Form 10-Q Response Oncology Inc

10-Q - Quarterly report [Sections 13 or 15(d)]

Published: 2000-08-14 00:00:00
Submitted: 2000-08-14
Period Ending In: 2000-06-30
e10-q.txt RESPONSE ONCOLOGY
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>e10-q.txt
<DESCRIPTION>RESPONSE ONCOLOGY
<TEXT>

<PAGE>   1




                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

      (X)    Quarterly report pursuant to Section 13 or 15(d) of the Securities
      ---    Exchange Act of 1934

             For the quarterly period ended June 30, 2000 or

             Transition report pursuant to Section 13 or 15(d) of the Securities
      ---    Exchange Act of 1934

             For the transition period from     to
                                            ---------

             Commission file number   0-15416
                                     ---------

                             RESPONSE ONCOLOGY, INC.
                             -----------------------
             (Exact name of registrant as specified in its charter)


        Tennessee                                             62-1212264
        ---------                                             ----------
   (State or Other Jurisdiction                            (I.R.S. Employer
   of Incorporation or Organization)                       Identification No.)

   1805 Moriah Woods Blvd., Memphis, TN                          38117
   ------------------------------------                          -----
   (Address of principal executive offices)                    (Zip Code)

                                 (901) 761-7000
                                 --------------
              (Registrant's telephone number, including area code)

    Indicate by check mark whether the registrant (1) has filed all reports
    required to be filed by Section 13 or 15(d) of the Securities Exchange Act
    of 1934 during the preceding 12 months (or for such period that the
    registrant was required to file such reports), and (2) has been subject to
    such filing requirements for the past 90 days.

                               Yes  [X]     No  [ ]

    Indicate the number of shares outstanding of each of the issuer's classes of
    common stock, as of the latest practicable date.

    Common Stock, $.01 Par Value, 12,290,406 shares as of August 8, 2000.

<PAGE>   2


INDEX

<TABLE>
<CAPTION>

PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements                                             Page
<S>         <C>                                                             <C>
           Consolidated Balance Sheets,
           June 30, 2000 and December 31, 1999------------------------------- 3

           Consolidated Statements
           of Operations for the Three Months Ended
           June 30, 2000 and June 30, 1999----------------------------------- 4

           Consolidated Statements of Operations for
           the Six Months Ended June 30, 2000
           and June 30, 1999------------------------------------------------- 5

           Consolidated Statements of
           Cash Flows for the Six Months Ended
           June 30, 2000 and June 30, 1999 ---------------------------------- 6

           Notes to Consolidated
           Financial Statements---------------------------------------------- 7

Item 2.    Management's Discussion and Analysis
           of Financial Condition and Results
           of Operations---------------------------------------------------- 13

Item 3.    Quantitative and Qualitative Disclosures
           About Market Risk ----------------------------------------------- 19

PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings------------------------------------------------ 20

Item 2.    Changes in Securities and Use of Proceeds------------------------ 20

Item 3.    Defaults Upon Senior Securities---------------------------------- 20

Item 4.    Submission of Matters to a Vote of Security Holders-------------- 20

Item 5.    Other Information------------------------------------------------ 21

Item 6.    Exhibits and Reports on Form 8-K -------------------------------- 21

Signatures ----------------------------------------------------------------- 22

</TABLE>




                                     - 2 -
<PAGE>   3


PART I - FINANCIAL INFORMATION

ITEM 1:  FINANCIAL STATEMENTS
         RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
         CONSOLIDATED BALANCE SHEETS
         (Dollar amounts in thousands except for share data)

<TABLE>
<CAPTION>

                                                                   June 30, 2000  December 31, 1999
                                                                    (Unaudited)       (Note 1)
                                                                   -------------  -----------------
<S>                                                                <C>            <C>
ASSETS
CURRENT ASSETS
     Cash and cash equivalents                                      $   6,777         $   7,195
     Accounts receivable, less allowance for doubtful
         accounts of $2,597 and $2,632                                 16,164            16,007
     Pharmaceuticals and supplies                                       3,519             3,485
     Prepaid expenses and other current assets                          3,845             4,778
     Due from affiliated physician groups                              16,926            16,884
     Deferred income taxes                                                344               114
                                                                    ---------         ---------
         TOTAL CURRENT ASSETS                                          47,575            48,463

     Property and equipment, less accumulated
         depreciation and amortization of $13,093
         and $12,366                                                    3,927             4,222
     Deferred charges, less accumulated amortization
         of $190 and $86                                                  287               380
     Management service agreements, less accumulated
         amortization of $9,645 and $8,206                             63,891            66,113
     Other assets                                                         513               467
                                                                    ---------         ---------
         TOTAL ASSETS                                               $ 116,193         $ 119,645
                                                                    =========         =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable                                               $  15,648         $  15,665
     Accrued expenses and other liabilities                             4,060             5,440
     Current portion of notes payable                                  36,262             3,745
     Current portion of capital lease obligations                         268               267
                                                                    ---------         ---------
         TOTAL CURRENT LIABILITIES                                     56,238            25,117

     Notes payable, less current portion                                1,292            35,445
     Capital lease obligations, less current portion                      444               580
     Deferred income taxes                                              9,512             9,802
     Minority interest                                                  1,314               924

STOCKHOLDERS' EQUITY
     Series A convertible preferred stock, $1.00 par
         value (aggregate involuntary liquidation preference
         $183) authorized 3,000,000 shares; issued and
         outstanding 16,631 shares at each period end                      17                17
     Common stock, $.01 par value, authorized 30,000,000
         shares; issued and outstanding 12,290,406 and
         12,270,406 shares, respectively                                  123               123
     Paid-in capital                                                  102,011           101,979
     Accumulated deficit                                              (54,758)          (54,342)
                                                                    ---------         ---------
                                                                       47,393            47,777
                                                                    ---------         ---------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $ 116,193         $ 119,645
                                                                    =========         =========

</TABLE>


See accompanying notes to consolidated financial statements.




                                     - 3 -
<PAGE>   4


RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollar amounts in thousands except for share data)

<TABLE>
<CAPTION>

                                                        Three Months Ended
                                                 -------------------------------
                                                   June 30,            June 30,
                                                     2000                1999
                                                 ------------       ------------
<S>                                              <C>                <C>
NET REVENUE                                      $     34,639       $     34,053

COSTS AND EXPENSES
     Salaries and benefits                              5,310              6,442
     Pharmaceuticals and supplies                      23,901             19,756
     Other operating costs                              2,192              2,691
     General and administrative                         1,240              1,687
     Depreciation and amortization                      1,147              1,119
     Interest                                             830                843
     Provision for doubtful accounts                       76                504
                                                 ------------       ------------
                                                       34,696             33,042
                                                 ------------       ------------

EARNINGS (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST                                         (57)             1,011
     Minority owners' share of net earnings              (135)              (274)
                                                 ------------       ------------

EARNINGS (LOSS) BEFORE INCOME TAXES                      (192)               737
     Income tax provision (benefit)                       (69)               280
                                                 ------------       ------------

NET EARNINGS (LOSS)                              $       (123)      $        457
                                                 ============       ============

EARNINGS (LOSS) PER COMMON SHARE:
           Basic                                 $      (0.01)      $       0.04
                                                 ============       ============
           Diluted                               $      (0.01)      $       0.04
                                                 ============       ============
Weighted average number of common shares:
           Basic                                   12,290,406         11,931,731
                                                 ============       ============
           Diluted                                 12,290,406         11,961,986
                                                 ============       ============

</TABLE>



See accompanying notes to consolidated financial statements.




                                     - 4 -
<PAGE>   5


RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollar amounts in thousands except for share data)

<TABLE>
<CAPTION>

                                                         Six Months Ended
                                                 -------------------------------
                                                   June 30,            June 30,
                                                     2000               1999
                                                 ------------       ------------
<S>                                              <C>                <C>
NET REVENUE                                      $     70,225       $     70,362

COSTS AND EXPENSES
     Salaries and benefits                             10,823             13,008
     Pharmaceuticals and supplies                      48,067             40,243
     Other operating costs                              4,670              6,120
     General and administrative                         2,714              3,368
     Depreciation and amortization                      2,283              2,236
     Interest                                           1,657              1,706
     Provision for doubtful accounts                      286                695
                                                 ------------       ------------
                                                       70,500             67,376
                                                 ------------       ------------

EARNINGS (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST                                        (275)             2,986
     Minority owners' share of net earnings              (390)              (386)
                                                 ------------       ------------

EARNINGS (LOSS) BEFORE INCOME TAXES                      (665)             2,600
     Income tax provision (benefit)                      (249)               988
                                                 ------------       ------------

NET EARNINGS (LOSS)                              $       (416)      $      1,612
                                                 ============       ============
EARNINGS (LOSS) PER COMMON SHARE:
           Basic                                 $      (0.03)      $       0.13
                                                 ============       ============
           Diluted                               $      (0.03)      $       0.13
                                                 ============       ============
Weighted average number of common shares:
           Basic                                   12,286,272         11,990,206
                                                 ============       ============
           Diluted                                 12,286,272         12,023,887
                                                 ============       ============

</TABLE>




See accompanying notes to consolidated financial statements.




                                     - 5 -
<PAGE>   6



RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)

<TABLE>
<CAPTION>

                                                              Six Months Ended
                                                           ----------------------
                                                            June 30,     June 30,
                                                              2000         1999
                                                           -----------  ---------
<S>                                                        <C>          <C>
OPERATING ACTIVITIES
Net earnings (loss)                                        $  (416)      $ 1,612
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
   Depreciation and amortization                             2,283         2,236
   Deferred income taxes                                      (249)           --
   Provision for doubtful accounts                             286           695
   Gain on sale of property and equipment                      (31)           --
   Minority owners' share of net earnings                      390           386
   Changes in operating assets and liabilities:
      Accounts receivable                                     (444)        1,562
      Pharmaceuticals and supplies, prepaid expenses and
        other current assets                                   894         1,296
      Deferred charges and other assets                         41            54
      Due from affiliated physician groups                    (457)         (179)
      Accounts payable and accrued expenses                   (595)       (2,226)
                                                           -------       -------
NET CASH PROVIDED BY OPERATING ACTIVITIES                    1,702         5,436

INVESTING ACTIVITIES
   Proceeds from sale of property and equipment                 36            --
   Purchase of equipment                                      (496)         (500)
                                                           -------       -------
NET CASH USED IN INVESTING ACTIVITIES                         (460)         (500)

FINANCING ACTIVITIES
   Proceeds from exercise of stock options                      32            --
   Distributions to joint venture partners                      --          (353)
   Financing costs incurred                                     --          (416)
   Principal payments on notes payable                      (1,557)       (1,136)
   Principal payments on capital lease obligations            (135)         (166)
                                                           -------       -------
NET CASH USED IN FINANCING ACTIVITIES                       (1,660)       (2,071)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS              (418)        2,865
   Cash and cash equivalents at beginning of period          7,195         1,083
                                                           -------       -------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                 $ 6,777       $ 3,948
                                                           =======       =======

</TABLE>




See accompanying notes to consolidated financial statements.




