Item 1 Business
General
Curative Health Services, Inc. is a leading disease management company in the chronic wound care market. Currently, the Company manages, on behalf of hospital clients, a nationwide network of Wound Care Centers(R) that offers a comprehensive range of services which enable the Company to provide customized wound care. The Company's Wound Management Program consists of diagnostic and therapeutic treatment regimens which are designed to meet each patient's specific wound care needs on a cost effective basis. The Company's treatment regimens are based on critical pathways designed for wound healing. The Company has a proprietary database of patient outcomes that the Company has collected since 1988 containing approximately 175,000 patient records which indicate an overall healing rate of approximately 80% for patients completing therapy. The Company's Wound Care Center(R) network consists of 132 outpatient clinics located on or near campuses of acute care hospitals in 33 states. The Company is developing new service models for other health care delivery settings and currently manages nine wound care programs at subacute and long term acute care facilities and operates seven freestanding Wound Care Centers(R).
The Company believes that the high degree of specialization and expertise offered by the Wound Care Centers(R) provide benefits: (i) to patients through superior wound care, thus enhancing their quality of life, in many cases, allowing them to avoid amputation; (ii) to affiliated hospitals by enabling them to differentiate themselves from their competitors through better wound care treatment outcomes, to reduce costs by decreasing inpatient lengths of stay and to increase revenue through the introduction of new patients; (iii) to affiliated physicians by providing greater access to patients; and (iv) to insurers and managed care providers by offering a cost effective alternative to traditional wound care.
Industry
Market Overview. Chronic wounds are common in patients with diabetes and venous stasis disease, as well as in patients who are immobilized and afflicted with pressure sores. A chronic wound generally is a wound which shows no signs of significant healing in four weeks or has not healed in eight weeks. The healing of a wound is dependent upon adequate blood flow to stimulate new cell growth and combat infection. When adequate blood flow does not occur, the healing process is retarded, often resulting in a chronic wound that can last for months or years. Without effective treatment, a chronic wound may lead to more severe medical conditions, such as infection, gangrene and amputation, which are costly to payors and impede the quality of life for the patient.
According to Chronic Wound Care: A Clinical Source Book for Healthcare Professionals (Health Management Publications, 1990), it is estimated that at least three million people suffer from chronic wounds in the United States. Of the three million people with chronic wounds, an estimated 1.5 million have pressure sores, over 700,000 have diabetic ulcers, and over 600,000 suffer from venous stasis ulcers. Diabetic ulcers are responsible for 60,000 limb amputations each year, accounting for more than half of all such procedures not related to trauma. Venous stasis disease and pressure sores often afflict the elderly, who constitute the most rapidly growing segment of the U.S. population and account for a disproportionately large share of total U.S. health care expenditures. It is estimated that the wound care segment of the U.S. health care industry generated $2 billion in expenditures in 1994. It is also anticipated that the wound care market will continue to grow due to the aging population and the increasing incidence of health disorders, such as diabetes, which may lead to chronic wounds.
Traditional Approach to Chronic Wound Care. Traditional chronic wound care treatment, which is typically administered by a primary care physician, relies principally on cleansing and debriding the wound, controlling infection with antibiotics and protecting the wound. For example, topical or oral antibiotics are administered to decrease the bacterial count in the wound, protective dressings are used to decrease tissue trauma and augment repair and various topical agents are applied that chemically cleanse the wound and remove wound exudate. These passive treatments do not directly stimulate the underlying wound healing process. In many cases, the patient may have to see a number of health care professionals before effective treatment is received. In addition, under this traditional care model, patients must manage their own care, which often leads to non-compliance and treatment failure which may lead to infection, gangrene and amputation. Although wound care programs have begun to evolve to more specialized and aggressive treatment regimens, the Company believes that a significant medical need and market opportunity exists for products and services that improve and accelerate the wound healing process.
The Curative Approach to Chronic Wound Care
The Company's Wound Management Program is a comprehensive array of diagnostic and therapeutic treatment regimens with all the components of care necessary to treat chronic wounds. The Company's Wound Management Program is administered primarily through the Company's nationwide network of Wound Care Centers. The Company believes the Wound Management Program provides a better approach to chronic wound management than the traditional approach, which the Company believes lacks comprehensive wound programs, effective technology, positive outcomes and cost efficiency. Each Wound Management Program offers its patients a multi-disciplinary team of health care professionals, including a medical director, surgeon, nurse, case manager, nutritionist and endocrinologist.
In most cases, patients arriving at the Company's Wound Care Centers have been treated with traditional wound healing techniques, but continue to suffer from chronic wounds. In some cases, patients come to a Wound Care Center after they have received an opinion from their primary physician that limb amputation is required. Upon the commencement of treatment under the Company's Wound Management Program, medical personnel conduct a systematic diagnostic assessment of the patient. Specialized treatment protocols are then established for the patient, based on the underlying cause of the wound and the unique status of the patient. After the assessment phase, the course of treatment in the Wound Management Program may include revascularization, infection control, wound debridement, growth factor therapy, skin grafting, nutrition, protection devices, patient education, referrals, and effective management of care through patient/provider communications.
To measure the effectiveness of the Company's Wound Management Program, the Company has developed a functional assessment scoring system to measure the healing of a wound. Under this system, a chronic wound is considered healed when (i) it is completely covered by epithelium (i.e., a membranous cellular tissue that covers and protects a wound as it heals), (ii) maturing skin is present in the wound, (iii) there is minimal drainage from the wound, (iv) the wound requires only a protective dressing and (v) the limb involved is functional. The Company has a proprietary database of patient outcomes that the Company has collected since 1988 containing approximately 175,000 patient records which indicate an overall healing rate of approximately 80% for patients completing therapy.
A unique aspect of the Company's Wound Management Program is the use of Procuren(R), the Company's wound healing agent which is used to treat approximately 18% of patients. Procuren(R) is a naturally occurring complex mixture of several growth factors that promotes the growth of skin, soft tissue and blood vessels. Procuren(R) is produced by stimulating the release of growth factors from platelets contained in the patient's own blood. Blood is taken from the patient at the treatment center and then sent to a Company-operated blood processing facility located in the same state where the patient's blood was drawn. To produce Procuren, the Company separates the platelets from the remainder of the blood sample. Thrombin, a substance in the body that is active in the wound healing process, is added to the platelets, causing the platelets to release growth factors. The platelet shells are discarded and the growth factors are diluted and placed in a buffered solution which is frozen until used. When required as part of the patient's wound care treatment program, Procuren is applied topically to the wound area by soaking a gauze dressing in the Procuren solution and covering the wound area with the gauze. Procuren, as part of a comprehensive treatment algorithm, has been used to treat over 45,000 patients to date. The Company believes that Procuren stimulates a normal wound healing response in patients with chronic wounds in much the same way as the body naturally initiates healing.
Company-sponsored studies suggest that the use of Procuren as part of the Company's Wound Management Program is both efficacious and cost-effective. For example, a Company-sponsored retrospective study of patients with diabetic ulcers (who tend to have the most severe chronic wounds) published by CP Fylling and PC McKeown in 1990 found that the average charges for a conventional treatment program were $19,000 as compared to $14,000 for a specialized wound management program that included the use of Procuren. In addition to costing less, the specialized program had a healing rate of 79% as compared to 24% for patients enrolled in the conventional treatment program. Furthermore, 60% of the conventionally treated patients required amputations at the end of the study compared with only 19% in the specialized group of patients.
Strategy
The Company's objective is to enhance its position as a leading disease management company in the chronic wound care market. The Company's growth strategy is to continue to improve and refine the Wound Management Program while broadening its delivery models to cover the entire continuum of care for wound management. Key elements of this strategy include:
Continue to Develop the Company's Nationwide Network of Outpatient Wound Care Centers. The Company intends to continue to establish additional outpatient Wound Care Centers on or near the campuses of acute care hospitals. Despite the Company's rapid growth from 32 outpatient centers in 1991 to 132 outpatient centers as of the end of 1997, the Company believes the opportunity for further growth remains substantial. The Company has identified over 300 additional markets in the United States which the Company believes have the population necessary to support a dedicated wound care program. The Company believes hospitals are continually seeking low cost, high quality solutions to wound management such as those provided by the Company. In addition, the Company believes it enables its hospital clients to differentiate themselves from their competitors through better wound care treatment outcomes, reduced costs due to decreased inpatient lengths of stay and increased revenue through the introduction of new patients. As a result, the Company believes there is a significant opportunity for the Company to continue to expand its Wound Care Center operations through affiliation with acute care hospitals.
Develop New Service Models to Enhance Market Penetration. The Company is actively developing new service models in new health care delivery settings such as inpatient programs for subacute and long term care facilities (e.g., nursing homes and long term acute care hospitals) and freestanding outpatient Wound Care Centers. The Company currently operates seven freestanding outpatient Wound Care Centers all of which have opened since October 1995, and nine inpatient programs, including eight subacute care nursing home-based programs and one subacute care hospital-based program, all but one of which has opened since October 1995. Ultimately the Company may also expand its service models to physician offices and the home. Pressure sores, the most common form of chronic wound, usually occur among nursing home, subacute care and home patients due to the sedentary lifestyle associated with those care settings. As the Company further develops its inpatient service models, the Company believes it will become more capable of penetrating the large pressure sore market. The freestanding service model allows the Company to strategically grow its business through select target marketing and enter markets where a suitable partner is not available. Furthermore, the Company believes the freestanding model gives the Company greater control over healing outcomes and the cost of services, both of which are important when working with managed care providers.
Provide a Comprehensive Managed Care Product. In addition to providing new revenue opportunities, the Company believes its ability to provide its services as a comprehensive managed care product in a number of settings will increase its attractiveness to managed care payors seeking to provide a continuum of care while reducing risk. With its Wound Management Program and increasing presence in multiple health care delivery settings, the Company can offer managed care payors a shared risk relationship which the Company believes will provide better patient healing outcomes and more cost-effective services for subscribers.
