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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2002
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-26190
US ONCOLOGY, INC.
(Exact name of registrant as specified in its charter)
---------------------------
Delaware 84-1213501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16825 Northchase Drive, Suite 1300, Houston, Texas 77060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (832) 601-8766
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
(Title of class)
Series A Preferred Stock Purchase Rights
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12-b of the Act). Yes [X] No [_]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant as of June 28, 2002 was $623,455,855 (based
upon the closing sales price of the Common Stock on The Nasdaq Stock Market on
June 28, 2002 of $8.33 per share). For purposes of this calculation, shares held
by non-affiliates exclude only those shares beneficially owned by executive
officers, directors and stockholders beneficially owning 10% or more of the
outstanding Common Stock.
There were 90,181,640 shares of the Registrant's Common Stock outstanding
on March 13, 2003. In addition, as of March 13, 2003, the Registrant had agreed
to deliver approximately 3,262,807 shares of its Common Stock on certain future
dates for no additional consideration.
DOCUMENTS INCORPORATED BY REFERENCE
None.
The registrant hereby amends the following items of its Annual Report on
Form 10-K for the year ended December 31, 2002, as set forth on the pages
attached hereto:
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 10. Directors and Executive Officers of the Registrant
Our Directors
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 our Class I directors expires
at our 2003 annual meeting of stockholders, the present term of office for our
Class II directors expires at our 2004 annual meeting of stockholders, and the
present term of our Class III directors expires at our 2005 annual meeting of
stockholders. The following sets forth certain information about each of our
directors.
Name of Director Age Principal Occupation Director Since
- ---------------- ----- -------------------- --------------
Russell L. Carson 59 General Partner of Welsh, Carson, Anderson & Stowe, 1992
(Class III Director) an investment partnership.
J. Taylor Crandall 49 Managing Partner, Oak Hill Capital Management, 1999
(Class I Director) Inc., an investment company.
James E. Dalton 60 President, Edinburgh Associates, Inc., a consulting 1998
(Class I Director) firm.
Lloyd K. Everson, M.D. 59 Director, Vice Chairman of the Board of Directors 2001
(Class II Director) and former President of US Oncology, Inc.
Stephen E. Jones, M.D. 61 Physician, Texas Oncology, P.A., an oncology 1999
(Class II Director) practice with locations throughout Texas.
Richard B. Mayor 69 Of Counsel, Andrews & Kurth L.L.P., a law firm. 1993
(Class II Director)
Robert A. Ortenzio 45 President and Chief Executive Officer, Select 1992
(Class II Director) Medical Corporation
Boone Powell, Jr. 66 Retired President and Chief Executive Officer of 1999
(Class III Director) Baylor Health Care System.
R. Dale Ross 56 Chairman of the Board of Directors and Chief 1992
(Class III Director) Executive Officer of US Oncology.
Burton S. Schwartz, M.D. 61 Physician, Minnesota Oncology Hematology, P.A., an 1999
(Class I Director) oncology practice in Minneapolis, Minnesota.
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.
J. Taylor Crandall has been Managing Partner of Oak Hill Capital Management,
Inc. since January 1999. He is currently Vice President and Chief Operating
Officer of Keystone, Inc., an investment company, where he has been a Managing
Partner since 1986 and was formerly Chief Financial Officer. Mr. Crandall is a
director of American Skiing Company, Interstate Hotels Corporation, Meristar
Hospitality Corporation and Broadwing, Inc., a telecommunications company. Mr.
2
Crandall also services as a director of various privately held companies. 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.
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.
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 until its merger with Andrews & Kurth L.L.P. in October
2001. Andrews & Kurth L.L.P. serves as outside counsel to us.
Robert A. Ortenzio has been Chief Executive Officer of Select Medical
Corporation since September 1999 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.
Boone Powell, Jr. was President and Chief Executive Officer of Baylor Health
Care System from 1980 until 2000, and Chairman from 2000 until 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.