                                     - 6 -
<PAGE>   7


RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000

NOTE 1 -- BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required for complete financial statements by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in Response
Oncology, Inc. and Subsidiaries' (the "Company's") annual report on Form 10-K
for the year ended December 31, 1999.

Net Revenue: The Company's net patient service revenue includes charges to
patients, insurers, government programs and other third-party payers for medical
services provided. Such amounts are recorded net of contractual adjustments and
other uncollectible amounts. Contractual adjustments result from the differences
between the amounts charged for services performed and the amounts allowed by
government programs and other public and private insurers.

The Company's revenue from practice management affiliations includes a fee equal
to practice operating expenses incurred by the Company (which excludes expenses
that are the obligation of the physicians, such as physician salaries and
benefits) and a management fee either fixed in amount or equal to a percentage
of each affiliated oncology group's adjusted net revenue or net operating
income. In certain affiliations, the Company may also be entitled to a
performance fee if certain financial criteria are satisfied.

Pharmaceutical sales to physicians are recorded based upon the Company's
contracts with physician groups to manage the pharmacy component of the groups'
practice. Revenue recorded for these contracts represents the cost of
pharmaceuticals plus a fixed or percentage fee.

Clinical research revenue is recorded based upon the Company's contracts with
certain pharmaceutical manufacturers to manage clinical trials and is generally
measured on a per patient basis for monitoring and collection of data.

The following table is a summary of net revenue by source for the respective
three and six-month periods ended June 30, 2000 and 1999.

<TABLE>
<CAPTION>

                                            Three Months Ended         Six Months Ended
                (In Thousands)                    June 30,                  June 30,
                                           ---------------------      --------------------
                                              2000        1999         2000         1999
                                            -------      -------      -------      -------
    <S>                                     <C>          <C>          <C>          <C>
    Net patient service revenue             $ 3,627      $ 7,778      $ 8,260      $15,927
    Practice management service fees         19,210       16,712       39,203       34,301
    Pharmaceutical sales to physicians       11,637        9,361       22,418       19,105
    Clinical research revenue                   165          202          344        1,029
                                            -------      -------      -------      -------
                                            $34,639      $34,053      $70,225      $70,362
                                            =======      =======      =======      =======
</TABLE>

Revenue is recognized when earned. Sales and related cost of sales are generally
recognized upon delivery of goods or performance of services.




                                     - 7 -
<PAGE>   8

Net Earnings (Loss) Per Common Share:

A reconciliation of the basic earnings (loss) per share and the diluted earnings
(loss) per share computation is presented below for the three and six-month
periods ended June 30, 2000 and 1999.

(Dollar amounts in thousands except per share data)

<TABLE>
<CAPTION>

                                                         Three Months Ended                 Six Months Ended
                                                              June 30,                          June 30,
                                                   -----------------------------     -----------------------------
                                                      2000               1999            2000              1999
                                                   -----------       -----------      ----------        ----------
<S>                                                <C>               <C>              <C>               <C>
Weighted average shares outstanding                 12,290,406        11,931,731      12,286,272        11,990,206
Net effect of dilutive stock options and
   warrants based on the treasury stock method              --(A)         30,255              --(A)         33,681
                                                    ----------       -----------      ----------       -----------
Weighted average shares and common stock
   equivalents                                      12,290,406        11,961,986      12,286,272        12,023,887
                                                    ==========       ===========      ==========       ===========

Net earnings (loss)                                 $     (123)      $       457      $     (416)      $     1,612
                                                    ==========       ===========      ==========       ===========

Diluted per share amount                            $    (0.01)      $      0.04      $    (0.03)      $      0.13
                                                    ==========       ===========      ==========       ===========

</TABLE>

(A) Stock options and warrants are excluded from the weighted average number of
common shares due to their anti-dilutive effect.

NOTE 2 -- NOTES PAYABLE

The terms of the Company's original lending agreement provided for a $42.0
million Credit Facility, which matures June 2002, to fund the Company's working
capital needs. The Credit Facility, comprised of a $35.0 million Term Loan
Facility and a $7.0 million Revolving Credit Facility, is collateralized by the
assets of the Company and the common stock of its subsidiaries. The Credit
Facility bears interest at a variable rate equal to LIBOR plus a spread between
1.375% and 2.5%, depending upon borrowing levels. The Company is also obligated
to a commitment fee of .25% to .5% of the unused portion of the Revolving Credit
Facility. At June 30, 2000, $35.2 million aggregate principal was outstanding
under the Credit Facility with a current interest rate of approximately 9.8%.
The Company is subject to certain affirmative and negative covenants which,
among other things, require the Company to maintain certain financal ratios,
including minimum fixed charge coverage, funded debt to EBITDA and minimum net
worth.

In November 1999, the Company and its lenders amended certain terms of the
Credit Facility. As a result of this amendment, the Revolving Credit Facility
was reduced from $7.0 million to $6.0 million and the interest rate was adjusted
to LIBOR plus a spread of 3.25%. The Company's obligation for commitment fees
was adjusted from a maximum of .5% to .625% of the unused portion of the
Revolving Credit Facility. Repayment of the January 1, 2000 quarterly
installment was accelerated. In addition, certain affirmative and negative
covenants were added or modified, including minimum EBITDA requirements for the
fourth quarter of 1999 and the first quarter of 2000. Certain covenants were
also waived for the quarters ending September 30, 1999 and December 31, 1999.

On March 30, 2000, the Company and its lenders amended various terms of the
Credit Facility. As a result of this amendment, certain affirmative and negative
covenants were added (including minumum quarterly cash flow requirements through
March 2001), and certain other existing covenants were modified. Additionally,
certain principal repayment terms were modified and certain future and current
compliance with specific covenants was waived. Finally, the maturity date of the
Credit Facility was accelerated to June 2001. The



                                     - 8 -
<PAGE>   9



Company expects to have a longer-term facility in place prior to the June 2001
maturity date, but there can be no assurances that such facility will in fact be
consummated. Furthermore, in light of the uncertainty surrounding the clinical
data relative to the treatment of breast cancer with high dose chemotherapy and
the termination of certain pharmaceutical sales contracts, there can be no
assurance that the Company will remain in compliance with the terms of the
Credit Facility, as amended. In such event, the Company would be required to
obtain waivers relative to the covenant violations or renegotiate certain terms
of the Credit Facility.

In June 1999, the Company entered into a LIBOR based interest rate swap
agreement ("Swap Agreement") effective July 1, 1999 with the Company's lender as
required by the terms of the Credit Facility. Amounts hedged under the Swap
Agreement accrue interest at the difference between 5.93% and the ninety-day
LIBOR rate and are settled quarterly. The Company hedged $18.0 million under the
terms of the Swap Agreement. The Swap Agreement matured on July 1, 2000.

In June 2000, the Company entered into a new Swap Agreement effective July 1,
2000 with the Company's lender as required by the terms of the Credit Facility.
Amounts hedged under the Swap Agreement accrue interest at the difference
between 7.24% and the ninety-day LIBOR rate and are settled quarterly. The
Company has hedged $17.0 million under the terms of the Swap Agreement. The Swap
Agreement matures on July 1, 2001.

The installment notes payable to affiliated physicians and physician practices
were issued as partial consideration for the practice management affiliations.
Principal and interest under the long-term notes may, at the election of the
holders, be paid in shares of common stock of the Company based on conversion
prices ranging from $11.50 to $16.97.

NOTE 3 -- INCOME TAXES

Upon the consummation of the physician practice management affiliations, the
Company recognized deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of purchased assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.

NOTE 4 -- COMMITMENTS AND CONTINGENCIES

With respect to professional and general liability risks, the Company currently
maintains an insurance policy that provides coverage during the policy period
ending August 1, 2001, on a claims-made basis, for $1,000,000 per claim in
excess of the Company retaining $25,000 per claim, and $3,000,000 in the
aggregate. Costs of defending claims are in addition to the limit of liability.
In addition, the Company maintains a $10,000,000 umbrella policy with respect to
potential professional and general liability claims. Since inception, the
Company has incurred no professional or general liability losses and as of June
30, 2000, the Company was not aware of any pending professional or general
liability claims that would have a material adverse effect on the Company's
financial condition or results of operations.

NOTE 5 -- DUE FROM AFFILIATED PHYSICIANS

Due from affiliated physicians consists of management fees earned and due
pursuant to the management service agreements ("Service Agreements"). In
addition, the Company may also fund certain working capital needs of the
affiliated physicians from time to time.



                                     - 9 -
<PAGE>   10


NOTE 6 -- SEGMENT INFORMATION

The Company's reportable segments are strategic business units that offer
different services. The Company has three reportable segments: IMPACT Services,
Physician Practice Management and Cancer Research Services. The IMPACT Services
segment provides stem cell supported high dose chemotherapy and other advanced
cancer treatment services under the direction of practicing oncologists as well
as compounding and dispensing pharmaceuticals to certain medical oncology
practices. The Physician Practice Management segment owns the assets of and
manages oncology practices. The Cancer Research Services segment conducts
clinical cancer research on behalf of pharmaceutical manufacturers.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's annual audited
consolidated financial statements except that the Company does not allocate
interest expense, taxes or corporate overhead to the individual segments. The
Company evaluates performance based on profit or loss from operations before
income taxes and unallocated amounts. The totals per the schedules below will
not and should not agree to the consolidated totals. The differences are due to
corporate overhead and other unallocated amounts which are reflected in the
reconciliation to consolidated earnings (loss) before income taxes.