Enhance the Company's Wound Management Program. The Company currently offers a unique Wound Management Program which includes assessment, vascular studies, revascularization, infection control, wound debridement, growth factor therapy, skin grafting, nutrition, protection devices, patient education, referrals and effective management of care through patient/provider communications. In addition, the Company is continually exploring and seeking advances in wound care management services and products which could enhance its current Wound Management Program. The Company is actively pursuing such advances through the continuous development of its current services, and the consideration of acquisition opportunities and co-marketing arrangements with other providers of wound care products and services.
Expand Into Other Disease Management Areas. Longer term, the Company is considering capitalizing on its disease management expertise by expanding its services into other disease management areas to meet the growing continuum of health care needs of patients and providers. The Company believes that there is a significant market potential for the delivery of other disease management services through its existing network of Wound Care Centers. The possibilities for expansion of the Company's disease management services include the treatment of chronic wound related diseases such as diabetes, as well as non-chronic wound related diseases such as cardiovascular disorders.
Wound Care Operations
The Company's wound care operations offer health care providers the opportunity to create specialty wound care departments designed to meet the needs of chronic wound patients. The initial focus of the Company's wound care operations has been hospital outpatient Wound Care Centers. The Company is currently expanding its programmatic approach to wound care to alternate site inpatient settings such as subacute inpatient facilities. In these models the Company has established the wound care programs as cooperative ventures with health care providers to offer a multi-disciplinary approach to the treatment of chronic wounds. In addition, the Company is expanding its market penetration with the establishment of freestanding outpatient Wound Care Centers.
Hospital Outpatient Wound Care Centers. Outpatient Wound Care Centers, located on or near the campuses of acute care hospitals, represent the Company's core business. A typical hospital outpatient Wound Care Center consists of 4,000 square feet of space comprising four to eight exam rooms, a nursing station, and physician and administrative offices. These Wound Care Centers are designed to deliver all necessary outpatient services for the treatment of chronic wounds, with the hospital providing any inpatient care, such as revascularization or surgical debridement.
The Company currently offers its hospital clients two outpatient Wound Care Center models: a management model and an "under arrangement" model. The differences between these two models relate primarily to the employment of the clinical staff at the Wound Care Center and the basis for the management fees paid to the Company. In the management model, the only employee of the Company at the Wound Care Center is the Wound Care Center's Program Director, and the Company generally receives a fixed monthly management fee and a variable case management fee. In the "under arrangement" model, the Company employs all of the clinical and administrative staff (other than physicians) at the Wound Care Center and the Company generally receives fees based on the services provided to each patient. In all other material respects the two models are identical. In both models, physicians remain independent and the Company recruits and trains the physicians and staff associated with the Wound Care Center. The physicians providing services at a Wound Care Center are recruited by the Company primarily from among the doctors who work at the hospital and practice in related areas. In addition, in both models the Company develops, manages and provides Procuren processing services for the Wound Care Center, and the Company's field support departments provide the staff at each Wound Care Center with clinical oversight, quality assurance, reimbursement consulting, sales and marketing and general administrative support services. The terms of the Company's contract with each hospital are negotiated individually. Generally, in addition to the management fees described above, the contracts provide for development fees and Procuren processing fees charged to the hospital based on utilization. In both models, the hospital and the physician bill the patient for the services provided and are responsible for seeking reimbursement from insurers or other third party payors.
The first Wound Care Center opened in 1988 and there are currently 132 hospital outpatient Wound Care Centers in operation in 33 states. The Company has entered into contracts or letters of intent with 16 hospitals to open additional Wound Care Centers. The Company's hospital client base ranges from medium-sized community-based hospitals to large hospitals affiliated with national chains and not-for-profit hospitals in local markets. The Company selects hospital clients based on a number of criteria. A suitable hospital client typically can accommodate at least 200 inpatient beds, offers services which complement the Wound Management Program, including physician specialists in the areas of general, plastic and vascular surgery, endocrinology and diabetes, is financially stable and has a solid reputation in the community it serves. Of the Company's 132 current hospital outpatient Wound Care Centers, 102 are management model centers and 30 are "under arrangement" model centers.
At December 31, 1997, the Company had management contracts with 40 acute care hospitals directly or indirectly owned by Columbia/HCA. These hospitals collectively accounted for approximately 29% of the consolidated revenues of the Company for the year ended December 31, 1997. The Company and Columbia/HCA have been in discussions initiated by Columbia/HCA to standardize the management contracts and operating procedures at the Wound Care Centers in hospitals owned by Columbia/HCA, as well as any Wound Care Centers to be opened in hospitals owned by Columbia/HCA in the future. Representatives of Columbia/HCA have indicated to the Company that the purpose of the discussions is to provide easier access to the Company's Wound Management Program and to enhance wound care services at Columbia/HCA's hospitals. Although the Company believes that standardizing the management contracts and operating procedures will ultimately strengthen its relationship with Columbia/HCA, there can be no assurance these discussions with Columbia/HCA will not result in changes which would have an adverse impact on the Company's business, financial condition and results of operations, including, without limitation, price concessions, contract termination provisions less favorable to the Company, and increased costs borne by the Company.
Inpatient Wound Care Programs. The Company is addressing the needs of the inpatient wound care market through the development of inpatient programs. The Company currently manages nine inpatient programs including eight subacute care nursing home-based programs and one subacute care hospital-based program in five states and plans to continue to develop similar inpatient programs. This model is designed to access the segment of the chronic wound market comprised of non-ambulatory patients in alternate site inpatient facilities. These patients often have pressure sores resulting from inactivity. While not typically as severe as diabetic or venous stasis ulcers, pressure sores represent the largest segment of the chronic wound market. The training, field support and Procuren processing services provided by the Company to a facility in connection with an inpatient wound care program are similar to those provided to the Company's hospital clients in connection with the hospital outpatient Wound Care Centers. The Company typically manages between 10 and 20 beds per facility. Under the Company's existing inpatient contracts, the staff of the inpatient program is employed by the health care facility and the Company receives management fees on a per patient basis, as well as Procuren processing fees based on utilization; however, the Company's inpatient program model is still under development and the terms of its future inpatient program contracts may not be the same as the existing contracts.
Freestanding Outpatient Wound Care Centers. In the last quarter of 1995, the Company began to establish freestanding Wound Care Centers in which the Company is the owner and operator. The Company believes that this delivery model will allow the Company to expand its market penetration in the outpatient setting by allowing the Company to strategically penetrate markets without the constraint of finding a hospital or contracting with competing hospitals. The Company currently has seven freestanding centers in seven states and is planning to slowly continue expansion of this model in select markets. The freestanding Wound Care Centers resemble standard outpatient facilities or specialized physician practices. The Company employs the staff of the Wound Care Center and is responsible for billing patients for all services provided at the Wound Care Center and for seeking reimbursement from third party payors. To date the Company has not employed any of the physicians providing services at its freestanding Wound Care Centers; however, the Company's freestanding Wound Care Center model is still under development and the Company may employ physicians at these models in the future.
Procuren Production Facilities. The Company currently produces Procuren in 36 facilities in 33 states, all of which are registered with the FDA as blood processing facilities. The Company's personnel at these facilities produce Procuren at the direction of Wound Care Center physicians.
Contract Terms and Renewals
Substantially all of the revenues of the Company are derived from management contracts with acute care hospitals. The contracts generally have initial terms of three to five years and many have automatic renewal terms unless specifically terminated. During the year ending December 31, 1998, the contract terms of 32 of the Company's management contracts will expire, including 30 contracts which provide for automatic one-year renewals. The contracts often provide for early termination either by the client hospital if specified performance criteria are not satisfied, or by the Company under various other circumstances. Historically, some contracts have expired without renewal and others have been terminated by the Company or the client hospital for various reasons prior to their scheduled expiration. Generally, the Company elects to negotiate a mutual termination of a management contract if a client hospital desires to terminate the contract prior to its stated term. The continued success of the Company is subject to its ability to renew or extend existing management contracts and obtain new management contracts. Hospitals choose to terminate or not to renew contracts based on decisions to terminate their programs or to convert their programs from independently managed programs to programs operated internally. There can be no assurance that any hospital will continue to do business with the Company following expiration of its management contract or earlier, if such management contract is terminable prior to expiration. In addition, any changes in the Medicare program or third party reimbursement levels which generally have the effect of limiting or reducing reimbursement levels for health services provided by programs managed by the Company could result in the early termination of existing management contracts and would adversely affect the ability of the Company to renew or extend existing management contracts and to obtain new management contracts. The termination or non-renewal of a material number of management contracts could result in a significant decrease in the Company's net revenues and could have a material adverse effect on the Company's business, financial condition and results of operations.
Managed Care Operations
The Company's managed care strategy is currently focused on marketing Wound Care Center services to local managed care organizations ("MCOs") in concert with its hospital clients' efforts to promote all hospital-based services to such MCOs. In those instances where hospital clients are unable to establish contractual relations with a large local MCO or in those markets where the Company operates freestanding Wound Care Centers where it would otherwise be appropriate, the Company seeks to establish relations directly with MCOs. The Company's contractual arrangements with MCOs, which will vary based upon the needs of the particular MCO, are expected to provide for the Company to receive compensation on a fee-for-service, fixed case rate or at-risk capitation basis. While the Company anticipates that initially most of its managed care contracts will be fee-for-service or case rate contracts, it expects that at-risk capitation could become a contracting method.
The Company's longer term managed care strategy is to establish a wound care carve-out product with selected MCOs. The Company has begun to develop tools to help MCOs assess their current wound care experiences (both clinical outcomes and costs) against the Company's Wound Management Program in order to demonstrate that a wound care carve-out product can provide added value. In order to make itself more attractive to MCOs by offering a broader disease management program, the Company intends, where appropriate, to align itself with other disease management companies focused on case management or complementary diseases such as cardiac care (venous statis management) and diabetes. The Company expects that contracts for a carve-out product will provide at-risk arrangements with MCOs (i.e., fixed case rates or capitation).
