Return
------------------------------------------------------------------
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------- -------- -------- -------- -------- --------
US Oncology, Inc. 100.00 156.10 142.07 48.18 61.59 73.56
Nasdaq Stock Market (U.S.) 100.00 122.48 172.68 320.89 193.01 153.15
Nasdaq Health Services 100.00 102.60 86.98 69.96 96.04 103.82
16
PROPOSAL NO. 2
APPROVAL OF US ONCOLOGY, INC. 2002 KEY EXECUTIVE PERFORMANCE
STOCK OPTION PLAN
Our Board of Directors has adopted, subject to approval by stockholders, a
new 2002 Key Executive Performance Stock Option Plan. The text of the plan is
attached to this proxy statement as Exhibit A. Given that our mission is to
increase access to and advance the delivery of high-quality cancer care in
community-based settings throughout the United States, we understand that we
must have a highly motivated, focused and committed key executive management
team to accomplish our mission and objectives. The purpose of the plan is to
provide an additional incentive to a limited number of key executives to enhance
the possibilities for long-term success beyond normal expectations and to reward
them upon the achievement of that success.
No grants have been made under the plan, and accordingly new plan benefits
are not determinable at this time. In general, we would expect grants under the
plan to be available to fifteen to twenty employees at the Company, including
executive officers.
A minimum of 3,750,000 of the shares available under the plan must be
granted in initial grants. As required by the plan, the stock option agreements
for each of these initial grants will contain the following provisions, none of
which may be modified or revised except with the approval of holders of a
majority of the shares of common stock that cast votes (in person or by proxy)
at a duly called meeting:
. a requirement that the option holder shall not receive any additional
grants of stock options or other equity interests (including, without
limitation, restricted stock grants, stock appreciation rights and
phantom stock rights), whether pursuant to the plan or any other plan,
prior to the second anniversary of the holder's initial grant under
the plan;
. a provision that vesting of the stock options granted shall not occur
until seven years following the date of such grant, unless such
vesting is accelerated pursuant to the next provision below; and
. a vesting schedule setting forth certain internal return on invested
capital (commonly referred to as "ROIC") targets for US Oncology
beginning with the fiscal year ending December 31, 2002, which
targets, if met, will result in some or all of the stock options
granted becoming vested and exercisable.
In addition, the plan includes a requirement that the exercise price of any
stock options granted thereunder may not be decreased or otherwise "repriced",
whether through amendment, cancellation or replacement grants, which may not be
amended without the approval of holders of at least a majority of the shares of
common stock voting on the matter.
Description Of The Plan. The plan provides for the grant of nonqualified
stock options to key executive officers (including officers who may be members
of the Board of Directors) of US Oncology and its subsidiaries, as determined by
the Compensation Committee. 5,000,000 shares of common stock will be available
for stock options under the plan. The plan will be administered by the
Compensation Committee. The Compensation Committee is authorized, subject to
the terms of the plan, to adopt rules and regulations for carrying out the plan,
to select eligible participants and to determine all appropriate terms and
conditions of the grant of options thereunder in accordance with the plan, with
the decisions of the Compensation Committee binding on the Company and the
participants under the plan. Options may not be granted with an exercise prices
less than 100% of the fair market value per share of common stock at the date of
grant. The number of shares subject to stock options granted pursuant to the
plan is subject to adjustment in the event of a subdivision or consolidation of
shares, other capital readjustment or payment of a stock dividend. The exercise
price of an option may be paid in cash, in shares of common stock or in a
combination thereof, and under the terms of the plan we may extend financing to
any participant to purchase shares or to pay withholding taxes upon exercise of
these options on such terms as may be approved by the Committee.
Vested options may be exercised during the participant's continued
employment with us and for a period expiring on the earliest of (i) the terms
fixed by the Compensation Committee (which term shall not exceed ten years from
the grant date), (ii) if the Compensation Committee fails to fix a term, ten
years from the grant date or (iii) 90 days following termination of such
employment, unless the participant's employment is terminated for cause, in
which case vested options terminate at 12:01 a.m. on the date of the
participant's termination. If the participant's employment is terminated by
reason of death, disability or retirement, any vested options expire on the
earlier of (i) the term fixed by the Compensation
17
Committee (which term shall not exceed ten years from the grant date), or (ii)
the first anniversary of such termination of employment as a result of death,
disability or retirement. If a participant's employment is terminated for any
reason other than death or disability, no further vesting will occur. In the
event of a participant's death or disability, 50% of all shares covered by stock
options that are not vested as of the date of such event will vest fully and
immediately without regard to vesting schedules and will remain exercisable for
the terms described above. Upon a change of control (as defined in the plan),
all stock options will vest fully and immediately.
The Board of Directors may modify, revise or terminate the plan at any
time; provided, however, that without the further approval of the holders of at
least a majority of our shares of common stock voting on the matter, the Board
may not (i) change the aggregate number of shares which may be issued under
stock options under the plan; (ii) reduce the exercise price of the stock
options to less than the fair market value per share at the time the stock
option is granted, or otherwise materially increase the benefits accruing to
participants under the plan; (iii) change the class of persons eligible to
receive stock options; (iv) otherwise cause the plan to not comply with the
rules and regulations promulgated under Section 16(b) of the Exchange Act or
Section 162(m) of the Code, if applicable; or (v) change any of these terms
regarding amendment of the plan.