(In thousands)

<TABLE>
<CAPTION>
                                                              Physician
                                                 IMPACT        Practice    Cancer Research
                                                Services      Management      Services         Total
                                                --------      ----------      --------         -----
<S>                                             <C>           <C>          <C>              <C>
For the three months ended June 30, 2000:
Net revenue                                      $15,264        $19,210        $  165        $ 34,639
Total operating expenses                          14,763         16,524           156          31,443
                                                 -------        -------        ------        --------
Segment contribution                                 501          2,686             9           3,196
Depreciation and amortization                        104            987            --           1,091
                                                 -------        -------        ------        --------
Segment profit                                   $   397        $ 1,699        $    9        $  2,105
                                                 =======        =======        ======        ========

Segment assets                                   $19,006        $85,210        $1,210        $105,426
                                                 =======        =======        ======        ========

Capital expenditures                             $   141        $    98            --        $    239
                                                 =======        =======        ======        ========
<CAPTION>

                                                              Physician
                                                 IMPACT        Practice    Cancer Research
                                                Services      Management      Services         Total
                                                --------      ----------      --------         -----
<S>                                             <C>           <C>           <C>              <C>
For the three months ended June 30, 1999:
Net revenue                                      $17,139        $16,712        $   202       $ 34,053
Total operating expenses                          14,980         14,282            263         29,525
                                                 -------        -------        -------       --------
Segment contribution (loss)                        2,159          2,430            (61)         4,528
Depreciation and amortization                        135            934             --          1,069
                                                 -------        -------        ------        --------
Segment profit (loss)                            $ 2,024        $ 1,496        $   (61)      $  3,459
                                                 =======        =======        =======       ========

Segment assets                                   $23,281        $88,182        $ 2,521       $113,984
                                                 =======        =======        =======       ========

Capital expenditures                             $   116        $    36             --       $    152
                                                 =======        =======        =======       ========

</TABLE>





                                     - 10 -
<PAGE>   11



Reconciliation of consolidated earnings (loss) before
income taxes:

<TABLE>
<CAPTION>
                                                          2000             1999
                                                         -------         -------
<S>                                                      <C>             <C>
Segment profit                                           $ 2,105         $ 3,459
Unallocated amounts:
  Corporate salaries, general and administrative           1,411           1,883
  Corporate depreciation and amortization                     57              51
  Corporate interest expense                                 829             788
                                                         -------         -------

Earnings (loss) before income taxes                      $  (192)        $   737
                                                         =======         =======

</TABLE>


(In thousands)

<TABLE>
<CAPTION>

                                                            Physician
                                                IMPACT       Practice    Cancer Research
                                               Services     Management       Services       Total
                                               --------     ----------       --------       -----
<S>                                            <C>          <C>           <C>              <C>
For the six months ended June 30, 2000:
Net revenue                                    $30,678        $39,203        $  344        $ 70,225
Total operating expenses                        29,402         34,038           337          63,777
                                               -------        -------        ------        --------
Segment contribution                             1,276          5,165             7           6,448
Depreciation and amortization                      197          1,974            --           2,171
                                               -------        -------        ------        --------
Segment profit                                 $ 1,079        $ 3,191        $    7        $  4,277
                                               =======        =======        ======        ========

Segment assets                                 $19,006        $85,210        $1,210        $105,426
                                               =======        =======        ======        ========

Capital expenditures                           $   151        $   270            --        $    421
                                               =======        =======        ======        ========
<CAPTION>

                                                            Physician
                                                IMPACT       Practice    Cancer Research
                                               Services     Management       Services       Total
                                               --------     ----------       --------       -----
<S>                                            <C>          <C>           <C>              <C>
For the six months ended June 30, 1999:
Net revenue                                    $35,032        $34,301        $1,029        $ 70,362
Total operating expenses                        30,248         29,190           779          60,217
                                               -------        -------        ------        --------
Segment contribution                             4,784          5,111           250          10,145
Depreciation and amortization                      281          1,855            --           2,136
                                               -------        -------        ------        --------
Segment profit                                 $ 4,503        $ 3,256        $  250        $  8,009
                                               =======        =======        ======        ========

Segment assets                                 $23,281        $88,182        $2,521        $113,984
                                               =======        =======        ======        ========

Capital expenditures                           $   146        $    53        $    4        $    203
                                               =======        =======        ======        ========
</TABLE>


Reconciliation of consolidated earnings (loss) before income taxes:

<TABLE>
<CAPTION>

                                                            2000           1999
                                                          -------         ------
<S>                                                       <C>             <C>
Segment profit                                            $ 4,277         $8,009
Unallocated amounts:
  Corporate salaries, general and administrative            3,182          3,657
  Corporate depreciation and amortization                     112            101
  Corporate interest expense                                1,648          1,651
                                                          -------         ------

Earnings (loss) before income taxes                       $  (665)        $2,600
                                                          =======         ======

</TABLE>




                                     - 11 -
<PAGE>   12



Reconciliation of consolidated assets:

<TABLE>
<CAPTION>

                                                             As of June 30,
                                                      --------------------------
                                                        2000              1999
                                                      --------          --------
<S>                                                   <C>               <C>
Segment assets                                        $105,426          $113,984
Unallocated amounts:
  Cash and cash equivalents                              6,777             3,948
  Prepaid expenses and other assets                      3,144             3,905
  Property and equipment, net                              846               945
                                                      --------          --------

Consolidated assets                                   $116,193          $122,782
                                                      ========          ========

</TABLE>



                                     - 12 -

<PAGE>   13



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Response Oncology, Inc. (the "Company") is a comprehensive cancer management
company. The Company provides advanced cancer treatment services through
outpatient facilities known as IMPACT(R) Centers under the direction of
practicing oncologists; compounds and dispenses pharmaceuticals to certain
medical oncology practices for a fee; owns the assets of and manages the
nonmedical aspects of oncology practices; and conducts clinical research on
behalf of pharmaceutical manufacturers. Approximately 300 medical oncologists
are associated with the Company through these programs. As of June 30, 2000, the
Company's total network included 38 IMPACT Centers located in 20 states and the
District of Columbia. The network consists of 22 wholly owned centers, 13
managed programs, and 3 centers owned and operated in joint venture with a host
hospital.

In May of 1999, the results of certain breast cancer studies were released at
the meeting of the American Society of Clinical Oncology (ASCO). These studies,
involving the use of high dose chemotherapy, sparked controversy among
oncologists, and, in the aggregate, caused confusion among patients, third-party
payers, and physicians about the role of high dose chemotherapy in the treatment
of breast cancer. Since the release of these data, the Company's high dose
business has slowed, as evidenced by a 52% decrease in high dose procedures in
the first six months of 2000 as compared to the first six months of 1999. The
Company closed 12 marginal IMPACT Centers in 1999 due to decreased patient
volumes and 4 additional IMPACT Centers in the first six months of 2000.

The Company anticipates that maturity of existing breast cancer data along with
the release of new data will clarify the role of high dose therapies for breast
cancer. At the 2000 ASCO annual meeting, additional data on this topic was
presented by affiliates of the Company and other researchers that indicated
favorable preliminary results. Despite these results, the Company has not
experienced an increase in referrals of breast cancer patients. If additional
follow-up data is negative, conflicting, or inconclusive, it could result in a
further decrease in high dose referrals and procedures and adversely affect the
financial results of this line of business. In response to this uncertainty, the
Company is evaluating new diseases that could potentially be managed through the
IMPACT Center network. However, there can be no assurance that other such
diseases can be identified, related treatment protocols implemented, and
effectively managed through the existing network.

During the first quarter of 2000, the Company decided to expand into the
specialty pharmaceutical business and began to put in place certain of the
resources necessary for this expansion. In this move, the Company intends to
leverage its expertise and resources in the delivery of complex pharmaceuticals
to cancer patients into the delivery of specialty drugs to patients with a wide
range of chronic, costly and complex diseases. Specifically, this will include
the distribution of new drugs with special handling requirements, and is
expected to involve the use of the Company's regional network of specialized
pharmaceutical centers. In addition, the Company intends to use its national
network of IMPACT Centers and its highly trained healthcare professionals to
administer the most fragile compounds to the expanded patient population. The
Company has hired an expert consultant to assist in the development of the
business plan and is in the process of recruiting a chief medical officer and
director of managed care. The Company has also engaged in initial discussions
with potential strategic partners. The soft launch of the specialty
pharmaceutical business is expected to occur by the end of third quarter 2000.

In its practice management relationships, the Company has predominantly used two
models of Service Agreements: (i) an "adjusted net revenue" model; and (ii) a
"net operating income" model. Service



                                     - 13 -
<PAGE>   14


Agreements utilizing the adjusted net revenue model provide for payments out of
practice net revenue, in the following order: (A) physician retainage (i.e.
physician compensation, benefits, and perquisites, including malpractice
insurance) equal to a defined percentage of net revenue ("Physician Expense");
(B) a clinic expense portion of the management fee (the "Clinic Expense
Portion") equal to the aggregate actual practice operating expenses exclusive of
Physician Expense; and (C) a base service fee portion (the "Base Fee") equal to
a defined percentage of net revenue. In the event that practice net revenue is
insufficient to pay all of the foregoing in full, then the Base Fee is first
reduced, followed by the Clinic Expense Portion of the management fee, and
finally, Physician Expense, therefore effectively shifting all operating risk to
the Company. In each Service Agreement utilizing the adjusted net revenue model,
the Company is entitled to a Performance Fee equal to a percentage of Annual
Surplus, defined as the excess of practice revenue over the sum of Physician
Expense, the Clinic Expense Portion, and the Base Fee.

Service Agreements utilizing the net operating income model provide for a
management fee equal to the sum of a Clinic Expense Portion (see preceding
paragraph) plus a percentage (the "Percentage Portion") of the net operating
income of the practice (defined as net revenue minus practice operating
expenses). Practice operating expenses do not include Physician Expense. In
those practice management relationships utilizing the net operating income model
Service Agreement, the Company and the physician group share the risk of expense
increases and revenue declines, but likewise share the benefits of expense
savings, economies of scale and practice enhancements.

Each Service Agreement contains a liquidated damages provision binding the
physician practice and the principals thereof in the event the Service Agreement
is terminated "for cause" by the Company. The liquidated damages are a declining
amount, equal in the first year to the purchase price paid by the Company for
practice assets and declining over a specified term. Principals are relieved of
their individual obligations for liquidated damages only in the event of death,
disability, or retirement at a predetermined age. Each Service Agreement
provides for the creation of an oversight committee, a majority of whom are
designated by the practice. The oversight committee is responsible for
developing management and administrative policies for the overall operation of
each clinic. However, under each Service Agreement, the affiliated practice
remains obligated to repurchase practice assets, typically including intangible
assets, in the event the Company terminates the Service Agreement for cause.

In 1998 the Company recorded an impairment charge related to three under
performing Service Agreements in accordance with Financial Accounting Standards
Board Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of" ("SFAS No. 121"). The structure of
these contracts failed over time to align physician and Company incentives,
producing deteriorating returns and negative cash flows to the Company. In
February 1999 and April 1999, respectively, the Company announced that it had
terminated its Service Agreements with Knoxville Hematology Oncology Associates,
PLLC, and Southeast Florida Hematology Oncology Group, P.A., two of the
Company's three under performing net revenue model relationships. Since these
were not "for cause" terminations initiated by the Company, the affiliated
practices were not responsible for liquidated damages. The Company currently has
no plans to terminate the Service Agreement with the third physician group.

In the fourth quarter of 1999, the Company terminated its Service Agreement with
one single-physician practice in Florida. This termination was initiated on a
"for cause" basis and the Company is seeking recovery of liquidated damages.
During the same period, the Company began negotiations to terminate another
Service Agreement with a single-physician practice. Since this is not a "for
cause" termination initiated by the Company, the affiliated practice is not
responsible for liquidated damages. The Company experienced deteriorating
returns on this particular Service Agreement and concluded that continuing the
relationship was not economically feasible. At December 31, 1999, the Company
recorded a loss contingency related to the Service Agreements and associated
assets in accordance with Financial Accounting Standards Board Statement



                                     - 14 -
<PAGE>   15


No. 5 "Accounting for Contingencies". The Company terminated the second Service
Agreement in April of 2000.