The Company's managed care operations are overseen by a Vice President of Managed Care. To date, the Company's managed care operations have been limited. Although the Company or its hospital clients have been reimbursed for wound treatment by a number of MCOs on a case-by-case basis, the Company currently has no contracts that require or incentivize subscribers to use the Company's wound care services. There can be no assurance that the Company will be able to successfully expand its managed care operations.
Sales and Marketing
The Company's sales and marketing strategy consists of a two-fold approach involving the development of new wound care programs as well as the referral of patients into the operating Wound Care Centers. To accomplish this strategy the Company has divided the United States into five operating regions each headed by a Regional Vice President. The sales and marketing effort in each region is directed by a Regional Sales Manager under the supervision of the Regional Vice President. The Regional Sales Manager is responsible for the activities of the Professional Liaisons. The primary job of the Business Development Manager is the development of new wound care programs. The Professional Liaisons are primarily responsible for sales efforts related to community education directed at physicians and other healthcare professionals, and increasing patient enrollment at existing Wound Care Centers.
As of December 31, 1997, the sales force consisted of five Regional Sales Managers, 9 Business Development Managers and 52 Professional Liaisons.
In addition to the above, a sales and marketing plan is developed each year at each Wound Care Center. The execution of the plan is the responsibility of the Program Director at the Wound Care Center. The plan details the anticipated marketing for the year including radio, print and television advertising as well as professional symposiums. The cost of this plan is generally shared between the Company and the hospital. The Company markets the Wound Care Center concept to hospitals as a therapeutic "Center of Excellence." The Company believes that having a Wound Care Center can differentiate a hospital from its competitors and can increase the hospital's revenues through the introduction of new patients, which leads to an increase in ambulatory surgeries, X-rays, laboratory tests and inpatient surgeries, such as debridements, vascular surgeries and plastic surgeries. The Company has demonstrated that Wound Care Centers provide significant incremental revenues to participating hospitals, and therefore provide an attractive economic opportunity for hospitals. Potential benefits to treating physicians include the healing of difficult-to-heal wounds and an expansion of the physician's practice.
Patents and Proprietary Rights
The Company's success depends in part on its ability to enforce patents, maintain trade secret protection and operate without infringing on or violating the proprietary rights of third parties. One U.S. patent has been issued, and one additional application for a patent in the United States has been filed, relating to the manufacture and use of Procuren for wound care. There can be no assurance that any pending patent applications will be approved or that any issued patents will provide the Company with competitive advantages in the future or will not be challenged by any third parties or, if involved in a challenge, will be found valid and infringed. Furthermore, there can be no assurance that others will not design around the patents. The issued U.S. patent is jointly owned by the University of Minnesota and the Company. The joint interest of the University of Minnesota is licensed exclusively to the Company under a paid in full, royalty free arrangement. The U.S. government has a nonexclusive grant back license under the issued U.S. patent for all government purposes. The additional pending U.S. application is owned by the Company and is not subject to the government grant back license.
In addition to patent protection, the Company also relies, in part, on trade secrets, proprietary know-how and technological advances which it seeks to protect by measures such as confidentiality agreements with its employees, consultants and other parties with whom it does business. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, that others will not independently develop products similar to Procuren or that the Company's trade secrets and proprietary know-how will not otherwise become known, be independently discovered by others or found to be unprotected. The Company is aware of a limited number of physicians who appear to be utilizing an autologous platelet extract for the treatment of chronic wounds.
The Company has registered the names "Procuren" and "Wound Care Center" as trademarks in the United States for use in connection with the Company's wound care operations.
Government Regulation
The Company's Wound Care Centers and the production and marketing of its products and services are subject to extensive regulation by numerous governmental authorities in the United States, both federal and state. Although the Company believes that it is currently in compliance with applicable laws, regulations and rules, the Company recently received a Warning Letter from FDA admonishing the Company for several alleged deviations from good manufacturing practices at one of the Company's Wound Care Centers. The Company has responded to the Warning Letter and believes that it has adequately addressed FDA's concerns. However, there can be no assurance that FDA, another governmental agency or a third party will not contend that certain aspects of the Company's operations or procedures are subject to or are not in compliance with such laws, regulations or rules or that the state or federal regulatory agencies or courts would interpret such laws, regulations and rules in the Company's favor. The sanctions for failure to comply with such laws, regulations or rules could include denial of the right to conduct business, significant fines and criminal penalties. Additionally, an increase in the complexity or substantive requirements of such laws, regulations or rules could have a material adverse effect on the business, financial position and results of operations of the Company.
The FDA regulates drugs and biologics that move in interstate commerce and requires that such products receive pre-marketing approval based on evidence of safety and efficacy. Since Procuren is produced at one of the Company's blood processing facilities in the state where the Wound Care Center which will dispense the Procuren is located and so is not intended to be shipped across state lines, the Company believes, based on the advice of its counsel, that under current law and regulations, FDA approval is not required for the Company to distribute and sell Procuren through the Wound Care Centers. The FDA is currently reassessing its regulation of other autologous and somatic cell products and has publicly stated that it believes that if any component of a drug or biological or if any patient receiving such substance moves in interstate commerce, a sufficient nexus with interstate commerce exists for FDA to require pre-marketing approval and licensure. While the production of Procuren includes components that are shipped in interstate commerce, to date the FDA has not determined that Procuren, as currently prepared, is subject to licensure or pre-market approval. However, in the recent FDA Warning Letter, FDA objected to the Company providing Procuren to patients who reside in a state other than the one in which the Wound Care Center is located. The Company has advised FDA that it will cease providing Procuren to out-of-state patients. Although the Company believes interstate shipment of the final biologic product is required to trigger pre-marketing approval and licensure, a determination by the FDA to require Procuren to obtain pre-marketing approval would materially and adversely affect the Company.
Because FDA approval has not been required for Procuren, and state approvals are generally limited to licensing of facilities, there has been no independent determination of its efficacy by any governmental entity. If the FDA were to require submission of a product license application ("PLA") as a condition for the continued distribution and sale of Procuren, the Company might have to demonstrate the safety, purity, potency and effectiveness of the product through extensive clinical trials. Neither the Company nor any third party has conducted the controlled clinical trials required to establish Procuren's efficacy. Compliance with the requirements for a PLA is time-consuming and involves the expenditure of substantial resources. There can be no assurance that the Company would be able to establish efficacy or to obtain or maintain the necessary FDA approvals to manufacture and distribute Procuren.
Any change in current regulatory interpretations by or positions of state officials where the Wound Care Center's are located could adversely affect the Company's distribution of Procuren within those states. In states where Wound Care Centers are not currently located, the Company intends to utilize the same approaches adopted elsewhere for achieving state compliance. However, state regulatory requirements could adversely affect the Company's ability to establish Wound Care Centers in such other states.
Various state and federal laws regulate the relationships between providers of health care services and physicians and other clinicians, including employment or service contracts, investment relationships and referrals for certain designated health services. These laws include the fraud and abuse provisions and referral restrictions of the Medicare and Medicaid statutes, which prohibit the solicitation, payment, receipt or offering of any direct or indirect remunerations for the referral of Medicare and Medicaid patients or for the ordering or providing of Medicare or Medicaid covered services, items or equipment. Violations of these provisions may result in civil or criminal penalties for individuals or entities including exclusion from participation in the Medicare or Medicaid programs. Several states have adopted similar laws that cover patients in private programs as well as government programs. Because the anti-fraud and abuse laws have been broadly interpreted, they limit the manner in which the Company can operate its business and market its services to, and contract for services with, other health care providers. No assurance can be given regarding compliance in any particular factual situation, as there is no procedure for advisory opinions from government officials.
Additionally, federal and some state laws impose restrictions on physician's referrals for certain designated health services to entities with which the physician has a financial relationship. The Company believes its operations are structured to comply with these restrictions to the extent applicable. However, periodically there are efforts to expand the scope of these referral restrictions from its application to government health care programs to all payors, and to additional health services. Certain states are considering adopting similar restrictions or expanding the scope of existing restrictions. There can be no assurance that the federal government or other states in which the Company operates will not enact similar or more restrictive legislation or restrictions that could under certain circumstances limit the manner in which the Company can operate its business and have a negative impact on the Company's business, financial condition and results of operations.
The laws of many states prohibit physicians from sharing professional fees with non-physicians and prohibit non-physician entities, such as the Company, from practicing medicine and from employing physicians to practice medicine. The laws in most states regarding the corporate practice of medicine have been subjected to limited judicial and regulatory interpretation. The Company believes its current and planned activities do not constitute prohibited fee splitting or violate any prohibition against the corporate practice of medicine. There can be no assurance, however, that future interpretations of such laws will not require structural or organizational modifications of the Company's existing business.
Pursuant to the federal Occupational Safety and Health Act, employers have a general duty to provide a work place for their employees that is safe from hazard. The U.S. Occupational Safety and Health Administration ("OSHA") has issued rules relevant to certain hazards that are found in the Company's blood processing facilities. In addition, OSHA issued a standard in 1992 applicable to protection of workers from blood-borne pathogens. Failure to comply with this standard relating to blood-borne pathogens, other applicable OSHA rules or with the general duty to provide a safe work place could subject the Company to substantial fines and penalties.
Third Party Reimbursement
The Company, through its wound care operations, provides contractual management services for fees and sells Procuren to acute care hospitals and other health care providers. These providers, in turn, seek reimbursement from third party payors, such as Medicare, Medicaid, health maintenance organizations and private insurers, including Blue Cross/Blue Shield plans. The availability of reimbursement from such payors has been a significant factor in the Company's ability to increase its revenue streams and will be important for future growth.
In addition to hospital outpatient Wound Care Centers which it manages for its clients, the Company owns and operates freestanding outpatient Wound Care Centers. With respect to services and products provided through its freestanding centers, the Company is subject to the risks inherent in third party reimbursement, including the risks associated with billing third party payors. As of December 31, 1997, the Company operated seven freestanding outpatient Wound Care Centers which contributed approximately $2,542,000 or 3% of the Company's revenues for the year ended December 31, 1997. However, the Company anticipates that the number of, and amount of revenues attributable to, its freestanding centers and other similar service models will increase in the future as the Company pursues its strategy of expanding into new health care delivery settings. See "Business--Strategy."