Certain Federal Income Tax Consequences. The plan is not a qualified plan
under Section 401(a) of the Code. Options granted under the plan are
"nonstatutory stock options" and not "restricted," "qualified" or "incentive"
stock options, nor is the plan an "employee stock purchase plan," under Sections
422 through 424 of the Code. Recipients of options under the plan recognize no
income for federal income tax purposes when options are granted, but recognize
ordinary income on the date of exercise to the extent that the fair market value
of common stock on such date exceeds the exercise price of the options. We are
authorized to withhold any tax required to be withheld from the amount
considered as ordinary income to the recipient of shares issued under the plan.
In the event that funds are not otherwise available to cover any required
withholding tax, the recipient will be required to provide such funds before the
shares are issued. We will ordinarily be entitled to a deduction equivalent to
the amount of ordinary income recognized by optionees.
Required Vote
Approval of the plan requires the affirmative vote of the holders of a
majority of the votes cast (in person or by proxy) on the proposal if a quorum
is present.
Recommendation Of The Board Of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
US ONCOLOGY, INC. 2002 KEY EXECUTIVE PERFORMANCE STOCK OPTION PLAN. DULY
EXECUTED PROXIES WILL BE SO VOTED UNLESS A CONTRARY INDICATION IS MADE.
18
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein.
The Audit Committee is comprised of three non-employee members of the Board
of Directors. The Board elects the Committee members if it determines that (1)
all are "independent" as that concept is defined in the applicable rules of
Nasdaq, (2) all of them are financially literate and (3) at least one of them
has accounting or related financial management expertise. The Board of
Directors has elected the undersigned as members of the Committee and adopted a
written charter setting forth the procedures and responsibilities of the Audit
Committee.
The function of the Committee is to assist the Board in fulfilling its
oversight responsibilities through regular or special meetings with management
and the independent accountants on matters relating to
. the Company's financial reporting in the Quarterly Reports on Form 10-
Q and the Annual Report on Form 10-K,
. the Company's system of internal controls,
. the Company's audit and accounting processes generally and
. the Company's systems and policies to comply with applicable laws and
regulations.
In carrying out this function, the Committee provides independent and
objective oversight of the performance of the Company's financial reporting
process, system of internal controls and legal and regulatory compliance system.
The Committee provides for open, ongoing communication among the independent
accountants, financial and senior management, internal auditors, compliance
officers and the Board concerning the Company's financial and compliance
position and affairs. The Committee has the power to conduct or authorize
investigations into any matters within its scope of responsibilities and is
empowered to retain independent counsel, accountants, or others to assist it in
the conduct of any investigation. The Committee's responsibility is oversight,
and it recognizes that the Company's management is responsible for preparing the
Company's financial statements and complying with applicable laws and
regulations.
Management is responsible for the Company's financial reporting process
including its system of internal controls, and for the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. The Company's independent auditors are responsible for
auditing those financial statements. Our responsibility is to monitor and
review these processes. It is not our duty or our responsibility to conduct
auditing or accounting reviews or procedures. We are not employees of the
Company and we may not be, and we may not represent ourselves to be or to serve
as, accountants or auditors by profession or experts in the fields of accounting
or auditing. Therefore, we have relied, without independent verification, on
management's representation that the financial statements have been prepared
with integrity and objectivity and in conformity with accounting principles
generally accepted in the United States of America and on the representations of
the independent auditors included in their report on the Company's financial
statements. Our oversight does not provide us with an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or policies, or appropriate internal controls and
procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, our considerations and
discussions with management and the independent auditors do not assure that the
Company's financial statements are presented in accordance with generally
accepted accounting principles, that the audit of our Company's financial
statements has been carried out in accordance with generally accepted auditing
standards or that our company's independent accountants are in fact
"independent."
The Committee met seven times during 2001. In overseeing the preparation
of the Company's financial statements, the Committee met with both management
and the Company's outside auditors to review and discuss all financial
statements prior to their issuance and to discuss significant accounting issues.
Management advised the Committee that all financial statements were prepared in
accordance with generally accepted accounting principles, and the Committee
discussed the statements with both management and the outside auditors. The
Committee discussed with the Company's outside auditors and management the
critical accounting policies of the Company and key estimates used in preparing
financial statements, as well as the quality of the Company's financial
reporting. The Committee's review included discussion with the outside auditors
of matters required to be discussed pursuant to Statement on Auditing Standards
No. 61 (Communication With Audit Committees). With respect to the Company's
outside auditors, the Committee, among other things, discussed with
PricewaterhouseCoopers LLP matters relating to its independence, including the
disclosures made to the Committee as required by the Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees). Finally,
the Committee continued to monitor the scope and adequacy
19
of the Company's internal auditing program. On the basis of these reviews and
discussions, the Committee recommended to the Board of Directors that the Board
approve the inclusion of the Company's audited financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001 for
filing with the Securities and Exchange Commission.
Members of the Audit Committee
Richard B. Mayor (Chairman)
James E. Dalton
Robert A. Ortenzio
20
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT ACCOUNTANTS
General
The Company is asking its stockholders to ratify the selection of
PricewaterhouseCoopers LLP as the Company's independent accountants for the year
2002. In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors or the Audit Committee, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors determines that such a change would be in the
Company's best interests.