During the second quarter of 2000, the Health Care Financing Administration
("HCFA"), which runs the Medicare program, announced its intent to overhaul
pharmaceutical reimbursements. HCFA has targeted dozens of drugs, principally
those used for the treatment of cancer and AIDS. More specifically, Medicare
utilizes the average wholesale price ("AWP") of pharmaceuticals as the benchmark
for reimbursement. It is their position that some drug companies are reporting
artificially inflated AWPs to industry guides that are used for
government-reimbursement purposes resulting in overpayments by Medicare and
profits for physicians and other providers. This change is scheduled to take
effect on October 1, 2000, but is subject to further analysis and debate. Should
this change be adopted, it would have a material adverse effect on reimbursement
for certain pharmaceutical products utilized by the Company's affiliated
physicians in the practice management division. Consequently, the Company's
management fee in its practice management relationships would be materially
reduced.

RESULTS OF OPERATIONS

Net revenue increased 2% to $34.6 million for the quarter ended June 30, 2000,
compared to $34.0 million for the quarter ended June 30, 1999. The $4.2 million,
or 54%, decrease in IMPACT Center revenue was offset by a $2.3 million, or 24%,
increase in pharmaceutical sales to physicians and a $2.5 million, or 15%,
increase in practice management service fees. Net revenue was $70.2 million for
the six months ended June 30, 2000, compared to $70.4 million for the same
period in 1999. IMPACT Center revenue decreased by $7.7 million, or 48%, and
clinical research revenue decreased by $.7 million, or 67%. Pharmaceutical sales
to physicians increased $3.3 million, or 17%, while practice management service
fees increased $4.9 million, or 14%. The decrease in high dose chemotherapy
revenues continues to reflect the confusion and related pullback in breast
cancer admissions resulting from the high dose chemotherapy/breast cancer study
results presented at ASCO in May 1999. The increase in pharmaceutical sales to
physicians is due to growth and increased drug utilization by the physicians
serviced under these agreements. Clinical research revenue decreased primarily
as a result of a decline in the number of research studies being conducted by
the Company and a decrease in patient accruals on open studies. The Company is
currently evaluating its strategy and business plan relative to standard and
high dose chemotherapy clinical trials. Finally, the increase in practice
management service fees is due to growth in utilization of both ancillary and
non-ancillary services, and occurred despite a 5% and 12% decrease in the number
of physicians under management agreements between the quarter and six months
ended June 30, 2000, as compared to the same periods in 1999. On a
same-physician basis, practice management service fees increased 19% and 23% for
the quarter and six months ended June 30, 2000, as compared to the same periods
in 1999.

Salaries and benefits costs decreased $1.1 million, or 17%, from $6.4 million
for the second quarter of 1999 to $5.3 million in 2000. For the six months ended
June 30, salaries and benefits costs decreased $2.2 million, or 17%, from $13.0
million in 1999 to $10.8 million for the same period in 2000. The decrease is
primarily due to the termination of certain Service Agreements, the modification
of a Service Agreement which resulted in a change in the manner in which
physician compensation is recorded, the closing of various IMPACT Centers and a
reduction in corporate staffing.

Pharmaceuticals and supplies expense increased $4.1 million, or 21%, and $7.9
million, or 20%, for the quarter and six months ended June 30, 2000 as compared
to the same periods in 1999. The increase is primarily related to increased
volume in pharmaceutical sales to physicians and greater utilization of new
chemotherapy agents with higher costs in the practice management division, thus
causing a decrease in the overall operating margin. Pharmaceuticals and supplies
as a percent of net revenue was 69% and 58% for the quarters ending June 30,
2000 and 1999, respectively. For the six months ended June 30, 2000 and 1999,
supplies and pharmaceuticals




                                     - 15 -
<PAGE>   16

expense as a percentage of net revenue was 68% and 57%, respectively.

General and administrative expenses decreased $.5 million, or 29%, from $1.7
million in the second quarter of 1999 to $1.2 million in the second quarter of
2000. For the six months ended June 30, general and administrative expenses
decreased $.7 million, or 21%, from $3.4 million in 1999 to $2.7 million for the
same period in 2000. The decrease is primarily due to the closure of various
IMPACT Centers and the termination of certain Service Agreements. In addition,
the Company terminated its Service Agreement with a single-physician practice
during the second quarter of 2000. This termination resulted in the receipt of a
$.2 million settlement that reduced general and administrative expenses in the
second quarter of 2000.

Other operating expenses decreased $.5 million, or 19%, from $2.7 million for
the second quarter of 1999 to $2.2 million for the second quarter of 2000. For
the six months ended June 30, other operating expenses decreased $1.4 million,
or 23%, from $6.1 million in 1999 to $4.7 million for the same period in 2000.
Other operating expenses consist primarily of medical director fees, purchased
services related to global case rate contracts, rent expense, and other
operational costs. The decrease is primarily due to the closure of various
IMPACT Centers and lower purchased services and physician fees as a result of
lower IMPACT and cancer research volumes as compared to the quarter and six
months ended June 30, 1999.

EBITDA (earnings before interest, taxes, depreciation and amortization)
decreased $.9 million, or 33%, to $1.8 million for the quarter ended June 30,
2000 as compared to $2.7 million for the quarter ended June 30, 1999. For the
six months ended June 30, EBITDA decreased $3.2 million, or 49%, to $3.3 million
in 2000, as compared to $6.5 million for the same period in 1999. The reduction
is principally due to the decrease in IMPACT Center and cancer research volumes
as compared to the same periods in 1999. EBITDA from the IMPACT services segment
decreased $1.7 million, or 77%, and $3.5 million, or 73%, for the quarter and
six months ended June 30, 2000 as compared to the same periods in 1999. The
decrease is primarily due to a decrease in breast cancer referral volumes.
During the second quarter of 2000, the Company received notices of termination
of pharmaceutical sales agreements from two physician practices effective July
1, 2000. The EBITDA contribution from these agreements totalled $.2 million for
the six months ended June 30, 2000. While the Company is currently marketing
these services to other physician practices, there can be no assurance that new
agreements will be executed to replace the EBITDA contributed by the terminated
agreements. EBITDA from the physician practice management segment increased 11%
for the quarter ended June 30, 2000 and 1% for the six months ended June 30,
2000 as compared to the same periods in 1999. The lower increase in EBITDA for
the six months ended June 30, 2000 is principally due to increases in
pharmaceutical and supply costs, increases in contractual adjustments, and the
termination and modification of certain Service Agreements. The increase in this
division EBITDA for the second quarter of 2000 is principally due to the
modification and settlement of certain Service Agreements. EBITDA from cancer
research services decreased $.2 million for the six months ended June 30, 2000
as compared to the same period in 1999. The decrease is primarily due to a
decline in the number of research studies being conducted by the Company and
decrease in patient accruals on open studies.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2000, the Company's working capital was ($8.6) million with current
assets of $47.6 million and current liabilities of $56.2 million. The Company's
Credit Facility matures on June 30, 2001. Consequently, the entire outstanding
principal balance on the Company's Credit Facility is classified as a current
liability at June 30, 2000. Cash and cash equivalents represented $6.8 million
of the Company's current assets.

Cash provided by operating activities was $1.7 million in the first six months
of 2000 compared to $5.4 million for the same period in 1999. This decrease is
largely attributable to the $.4 million net loss incurred by the Company in the
first six months of 2000 as compared to $1.6 million in net earnings for the
first six months of 1999. In addition, the Company has experienced a slow down
of inflows from accounts receivable in the




                                     - 16 -
<PAGE>   17

IMPACT division due to a decrease in revenue in 2000 as compared to 1999. This
decrease is also due to the timing of inventory purchases and payments of
accounts payable. Cash used in investing activities, principally related to the
purchase of equipment, was $.5 million for both the six months ended June 30,
2000 and 1999. Cash used in financing activities was $1.7 million for the six
months ended June 30, 2000 and $2.1 million for the same period in 1999. This
decrease is primarily attributable to distributions to joint venture partners
and financing costs incurred during the first six months of 1999, tempered by an
increase in principal payments on notes payable during the first six months of
2000.

The terms of the Company's original lending agreement provided for a $42.0
million Credit Facility which matures June 2002, to fund the Company's working
capital needs. The Credit Facility, comprised of a $35.0 million Term Loan
Facility and a $7.0 million Revolving Credit Facility, is collateralized by the
assets of the Company and the common stock of its subsidiaries. The Credit
Facility bears interest at a variable rate equal to LIBOR plus a spread between
1.375% and 2.5%, depending upon borrowing levels. The Company is also obligated
to a commitment fee of .25% to .5% of the unused portion of the Revolving Credit
Facility. At June 30, 2000, $35.2 million aggregate principal was outstanding
under the Credit Facility with a current interest rate of approximately 9.8%.
The Company is subject to certain affirmative and negative covenants which,
among other things, require the Company to maintain certain financial ratios,
including minimum fixed charge coverage, funded debt to EBITDA and minimum net
worth.

In November 1999, the Company and its lenders amended certain terms of the
Credit Facility. As a result of this amendment, the Revolving Credit Facility
was reduced from $7.0 million to $6.0 million and the interest rate was adjusted
to LIBOR plus a spread of 3.25%. The Company's obligation for commitment fees
was adjusted from a maximum of .5% to .625% of the unused portion of the
Revolving Credit Facility. Repayment of the January 1, 2000 quarterly
installment was accelerated. In addition, certain affirmative and negative
covenants were added or modified, including minimum EBITDA requirements for the
fourth quarter of 1999 and the first quarter of 2000. Certain covenants were
also waived for the quarters ending September 30, 1999 and December 31, 1999.

On March 30, 2000, the Company and its lenders amended various terms of the
Credit Facility. As a result of this amendment, certain affirmative and negative
covenants were added (including minumum quarterly cash flow requirements through
March 2001), and certain other existing covenants were modified. Additionally,
certain principal repayment terms were modified and certain future and current
compliance with specific covenants was waived. Finally, the maturity date of the
Credit Facility was accelerated to June 2001. The Company expects to have a
longer-term facility in place prior to the June 2001 maturity date, but there
can be no assurances that such facility will in fact be consummated.
Furthermore, in light of the uncertainty surrounding the clinical data relative
to the treatment of breast cancer with high dose chemotherapy and the
termination of certain pharmaceutical sales contracts, there can be no assurance
that the Company will remain in compliance with the terms of the Credit
Facility, as amended. In such event, the Company would be required to obtain
waivers relative to the covenant violations or renegotiate certain terms of the
Credit Facility.

In June 1999, the Company entered into a LIBOR based interest rate swap
agreement ("Swap Agreement") effective July 1, 1999 with the Company's lender as
required by the terms of the Credit Facility. Amounts hedged under the Swap
Agreement accrue interest at the difference between 5.93% and the ninety-day
LIBOR rate and are settled quarterly. The Company hedged $18.0 million under the
terms of the Swap Agreement. The Swap Agreement matured on July 1, 2000.