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.
3
Our Executive Officers
The following is a list of our executive officers.
Name of Executive Officer Age Positions and Offices Executive Officer Since
- ------------------------- ----- --------------------- -----------------------
R. Dale Ross 56 Chairman of the Board of Directors and Chief 1992
Executive Officer
Joseph S. Bailes, M.D. 46 Executive Vice President for Clinical Services 1999
Bruce D. Broussard 40 Chief Financial Officer 2000
Atul Dhir, M.B.B.S., D.Phil 40 President, Cancer Information and Research 1999
George D. Morgan, 50 Chief Operating Officer 2000
Leo E. Sands 55 Executive Vice President and Secretary 1992
Phillip H. Watts 37 Vice President and General Counsel 1998
R. Dale Ross has been Chairman of the Board and Chief Executive Officer since
December 1992. From December 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. joined US Oncology in June 1999. Prior to 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 joined US Oncology in August 2000 with 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 joined US Oncology in November 1999. As President
of Cancer Information and Research Group, he 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.
George D. Morgan joined US Oncology in October 2000 and has 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.
4
Leo E. Sands joined US Oncology in November 1992. He is primarily responsible
for our governmental relations and information technology activities. Mr. Sands
is a member of the board of the National Patient Advocacy Foundation.
Phillip H. Watts joined US Oncology in January 1998 as its 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, which has since merged into
Andrews & Kurth L.L.P.
Section 16(a) Beneficial Ownership Reporting Compliance
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.
Based solely on a review of Forms 3 and 4 and amendments thereto furnished
to us during 2002 and Forms 5 and amendments thereto with respect to 2002, we
believe that during 2002, 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.
5
Item 11. Executive Compensation
Compensation of Executive Officers
The following tables set forth (i) the remuneration paid by us for the
three fiscal years ended December 31, 2002 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
Fiscal Underlying
Name and Principal Position Year Salary Bonus Other Options
- --------------------------- ------ ---------- ---------- ---------- --------------
R. Dale Ross 2002 $ 701,217 $ 400,680 $0 600,000
Chairman of the Board, 2001 $ 672,150 $ 184,501 $0 125,000
Chief Executive Officer, 2000 $ 618,694 $ 172,939 $0 1,572,754
and Director
Joseph S. Bailes, M.D. 2002 $ 330,762 $ 127,575 $0 300,000
Executive Vice President 2001 $ 318,943 $ 61,626 $0 75,000
2000 $ 308,126 $ 34,891 $0 50,000
Bruce D. Broussard 2002 $ 346,512 $ 132,000 $0 365,000
Chief Financial Officer 2001 $ 335,046 $ 49,154 $0 100,000
2000 $ 123,921 $ 0 $86,581(1) 200,000
George D. Morgan 2002 $ 353,347 $ 127,000 $0 365,000
Chief Operating Officer 2001 $ 317,505 $ 0 $0 100,000
2000 $ 62,501 $ 100,000 $82,758(1) 200,000
Leo E. Sands 2002 $ 390,247 $ 140,700 $0 365,000
Executive Vice President 2001 $ 343,913 $ 67,625 $0 100,000
and Secretary 2000 $ 344,941 $ 49,640 $0 50,000
- ------------------------
(1) Relocation expenses
6
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 2002
Individual Grants
-------------------------
% of Total Potential Value
Number of Options at Assumed Annual Rates
Securities Granted to Stock Price Appreciation
Underlying Employees Exercise Market Value for Option Term
Options in Fiscal Price Per Per Share Expiration ---------------------------
Granted Year Share On Grant Date Date 5% 10%
----------- ---------- --------- ------------- ---------- ------------ -----------
R. Dale Ross 600,000 13.9% $6.99 $6.99 July 26, 2012 $2,637,584 $6,684,156
Joseph S. Bailes, M.D. 300,000 7.0% $6.99 $6.99 July 26, 2012 $1,318,792 $3,342,078
Bruce D. Broussard 365,000 8.5% $6.99 $6.99 July 26, 2012 $1,604,530 $4,066,195
George D. Morgan 365,000 8.5% $6.99 $6.99 July 26, 2012 $1,604,530 $4,066,195
Leo E. Sands 365,000 8.5% $6.99 $6.99 July 26, 2012 $1,604,530 $4,066,195
2002 OPTION EXERCISES AND DECEMBER 31, 2002 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 2,397,754 900,000 $7,129,749 $1,455,880
Joseph S. Bailes, M.D. 0 $ 0 607,007 463,333 $1,093,935 $ 799,565
Bruce D. Broussard 0 $ 0 106,667 558,333 $ 386,835 $1,236,865
George D. Morgan 0 $ 0 106,667 558,333 $ 354,835 $1,188,865
Leo E. Sands 0 $ 0 460,667 558,333 $ 725,495 $ 944,205
(1) Based upon a closing price of the Company's common stock on December 31,
2002, as reported by The Nasdaq Stock Market, of $8.67 per share.