PricewaterhouseCoopers LLP has acted as the Company's independent
accountants since the Company's formation in 1992. Representatives of
PricewaterhouseCoopers LLP will be present at the Annual Meeting and available
to respond to appropriate questions.
Vote Required for Approval
Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the year 2002 requires the affirmative
vote of a majority of the Company's outstanding shares that are present and
entitled to vote at the meeting.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP TO SERVE AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR 2002. DULY EXECUTED PROXIES WILL
BE SO VOTED UNLESS A CONTRARY INDICATION IS MADE.
INDEPENDENT ACCOUNTANTS' FEES
Audit Fees
Aggregate fees for professional services rendered by PricewaterhouseCoopers
LLP in connection with the audits of the Company's financial statements for the
fiscal year ended December 31, 2001 were $435,00.
Financial Information Systems Design and Implementation Fees
During the fiscal year ended December 31, 2001, PricewaterhouseCoopers LLP
rendered no professional services in connection with the design and
implementation of financial information systems.
All Other Fees
In addition to the fees described above, aggregate fees of $1,069,000 were
paid to PricewaterhouseCoopers LLP during the fiscal year ended December 31,
2001 for other professional services, including $660,000 for tax advice,
$139,000 for employee benefit plan services, $134,000 for internal audit
services and $136,000 for other services. Internal audit services provided by
PricewaterhouseCoopers LLP comprised less than 40% of the total hours expended
on our internal audit activities during 2001. The Audit Committee has discussed
the non-audit services provided by PricewaterhouseCoopers LLP and the related
fees and has considered whether those services and fees are compatible with
maintaining auditor independence. The Committee determined that such non-audit
services were consistent with the independence of PricewaterhouseCoopers LLP and
established a policy that the Company's outside auditors would not provide any
internal audit services in the future.
21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We do not believe that any of the transactions described below were made on
terms less favorable to us than those that would have been available from
unaffiliated parties and does not anticipate entering into transactions with
affiliated parties in the future on terms less favorable than those that would
be available from unaffiliated parties.
Dr. Rogoff, a former director of US Oncology, is a practicing physician
with Arizona Oncology Associates, P.C., a physician group affiliated with us
since January 1995. During fiscal 2001, Arizona Oncology Associates, P.C. paid
management fees of $6.0 million to us, excluding reimbursement for direct
expenses of that physician group.
Dr. Jones, who is one of our directors, and Dr. Bailes, who is our
Executive Vice President, are employed by Texas Oncology, P.A. We and Texas
Oncology, P.A. are parties to a service agreement pursuant to which we provide
Texas Oncology, P.A. with comprehensive management and development services. In
2001, Texas Oncology, P.A. paid us an aggregate of approximately $43.2 million
pursuant to the service agreement, excluding reimbursement for direct expenses
of the group. That fee amount is equal to 33.5% of the earnings before interest
and taxes of Texas Oncology, P.A., subject to certain adjustments. During 2001,
we negotiated an amendment to our service agreement with Texas Oncology, P.A.,
which, among other things, reduced our percentage management fee from 35% to
33.5%. Texas Oncology, P.A. beneficially owns approximately 2.4%% of outstanding
common stock. At December 31, 2001, Texas Oncology, P.A. was indebted to us in
the aggregate amount of approximately $6.8 million. This indebtedness was
incurred when we advanced working capital to Texas Oncology, P.A. for various
uses, including the development of new markets and physician salaries and
bonuses. This indebtedness bears interest at a rate negotiated by us and Texas
Oncology, P.A. that approximates the published prime lending rate (4.75% at
December 31, 2001).
Mr. Powell, one of our directors, is the former Chairman of Baylor Health
Care System, of which Baylor University Medical Center ("BUMC") is a part. We
lease facilities from affiliates of BUMC. Additionally, affiliates of BUMC
provide us various services, including telecommunications and maintenance
services. In 2001, payments by us to BUMC totaled an aggregate of
approximately $3.2 million for these services.
Dr. Schwartz, one of our directors, is president and medical director of
Minnesota Oncology Hematology, P.A. ("Minnesota Oncology"). We and Minnesota
Oncology entered into a service agreement effective July 1, 1996. During 2001,
Minnesota Oncology paid us an aggregate of approximately $4.6 million, excluding
reimbursement for direct expenses of Minnesota Oncology, pursuant to its
service agreement.
As part of the consideration for Minnesota Oncology entering into the
service agreement, we were required to issue without receiving additional
consideration a prescribed number of shares of our common stock to Minnesota
Oncology on July 1 of each year through 2001. During 2001, we issued 176,000
shares of our common stock to Minnesota Oncology pursuant to such yearly
issuances.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
Under U.S. securities laws, our directors, executive officers and any
persons holding more than ten percent (10%) of our common stock are required to
report their initial ownership of, and change in ownership of, our common stock
to the Securities and Exchange Commission (SEC). Specific due dates have been
established for the filing of these reports.
We believe that during 2001, our officers, directors and 10% shareholders
complied with requirements for reporting ownership and ownership changes in US
Oncology common stock pursuant to Section 16(a) of the Securities Exchange Act
of 1934, except that Mr. Ortenzio filed a Form 4 relating to the sale of 5,000
shares of our common stock during March 2001 several days after the applicable
deadline.