In June 2000, the Company entered into a new Swap Agreement effective July 1,
2000 with the Company's lender as required by the terms of the Credit Facility.
Amounts hedged under the Swap Agreement accrue interest at the difference
between 7.24% and the ninety-day LIBOR rate and are settled quarterly. The
Company has hedged $17.0 million under the terms of the Swap Agreement. The Swap
Agreement matures on July 1, 2001.



                                     - 17 -
<PAGE>   18


Long-term unsecured amortizing promissory notes bearing interest at rates from
4% to 9% were issued as partial consideration for the practice management
affiliations consummated in 1996. Principal and interest under the long-term
notes may, at the election of the holders, be paid in shares of common stock of
the Company based upon conversion rates ranging from $11.50 to $16.97. The
unpaid principal amount of the long-term notes was $2.3 million at June 30,
2000.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

The federal Health Insurance Portability and Accountability Act of 1996
("HIPAA"), required that standards be developed for the privacy and protection
of individually identifiable health information. As directed by HIPAA, the
federal government recently proposed detailed regulations to protect individual
health information that is maintained or transmitted electronically from
improper access, alteration or loss. Final regulations are expected sometime
this year. The Company expects that health care organizations will be required
to comply with the new standards 24 months after the date of adoption. The
Company expects to begin to address HIPAA issues during fiscal year 2000.

Because the HIPAA regulations have not been finalized, the Company has not been
able to determine the impact of the new standards on its financial position or
results. The Company does expect to incur costs to evaluate and implement the
rules, and will be actively evaluating such costs and their impact on financial
position and operations.

FORWARD-LOOKING STATEMENTS

With the exception of historical information, the matters discussed in this
filing are forward-looking statements that involve a number of risks and
uncertainties. The actual future results of the Company could differ
significantly from those statements. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to:
(i) a continued decline in high dose chemotherapy referrals due to the high dose
chemotherapy breast cancer results; (ii) difficulty in transitioning operating
responsibilities to new members of senior management; (iii) continued decline in
margins for cancer drugs; (iv) reductions in third-party reimbursement from
managed care plans and private insurance resulting from stricter utilization and
reimbursement standards; (v) the inability of the Company to recover all or a
portion of the carrying amounts of the cost of service agreements, resulting in
an additional charge to earnings; (vi) the Company's dependence upon its
affiliations with physician practices, given that there can be no assurance that
the practices will remain successful or that key members of a particular
practice will remain actively employed; (vii) changes in government regulations;
(viii) risk of professional malpractice and other similar claims inherent in the
provision of medical services; (ix) the Company's dependence on the ability and
experience of its executive officers; (x) the Company's inability to raise
additional capital or refinance existing debt; and (xi) potential volatility in
the market price of the Company's common stock. The Company cautions that any
forward-looking statement reflects only the beliefs of the Company or its
management at the time the statement is made. The Company undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement was made.




                                     - 18 -
<PAGE>   19


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company's primary market risk exposure is to changes in interest rates
obtainable on its Credit Facility. The Company's interest rate risk objective is
to limit the impact of interest rate fluctuations on earnings and cash flows and
to lower its overall borrowings by selecting interest periods for traunches of
the Credit Facility that are more favorable to the Company based on the current
market interest rates. The Company has the option of fixing current interest
rates for interest periods of 1, 2, 3 or 6 months.

The Company is also a party to a LIBOR based interest rate swap agreement ("Swap
Agreement"), effective date July 1, 2000, with the Company's lender as required
by the terms of the Credit Facility. Amounts hedged under the Swap Agreement
accrue interest at the difference between 7.24% and the ninety-day LIBOR rate
and are settled quarterly. The Swap Agreement matures July 1, 2001. The Company
does not enter into derivative or interest rate transactions for speculative
purposes.

At June 30, 2000, $35.2 million aggregate principal was outstanding under the
Credit Facility with a current interest rate of approximately 9.8%. The Company
does not have any other material market-sensitive financial instruments.




                                     - 19 -
<PAGE>   20
PART II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

     Not applicable.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

     Not applicable.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 4.    SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

At the annual meeting of stockholders held on June 13, 2000, the following
proposals were adopted by the margins indicated:

      (1)   To elect three directors to hold office for a term of one year until
            the annual meeting of stockholders in the year 2001 (Class III
            Directors):

<TABLE>
<CAPTION>
                                         Votes For     Votes Withheld    Abstain
                                         ---------     --------------    -------
            <S>                          <C>           <C>               <C>
            Anthony M. LaMacchia         9,666,833          74,745        2,405
            W. Thomas Grant, II          9,665,789          75,789        2,405
            James R. Seward              9,682,034          59,544        2,405
</TABLE>


            William H. West, M.D., Frank M. Bumstead and Leonard A. Kalman,
            M.D., continue serving as directors until the annual meeting of
            stockholders in the year 2001 (Class I Directors). P. Anthony Jacobs
            and Lawrence N. Kugelman continue serving as directors until the
            annual meeting of stockholders in the year 2001 (Class II
            Directors).

      (2)   To amend the 1996 Stock Incentive Plan to authorize the issuance of
            an additional 500,000 shares of Common Stock.

<TABLE>
<CAPTION>
                                         Votes For      Votes Against    Abstain
                                         ---------      -------------    -------
                                         <S>            <C>              <C>
                                         9,383,462         299,868       60,653

</TABLE>

      (3)   Ratification of selection of KMPG, LLP as the Company's independent
            auditors for the 2000 fiscal year.

<TABLE>
<CAPTION>
                                         Votes For      Votes Against    Abstain
                                         ---------      ------------     -------
                                         <S>            <C>              <C>
                                         9,652,781          9,992        81,210
</TABLE>



                                     - 20 -

<PAGE>   21



ITEM 5.     OTHER INFORMATION

     Not applicable.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            (A)EXHIBITS

     10(t)  Employment Agreement between Registrant and Patrick J. McDonough

     10(u)  Swap Agreement dated June 29, 2000 between Registrant and Bank of
            America, N.A.

     27     Financial Data Schedule (for SEC use only)





                                     - 21 -
<PAGE>   22



                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Response
Oncology, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                     RESPONSE ONCOLOGY, INC.



                                     By:  /s/ Peter A. Stark
                                          --------------------------------------
                                          Peter A. Stark
                                          Vice President, Finance
                                          and Principal Accounting Officer

                                          Date: August 14, 2000


                                     By:  /s/ Anthony M. LaMacchia
                                          --------------------------------------
                                          Anthony M. LaMacchia
                                          President and Chief Executive Officer

                                          Date: August 14, 2000
</TEXT>
</DOCUMENT>
ex10-t.txt EMPLOYMENT AGREEMENT
<DOCUMENT>
<TYPE>EX-10.T
<SEQUENCE>2
<FILENAME>ex10-t.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10(t)


                             RESPONSE ONCOLOGY, INC.

                EMPLOYMENT AGREEMENT FOR CHIEF OPERATING OFFICER

         THIS AGREEMENT (the "AGREEMENT") is made as of the 3rd day of January
2000 (hereinafter "EFFECTIVE DATE") by and between Response Oncology, Inc.
("ROI"), and Patrick McDonough ("EXECUTIVE").

                                    RECITALS

         WHEREAS, ROI desires to employ Executive as the Chief Operating Officer
of ROI; and,

         WHEREAS, Executive desires to be employed by ROI pursuant to the terms
and conditions set forth in this Agreement.

         NOW, THEREFORE, in consideration of the promises and mutual covenants
hereinafter set forth, the parties agree as follows:

         1. EMPLOYMENT. Subject to the terms and conditions of this Agreement,
ROI hereby employs Executive and Executive hereby accepts employment from ROI as
Chief Operating Officer, commencing on the Effective Date for the term specified
in Section 6.1 hereof.

         2. DUTIES. Executive shall devote his best efforts and his full
business and professional time, energy and skill to the service of ROI and
promotion of its interests in his capacity as Chief Operating Officer. Executive
will carry out duties commensurate with and required by such position, and will
assume senior operating authority and responsibility for ROI, subject to and in
accordance with directions, instructions, and requests from the Chief Executive
Officer and the Board of Directors. Executive agrees not to engage in any other
related business, nor to engage in the practice of his profession to any extent
whatsoever, except pursuant to this Agreement, without the express prior written
consent of ROI.

         3. COMPENSATION AND BENEFITS.

            3.1 BASE COMPENSATION. ROI shall pay Executive a base salary ("BASE
SALARY") of one hundred ninety-five thousand dollars ($195,000) per year,
subject to applicable withholdings. Base Salary shall be payable according to
the customary payroll practices of ROI but in no event less frequently than once
each month. The Base Salary shall be reviewed annually and shall be subject to
in adjustment according to the policies and practices adopted by the Board of
Directors from time to time.

            3.2 ANNUAL INCENTIVE BONUS. ROI will pay Executive an annual
incentive bonus ("INCENTIVE BONUS"), if any, of up to forty percent (40%) of
Executive's Base Salary at the end of each year. The Incentive Bonus will be
based, in the sole and absolute discretion of the Board of Directors, on the
Board's evaluation of Executive's performance and on performance targets
established annually by the Board.

            3.3 ADDITIONAL BENEFITS. Executive will be entitled to participate
in all employee benefit plans or programs and receive all benefits and
perquisites to which any salaried employee is eligible under any existing or
future plan or program established by ROI for salaried employees, including,
without limitation, all plans developed for executive officers of ROI, to the
extent permissible under the terms and provisions of such plans or programs.
These plans or programs may include group hospitalization, health, dental care,
life or other insurance, tax qualified pension, car allowance, savings and sick
leave plans. Nothing in this Agreement will preclude ROI from amending or
terminating any of the plans or programs applicable to salaried employees or
executive officers. Notwithstanding the foregoing, Executive will be entitled to
annual paid vacation of up to four (4) weeks, which amount shall not accumulate
or carry over from year to year.

            3.4 BUSINESS EXPENSES. ROI will reimburse Executive for all
reasonable travel and other





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expenses incurred by Executive in connection with the performance of his duties
and obligations under this Agreement upon Executive's submitting proper
documentation in accordance with ROI's policies for expense reimbursement.

            3.5 WITHHOLDING. ROI may directly or indirectly withhold from any
payments under this Agreement all federal, state, city, or other taxes that
shall be required pursuant to any law or governmental regulation.

            3.6 RELOCATION. ROI shall make a one-time, lump sum payment of
thirty thousand dollars ($30,000) to Executive for relocation expenses on or
before January 15, 2000. Additionally, if Executive makes an offer to purchase a
home in the Memphis area, ROI will make a loan available to Executive before
closing on that home for the lesser of twenty percent (20%) of the purchase
price or fifty thousand dollars ($50,000). Annual interest on the loan shall be
fixed at the thirty (30) year Treasury bill interest rate, as published in the
Wall Street Journal on the date the loan is funded (February 24, 2000), plus one
percentage point. Executive shall pay installments of interest monthly, on or
before the first day of each month, beginning with the first month after ROI's
funding of the loan. Interest shall accrue from the Issue Date on the principal
amount. Executive shall pay the principal amount to ROI in a lump sum on or
before the fifth anniversary of the Issue Date. In the event that this Agreement
is terminated for any reason other than material breach by Executive, Executive
agrees to pay ROI all principal, together with interest due, upon the earlier
of: the closing on the sale of the home or twelve (12) months from the effective
date of termination. Executive also agrees to execute and record a second deed
of trust in ROI's name as security for the loan within thirty (30) days after
Executive receives the loan amount from ROI. Executive will also execute an
appropriate note in favor of ROI to evidence his loan payment obligation.