Each third party payor formulates its own coverage and reimbursements policies. In 1992, the Health Care Financing Administration ("HCFA"), the agency that administers the Medicare program nationally, published a national coverage decision denying coverage for Procuren based on its determination that the safety and efficacy of Procuren had not been established and so the use of Procuren was not "reasonable and necessary" within the meaning of applicable law. Procuren sales represent a significant part of the Company's revenues and earnings and the Company believes that Procuren, as a component of its Wound Management Program, is a significant component of the Company's services. Although the Company has not, and the Company believes that its clients have not, in general experienced difficulty in securing third party reimbursement for Wound Care Center services and the use of Procuren from private insurers, some hospitals have experienced denials, delays and difficulties in obtaining such reimbursement. In some cases where Procuren reimbursement has been denied by a payor, the hospitals have ceased providing Procuren to patients whose only means of payment is through such payor. To the Company's knowledge, no widespread denials have been received by hospitals regarding reimbursement for other Wound Care Center services or reimbursement of management fees charged by the Company to its hospital clients. The Company discusses coverage and reimbursement issues with its hospital clients and third party payors on a regular basis. Such discussions will continue as the Company seeks to maximize hospital reimbursement for Procuren and other wound care services. Although no individual coverage and reimbursement decision is material to the Company, a widespread denial of reimbursement coverage for Procuren or other services would have a material adverse effect on the Company's business, financial position and results of operations.
Medicare regulations limit reimbursement for health care charges paid to related parties. A party is considered "related" to a provider if there is significant common ownership or common control by the provider. On occasion, fiscal intermediaries under contract to HCFA to audit hospital Medicare claims have asserted that one test for determining control for this purpose is whether the percentage of the total revenues of the party received from services rendered to the provider is so high that it effectively constitutes control. Although the Company believes it does not currently receive sufficient revenues from any customer, including Columbia/HCA, that would make it a related party, it is possible that such regulations could limit the number of management contracts that the Company could have with Columbia/HCA or any other client.
The Wound Care Centers managed by the Company on behalf of acute care hospitals are treated as "provider based entities" for Medicare cost based reimbursement purposes. This designation is required for the hospital based program to be covered under the Medicare cost based reimbursement system. In August 1996, HCFA published criteria for determining when programs may be designated "provider based entities". The interpretation and application of these criteria are not entirely clear and there is a risk that some of the programs managed by the Company could be found not to be "provider based entities". Although the Company believes that the programs it manages meet the criteria to be designated "provider based entities", a widespread denial on such designation would have a material adverse effect on the Company's business, financial position and results of operations.
Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental change. Although Congress has failed to pass comprehensive health care reform legislation thus far, the Company anticipates that Congress and state legislatures will continue to review and assess alternative health care delivery and payment systems and may in the future propose and adopt legislation effecting fundamental changes in the health care delivery system. It is possible that future legislation enacted by Congress or state legislatures will contain provisions which may materially adversely affect the business, financial position and results of operations of the Company or may change the operating environment for the Company's targeted customers (including hospitals and managed care organizations). Health care industry participants may react to such legislation or the uncertainty surrounding related proposals by curtailing or deferring expenditures and initiatives, including those relating to the Company's programs and services. It is also possible that future legislation either could result in modifications to the nation's public and private health care insurance systems, which could affect reimbursement policies in a manner adverse to the Company, or could encourage integration or reorganization of the health care delivery system in a manner that could materially affect the Company's ability to compete or to continue its operations without substantial changes. The Company cannot predict which other legislation relating to its business or to the health care industry may be enacted, including legislation relating to third party reimbursement, or what effect any such legislation may have on its business, financial position and results of operations.
In the Balanced Budget Act of 1997, Congress directed HCFA to implement a prospective payment system for all hospital outpatient services furnished to Medicare patients on or after January 1, 1999. Under such a system, a predetermined rate would be paid to providers for clinic services rendered, regardless of the providers cost. Since the actual reimbursement methodology and rates have not yet been determined, the effect on hospital reimbursement is unknown. In the event that reimbursement rates are insufficient, the Company may need to modify its management contracts with hospitals which could have a material effect on the Company's business, financial condition and results of operations.
Competition
The Company's principal competition in the chronic wound care market consists of specialty clinics that have been established by some hospitals or physicians. In the market for disease management products and services, the Company faces competition from other disease management facilities, general health care facilities and service providers, pharmaceutical companies, biopharmaceutical companies and other competitors. Many of these companies have substantially greater capital resources and marketing staffs, and greater experience in commercializing products and services, than the Company. In addition, recently developed technologies, or technologies that may be developed in the future, are or may be the basis for products which compete with the Company's chronic wound care products and which may be in direct competition with Procuren. There can be no assurance that the Company will be able to enter into co-marketing arrangements with respect to these products, or that the Company will be able to compete effectively against such companies in the future.
Employees
As of December 31, 1997, the Company employed 671 full-time employees, of which 533 employees were in the wound care operations, 74 employees were in Procuren production, 18 employees were in technical support and 46 employees were in general administration and finance. The Company expects to add additional personnel to its wound care operations in the next year. The Company believes that its relations with its employees are good.
Item 2
Item 2 Properties
The Company's headquarters and technical support facility is located in East Setauket, Long Island, New York. The Company leases this 25,000 square foot facility under a lease running through 2002. During 1997, the Company exercised its lease termination rights and will discontinue the lease effective June 30, 1998. The Company entered into a lease agreement for its corporate headquarters, comprised of a 30,000 square foot facility running through June 30, 2005, located in Hauppauge, Long Island, New York and will move into this facility in early 1998. The Company believes that its facilities are adequate and suitable for its operation. The Company also leases one regional office for its wound care operations totaling 4,100 square feet, seven freestanding Wound Care Centers totaling 16,600 square feet and 18 production facilities totaling 37,000 square feet. The Company's facilities at the hospital outpatient Wound Care Centers are owned or leased by the hospitals.
Item 3
Item 3 Legal Proceedings
The Company, in the ordinary course of business is the subject of or party to various lawsuits, the outcome of which in the opinion of management, will not have a material adverse effect on its financial position or results of operations.
Item 4
Item 4 Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5
Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters
The Company's common stock is traded on The Nasdaq Stock Market under the symbol "CURE". As of March 2, 1998, there were approximately 241 holders of record of the Company's common stock. The Company has not paid any cash dividends since its inception. The Company currently does not intend to pay cash dividends in the foreseeable future but intends to retain all earnings, if any, for use in its business operations.
The following table sets forth, for the fiscal periods indicated, the range of high and low sales prices of the common stock as quoted on The Nasdaq National Market System:
High Low Fourth Quarter...... $ 32 7/8 $ 27 3/4 Third Quarter....... 32 28 Second Quarter...... 29 5/8 20 1/4 First Quarter....... 33 1/8 23
Fourth Quarter...... $ 28 1/4 $ 18 1/2 Third Quarter....... 26 7/8 15 3/4 Second Quarter...... 28 17 First Quarter....... 21 3/8 13 1/4
Item 6
Item 6 Selected Consolidated Financial Data
Five year selected consolidated financial data and other operating information of Curative Health Services, Inc., and Subsidiaries follow:
Item 7
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company's principal business is the delivery of chronic wound care services through its nationwide network of Wound Care Centers located in or near acute care hospitals. Substantially all of the Company's revenues are currently generated under its contracts with acute care hospitals for the management of chronic wound care programs and the production of Procuren. The Company currently markets two types of Wound Care Center management contracts to hospitals: a management model and an "under arrangement" model.
In the management model, the Company provides management and support services for a chronic wound care facility owned or leased by the hospital and staffed by employees of the hospital, and generally receives a fixed monthly management fee and a variable case management fee. In the "under arrangement" model, the Company provides management and support services, as well as the clinical and administrative staff, for a chronic wound care facility owned or leased by the hospital, and generally receives fees based on the services provided to each patient. In both models, physicians remain independent, and the Company recruits and trains the physicians and staff associated with the Wound Care Center. In addition, in both models, the Company receives fees for the production of Procuren based on utilization.
Of the 132 hospital outpatient Wound Care Centers in operation as of December 31, 1997, 102 were management model Wound Care Centers, and 30 were "under arrangement" model Wound Care Centers. The Company's fees under its management contracts with acute care hospitals are paid by the hospitals directly. See "Business--Third Party Reimbursement."
The Company is currently expanding its chronic wound care operations into new health care delivery settings, including inpatient facilities and freestanding Wound Care Centers owned and operated by the Company. Although these new models accounted for approximately 4% of the Company's revenues in 1997, the Company anticipates that the percentage of its revenues attributable to these and other new models will increase in the future as the Company expands its services across the continuum of care for wound management. These new models are still in the development phase; however, the Company anticipates that the nature of the revenues produced by and risks associated with these new models may not be the same as those associated with its current business.
Business Realignment
In the Company's continuing effort to focus on its wound care service business, during the second quarter of 1995, the Company instituted a further realignment of its business activities which included the discontinuation of all new product research and development. The Company's research and development activities are now committed to the technical support of Procuren (expenses classified in cost of sales). Also in 1995, the Company completed the divestiture of its European operations with the sale of its majority-owned German subsidiary.
Results of Operations
Fiscal Year 1996 vs. Fiscal Year 1997. The Company's revenues increased from $67.4 million in 1996 to $87.9 million in 1997, a 30% increase. The increased revenue is primarily attributable to the operation of 123 wound care facilities at the end of 1996 compared with 148 at the end of 1997 and an 11% increase in revenues at existing wound care facilities related to higher patient volume. Total new patients to the wound care centers increased 26% from 38,699 in 1996 to 48,722 in 1997. The total number of patients receiving Procuren therapy increased 8% from 7,912 in 1996 to 8,583 in 1997; however the percentage of patients receiving Procuren decreased from 20% in 1996 to 18% in 1997. The Company believes that this decrease is attributable primarily to an increase in the percentage of less severe chronic wounds being treated at the Company's Wound Care Centers, for which physicians are less likely to prescribe Procuren, as well as a lack of available reimbursement for Medicare patients. The Company believes that this shift in the severity of the wounds treated at a Wound Care Center occurs as the local medical community becomes familiar with the services offered by the Wound Care Center and refers a broader range of chronic wound patients to the Wound Care Center for treatment. The Company anticipates that the percentage of patients receiving Procuren will continue to decline gradually in the future.