22
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
In accordance with the rules established by the SEC, any stockholder
proposal intended for inclusion in the proxy statement for next year's annual
meeting of stockholders, which is anticipated to be held in May 2003, must be
received by the Company no later than December 8, 2002. Such proposal should be
sent to the Secretary of the Company at 16825 Northchase Drive, Suite 1300,
Houston, Texas 77060.
OTHER MATTERS
We do not know of any other matters to be submitted to the stockholders at
the Annual Meeting.
23
EXHIBIT A
US ONCOLOGY, INC.
2002 KEY EXECUTIVE PERFORMANCE STOCK OPTION PLAN
1. PURPOSE. The mission of US Oncology, Inc. (the "Company") is to
increase access to and advance the delivery of high-quality cancer care in
community-based settings throughout the United States. The Company understands
that it must have a highly motivated, focused and committed key executive
management team to accomplish its mission and objectives. The purpose of the
2002 Key Executive Performance Stock Option Plan (the "Plan") is to provide an
additional incentive to a limited number of key executives to enhance the
possibilities for long-term success beyond normal expectations and to reward
them upon the achievement of that success.
2. DEFINITIONS. As used herein the words and phrases below shall have the
following meanings:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Compensation Committee of the Board
(or, if there is no such committee, the Board committee performing equivalent
functions), which shall be comprised of at least three members who are (i) "non-
employee directors" as defined under rules and regulations promulgated under
Section 16(b) of the Exchange Act and (ii) "outside directors" as defined in
Section 162(m) of the Code, and who shall be members of the Board, appointed by
the Board to administer the Plan. The Board shall have the power to fill
vacancies on the Committee arising by resignation, death, removal or otherwise.
(d) "Common Stock" shall mean the common stock of the Company, $.01
par value per share, regardless of the series or class.
(e) "Disability" shall mean the person so affected is unable to
engage in substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
one hundred eighty (180) days. The Committee's determination as to whether a
Participant has incurred a Disability shall be final and conclusive as to all
interested parties.
(f) "Eligible Employee" shall mean a key executive officer of the
Company as determined pursuant to Section 4.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" shall mean, with respect to a share of Common
Stock on any date herein specified, the average of the highest and lowest quoted
Selling Price per share of Common Stock on the date in question. The term
"Selling Price" per share of Common Stock for a day or days shall mean (i) if
the shares of Common Stock are listed or admitted for trading on a national
securities exchange, the reported sales price regular way, or, in case no such
reported sale takes place on such day or days, the average of the reported
closing bid and asked prices regular way, in either case on the principal
national securities exchange on which the shares of Common Stock are listed or
admitted for trading, or (ii) if the shares of Common Stock are not listed or
admitted for trading on a national securities exchange, (A) the transaction
price of the shares of Common Stock on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or, in the case no such reported
transaction takes place on such day or days, the average of the reported closing
bid and asked prices thereof quoted on NASDAQ, or (B) if the shares of Common
Stock are not quoted on NASDAQ, the average of the closing bid and asked prices
of the shares of Common Stock in the over-the-counter market, as reported by The
National Quotation Bureau, Inc., or an equivalent generally accepted reporting
service, or (iii) if on any such trading days the shares of Common Stock are not
quoted by any such organization, the fair market value per share of Common Stock
on such day(s), as determined in good faith by the Committee. If, in the
discretion of the Committee, another means of determining Fair Market Value
shall be necessary or advisable in order to comply with the requirements of
Section 162(m) of the Code or any other applicable law, governmental regulation,
or ruling of any governmental entity, then the Committee may provide for another
means of such determination.
(i) "Participant" shall mean any individual who has received an award
of a Stock Option and has not exercised the Stock Option and received the Common
Stock subject to the Stock Option.
(j) "Retirement" shall mean the termination of employment from the
Company constituting retirement as determined by the Committee.
(k) "Securities Act" shall mean the Securities Act of 1933, as now in
effect or as hereafter amended.
(l) "Stock Option" shall mean a stock option pursuant to which a
Participant is eligible to acquire Common Stock pursuant to the terms and
conditions of the Plan and the Stock Option Agreement.
(m) "Stock Option Agreement" shall mean the agreement described in
Section 7.
(n) "Terminated For Cause" shall mean that a Participant's employment
is terminated as a result of a breach of his or her written employment
agreement, if the Participant is subject to a written employment agreement, or
if the Committee determines that such Participant is being terminated as a
result of misconduct, dishonesty, disloyalty, disobedience or action that might
reasonably injure the Company or its business interests or reputation.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. Subject to the provisions of the Plan, the Committee shall have
authority to adopt rules and regulations for carrying out the Plan, determine
the Eligible Employees, determine the exercise price and term of each Stock
Option, determine the vesting period and vesting conditions for Stock Options,
determine the series or class of Common Stock to be subject to the Stock Option,
determine the Fair Market Value of Common Stock, and interpret, construe, and
implement the provisions of the Plan. Decisions of the Committee (including
decisions regarding the interpretation and application of the Plan) shall be
binding on the Company and on all Participants and other interested parties. The
Committee shall hold its meetings at such times and places as it deems
advisable. A majority of the Committee shall constitute a quorum for a meeting.
All determinations of the Committee shall be made by a majority of its members
attending the meeting. Furthermore, any decision or determination reduced to
writing and signed by all of the members of the Committee shall be as effective
as if it had been made by a majority vote at a meeting properly called and held.