            3.7 STOCK OPTIONS. Executive shall be granted stock options for one
hundred fifty thousand (150,000) shares of ROI's common stock vesting over a
period of three (3) years. Fifty thousand (50,000) shares shall vest at the end
of each twelve (12) months of employment, with the total being fully vested
after three (3) years of employment. The exercise price for each share subject
to the options shall be equal to the closing price of ROI shares on January 3,
2000 ($1.125 a share). In the event of a merger, liquidation or Change in
Control (as that term is defined in Section 6.2.3), the portion of the 150,000
shares, which has not vested prior to the effective date of the merger,
liquidation or Change of Control, shall vest as of that effective date. In the
event the Board of Directors makes additional stock options available to
management personnel, Executive will be eligible for such options provided,
however, that Executive's performance is then satisfactory as determined by the
Board of Directors or their designee in their or his sole discretion.
Notwithstanding anything to the contrary in this Agreement, Executive will
forfeit the right to exercise and shall return and deliver to ROI all vested but
unexercised stock options if Executive, whether during his employment or at any
time afterward, breaches any fiduciary duty owed to ROI or engages in any
non-negligent conduct for which Executive may be immediately terminated pursuant
to Section 6.2.2 of this Agreement.

         4. DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE.

            4.1 PAYMENT IN EVENT OF DEATH. In the event of the death of
Executive during the term of this Agreement, ROI's obligation to make payments
under this Agreement shall cease as of the date of death, except for earned but
unpaid Base Salary and Incentive Bonus, which will be paid on a pro-rated basis
for that year. Executive's designated beneficiary will be entitled to receive
the proceeds of any life or other insurance or other death benefit programs
provided or referred to in this Agreement, other than "key man" life insurance
benefits.

            4.2 DISABILITY COMPENSATION. Notwithstanding the disability of
Executive, ROI will continue to pay Executive pursuant to Section 3 hereof
during the term of this Agreement, unless the Executive's employment is earlier
terminated in accordance with this Agreement. In the event the disability
continues for a period of three (3) months, ROI may thereafter terminate this
Agreement and the Executive's employment. Following such termination, ROI will
pay Executive amounts equal to his regular installments of Base Salary, as of
the time of termination, for a period of the greater of (a) the remaining term
of this Agreement or (b) twelve (12) months from the date of such termination.
All other compensation will cease except for earned but unpaid Incentive Bonus
which would be payable on a pro-rated basis for the year in which the disability
occurred, through the date of



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<PAGE>   3
termination. ROI will consider making reasonable accommodations to Executive's
disability in accordance with applicable laws where required.

            4.3 RESPONSIBILITIES IN THE EVENT OF DISABILITY. During the period
Executive is receiving payments following his disability and as long as he is
physically and mentally able to do so, Executive will furnish information and
assistance to ROI and from time to time will make himself available to ROI to
undertake assignments consistent with his position or prior position with ROI.
If ROI fails to make a payment or provide a benefit required as part of this
Agreement, Executive's obligation to provide information and assistance will
end.

            4.4 DEFINITION OF DISABILITY. For purposes of this Agreement, the
term "disability" will have the same meaning as is attributed to such term, or
any substantially similar term, in ROI's long term income disability plan as in
effect from time to time.

            4.5 KEY MAN LIFE INSURANCE. Upon request by ROI, Executive agrees to
cooperate with ROI in obtaining "key man" life insurance on the life of
Executive with death benefits payable to ROI. Such cooperation shall include the
submission by Executive to a medical examination and his response to inquiries
regarding his medical history.

         5. CONFIDENTIALITY; CORPORATE OPPORTUNITIES.

            5.1 CONFIDENTIAL INFORMATION DEFINED. The term "CONFIDENTIAL
INFORMATION" means any proprietary or non-public knowledge, idea or information,
in any form (whether tangible or intangible, oral, written, electronic or
otherwise), pertaining in any manner to the business or operations of ROI or its
clients or customers, including but not limited to records, files, software,
know-how, technical information, processes, plans, data, activities, research,
development(s), technology, trade secrets, proprietary information, methods,
specifications, notes, summaries, studies, analysis, instructions, designs,
graphs, drawings, services, products, inventions, computer files, data,
research, patient lists or records, forms, documents, business plans, budgets,
schedules, projections, cost analyses, markets or marketing information, banking
or credit relationships, payroll and other financial or business information.
Confidential Information does not include any information, knowledge, or idea
which (i) is generally known in ROI's or any relevant trade or industry; (ii) is
part of Executive's general knowledge prior to his employment by ROI; (iii) is
disclosed to Executive by a third party who rightfully possesses the information
(without confidential or proprietary restriction) and did not learn of it,
directly or indirectly, from ROI; or (iv) is required by law to be publicly
disclosed or is publicly disclosed pursuant to judicial or administrative
proceedings.

            5.2 PROTECTION OF CONFIDENTIAL INFORMATION. During the term of this
Agreement, Executive covenants and agrees that he will hold all Confidential
Information in strictest confidence and will not directly or indirectly
disclose, or permit to be disclosed, any Confidential Information to any person,
firm, corporation, or other business organization or use any Confidential
Information except as required by Executive's responsibilities or in the course
of carrying out Executive's duties pursuant to this Agreement. Additionally, for
five (5) years following termination of this Agreement, Executive covenants and
agrees that he will not directly or indirectly disclose, or permit to be
disclosed, any Confidential Information to any person, firm, corporation, or
other business organization or use any Confidential Information for any purpose
except as permitted in writing by ROI.

            5.3 OWNERSHIP OF CONFIDENTIAL INFORMATION. Executive recognizes and
agrees that all Confidential Information and all other notes, records, files,
patient lists, forms and other documents and the like relating to ROI's
business, and all computer files, programs and information which Executive
prepares, uses, has, obtains, or otherwise comes into contact with during the
term of this Agreement will be and remain ROI's sole property, and shall not be
removed from ROI's offices except as required in the course of Executive's work,
and shall be returned and delivered to ROI upon termination of this Agreement or
earlier if requested by ROI. After termination of this Agreement or at any other
time requested by ROI, Executive shall not retain any copies, abstracts,
sketches or other physical embodiment of any items which embody, reflect,
contain or evidence Confidential Information. Executive acknowledges that any
use or disclosure of Confidential Information outside the scope of his
employment would cause irreparable and continuing injury to ROI for which no
award of monetary damages would be adequate, and that injunctive relief for ROI
would be appropriate, in addition to any other rights



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<PAGE>   4

ROI may have, to restrain and bar any such use or disclosure or threatened use
or disclosure. Executive hereby waives any requirement that ROI submit proof of
the economic value of any trade secret or post a bond or other security.

            5.4 CORPORATE OPPORTUNITIES. If Executive becomes aware of any
possible or existing idea, enterprise, transaction, venture or opportunity which
is or may be related in any way to the past, present or prospective business of
ROI or which may be within the scope of any reasonable expansion of ROI's
business(es) ("CORPORATE OPPORTUNITY"), Executive covenants and agrees that he
shall promptly and fully present the Corporate Opportunity to ROI. Executive
acknowledges and agrees that ROI shall determine, in its sole discretion,
whether to pursue any such Corporate Opportunity and that Executive shall not
pursue for his own benefit or disclose to any third party any Corporate
Opportunity without prior written consent from ROI. If Executive pursues any
Corporate Opportunity without written approval from ROI, ROI shall have the
right to terminate this Agreement pursuant to Section 6.2.2(b).

            5.5 FORMER EMPLOYER INFORMATION. Executive agrees that he will not,
during employment with ROI, improperly use or disclose any proprietary
information or trade secrets of any former employer or other person or entity
and that Executive will not bring onto the premises of ROI any unpublished
document or proprietary information belonging to any such employer, person or
entity unless consented to in writing by such employer, person or entity.

            5.6 REMEDIES. Nothing in this Section 5 is intended to limit, nor
shall it limit, any remedy of ROI otherwise available under applicable statutory
or other law.

         6. TERM AND TERMINATION.

            6.1 TERM. This Agreement shall commence on the Effective Date and
remain in effect for an initial period of two (2) years unless terminated
earlier by either party. Thereafter, this Agreement shall automatically renew
for successive one (1) year terms, unless either party provides notice of its
intent not to renew at least ninety (90) calendar days prior to the end of the
initial or any renewal term.

            6.2 TERMINATION.

                6.2.1 TERMINATION FOR MATERIAL BREACH. Either party may
terminate this Agreement if a material breach by the other party of any term or
condition of this Agreement remains uncured for ten business (10) days after the
breaching party's receipt of written notice of such breach from the
non-breaching party. A material breach by Executive shall include any refusal to
comply with the directions of the Board of Directors or Chief Executive Officer
or with ROI's policies and procedures.

                6.2.2 IMMEDIATE TERMINATION FOR CAUSE. ROI shall have the
absolute right at any time, upon written notice to Executive, to terminate
Executive immediately for cause upon the happening of any one or more of the
following events whether or not any such event also constitutes a material
breach of any provision of this Agreement:

                      (a) Executive's bad faith or gross negligence in the
performance of his duties hereunder; Executive's repeated neglect or
non-performance of his duties hereunder; Executive's intentional nonperformance
of such duties; Executive's intentional malfeasance or willfully poor
performance of his duties; any intentional act or omission that the Executive
knew or should have known would injure the reputation of ROI; any willful or
intentional act, beyond the scope of Executive's duties hereunder, which
materially and negatively affects ROI's financial condition; or willful
misconduct pertaining to any aspect of Executive's employment with ROI;

                      (b) Executive's breach of trust or of fiduciary duty
(including but not limited to improper disclosure or use of Confidential
Information or a Corporate Opportunity), as reasonably determined by the
President and/or Board of Directors of ROI;



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<PAGE>   5

                      (c) Executive's fraud, misappropriation, embezzlement or
other act of dishonesty (including any misrepresentation made by Executive to
ROI during employment or discovery of one made to ROI prior to employment), or
conviction of or entering a plea of nolo contendere to any felony or any
misdemeanor involving dishonesty, fraud, substance abuse or distribution of
controlled substances.

                6.2.3 TERMINATION IN THE EVENT OF CHANGE IN CONTROL. In the
event this Agreement is terminated by ROI within one (1) year following a Change
in Control (as that phrase is defined below) ROI will pay to Executive within
sixty (60) calendar days of the effective date of termination a lump sum equal
to the then-current Base Salary plus an amount equal to the prior year's
Incentive Bonus. Notwithstanding the foregoing, if Executive has not received
the Incentive Bonus because Executive has not been employed for at least one (1)
year, then Executive shall receive a lump sum equal to the then-current Base
Salary plus the Incentive Bonus prorated based on the number of months employed.