Director Compensation
During 2002, 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.
During 2002, each Audit Committee member received $1,500 for each Audit
Committee meeting he attended. Non-employee directors are also eligible to
participate in US Oncology's 1993 Non-Employee Director Stock Option Plan. Under
that plan, in 2002 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
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.
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. The Company maintains 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 Arrangement
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
8
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 entitled him to continue to receive his
base salary in effect on his date of resignation through January 1, 2003.
9
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table shows how much US Oncology common stock is owned as of
April 25, 2003 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
(including shares that may Number of Shares that May be Percentage of
be acquired within 60 days Acquired Within 60 Days Outstanding
Name through option exercises) Through Option Exercises Common Stock
---- ---------------------------- ------------------------ ---------------
R. Dale Ross 2,637,754 2,637,754 2.8%
Lloyd K. Everson, M.D. 1,027,833 964,531 1.1%
Bruce D. Broussard 189,667 189,667 *
Joseph S. Bailes, M.D. 787,000 722,007(1) *
George D. Morgan 189,667 189,667 *
Leo E. Sands 603,667 603,667 *
Russell L. Carson 13,068,877(2) 50,000 14.5%
J. Taylor Crandall 3,750,288(3) 65,938 4.2%
James E. Dalton, Jr. 47,848 47,000 *
Stephen E. Jones, M.D. 42,577 39,000 *
Richard B. Mayor 176,454 43,000 *
Robert A. Ortenzio 78,203 45,000 *
Boone Powell, Jr. 124,729 71,930 *
Burton S. Schwartz, M.D. 53,719 30,000 *
All directors and executive officers
as a group (16 persons) 23,277,617(2)(3) 6,198,495(1) 24.1%
Welsh, Carson, Anderson & Stowe IX, L.P. 12,447,744 0 13.8%
320 Park Avenue, Suite 2500
New York, NY 10022
Dimensional Fund Advisors 6,001,561 0 6.6%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90491
- ------------------
* 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.
10
Securities authorized for issuance under equity compensation plans
The following table sets forth, as of December 31, 2002, (i) the number of
our shares of common stock that are issuable under options granted pursuant to
our various equity compensation plans, (ii) the weighted average exercise price
of those options and (iii) the number of shares of our common stock that remain
available for grants under those plans.