4. ELIGIBLE EMPLOYEES. The individuals who shall be eligible to
participate in the Plan shall be such key executive officers (including
executive officers who may be members of the Board of Directors) of the Company,
or of any subsidiary of the Company, as the Committee shall determine from time
to time.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN; MAXIMUM GRANTS. The number
of shares of Common Stock available for Stock Options shall equal 5,000,000. The
shares of Common Stock available under the Plan may consist of shares of any
series of Common Stock provided that the rights of such shares to dividends, to
liquidation proceeds and to share in the appreciation in the value of the
Company shall be not less than the rights of any other series of Common Stock.
If any Stock Option shall expire or terminate for any reason without being
exercised, shares of Common Stock subject to such Stock Option shall again be
available for grant in connection with grants of subsequent Stock Options. The
maximum number of shares of Common Stock that may be granted under Stock Options
to any single Eligible Employee in any 12-month period shall be 750,000.
6. STOCK OPTION TERMS.
(a) Exercise Price. The exercise price per share of Common Stock
--------------
under each Stock Option shall be determined by the Committee; provided, however,
that such exercise price shall not be less than 100% of the Fair Market Value
per share of such Common Stock on the date of grant, as determined by the
Committee.
(b) Term. The Committee shall fix the term of each Stock Option,
----
which shall be not more than ten years from the date of grant. In the event no
term is fixed, such term shall be ten years from the date of grant.
A-2
(c) Exercise; Transferability. The Committee shall determine the time
-------------------------
or times at which a Stock Option may be exercised in whole or in part; provided,
however, that other than as provided in Section 10, in no event shall a Stock
Option be exercisable before the expiration of six months from the date of its
grant or after ten years from the date of its grant. Stock Options shall not be
transferable by the Participant otherwise than by will, under the laws of
descent and distribution, or pursuant to a qualified domestic relations order
(as defined by the Code) and shall be exercisable only by him or by his duly
appointed personal representative.
(d) Nonqualified Stock Options. Stock Options shall be "nonqualified"
--------------------------
in that they shall not be designated by the Committee as intended to be
qualified as "incentive" stock options under Section 422 of the Code.
(e) Method of Exercise. Stock Options shall be exercised by the
------------------
delivery of written notice to the Company setting forth the number of shares of
Common Stock with respect to which the Stock Option is to be exercised and,
subject to the subsequent provisions hereof, the address to which the
certificates representing shares of the Common Stock issuable upon the exercise
of such Stock Option shall be mailed. In order to be effective, such written
notice shall be accompanied at the time of its delivery to the Company by
payment of the exercise price of such shares of Common Stock, which payment
shall be made in cash or by cashier's check, certified check, or postal or
express money order payable to the order of the Company in an amount (in United
States dollars) equal to the exercise price of such shares of Common Stock. Such
notice shall be delivered in person to the Secretary of the Company, or shall be
sent by registered mail, return receipt requested, to the Secretary of the
Company, in which case, delivery shall be deemed made on the date such notice is
deposited in the mail.
(f) Withholding. Whenever shares of Common Stock are to be issued or
-----------
delivered pursuant to the Plan, the Company shall require the Participant to
remit to the Company an amount sufficient to satisfy federal, state, and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares, which payment may be made in the manner set forth
in clause (e) above or in the manner permitted by clause (g) below.
(g) Alternative Payment for Stock. Alternatively, payment of the
-----------------------------
exercise price may be made, in whole or in part, by delivery of shares of Common
Stock already owned by the Participant. Unless otherwise permitted by the
Committee, payment of the exercise price with shares of Common Stock shall be
made only with shares owned by the Participant for at least six (6) months. If
payment is made in whole or in part in shares of Common Stock owned by the
Participant, then the Participant shall deliver to the Company, in payment of
the option price of the shares of Common Stock with respect to which such Stock
Option is exercised, (i) certificates registered in the name of such Participant
representing a number of shares of Common Stock legally and beneficially owned
by such Participant, free of all liens, claims and encumbrances of every kind
and having a Fair Market Value as of the date of delivery of such notice that is
not greater than the exercise price of the shares of Common Stock with respect
to which such Stock Option is to be exercised, such certificates to be
accompanied by stock powers duly endorsed in blank by the record holder of the
shares represented by such certificates; and (ii), if the exercise price of the
shares of Common Stock with respect to which such Stock Option is to be
exercised exceeds such Fair Market Value, cash or a cashier's check, certified
check, or postal or express money order payable to the order of the Company in
an amount (in United States dollars) equal to the amount of such excess.
The Company may extend and maintain, or arrange for the extension and
maintenance of, financing to any Participant to purchase shares pursuant to
exercise of a Stock Option and/or to pay withholding taxes on such terms as may
be approved by the Committee in its sole discretion. In considering the terms
for extension or maintenance of credit by the Company, the Committee shall,
among other factors, consider the cost to the Company of any financing extended
by the Company.