Costs of product sales and services increased from $37.8 million in 1996 to $48.2 million in 1997, a 27% increase. The increase is attributable to the additional staffing and operating expenses of approximately $4.7 million associated with the operation of 25 additional wound care facilities at the end of 1997, as well as increased volume at existing wound care facilities. Additionally, these 25 facilities include 15 under arrangement Wound Care Centers and 1 freestanding Wound Care Center at which the services component of costs is higher than at the Company's other facilities due to the additional clinic staffing that these models require. As compared with 1996, the higher services components at these facilities accounted for an additional $2.7 million of the increase in product sales and services for 1997. As a percentage of revenues, costs of product sales and services was 55% in 1997 compared with 56% in 1996. The decrease is attributable to the ability of the Company to leverage the fixed overhead components of the cost of product sales and services over a growing revenue base.
Selling, general and administrative expenses increased from $19.2 million in 1996 to $22.6 million in 1997, an 18% increase. The increase is attributable to the additional staffing and operating expenses associated with the growth of the wound care center business related to field support departments particularly clinical operations, management information systems, costs related to a branding campaign, and a charge of $.3 million related to the decision to relocate the corporate office in 1998. As a percentage of revenues, selling, general and administrative expenses were 26% in 1997 compared to 29% in 1996. The decrease is attributable to the ability of the Company to obtain leverage by spreading the costs of its overhead structure over a broader revenue base.
Interest income increased to $2.7 million in 1997 from $1.3 million in 1996. The increase is attributable to higher cash balances resulting from the full year effect of investing the net proceeds of the $22.6 million common stock offering during the third quarter of 1996 as well as cash provided by operations.
Net income increased from $10.7 million or $.90 (diluted) per share in 1996 to $16.5 million or $1.27 (diluted) per share in 1997. The increase in earnings of $5.8 million is primarily attributable to an improvement in operating margins associated with the revenue growth particularly related to existing wound care facilities and economies of scale achieved through market growth. Additionally interest income increased in 1997 due to higher cash balances but was offset by an increase in income taxes as a result of a higher effective tax rate in 1997.
Fiscal Year 1995 vs. Fiscal Year 1996. The Company's revenues increased from $52.4 million in 1995 to $67.4 million in 1996, a 29% increase. The increased revenue is primarily attributable to the operation of 84 wound care facilities at the end of 1995 compared with 123 at the end of 1996 and a 13% increase in revenues at existing wound care facilities related to higher patient volume. Total new patients to the wound care facilities increased 29% from 30,023 in 1995 compared to 38,699 in 1996. The total number of patients receiving Procuren therapy increased 15% from 6,854 in 1995 compared to 7,912 in 1996; however, the percentage of patients receiving Procuren decreased from 23% in 1995 to 20% in 1996. The Company believes that this decrease is attributable primarily to an increase in the percentage of less severe chronic wounds being treated at the Company's Wound Care Centers, for which physicians are less likely to prescribe Procuren, as well as a lack of available reimbursement for Medicare patients. The Company believes that this shift in the severity of the wounds treated at a Wound Care Center occurs as the local medical community becomes familiar with the services offered by the Wound Care Center and refers a broader range of chronic wound patients to the Wound Care Center for treatment. The Company anticipates that the percentage of patients receiving Procuren will continue to decline gradually in the future.
Costs of product sales and services increased from $26.2 million in 1995 to $37.8 million in 1996, a 44% increase. Fiscal 1996 includes $1.9 million of technical service costs which were reported as research and development expenses for 1995. Excluding technical services costs, the increase in cost of product sales and services from 1995 to 1996 was 37%. The increase is attributable to additional staffing and operating expenses of approximately $4.8 million associated with the operation of 39 additional wound care facilities at the end of 1996, as well as increased volume at existing wound care facilities. Additionally, these 39 facilities include five freestanding Wound Care Centers and six additional under arrangement Wound Care Centers at which the services component of costs is higher than at the Company's other facilities due to the additional clinical staffing and expenses that these models require. As compared with 1995, the higher services components at these facilities accounted for an additional $2.2 million of the increase in product costs and services for 1996. As a percentage of revenues, costs of product sales and services (excluding technical services) was 50% in 1995 compared with 53% in 1996. The increase is attributable to new Wound Care Centers which include a higher service component.
Selling, general and administrative expenses increased from $18.2 million in 1995 to $19.2 million in 1996, a 5% increase. The increase is attributable to additional staffing and operating expenses of approximately $1.5 million associated with the growth in the wound care business particularly related to field support departments, offset by a $0.5 million decrease in expenses related to European operations which were discontinued in the second quarter of 1995. As a percentage of revenues, selling, general and administrative expenses were 35% in 1995 compared with 29% in 1996. The decrease is attributable to the discontinuation of the European operations as well as the ability of the Company to obtain leverage by spreading the costs of its overhead structure over a broader revenue base.
Research and development expense was $4.1 million for 1995. The Company did not incur any research and development expenses in 1996 since it discontinued all new product research and development in the second quarter of 1995. Technical service costs associated with the support of Procuren are classified as a cost of product sales. This classification began in 1996.
Interest income increased to $1.3 million in 1996 from $0.5 million in 1995. The increase was primarily due to higher cash balances resulting from the net proceeds of the $22.6 million common stock offering in August 1996, as well as cash provided from operations.
Net income improved from $4.2 million or $.39 per share in 1995 to $10.7 million or $.90 per share in 1996. The increase in earnings of $6.5 million is primarily attributable to savings of approximately $2.2 million related to the discontinuation of new product research and development, an improvement in operating margins associated with the revenue growth particularly related to existing Wound Care Centers and economies of scale achieved from market growth and the termination of European operations.
Liquidity and Capital Resources
Working capital was $62.6 million at December 31, 1997 compared to $45.8 million at December 31, 1995. Total cash, cash equivalents and marketable securities held-to-maturity as of December 31, 1997 was $58.6 million and was invested primarily in highly liquid money market funds, commercial paper and government securities. The ratio of current assets to current liabilities increased from 5.3:1 at December 31, 1996 to 6.1:1 at December 31, 1997. The increase in working capital and improvement in the ratio of current assets to current liabilities was primarily attributable to the net income for fiscal year 1997.
Cash flows provided by operations for 1997 totaled $20.6 million primarily attributable to the net income for the period. Cash flows provided by investing activities for 1997 totaled approximately $12.6 million primarily attributable to the excess of sales of marketable securities held to maturity over purchases of $19.0 million offset by capital expenditures for furniture, equipment and leasehold improvements of $6.5 million. Cash flows provided by financing activities totaled $1.3 million for 1997 primarily attributable to net proceeds from the exercise of stock options offset by payment of the loan guaranteed by the Company for its former subsidiary, Curative Technologies, GmbH.
During 1997, the Company experienced a $1.9 million increase in net accounts receivable primarily due to the increase in revenues. The average number of days receivables were outstanding decreased from 59 days as of December 31, 1996 to 54 days as of December 31, 1997. Further, compared to December 31, 1996, the Company's accounts payable and accrued expenses increased $1.8 million as of December 31, 1997.
In May 1995, the Company sold its 62% interest in its majority owned German subsidiary to the subsidiary's general manager. In connection with the sale, the Company made a working capital commitment of 0.5 million Deutsche Mark (dm) which was paid in 1995. Additionally, the Company is entitled to future contingent payments of 30% of the subsidiary's profits up to 0.5 million dm. Additionally, there are contingent payments of approximately 1.0 million dm due the Company representing previously advanced intercompany loans. Since the subsidiary had a history of operating losses, the Company has not recorded any amounts due from the subsidiary. In March 1997, the Company paid off the revolving credit facility and no longer guarantees any debt of the former subsidiary.
The Company's longer term cash requirements include working capital for the further expansion of its wound care business. Other cash requirements are anticipated for capital expenditures in the normal course of business. The Company expects that, based on its current business plan, its existing cash, cash equivalents and marketable securities will be sufficient to satisfy its currently anticipated working capital needs. The effects of inflation and foreign currency translation risks are considered immaterial.
Cautionary Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements regarding intent, belief or current expectations of the Company and its management. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in these statements. Factors that might cause such differences include, but are not limited to, changes in the Company's level of business with Columbia/HCA Healthcare Corporation, changes in the government regulations relating to the Company's wound care operations or Procuren, uncertainties relating to health care reform initiatives, changes in the availability of third party reimbursements for the Company's products and services, and the other risks and uncertainties detailed throughout this report and from time to time in the Company's filings with the Securities and Exchange Commission.
Item 8
Item 8 Consolidated Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference to the Consolidated Financial Statements listed in Item 14(a) of Part IV of this Report.
The following table sets forth the financial results of the Company for the eight quarters ended December 31, 1997 and December 31, 1996:
Gross Income Per Quarter Ended Revenues Profit Net Income Common Share 1997: December 31 ........... $23,860 $10,833 $4,599 $.35 September 30 .......... 22,705 10,284 4,286 .33 June 30 ............... 21,687 9,793 3,912 .30 March 31 .............. 19,654 8,796 3,665 .28 1996: December 31 ........... $18,628 $ 8,021 $3,390 $.26 September 30 .......... 17,462 7,600 2,989 .24 June 30 ............... 16,388 7,364 2,443 .21 March 31 .............. 14,917 6,582 1,873 .17
Item 9
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
This information required by Part III of this Form 10-K is omitted from this Report in that the Registrant will file a definitive proxy statement pursuant to Regulation 14(a) for its 1997 Annual Meeting of Stockholders (the "Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference.