(c)
Number of Securities
Remaining Available
(a) (b) for Future Issuance
Number of Securities Weighted-Average under Equity
to be Issued Upon Exercise Price of Compensation Plans
Exercise of Outstanding (excluding securities
Outstanding Options, Options, Warrants reflected in
Plan Category Warrants and Rights and Rights column (a))
---------------------- -------------------- ------------------- ----------------------
Equity Compensation Plans approved by security
holders:
. 2002 Key Executive Performance Stock Option 3,850,000 $ 7.01 1,150,000
Plan
. 1993 Key Employee Stock Option Plan 8,501,942 $ 7.55 1,098,509
. 1993 Affiliate Stock Option Plan 1,743,450 $ 8.76 1,095,600
. 1993 Non-Employee Director Stock Option Plan 350,000 $ 8.63 186,000
. 1993 Everson Stock Option Plan 220,092 $ 4.77 0
. Physician Reliance Network Stock Option Plan
for outside directors 64,868 $11.79 0
. Physician Reliance Network Stock Option Plan 533,285 $10.88 0
Equity Compensation Plan not approved by security
holders:
. 2000 Chief Executive Officer Stock Option Plan 1,000,000 $ 4.96 0
---------- ---------
Total 16,263,637 $ 7.50 3,530,109
========== =========
The 2000 Chief Executive Officer Stock Option Plan provided for a one-time
grant of an option to purchase 1,000,000 shares of our common stock issued to
our chief executive officer, R. Dale Ross. The option was granted on December
14, 2000. The options vested in their entirety six months after the grant date
and remain exercisable until the tenth anniversary of the grant date. The 2000
Chief Executive Officer Stock Option Plan was approved by our board of
directors, but was not submitted for stockholder approval.
11
Item 13. 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. We do 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 managed by us since
January 1995. During 2002, Arizona Oncology Associates, P.C. paid us management
fees of $5.5 million, excluding reimbursement for direct expenses of that
physician group. Dr. Rogoff resigned from the Board in February 2002.
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.
During 2002, Texas Oncology, P.A. paid us aggregate fees of approximately $389
million pursuant to the service agreement. That fee amount is equal to 33.5% of
the earnings before interest and taxes of Texas Oncology, P.A., subject to
certain adjustments, plus direct expenses of Texas Oncology, P.A. Texas
Oncology, P.A. beneficially owns approximately 1.5% of our outstanding common
stock. At December 31, 2002, Texas Oncology, P.A. was indebted to us in the
aggregate amount of approximately $6.3 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 (4.25% at December 31,
2002).
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 2002, payments by us to BUMC totaled an aggregate of approximately
$3.0 million for these services. In addition, during the second quarter of 2002,
we terminated a service agreement as it related to certain radiology sites and
sold the related assets to BUMC, including the right to future revenues
attributable to radiology technical fee revenue at those sites, in exchange for
BUMC delivering to us 1.1 million shares of our common stock. In connection with
that sale, we also made a cash payment to BUMC of $0.6 million to reflect
purchase price adjustments during the third quarter. The transaction resulted in
a $3.9 million gain to us, based upon the market price of our common stock as of
the date of the transaction.
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 2002,
Minnesota Oncology paid us an aggregate of approximately $5.7 million, excluding
reimbursement for direct expenses of Minnesota Oncology, pursuant to its service
agreement.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amended report to be
signed on its behalf by the undersigned, thereunto duly authorized 29th day of
April, 2003.
US ONCOLOGY, INC.
By: /s/ Bruce D. Broussard
-------------------------------------
Bruce D. Broussard
Chief Financial Officer and Treasurer
13
CERTIFICATION
I, R. Dale Ross, Chief Executive Officer of US Oncology, Inc., certify that:
1. I have reviewed this annual report on Form 10-K/A (Amendment No. 1)
of US Oncology, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 29, 2003
/s/ R. Dale Ross
-----------------------------------------------
R. Dale Ross
Chief Executive Officer of US Oncology, Inc.
14
CERTIFICATION
I, Bruce D. Broussard, Chief Financial Officer of US Oncology, Inc., certify
that:
1. I have reviewed this Annual Report on Form 10-K/A (Amendment No.1)
of US Oncology, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 29, 2003
/s/ Bruce D. Broussard
-----------------------------------------------
Bruce D. Broussard
Chief Financial Officer of US Oncology, Inc.
15