(h) Terms of Initial Grants. Of the shares available under the Plan, at
least 3,750,000 shares shall be made as initial grants (the "Initial Grants")
following the adoption of the Plan by the Company's stockholders pursuant to
Section 22. The Stock Option Agreements for each Stock Option that is one of the
Initial Grants to a Participant in connection with the adoption of this Plan
shall contain the following provisions, none of which may be modified or revised
except in compliance with Section 17 of this Plan:
A-3
(i) a requirement that the Participant shall not receive
any additional grants of stock options or other equity interests
(including, without limitation, restricted stock grants, stock
appreciation rights and phantom stock rights) in the Company, whether
pursuant to this Plan or any other plan, prior to the second
anniversary of the Participant's initial grant under this Plan;
(ii) a provision that vesting of the Stock Options granted
shall not occur until seven (7) years following the date of such
grant, unless such vesting is accelerated pursuant to provision (iii)
below; and
(iii) a vesting schedule setting forth certain internal
return on invested capital ("ROIC") targets for the Company beginning
with the fiscal year ending December 31, 2002, which targets, if met,
will result in some or all of the Stock Options granted becoming
vested and exercisable.
(i) No Change in Exercise Price. The exercise price of any Stock
---------------------------
Option granted at any time shall not be decreased or otherwise "repriced",
whether through amendment, cancellation or replacement grants. This
requirement shall not be modified or revised except in compliance with
Section 17 of this Plan.
7. STOCK OPTION AGREEMENT. The Stock Options awarded to an Eligible
Employee shall be evidenced by a separate written agreement (the "Stock
Option Agreement") which shall be subject to the terms and provisions of
the Plan, and which shall be signed by the Participant and by the Chief
Executive Officer or a Vice President of the Company, other than the
Participant, in the name of and on behalf of the Company. The Stock Option
Agreement shall contain such provisions the Committee in its discretion
deems advisable. In the event of any inconsistency or conflict between the
terms of the Plan and a Stock Option Agreement, the terms of the Plan shall
govern.
8. TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT.
(a) Termination of Employment. If a Participant's employment is
-------------------------
terminated for any reason whatsoever other than death, Disability or
Retirement, with respect to any Stock Option granted pursuant to the Plan
outstanding at the time, unless otherwise established by the Committee, no
further vesting shall occur and the Participant shall be entitled to
exercise his or her rights with respect to the portion of the Stock Option
vested as of the date of termination for a period expiring on the earlier
of (i) the expiration date set forth in the Stock Option Agreement or (ii)
ninety (90) calendar days after such termination date and, thereafter, the
Stock Option and the Participant's rights thereunder shall be completely
terminated; provided, however, that if a Participant is Terminated for
Cause, such Participant's right to exercise the vested portion of his or
her Stock Option shall terminate as of 12:01 a.m. on the date of
termination of employment.
(b) Retirement. Unless otherwise approved by the Committee, upon
----------
the Retirement of a Participant:
(i) any nonvested portion of any outstanding Stock Option
shall immediately terminate and no further vesting shall occur; and
(ii) any vested Stock Option shall expire on the earlier of
(A) the expiration date set forth in the Stock Option Agreement with
respect to such Stock Option; or (B) the first anniversary of the date
of Retirement.
(c) Death or Disability. Upon termination of employment as a
-------------------
result of death or Disability:
(i) 50% of any nonvested portion of any outstanding Stock
Option shall immediately and fully vest notwithstanding the original
vesting schedule; and
(ii) any vested Stock Option, including those vested
pursuant to Section (c)(i), shall expire upon the earlier of (A) the
expiration date set forth in the Stock Option Agreement with respect
to such Stock Option or (B) the first anniversary of such termination
of employment as a result of death or Disability.
A-4
9. REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any shares of Common Stock under any Stock Option if the issuance of such
shares shall constitute a violation by the Participant or the Company of any
provision of any law, statute, or regulation of any governmental authority
whether it be Federal or State. Specifically, in connection with the Securities
Act, upon exercise of any Stock Option, unless a registration statement under
the Securities Act is in effect with respect to the shares of Common Stock
covered by such Stock Option, the Company shall not be required to issue such
shares unless the Committee has received evidence satisfactory to it to the
effect that the holder of such Stock Option is acquiring such shares of Common
Stock for investment and not with a view to the distribution thereof, and that
such shares of Common Stock may otherwise be issued without registration under
the Securities Act or State securities laws. Any determination in this
connection by the Committee shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any securities covered
hereby pursuant to the Securities Act. The Company shall not be obligated to
take any affirmative action in order to cause the exercise of a Stock Option, or
the issuance of shares pursuant thereto, to comply with any law or regulation of
any governmental authority.
10. CHANGE IN STOCK AND ADJUSTMENTS; CHANGE OF CONTROL.
(a) The existence of outstanding Stock Options shall not affect in
any way the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of, or affecting, the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(b) If the Company shall effect a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of Common Stock outstanding,
without receiving compensation therefor in money, services or property, then (a)
the number, class, and per share price of shares of Common Stock subject to
outstanding Stock Options hereunder shall be appropriately adjusted in such a
manner as to entitle a Participant to receive upon exercise of a Stock Option,
for the same aggregate cash consideration, the same total number and class of
shares as he would have received had he exercised his Stock Option in full
immediately prior to the event requiring the adjustment; and (b) the number and
class of shares then reserved for issuance under the Plan shall be adjusted by
substituting for the total number and class of shares of Common Stock then
reserved that number and class of shares of Common Stock that would have been
received by the owner of an equal number of outstanding shares of each class of
Common Stock as the result of the event requiring the adjustment.