Item 10
Item 10 Directors and Executive Offices of the Registrant
The information required by this Item is incorporated by reference to the Company's Proxy Statement.
Item 11
Item 11 Executive Compensation
The information required by this Item is incorporated by reference to the Company's Proxy Statement.
Item 12
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to the Company's Proxy Statement.
Item 13
Item 13 Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the Company's Proxy Statement.
PART IV
Item 14
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Index to Financial Statements.
The following consolidated financial statements of Curative Health Services, Inc. are included herein:
Page Number
Report of Independent Auditors...............................
Consolidated Balance Sheets at December 31, 1997 and 1996....
Consolidated Statements of Operations for each of the years ended December 31, 1997, 1996 and 1995.......................
Consolidated Statements of Stockholders' Equity for each of the years ended December 31, 1997, 1996 and 1995.............
Consolidated Statements of Cash Flows for each of the years ended December 31, 1997, 1996 and 1995.......................
Notes to Consolidated Financial Statements...................
2. Financial Statement Schedules. The following financial statement schedule of Curative Health Services, Inc. is included herein:
Schedule Page
II Valuation and Qualifying Accounts and Reserves........... S-1
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.
3. Exhibits. The exhibits listed in the accompanying Index to Exhibits immediately following the financial statement schedules are filed with this report.
(b) Reports on Form 8-K. No reports filed on Form 8-K filed by the Company during the fiscal quarter ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CURATIVE HEALTH SERVICES, INC.
By:/s/ John Vakoutis ----------------- John Vakoutis President, Chief Executive Officer and Director Dated: March 27, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John Vakoutis and John C. Prior, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ John Vakoutis President, Chief Executive Officer March 27, 1998 ------------ (Principal Executive Officer) and Director John Vakoutis
/s/ John C. Prior Senior Vice President Finance and March 27, 1998 ------------- Chief Financial Officer John C. Prior (Principal Financial and Accounting Officer) and Secretary
/s/ Gerardo Canet Director March 27, 1998 ------------- Gerardo Canet
/s/ Daniel A. Gregorie, MD Director March 27, 1998 ---------------------- Daniel A. Gregorie, MD
/s/ Lawrence C. Hoff Director March 27, 1998 ---------------- Lawrence C. Hoff
/s/ Timothy I. Maudlin Director March 27, 1998 ------------------ Timothy I. Maudlin
/s/ Gerard Moufflet Director March 27, 1998 --------------- Gerard Moufflet
/s/ Lawrence J. Stuesser Chairman of the Board and Director March 27, 1998 -------------------- Lawrence J. Stuesser
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CURATIVE HEALTH SERVICES, INC.
By:_______________________________ John Vakoutis President, Chief Executive Officer and Director Dated: March 27, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John Vakoutis and John C. Prior, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
___________________ President, Chief Executive Officer March 27, 1998 John Vakoutis (Principal Executive Officer)and Director
___________________ Senior Vice President Finance and March 27, 1998 John C. Prior Chief Financial Officer (Principal Financial and Accounting Officer) and Secretary
___________________ Director March 27, 1998 Gerardo Canet
______________________ Director March 27, 1998 Daniel A. Gregorie, MD
___________________ Director March 27, 1998 Lawrence C. Hoff
___________________ Director March 27, 1998 Timothy I. Maudlin
___________________ Director March 27, 1998 Gerard Moufflet
____________________ Chairman of the Board and Director March 27, 1998 Lawrence J. Stuesser
Report of Independent Auditors
Board of Directors and Stockholders Curative Health Services, Inc.
We have audited the accompanying consolidated balance sheets of Curative Health Services, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Curative Health Services, Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Melville, New York February 9, 1998
F - 1
CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
See notes to consolidated financial statements F - 2
CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
See notes to consolidated financial statements F - 3
See notes to consolidated financial statements F - 4 CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except shares)
See notes to consolidated financial statements F - 4
CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
See notes to consolidated financial statements F - 5
CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: The Company was organized under the laws of the State of Minnesota in October 1984. It is a disease management company in the chronic wound care business. The Company manages a nationwide network of Wound Care Centers that offers patients a multi-disciplinary comprehensive wound treatment program. The Company's management agreements with hospitals and other health care providers generally have a term of 5 years.
Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. In May 1995, the Company sold its 62% interest in its German subsidiary (See Note B). Operating results of that subsidiary for the first five months of 1995 are included in the consolidated operating results. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Net Income Per Share: In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128, "Earnings per Share". FASB No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earning per share amounts for all periods have been presented, and where appropriate, restated to conform to FASB No. 128 requirements.
Foreign Currency Translation: Revenues and expenses of subsidiary operations denominated in foreign currencies have been translated at average rates for the applicable periods.
Property and Equipment: Property and equipment are recorded at cost. Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives (generally 5 to 7 years). Leased equipment capitalized and leasehold improvements are amortized over the life of the lease or the useful life of the related asset, whichever is shorter.
Research and Development: All costs relating to research and development activities are expensed in the year in which they are incurred.
Other Assets: As of December 31, 1996 and 1997, other assets consist of costs associated with filing patent and trademark applications which totaled $800,000 and $748,000, respectively. During 1995 the Company wrote-off deferred patent costs of $382,000 related to patent applications no longer being pursued. In December 1992, the Company received broad patent coverage on wound healing agents derived from platelets. Costs and expenses related to this patent of $920,000 are being amortized over the life of the patent (17 years) and trademarks of $75,000 are being amortized over the estimated life of the trademark (20 years) using the straight-line method.
Cash and Cash Equivalents: Cash and cash equivalents represent demand deposits with banks, certificates of deposit with maturities of less than three months at time of purchase and highly liquid money market fund investments.
Marketable Securities Held-to-Maturity: Held-to-maturity marketable securities represent highly liquid money market instruments with maturities of greater than three months at time of purchase. These securities, consisting principally of securities of U.S. Government agencies maturing at various dates through November 1998, are valued at amortized cost which approximates market. The Company's investment policy gives primary
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NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
consideration to safety of principal, liquidity and return. The Company invests its funds with institutions that have high credit ratings and to date has not experienced any losses on its investments. The Company follows the provisions of FASB No. 115 "Accounting for Certain Investments in Debt and Equity Securities." This pronouncement requires all companies with investments in debt and equity securities to classify these securities as held-to-maturity, trading, or available for sale. The Company classifies its investments in such securities as held-to-maturity as the Company has the intent and ability to hold these securities to maturity. As of December 31, 1996 and 1997, the Company had approximately $53,000 and $20,000 of unrealized gains on marketable securities, respectively.
Concentration of Credit Risk: Substantially all of the Company's revenues have been generated from Wound Care Centers which the Company has established as cooperative ventures with acute care hospitals in the United States to provide a multi-disciplinary treatment protocol for chronic wounds. The Company provides contractual management services for fees and sells Procuren to acute care hospitals and other health care providers. Credit is extended based on an evaluation of the hospital's financial condition and collateral is generally not required.
Revenues: Revenues are recognized when products are dispensed or as contractual management services are rendered.
Income Taxes: The Company follows the provisions of FASB No. 109, "Accounting for Income Taxes." Under FASB No. 109, the liability method is used in accounting for income taxes, whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Stock Based Compensation Plans: In October 1995, FASB issued Statement No. 123, "Accounting for Stock-Based Compensation," which requires all companies to either recognize expense for stock-based awards based on their fair market value on the date of grant, or provide pro forma disclosures of the effects "as if" the Company had recognized the stock-based compensation expense. The Company adopted the new rules in 1996. As permitted by FASB No. 123, the Company has provided disclosure of the pro forma impact on net income and earnings per share as if the fair value-based method had been applied (See Note G).
NOTE B -- ACQUISITIONS AND DIVESTITURES
During the second quarter of 1995, the Company sold its 62% interest in its German subsidiary to the subsidiary's general manager. In connection with the sale, the Company made a working capital commitment of 0.5 million Deutsche Marks (dm) which was paid in 1995. Additionally, the Company is entitled to future contingent payments of 30 percent of the former subsidiary's profits up to 500,000 dm. There are contingent payments ofapproximately one million dm due the Company representing previously advanced intercompany loans. Since the former subsidiary has had a history of operating losses, the Company has not recorded any amounts due. Further, the Company remains a guarantor of the former subsidiary's revolving credit facility of 1.4 million dm ($1.0 million) and is obligated to make the interest payments on the outstanding indebtedness. The accounting for the sale resulted in a charge to operations of $111,000 in 1995. As a result of the transaction, the accounts of the foreign subsidiary are no longer consolidated (See Note I).
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NOTE C -- PROPERTY AND EQUIPMENT
A summary of property and equipment and related accumulated depreciation and amortization follows:
December 31, ------------ 1997 1996 -------------- (In thousands) Property and equipment........................... $10,295 $5,616 Leased equipment capitalized..................... 1,371 1,371 Leasehold improvements........................... 4,450 2,653 ----- ----- 16,116 9,640 Less accumulated depreciation and amortization... 6,848 4,886 ----- ----- $ 9,268 $4,754 ===== =====
NOTE D -- ACCRUED EXPENSES
Accrued expenses are as follows: December 31, ------------ 1997 1996 -------------- (In thousands)
Incentive compensation and benefits $ 3,393 $ 3,016 Research and technical service contracts 61 121 ----- ----- $ 3,454 $ 3,137 ======= =======
NOTE E -- LEASES
The Company has entered into several noncancellable operating leases for the rental of certain office space expiring in various years through 2005. The Company also leases certain equipment under noncancellable capital and operating leases expiring in various years through 1999. The principal lease for office space provides for initial monthly rental of $47,875 escalating to $52,854 in the final year. The following is a schedule of future minimum lease payments, by year and in the aggregate, under capital leases and noncancellable operating leases with initial or remaining terms of one year or more at December 31, 1997:
Capital Leases Operating Leases -------------- ---------------- (In thousands) 1998.............................. $ 43 $ 2,031 1999 ............................. 7 1,474 2000 ............................. - 1,234 2001.............................. - 950 2002.............................. - 720 Thereafter........................ - 1,564 ----- ----- Total minimum lease payments...... 50 $7,973 ====== Less amounts representing interest (3) ----- Present value of net minimum lease payments ($40 current portion)............ $ 47 =====
Equipment acquired under capital leases approximated $140,000 in 1995. Rent expense for all operating leases was approximately $2,118,000, $1,498,000 and $897,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
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NOTE F -- STOCKHOLDERS' EQUITY
Common Stock: In August 1996 the Company completed a secondary public offering of 1,437,500 shares of common stock at a price of $17.00 per share. Expenses related to this offering were approximately $1,806,000.