                A "CHANGE IN CONTROL" shall occur if an event or series of
events occurs after the effective date of this Agreement which would constitute
either a change in ownership of ROI, within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated there
under ("SECTION 280G"), or a change in the ownership of a substantial portion of
ROI's assets, within the meaning of Section 280G (but for purposes of this
definition, the fair market value threshold for determining "a substantial
portion of ROI's assets" shall be "greater than fifty percent").

                6.2.4 TERMINATION WITHOUT CAUSE. Both ROI and Executive may
terminate this agreement without cause and in the absence of material breach on
one hundred twenty (120) days' written notice to the other party. In the event
that ROI terminates Executive without cause, then ROI shall pay Executive the
lesser of one (1) year's base salary plus the annualized amount of the prior
year's bonus, if any, or a prorated amount of the Executive's base pay and bonus
based upon the time remaining in the Executive's agreement.

                6.2.5 TERMINATION FOR MATERIAL BREACH OR WITH CAUSE; VOLUNTARY
TERMINATION. If the Executive is terminated for material breach or with cause
pursuant to Sections 6.2.1 or 6.2.2, or Executive terminates this Agreement in
the absence of a material breach by ROI (regardless of whether there has been a
Change in Control), ROI will not be obligated to pay Executive any compensation
or Incentive Bonus following the effective date of termination but will pay
Executive earned but unpaid Base Salary through the effective date of
termination. In the event of non-renewal, ROI will pay Executive all
compensation earned and any Incentive Bonus determined through the end of the
contract term. Any amounts due to Executive hereunder will be paid within thirty
calendar (30) days of the effective date of termination, unless otherwise
required by law. The exercisability of stock options granted to Executive shall
be governed by any applicable stock option agreements and the terms of the
respective stock option plans.

         7. DISPUTE RESOLUTION.

            7.1 ARBITRATION PROCEDURE. Any controversy, claim, or dispute
arising out of or relating to this Agreement (including but not limited to the
interpretation, construction, or enforcement of any of the terms of this
Agreement or the breach of any provision of it) shall be settled by arbitration
administered by the American Arbitration Association ("AAA") under its
Commercial Dispute Resolution Procedures, modified to the extent, if any, that
the arbitration rules are inconsistent with the terms of this Section 7. All
such arbitration proceedings shall take place in and be conducted in Memphis,
Tennessee, and shall be conducted by one arbitrator selected in accordance with
the arbitration rules. The arbitrator shall issue a written opinion setting
forth the arbitrator's findings of fact and conclusions of law. The arbitrator
shall have no authority to award punitive or other damages beyond the prevailing
parties' actual damages and shall not, in any event, make any ruling, finding,
or award that does not conform to the terms and conditions of this Agreement.
The parties agree that the decision of the arbitrator shall be final, binding,
and conclusive. The parties agree that the arbitration award may be enforced in
any court having jurisdiction thereof by the filing of a petition to enforce
said award. All expenses (e.g., the filing fees and arbitrators' fees) of the
arbitration shall be shared equally by the parties. Each party, however, shall
bear the expense of its own counsel, experts, witnesses, and preparation and
presentation of proof.



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<PAGE>   6

            7.2 EQUITABLE REMEDIES AVAILABLE. Notwithstanding any provision in
Section 7.1 and in addition to the rights and procedures available to the
parties pursuant to Section 7.1, either party may at any time seek injunctive
relief, whether temporary, preliminary, or permanent, and/or an order or
judgment for specific performance from any state or federal court properly
having jurisdiction over the matters then in dispute and located in Memphis,
Tennessee. Executive and ROI each consent to personal jurisdiction and venue of
a court of competent jurisdiction sitting in Memphis, Tennessee for purposes of
any action or proceeding contemplated by this Section 7. The parties agree that
a final order or judgment in any such action or proceeding shall, to the extent
permitted by applicable law, be conclusive and may be enforced in other
jurisdictions by suit on the order or judgment or in any other manner provided
by applicable law related to the enforcement of judgments.

         8. COVENANT NOT TO COMPETE OR SOLICIT.

            8.1 DURING THE TERM OF EMPLOYMENT. As an inducement to ROI to enter
into this Agreement and in consideration of the amounts payable to Executive
hereunder, Executive covenants and agrees not to Compete with ROI (as defined in
Section 8.3) at any time while he is employed by ROI or receiving any payments
from ROI.

            8.2 VOLUNTARY TERMINATION; TERMINATION WITH OR WITHOUT CAUSE. As a
further inducement to ROI to enter into this Agreement and in consideration of
the amounts payable to Executive hereunder, Executive covenants and agrees that,
in the event of a voluntary termination of this Agreement by Executive for any
reason (including termination with or without cause or for material breach)
subject to the exception below, or in the event of termination by ROI with cause
or for material breach (all regardless of a Change in Control), he will not
Compete with ROI for a period of one (1) year from the date of such termination;
provided, however, that if a voluntary termination by Executive follows a notice
by ROI under Section 6.1 that the term of this Agreement will not be
automatically extended or if ROI terminates this Agreement without cause and in
the absence of a material breach by Executive, there will be no restriction on
Executive's right to Compete with ROI after the effective date of termination.
The one-year period of non-competition set forth in this Section 8.2 shall be
extended by the duration of any violation by Executive of this covenant.
Executive also covenants that he will not at any time during or after his
employment by ROI disparage ROI or any of its shareholders, directors, officers,
employees or agents.

            8.3 DEFINITION OF "COMPETE WITH ROI". For the purposes of this
Section 8, the term "Compete with ROI" means any action(s) by Executive, direct
or indirect, for his own account or for the account of any other person or
entity, either as an officer, director, stockholder, owner, partner, member,
promoter, employee, consultant, advisor, agent, manager, creditor or in any
other capacity, resulting in Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in (including
but not limited to lending of Executive's name), or employment, association or
affiliation with, any corporation, business trust, partnership, limited
liability company, proprietorship or other business or professional enterprise
(including self-employment) that (a) provides outpatient cancer services or
services otherwise competitive with or to any of those provided by ROI or any
affiliate or planned on Executive's date of termination to be provided by ROI or
any affiliate (including but not limited to oncology-related services or
management services to any oncology or hematology practice) within a twenty-five
(25) mile radius of any location where ROI or any subsidiary or affiliate of ROI
performs oncology-related, management or other services at the effective date of
a termination of Executive's employment and which location generated either net
revenue or pre-tax profit equal to or greater than ten (10) percent of the net
revenues or ten (10) percent of the total ROI EBITDA in the year prior to
termination, (b) solicits from any supplier or customer of ROI or diverts or
attempts to divert from ROI (or any affiliate) any business of any kind in which
ROI or its affiliate is engaged or is similar to that in which ROI or its
affiliate is engaged or plans on the date of Executive's termination to be
engaged (including but not limited to the solicitation of or interference with
any of ROI's suppliers or customers), or (c) employs or solicits for employment
or work as an independent contractor or otherwise any person employed by ROI
during that person's employment by ROI and for one year thereafter; provided,
however, that the term "Compete with ROI" shall not include ownership (without
any more extensive relationship) of less than a five percent (5%) interest in
any publicly-held corporation or other business entity. Executive acknowledges
that U.S. Oncology, Salick Health Care, Inc. and Bentley Health Care are among
the entities which provide "outpatient cancer services" and/or services
otherwise competitive with or to any




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of those provided by ROI as of the date of execution of this Agreement.

            8.4 REASONABLENESS OF SCOPE AND DURATION; REMEDIES. Executive
acknowledges that the covenants contained herein are fair and reasonable as to
geographic, professional and temporal scope and are reasonably required to
protect the interests of ROI. Executive acknowledges that his breach or
threatened or attempted breach of any provision of Section 8 would cause
irreparable harm to ROI not compensable in monetary damages and that ROI shall
be entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section 8 without being required to prove damages or furnish any bond or other
security.

            8.5 SEVERABILITY. The covenants in this Section 8 are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. If any covenant in this Section 8 is held to
be unreasonable, arbitrary or against public policy, such covenant will be
considered to be divisible with respect to geographic, professional and temporal
scope, and such lesser geographic, professional or temporal scope, or all of
them, as a court or arbitrator of competent jurisdiction or authority may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against Executive.

            8.6 NOTICE OF OTHER EMPLOYMENT. Executive will, while any covenant
under this Section 8 is in effect, give written notice to ROI within ten
calendar (10) days after accepting any other employment of the identity of that
employer. ROI may notify such employer that Executive is bound by this Agreement
and furnish such employer with a copy of this Agreement or relevant portions of
it.

         9. INDEMNIFICATION OF EXECUTIVE. ROI shall maintain directors' and
officers' liability insurance and shall maintain any other insurance policies
necessary to indemnify Executive, if Executive was or is a party to any third
party proceeding, by reason of the fact that Executive was or is an authorized
representative of ROI, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by Executive in connection with such
third party proceeding so long as Executive acted in good faith and in a manner
he reasonably believed to be in the best interest of ROI and, with respect to
criminal third party proceedings, had no reasonable cause to believe such
conduct was unlawful. To the extent that Executive has been successful on the
merits or otherwise in defense of any third party or corporate proceeding or in
defense of any claim, issue or matter therein, Executive shall be indemnified
against expenses actually and reasonably incurred by him in connection
therewith.

         10. MISCELLANEOUS.

            10.1 ASSIGNMENT. Executive agrees that he will not assign, sell,
transfer, delegate or otherwise dispose of or transfer, whether voluntarily or
involuntarily, any rights or obligations under this Agreement. Any purported
assignment, transfer or delegation shall be null and void. Nothing in this
Agreement shall prevent: the consolidation of ROI with, or its merger into, any
other corporation; the sale or exchange by ROI of all or any of its stock to or
with a third party; the sale by ROI of all or substantially all of its
properties or assets; or the assignment by ROI of this Agreement and the
performance of its obligations hereunder to any successor in interest, parent,
subsidiary or affiliate.

            10.2 BINDING AGREEMENT. Subject to Section 10.1, this Agreement
shall be binding upon and shall inure to the benefit of the parties and their
respective heirs, legal representatives, successors and permitted assigns.

            10.3 AMENDMENT. No change or modification of this Agreement shall be
valid or binding upon the parties unless and until the same is in writing and
signed by both parties.

            10.4 NOTICE. Any notice to be provided pursuant to this Agreement
shall be in writing and shall be provided by hand delivery or certified mail,
return receipt requested to the addresses listed below or to such other address
as may have been furnished to the other party in writing:



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<PAGE>   8

                           Notices to ROI:

                           Response Oncology, Inc.
                           1775 Moriah Woods Boulevard
                           Memphis, Tennessee 38117
                           Attn: Chair of Compensation Committee

                           Notices to Employee:

                           Patrick McDonough
                           1592 Brentford
                           Westlake Village, CA 91361

            Any notice provided pursuant to this Agreement shall be effective as
of the earlier of the date received or within three (3) business days after
mailing by certified mail, return receipt requested. Either party, by written
notice to the other party, may change the address, persons, or entities to whom
notice is to be provided.