(c) After a merger of one or more corporations into the Company or
after a consolidation of the Company and one or more corporations in which the
Company is the surviving corporation, each holder of an outstanding Stock
Option, upon exercise of such Stock Option, shall be entitled to receive (at no
additional cost but subject to any required action by stockholders) in lieu of
the number and class of shares of Common Stock with respect to which such Stock
Option is exercisable, the number and class of shares of stock (or other
securities or consideration) to which such holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of the same number and class of shares of Common Stock which he
would have otherwise received upon exercise of such Stock Option.
(d) If the Company is merged into or consolidated with another
corporation under circumstances where the Company is not the surviving
corporation, or if the Company is liquidated, or sells or otherwise disposes of
substantially all its assets to another corporation while unexercised Stock
Options remain outstanding under the Plan, (i) subject to the provisions of
clause (iii) below, after the effective date of such merger, consolidation,
liquidation, or sale, as the case may be, each holder of an outstanding Stock
Option shall be entitled, upon exercise of such Stock Option, to receive at no
additional cost, in lieu of shares of Common Stock, shares of such stock (or
other securities or consideration) as the holders of shares of Common Stock
received pursuant to the terms of the merger, consolidation, liquidation, or
sale; (ii) unless otherwise provided in the Participant's Stock Option
Agreement, any limitations set forth in or imposed pursuant to this Plan shall
automatically lapse so that all Stock Options, from and after a thirty (30) day
period preceding the effective date of such merger, consolidation, liquidation
or sale, as the case may be, shall be exercisable in full; and (iii) all
outstanding Stock Options may be canceled by the Board as of the effective date
of any such merger, consolidation, liquidation or sale provided that (a) notice
of such cancellation shall be given to each holder of a Stock Option, and (b)
A-5
unless otherwise provided in the Participant's Stock Option Agreement, each
holder of a Stock Option shall have the right to exercise such Stock Option in
full (without regard to any limitations set forth in or imposed pursuant to
Section 8 hereof) during a thirty (30) day period preceding the effective date
of such merger, consolidation, liquidation, or sale. In the event the
acceleration of vesting provided by clause (ii) or (iii) above would result in
imposition of the excise tax imposed by Section 4999 of the Code, a Participant
may elect to waive such acceleration with respect to such number of shares
subject to unvested Stock Options as the Participant shall designate, and the
Participant shall be entitled to designate from among his unvested Stock Options
those Stock Options which shall not be subject to accelerated vesting.
(e) Except as expressly provided herein, the issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, for cash, property, labor, or services, either upon direct sale,
exercise of rights or warrants to subscribe therefor, or conversion of shares or
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number, class or price of shares of Common Stock then subject to
outstanding Stock Options.
(f) Upon a Change of Control, any limitations set forth in or imposed
pursuant to this Plan shall automatically lapse so all Stock Options shall be
exercisable in full. For purposes of this Plan, a "Change of Control" is defined
(i) as the transfer of beneficial ownership of a majority of the outstanding
shares of US Oncology stock to any person or entity (including a "group" as such
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), except
that if beneficial ownership would be deemed to occur merely upon the execution
of voting agreements to support a merger, consolidation or other transaction to
be consummated in the future, then the Board of Directors may in its sole
discretion determine that the date of such Change of Control shall instead be
the date of such consummation, (ii) the stockholders of the Company prior to any
merger, consolidation or other transaction do not continue to own at least fifty
percent (50%) of the surviving entity following such merger, consolidation or
other transaction; (iii) the Company sells, leases or exchanges all or
substantially all if its assets to any other person or entity (other than a
direct or indirect wholly owned subsidiary of the Company); (iv) the Company is
materially or completely liquidated; or (v) during any consecutive two-year
period, individuals who constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of at least three quarters of the directors still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office. Notwithstanding anything
contained herein to the contrary, a "Change of Control" shall not be deemed to
have occurred in the event of a tender offer, leveraged buyout, leveraged
recapitalization or similar transaction in which the Company's then Chief
Executive Officer participates or has any agreement or arrangement to
participate directly or indirectly as an investor or participant (e.g., through
receipt of equity, additional stock options or entering into a new employment
agreement) in such transaction.
11. NO RIGHTS AS STOCKHOLDER. A holder of a Stock Option shall have no
rights as a stockholder with respect to any shares of Common Stock until the
issuance of a stock certificate for such shares. Except as otherwise provided in
Section 10, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities, or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued.
12. NO EFFECT ON EMPLOYMENT RELATIONSHIP. Participation in the Plan shall
not confer upon any employee any right to continue in the employ of the Company
or interfere in any way with the right of the Company to terminate any
employee's employment at any time.
13. NO FUND ESTABLISHED. It is not intended that awards under this Plan be
set aside in a trust which would qualify as an employee's trust within the
meaning of sections 401 or 402 of the Internal Revenue Code of 1986, as amended,
or in any other type of trust, fund, or separate account. The rights of any
Participant and any person claiming under such Participant shall not rise above
or exceed those of an unsecured creditor of the Company.
14. NO ASSIGNMENT OR ALIENATION OF BENEFITS. Except as contemplated by
Section 6(c), no right or benefit under this Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and
any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge
the same shall be void. No right or benefit hereunder shall in any manner be
liable for or subject to any debts, contracts, liabilities, or torts of the
person entitled to such benefits.