Director Share Purchase Program: In April 1993, the Company established a Director Share Purchase Program (the "Program") to encourage ownership of its common stock by its directors. Under the Program, each non-employee director can elect to forego receipt of cash payments for director's annual retainer and meeting fees and, in lieu thereof, receive shares of common stock at market value equal to the cash payment. The Program authorized the issuance of up to 120,000 shares of the Company's common stock at market value. At December 31, 1997 and 1996, 118,406 shares of common stock were reserved for future issuance under the Program.
Warrants: In August 1995, the Company exchanged 5,803 shares of common stock for 12,500 shares issuable under warrants originally issued in connection with a working capital loan agreement entered into December 1990 and terminated in October 1991. In April 1996, the Company exchanged 102,608 shares of common stock for 166,667 shares issuable under a bridge financing agreement entered into in April 1991 and terminated upon the closing of the Company's 1991 initial public offering. There was no cash exchanged in either transaction. As of December 31, 1997 and 1996, all outstanding warrants have been exercised.
Rights Plan: On October 25, 1995, the Board of Directors of the Company declared a dividend of one preferred share purchase right per share for each outstanding share of common stock of the Company. The dividend was paid on November 6, 1995 to shareholders of record on that date. Under certain circumstances each right may be exercised to purchase one-one hundredth of a share of Series A Junior Participating Preferred Stock, par value $.01, of the Company for $65. The rights which are redeemable by the Company at $.01 per right expire in November 2005. The purchase right issued under the Company's Rights Agreement dated October 22, 1995 provides the holder "in the event of (i) the acquisition of 15% or more of the Company's outstanding common stock by an Acquiring Person (as defined in the Rights Agreement), (ii) the commencement of a tender offer or exchange offer which results in a person or group owning 15% or more of the Company's common stock, to exercise each right (other than rights held by an Acquiring Person) to purchase common stock of the Company or a successor company with a market value of twice the $65 exercise price.
NOTE G -- STOCK BASED COMPENSATION PLANS
The Company has stock option plans which provide for the granting of non-qualified or incentive options to employees, directors, consultants and advisors. The plans authorize granting of up to 2,581,695 shares of the Company's common stock at the market value at the date of such grants. All options are exercisable at times as determined by the Board of Directors not to exceed ten years after the grant date.
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations ("APB 25") in accounting for its stock options because, as discussed below, the alternative fair value accounting provided for under Statement of FASB No. 123, "Accounting for Stock-Based Compensation", requires use of option valuation models that were not developed for use in valuing such stock options. Under APB 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and net income per share is required by Statement 123, and has been determined as if the Company has accounted for its stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions at December 31, 1997, 1996 and 1995 respectively: risk-free interest rate of 5.61%, 6.36% and 6.36%; no dividend yields; volatility factor of the expected market price of
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NOTE G -- STOCK BASED COMPENSATION PLANS (Continued)
the Company's common stock of 58.0%, 62.2% and 62.2%; and a weighted-average expected life of the options of 4.0 years.
The Black-Scholes option valuation model was developed for use in estimating fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. The Company's pro forma information is as follows: (in thousands, except per share data) 1997 1996 1995 Net Income: As Reported $ 16,462 $ 10,695 $ 4,210 Pro Forma 14,949 10,088 4,126 Basic EPS: As Reported $ 1.33 $ .95 $ .41 Pro Forma 1.21 .90 .40 Diluted EPS: As Reported $ 1.27 $ .90 $ .39 Pro Forma 1.15 .85 .38
As required by FASB No. 123, the fair value method of accounting has not been applied to options granted prior to January 1, 1995. As a result, the pro forma compensation cost may not be representative of that to be expected in future years.
Information as to options for shares of common stock granted as of December 31, 1997, 1996 and 1995 is as follows:
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NOTE G -- STOCK BASED COMPENSATION PLANS (Continued)
The following table summarizes information about stock options outstanding at December 31, 1997: Weighted Average Options Options Remaining Exercise Price Outstanding Exercisable Contractual Life (InYears)
$ 1.55 - $ 4.75 188,228 78,038 4.9 4.875 - 7.00 148,800 47,400 5.4 8.50 - 10.125 85,200 50,250 7.5 13.25 - 20.00 151,811 78,980 8 20.25 - 27.25 311,575 83,635 8.7 27.50 - 33.06 468,000 0 9.5 ------- ------ --- 1,353,614 338,303 6.7 ========= ======= ===
At December 31, 1997, 1,435,172 shares of common stock were reserved for future issuance.
NOTE H -- INCOME TAXES
Deferred income taxes are determined on the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are determined based on the difference between the tax basis of an asset or liability and its reported amount in the consolidated financial statements using enacted tax rates. Future tax benefits attributable to these differences are recognized to the extent that realization of such benefits is more likely than not.
Significant components of the Company's deferred tax assets as of December 31, 1997 and 1996 are as follows: 1997 1996
Accrued expenses, deductible when paid $ 1,032 $ 366 Book over tax depreciation 203 163 Net operating loss carryforwards - 5,600 ----- ----- 1,235 6,129 Valuation allowance - (6,129) Net deferred tax assets $ 1,235 $ -0-
The Company reduced its valuation allowance for deferred tax assets by $5,871,000 and $500,000 during the years ended December 31, 1996 and 1995, respectively.
Significant components of the provision (benefit) for income taxes are presented below:
1997 1996 1995 ------------------------ Current: Federal $ 7,340 $ 4,553 $ 1,161 State 1,050 780 137 Deferred (1,235) - - Utilization of net operating loss carryforwards (3,862) (4,325) (1,079) ------ ------ ------ Total Income Tax Provision $ 3,293 $ 1,008 $ 219 ======== ======== ======== F - 11
NOTE H -- INCOME TAXES (Continued)
A reconciliation of the Federal statutory tax rate with the effective tax rate is as follows:
1997 1996 1995 ------------------------
Federal statutory tax rate 35.0% 35.0% 35.0% State income taxes net of Federal benefit 3.5% 4.0% 2.0% Reduction in valuation allowance (6.2%) - - Tax benefit of net operating loss carryforwards (23.0%) (30.0%) (31.0%) Other 7.4% - - ----- ----- ----- Effective Tax Rate 16.7% 9.0% 5.0% ===== ===== =====
NOTE I -- LOANS PAYABLE AND LONG TERM DEBT
In December 1992, the Company's German subsidiary entered into a 1.4 million deutsche mark (dm) revolving credit facility. In April 1994, this facility was increased to approximately 1.9 million dm, with 1.4 million dm converted to a term loan due in May 1998, and .5 million dm as a revolving credit facility reviewed for renewal annually. The facility provides for 10.0% interest on outstanding balances. The Company was a guarantor of this long-term facility for up to 1.4 million dm (approximately $1.0 million outstanding at December 31, 1996). In May 1995, the Company sold its 62% interest in its German subsidiary. As part of the sale agreement the Company continued to guarantee the long term loan and assumed responsibility for the interest payments on that loan. In March 1997, the Company paid off the revolving credit facility and no longer guarantees any debt of the former subsidiary.
NOTE J -- MAJOR CUSTOMERS
In 1995, 1996 and 1997, the Company derived 24%, 28% and 29% of its consolidated revenues from one customer, respectively.
NOTE K -- LEGAL PROCEEDINGS
In December 1994, the Company entered into a settlement agreement with the United States Department of Health and Human Services in connection with claims raised under the Civil False Claims Act against the Company and UltraMed, a former subsidiary which was sold in February 1994.
Under the settlement agreement UltraMed agreed to pay $2.1 million to the United States, payable in equal semi annual installments through 1997 and the Company guaranteed the obligations of UltraMed to the United States. The Company advanced $0.3 million to UltraMed in 1994 in order for UltraMed to meet the initial obligations under the settlement agreement. In connection with the guarantee, the Company made payments totaling $1.6 million in 1995 to fully satisfy the obligation. The Company charged operations $0.7 million in 1994 and $1.2 million in 1995 related to the obligation. The payments and related charges to operations were made as a result of the inability of UltraMed to liquidate its assets at previously estimated values and the continuing deterioration of the UltraMed business.
On December 6, 1996, the United States District Court for the Eastern District of New York approved the class action settlement in a lawsuit filed against the Company and certain of its officers by a shareholder. The settlement disposed of allegations by the shareholder that the Company failed to meet its disclosure obligations with respect to certain practices of UltraMed, Inc. The Company denied any liability or wrongdoing and the settlement
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NOTE K -- LEGAL PROCEEDINGS (Continued)
was neither an admission of any liability or wrongdoing by the Company or any of its officers or employees. The action was settled for a total payment of $500,000 of which 50% was paid by the Company's insurer.
The Company, in the ordinary course of business is the subject of or party to various lawsuits, the outcome of which in the opinion of management, will not have a material adverse effect on the consolidated financial statements.
NOTE L -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
1997 1996 1995 -------------------------------- (In thousands) Denominator: Denominator for basic earnings per share, weighted average shares 12,404 11,212 10,192
Effect of dilutive employee stock options 550 697 576 ------ ------ ------
Denominator for diluted earnings per share, adjusted weighted average shares and assumed conversions 12,954 11,909 10,768
The numerator for basic and diluted earnings per share for the years ended December 31, 1997, 1996 and 1995 is the net income for the period.
F - 13
Schedule II
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEAR ENDED DECEMBER 31, 1997
S-1
INDEX TO EXHIBITS
Exhibit No. Description Page No.