            10.5 HEADINGS. The headings, captions, and titles appearing in this
Agreement are inserted only as a matter of convenience and in no way define,
limit, construe, or describe the scope or intent of the Agreement or any
paragraph or provision therein.

            10.6 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as or be
construed to be a waiver of any subsequent breach of this Agreement. Further,
neither party shall be deemed to have waived any provision of or right under
this Agreement unless such waiver is set forth in writing signed by the party
against whom waiver is asserted. No failure to exercise and no delay in
exercising any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy or power
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy or power provided herein or by law or in equity.

            10.7 SEVERABILITY. If any one or more of the provisions of this
Agreement is ruled to be wholly or partly invalid or unenforceable by a court or
other government body of competent jurisdiction then: (a) the validity and
enforceability of all provisions of this Agreement not ruled to be invalid or
unenforceable shall be unaffected; (b) the effect of the ruling shall be limited
to the jurisdiction of the court or other government body making the ruling; (c)
the provision(s) held wholly or partly invalid or unenforceable shall be deemed
amended, and the Court or other government body is authorized to amend and to
reform the provision(s) to the minimum extent necessary to render it valid and
enforceable in conformity with the parties' intent as manifested in this
Agreement and a provision having a similar economic effect shall be substituted;
and (d) if the ruling and/or the controlling principle of law or equity leading
to the ruling is subsequently overruled, modified, or amended by legislative,
judicial, or administrative action, then the provision(s) in question as
originally set forth in this Agreement shall be deemed valid and enforceable to
the maximum extent permitted by the new controlling principal of law or equity.

            10.8 APPLICABLE LAW. The construction, interpretation, and
enforcement of this Agreement shall at all times and in all respects be governed
by the laws of the State of Tennessee, without reference to Tennessee's choice
of law or conflict of law provisions or principles.

            10.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof, and supercedes any prior written or oral agreement
pertaining to the subject matter hereof. No change or modification of this
Agreement shall be valid or binding upon the parties unless and until the same
is in writing and signed by the party against whom enforcement of such change or
modification is sought.

            10.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

            10.11 COVENANTS AND UNDERTAKINGS OF SECTIONS 5 AND 8; INJUNCTIVE
RELIEF FOR BREACH OR THREATENED BREACH. The covenants and undertakings of
Executive in Sections 5 and 8 are essential elements of this Agreement,



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and without Executive's agreement to comply with such covenants, ROI would not
have employed him and entered into this Agreement. ROI and Executive have
independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by ROI. Executive's
covenants and agreements in Sections 5 and 8 are independent covenants and the
existence of any claim against ROI by Executive under this Agreement or
otherwise will not excuse Executive's breach of any covenant or agreement in
Section 5 or 8. The parties agree that in the event of any breach or threatened
breach of any of the covenants or undertakings of Sections 5 or 8, the damage or
imminent damage to the value and goodwill of ROI's business will be irreparable
and extremely difficult to estimate, making any remedy at law or in monetary
damages inadequate. Accordingly, the parties agree that ROI shall be entitled to
injunctive relief against Executive in the event of any breach or threatened
breach of any such provisions by Executive, in addition to any other relief
(including damages) available to ROI under this Agreement or under applicable
law.

            10.12 EXECUTIVE'S REPRESENTATIONS AND WARRANTIES. Executive
represents and warrants that the execution and delivery of this Agreement by
Executive do not, and the performance by Executive of his obligations hereunder
will not, with or without the giving of notice or the passage of time, or both:
(a) violate any judgment, writ, injunction or order of any court, arbitrator or
governmental agency applicable to Executive; or (b) conflict with, result in the
breach of any provision of or the termination of, or constitute a default under,
any agreement to which Executive is a party or by which Executive is or may be
bound.

         IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives as of the Effective Date.


RESPONSE ONCOLOGY, INC.             EXECUTIVE



Signature: /s/ Anthony La Macchia         Signature: /s/ Patrick McDonough
           -------------------------                 ---------------------------
Name: Anthony La Macchia                  Name: Patrick McDonough
Title:   Chief Executive Officer
Date: 2/7/00                              Date: 2/4/00
      ------------------------------            --------------------------------






                                       9
</TEXT>
</DOCUMENT>
ex10-u.txt SWAP AGREEMENT
<DOCUMENT>
<TYPE>EX-10.U
<SEQUENCE>3
<FILENAME>ex10-u.txt
<DESCRIPTION>SWAP AGREEMENT
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10(u)


233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312-234-2732
Fax 313-234-3603


BANK OF AMERICA

TO:      Response Oncology, Inc.
         1775 Moriah Woods Blvd.
         Memphis, TN 38117

ATTN:    Pete Stark
PHONE:   901-761-7000
FAX:     901-683-7277

FROM:    Bank of America, N.A.
         233 South Wacker Drive - Suite 2800
         Chicago, Illinois 60606
         Sean Doyle/ John Dowaschinski

Date:    29JUN00


Our Reference No. 154327

Internal Tracking Nos. 3163066

         The purpose of this letter agreement is to confirm the terms and
conditions of the Transaction entered into between Response Oncology, Inc. and
Bank of America, N.A. (each a "party" and together "the parties") on the Trade
Date specified below (the "Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the ISDA Master Agreement specified in
paragraph 1 below (the "Agreement").

         The definitions and provisions contained in the 1991 ISDA Definitions
(as supplemented by the 1998 Supplement), as published by the International
Swaps and Derivatives Association, Inc., (the "Definitions") are incorporated
into this Confirmation. In the event of any inconsistency between the
Definitions and this Confirmation, this Confirmation will govern. Without
prejudice to the foregoing. references in this Confirmation to the Transaction
shall for the purposes of the Definitions mean the Swap Transaction.

         1. This Confirmation supplements, forms part of, and is subject to, the
ISDA Master Agreement dated as of May 12, 1997, as amended and supplemented from
time to time, between the parties. All provisions contained in the Agreement
govern this Confirmation except as expressly modified below.

         In this Confirmation "Party A" means Bank of America, N.A. and "Party
B" means Response Oncology, Inc.

         2. The terms of the particular Transaction to which this Confirmation
relates are as follows:

         Notional Amount:           USD 17,000,000.00
         Trade Date:                28JUN00
         Effective Date:            01JUL00
         Termination Date:          01JUL01, subject to adjustment in
                                    accordance with the Modified Following
                                    Business Day Convention

         FIXED AMOUNTS:

         Fixed Rate Payer:          Party B

         Fixed Rate Payer
         Payment Dates:             The 1st of each January, April, July and
                                    October, commencing 01OCT00 and ending
                                    01JUL01, subject to adjustment in
                                    accordance with the Modified Following
                                    Business Day Convention.

         Fixed Rate:                7.24000%

         Fixed Rate Day Count
         Fraction:                  Actual/360
<PAGE>   2
         FLOATING AMOUNTS:

         Floating Rate Payer:       Party A

         Floating Rate Payer
         Payment Dates:             The 1st of each January, April, July and
                                    October, commencing 01OCT00 and ending
                                    01JUL01, subject to adjustment in accordance
                                    with the Modified Following Business Day
                                    Convention.

         Floating Rate for Initial
         Calculation Period:        TO BE SET

         Floating Rate Option:      USD-LIBOR-BBA

         Designated Maturity:       3 Month

         Spread:                    None

         Floating Rate Day Count
         Fraction:                  Actual/360

         Reset Dates:               The first day of each Calculation Period

         Compounding:               Inapplicable

         Business Days:             New York, London

         Calculation Agent:         Party A

         3. RECORDING OF CONVERSATIONS:

         Each party to this Transaction acknowledges and agrees to the tape
         recording of conversations between the parties to this Transaction
         whether by one or other or both of the parties or their agents, and
         that any such tape recordings may be submitted in evidence in any
         Proceedings relating to the Agreement and/or this Transaction.

         4. ACCOUNT DETAILS:

         Account for payments to Party A:
                  USD
         We will debit your account.
         NAME:    Bank of America
         ABA #    TN
         ACCT:    0112996855
                  RESPONSE ONCOLOGY

         Account for payments to Party B:
                  USD
         NAME:    Bank of America
         CITY:    NASHVILLE
         ABA #    TN
         ATTN:    NABKUS3ANAS
         NAME:    RESPONSE ONCOLOGY
         ACCT:    0112996855


         5. OFFICES:

         The Office of Party A for
         this Transaction is:                Charlotte, NC

         The Office of Party B for
         this Transaction is:                Tennessee, USA
<PAGE>   3
CREDIT SUPPORT DOCUMENT:  As per Agreement (and Credit Support Annex if
                          applicable).

         Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy of this Confirmation to the attention
of Global Derivative Operations at (fax no. (312) 234-3603).

         Failure to respond within such period shall not affect the validity or
enforceability of this Transaction, and shall be deemed to be an affirmation of
the terms and conditions contained herein, absent manifest error.



Yours Sincerely,

Bank of America, N.A.



By: /s/ Allison Smaluk
    --------------------------------
    Vice-President

Authorized Signatory

Accepted and confirmed as of the date first written:

Response Oncology, Inc.


By: /s/ Pete A. Stark
    --------------------------------
Name: Pete A. Stark
      -----------------------------
Title: VP Finance
       ----------------------------

Our Reference # 154327

</TEXT>
</DOCUMENT>
ex27.txt FINANCIAL DATA SCHEDULE
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>4
<FILENAME>ex27.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RESPONSE ONCOLOGY, INC. FOR THE SIX MONTHS ENDED JUNE
30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               JUN-30-2000
<EXCHANGE-RATE>                                      1
<CASH>                                           6,777
<SECURITIES>                                         0
<RECEIVABLES>                                   18,761
<ALLOWANCES>                                     2,597
<INVENTORY>                                      3,519
<CURRENT-ASSETS>                                47,575
<PP&E>                                          17,020
<DEPRECIATION>                                  13,093
<TOTAL-ASSETS>                                 116,193
<CURRENT-LIABILITIES>                           56,238
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                         17
<COMMON>                                           123
<OTHER-SE>                                      47,253
<TOTAL-LIABILITY-AND-EQUITY>                   116,193
<SALES>                                         70,225
<TOTAL-REVENUES>                                70,225
<CGS>                                           48,067
<TOTAL-COSTS>                                   70,500
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                   286
<INTEREST-EXPENSE>                               1,657
<INCOME-PRETAX>                                   (665)
<INCOME-TAX>                                      (249)
<INCOME-CONTINUING>                               (416)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                      (416)
<EPS-BASIC>                                       (.03)
<EPS-DILUTED>                                     (.03)


</TABLE>
</TEXT>
</DOCUMENT>
Additional Files
FileSequenceDescriptionTypeSize
0000950144-00-010370.txt   Complete submission text file   124204

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SEC CFR Title 17 of the Code of Federal Regulations.