A-6
15. SUBSTITUTION OPTION. Stock Options may be granted under this Plan from
time to time in substitution for stock options held by employees (or nonemployee
directors) of another corporation who are about to become employees (or
nonemployee directors) of the Company as the result of a merger or consolidation
with the Company, or the acquisition by the Company of the assets of the other
corporation, or the acquisition by the Company of stock of the other corporation
as the result of which it becomes a subsidiary of the Company. The terms and
conditions of the substitute Stock Options so granted may vary from the terms
and conditions set forth in this Plan to such extent as the Board at the time of
grant may deem appropriate to conform, in whole or in part, to the provisions of
the stock options for which such substitute Stock Options are granted.
16. GENDER, TENSE AND HEADINGS. Whenever the context requires such, words
of the masculine gender used herein shall include the feminine and neuter, and
words used in the singular shall include the plural. Section headings as used
herein are inserted solely for convenience and reference and constitute no part
of the construction of this Plan.
17. AMENDMENT AND TERMINATION. The Board may modify, revise or terminate
the Plan at any time and from time to time; provided, however, that without the
further approval of the holders of at least a majority of the shares of Common
Stock that cast votes (in person or by proxy) on the proposal at a duly called
meeting, the Board may not (i) change the aggregate number of shares which may
be issued under Stock Options pursuant to the provisions of the Plan; (ii)
reduce the option price at which Stock Options may be granted to an amount less
than 100% of the Fair Market Value per share at the time the Stock Option is
granted, or otherwise materially increase the benefits accruing to Participants
under the Plan; (iii) change the class of persons eligible to receive Stock
Options; (iv) otherwise cause the Plan to not comply with the rules and
regulations promulgated under Section 16(b) of the Exchange Act or Section
162(m) of the Code, if applicable; or (v) change any of the terms set forth in
Sections 6(h) and 6(i), whether set forth in this Plan or in a Stock Option
Agreement. No amendment or termination may adversely affect any vested right of
a Participant without the written consent of such Participant.
18. NO GUARANTEE OF TAX CONSEQUENCES. Neither the Company nor the
Committee makes any commitment or guarantee that any federal, state or local tax
treatment will apply or be available to any person participating or eligible to
participate hereunder.
19. SEVERABILITY. In the event that any provision of this Plan shall be
held illegal, invalid or unenforceable for any reason, such provision shall be
fully severable, but shall not affect the remaining provisions of the Plan, and
the Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision had never been included herein.
20. GOVERNING LAW. The provisions of the Plan shall be construed,
administered, and governed by the laws of the State of Texas, without giving
effect to principles of conflicts of laws, and, to the extent applicable, the
laws of the United States.
21. EFFECTIVE DATE. The Plan shall become effective and shall be deemed to
have been adopted on March 21, 2002, if within one year of that date it shall
have been approved by the holders of at least a majority of the shares of Common
Stock that cast votes (in person or by proxy) on the proposal at a duly called
meeting. No Stock Option shall be granted pursuant to the Plan after one day
more than ten years after the effective date.
22. STOCKHOLDERS APPROVAL. Notwithstanding any other provisions of the
Plan, in order for the Plan to continue as effective, on or before the date
which occurs twelve (12) months after the date the Plan is effective, the Plan
must be approved by the holders of at least a majority of the outstanding stock
of the Company entitled to vote thereon voting in person, or by proxy, at a duly
held stockholders' meeting, and no shares of Common Stock shall be issued under
the Plan until such approval has been secured.
A-7
FRONT SIDE OF PROXY
US ONCOLOGY, INC.
ANNUAL MEETING
MAY 9, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints R. DALE ROSS and LEO E. SANDS, or either of
them, each with power to appoint his substitute, as proxies of the undersigned
and authorizes them to represent and vote, as designated below, all the shares
of the Common Stock of US Oncology, Inc. that the undersigned would be entitled
to vote if personally present, and to act for the undersigned at the annual
meeting to be held May 9, 2002, or any adjournment thereof.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN AND IN ACCORDANCE
WITH THE ACCOMPANYING PROXY STATEMENT. RECEIPT OF THE PROXY STATEMENT AND THE
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 IS HEREBY
ACKNOWLEDGED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS
1, 2 AND 3 WHICH ARE BEING PROPOSED BY THE BOARD OF DIRECTORS OF US ONCOLOGY,
INC.
(TO BE SIGNED ON THE REVERSE SIDE)
BACK SIDE OF PROXY
PLEASE MARK, DATE AND SIGN THIS PROXY
1. ELECTION OF FOUR CLASS III DIRECTORS:
Nominees: Russell L. Carson, Richard B. Mayor, Boone Powell, Jr.,
R. Dale Ross
[_] VOTE FOR all nominees listed, except as marked to the contrary (if any).
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE).
[_] WITHHOLD AUTHORITY to vote for all nominees listed above.
2. APPROVAL OF THE US ONCOLOGY, INC. 2002 KEY EXECUTIVE PERFORMANCE STOCK
OPTION PLAN.
[_] FOR [_] AGAINST [_] ABSTAIN
3. RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In accordance with their discretion upon such other business as may
properly come before the meeting or any adjournment thereof.
Signature(s) of Stockholder(s)
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Dated: , 2002
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(Please sign exactly as shown hereon.
Executors, administrators, guardians,
trustees, attorneys, and officers
signing for corporations should give
full title. If a partnership or
jointly owned, each owner should
sign.)