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
4.0 Rights Agreement, dated as of October 25, 1995 between Curative Technologies, Inc. and Bank Minnesota, National Association, as Rights Agent (7)
4.1 Stock Purchase Agreement, dated July 6, 1989, among the Company and certain investors named therein (1)(Ex. 4.2)
10.1 Technology Transfer Agreement, dated September 21, 1990, between Curative Technologies GmbH and the Company (1)(Ex. 10.8)
10.2 Contractual Agreement for Wound Healing Product effective as of January 1, 1988, between the Company and the University of Minnesota Hospital and Clinic (1)(Ex. 10.17)
10.3 Form of Wound Care Center(R)Contract (1)(Ex. 10.18)
10.4 Lease Agreement dated June 13, 1989, between In-House Partners and the Company (1)(Ex. 10.21)
10.5 Employment Agreement, dated as of September 1, 1997 between John C. Prior and the Company *
10.6 1991 Stock Option Plan (1)(Ex. 10.27)**
10.7 Amendment No.3 to the 1991 Stock Option Plan (2)**
10.8 Amended and Restated Bridge Financing Commitment Agreement, dated April 30, 1991, with a form of warrant attached (1)(Ex. 10.28)
10.8.1 Amendment to Stock Subscription Warrant for Shares of Common Stock of Curative Technologies, Inc. (9)
10.9 Curative Health Services, Inc., Director Share Purchase Program (3)**
10.10 Employment Agreement, dated as of October 21, 1993, between Howard Jones and the Company (4)**
10.11 Curative Health Services, Inc. Employee 401(k) Savings Plan, as amended and restated (5)**
10.12 Settlement Agreement by and between the University of California, David R. Knighton and the Company dated September 1, 1993 (6)
10.13 Settlement Agreement by and among the United States of America and UltraMed, Inc., Robert Baurys, Susan Hrim, Cy Corgan, Chris Rosenski and the Company dated October 18, 1994 and related agreements (6)
10.14 Amendment of Employment Agreement, dated September 1, 1997 between John Vakoutis and the Company *
10.15 Employment Agreement dated as of September 1, 1997, between Carol Gleber and the Company *
10.16 Employment Agreement dated as of June 17, 1987, between Gary Jensen and the Company (6)**
10.17 Memorandum of Understanding-Settlement of Shareholder Lawsuit (10)
10.18 Final Judgment and Order of Dismissal with Prejudice of Class Action (11)
10.19 Curative Technologies, Inc. Non-Employee Director Stock Option Plan (8)
22. Subsidiaries of the Registrant *
23. Consent of Ernst & Young LLP *
* Filed herewith ** Required to be filed pursuant to Item 601(b)(10)(ii)or(iii) (A) of Regulation S-K. (1) Incorporated by reference to the similarly numbered exhibit (unless otherwise indicated) to the Company's Registration Statement on Form S-1 (No. 33-39880). (2) Incorporated by reference to Exhibit 10.25.1 to the Company's Quarterly Report's on Form 10-Q for the quarter ended June 30,1996. (3) Incorporated by reference to the Company's Registration Statement on Form S-8 (filed July 7, 1993, No. 33-65710). (4) Incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K filed for the year ended December 31, 1993. (5) Incorporated by reference to the Company's Registration Statement on Form S-8 (filed October 13, 1994, No. 33-85188). (6) Incorporated by reference to the similarly numbered exhibit to the Company's Annual Report on Form 10-K filed for the year ended December 31, 1994. (7) Incorporated by reference to similarly numbered exhibit to the Company's Current Report on Form 8-K dated November 6, 1995. (8) Incorporated by reference to Exhibit 10.25.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. (9) Incorporated by reference to Exhibit 25.1 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. (10) Incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K filed for the year ended December 31, 1995. (11) Incorporated by reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K filed for the year ended December 31, 1996.
Exhibit 22
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all of the subsidiaries of the registrant:
1. Wound Care Centers(R) of America Incorporated, organized under the laws of Delaware.
2. CHS Services, Inc., organized under the laws of Delaware.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-54880) pertaining to the Curative Health Services, Inc. and subsidiaries 1991 Stock Option Plan, as amended, in the Registration Statement (Form S-8 No. 33-19370) pertaining to the Curative Health Services, Inc. and subsidiaries Director Share Purchase Program and in the Registration Statement (Form S-8 No. 33-85188) pertaining to the Curative Health Services, Inc. and subsidiaries Employee 401(k) Savings Plan of our report dated February 9, 1998, with respect to the consolidated financial statements and schedule of Curative Health Services, Inc. and subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Melville, New York March 27, 1998
Exhibit 10.14
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of September 1, 1997 (the "Effective Date"), between CURATIVE HEALTH SERVICES, INC., a Minnesota corporation (the "Company"), and JOHN VAKOUTIS ("Executive").
WHEREAS, the Executive has been in the employ of the Company pursuant to that certain Employment Agreement (the "Original Agreement") dated as of October 26, 1994, as amended, on the terms and conditions set forth therein;
WHEREAS, the Company recognizes that Executive's contribution to the growth and success of the Company has been substantial and therefore desires to assure the Company of Executive's continued employment; and
WHEREAS, based on the foregoing, the Company and Executive now wish to amend and restate the terms of the Original Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements herein contained, the Company and Executive hereby agree that the Original Agreement shall be and is hereby amended and restated in its entirety to read as follows:
1. Employment
1.1 Employment and Duties. The Company hereby agrees to employ Executive for the Term (as hereinafter defined) as President and Chief Executive Officer, subject to the direction of the Board of Directors, and in connection therewith, to perform such duties as he shall reasonably be directed by the Board of Directors to perform. Executive hereby accepts such employment and agrees to render such services. Executive shall perform his duties and carry out his responsibilities hereunder in a diligent manner, shall devote his exclusive and full working time, attention and effort to the affairs of the Company, shall use his best efforts to promote the interests of the Company and shall be just and faithful in the performance of his duties and in carrying out his responsibilities.
1.2 Location. The principal location for performance of Executive's services hereunder shall be at the Company's executive offices, which are currently located in East Setauket, New York, subject to reasonable travel requirements during the course of such performance.
1.3 Board of Directors. Executive agrees to accept election and to serve during all or any part of the Term as a director of the Company and of any subsidiary or affiliate of the Company, without any compensation therefor other than that specified herein, if elected to any such position by the Board of Directors or by the stockholders of the Company or of any subsidiary or affiliate, as the case may be. The Company will use its best efforts to cause and maintain the election of Executive to the Company's Board of Directors. In connection therewith, the Company shall use its best efforts to include Executive in the management slate for election as a director at every annual meeting of shareholders of the Company at which his term as a director would otherwise expire. Upon the termination of this Agreement or Executive's employment hereunder for any reason, Executive shall resign from the Board and from all other positions as an officer or director of any of the Company's subsidiaries or affiliates.
2. Employment Term
The term of Executive's employment hereunder (the "Term") shall be deemed to commence on the Effective Date and shall end on the first anniversary of the Effective Date, unless sooner terminated as hereinafter provided; provided, however, that the Term shall be automatically renewed and extended for an additional period of one (1) year on each anniversary thereafter unless either party gives a Notice of Termination (as defined below) to the other party at least three (3) months prior to such anniversary.
3. Compensation and Benefits
3.1 Cash Compensation.
Base Salary. The Company shall pay Executive an annual salary of $285,000 payable in bi-weekly installments, in arrears (the "Base Salary"). The Base Salary shall be reviewed annually by the Company's Board of Directors and may be increased, but not decreased (unless mutually agreed upon by Executive and the Company).
(b) Bonus Plan. Executive shall be entitled to participate in the Company's Executive Bonus Compensation Program, in accordance with and subject to the terms and provisions thereof.
3.2 Participation in Benefit Plans. Executive shall be entitled to participate in all employee benefit plans or programs of the Company to the extent that his position, title, tenure, salary, age, health and other qualifications make him eligible to participate. The Company does not guarantee the continuance of any particular employee benefit plan or program during the Term, and Executive's participation in any such plan or program shall be subject to all terms, provisions, rules and regulations applicable thereto. Executive will be entitled to twenty (20) days of vacation per year, to be used in accordance with the Company's vacation policy for senior executives as it may change from time to time. For the Benefit Period, if any, (as hereinafter defined), the Company will arrange to provide Executive with welfare benefits (including life and health insurance benefits) of substantially similar design and cost to Executive as the welfare benefits and other employee benefits available to Executive prior to Executive's or the Company's, as the case may be, receipt of Notice of Termination (as hereinafter defined). In the event that Executive shall obtain full-time employment providing welfare benefits during the Benefit Period, such benefits as otherwise receivable hereunder by Executive shall be discontinued.
3.3 Expenses. The Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement. Executive shall keep detailed and accurate records of expenses incurred in connection with the performance of his duties hereunder and reimbursement therefor shall be in accordance with policies and procedures to be established from time to time by the Board.
3.4 Automobile Expenses. During the Term, Executive shall be entitled to the use of an automobile leased in the name of the Company. The Executive shall be repaid by the Company for all automobile expenses incurred by the Executive in the performance of his duties under this Agreement.
4. Termination of Employment
4.1 Definitions
(a) "Benefit Period" shall mean (i) the twenty-four (24) month period commencing on the Date of Termination which occurs in connection with a termination of employment described in the first sentence of Section 4.5(a), or (ii) the period consisting of the remainder, if any, of the then current Term in which occurs a termination of employment described in the first sentence of Section 4.5(b), plus the immediately succeeding twenty-four (24) month period.
(b) "Cause" shall mean any of the following:
(i) any act or failure to act (or series or combination thereof) by Executive done with the intent to harm in any material respect to the interests of the Company;
(ii) the commission by Executive of a felony;
(iii)the perpetration by Executive of a dishonest act or common law fraud against the Company or any subsidiary thereof;
(iv) a grossly negligent act or failure to act (or series or combination thereof) by Executive detrimental in any material respect to the interests of the Company;
(v) the material breach by Executive of his agreements or obligations under this Agreement; or
(vi) the continued refusal to follow the directives of the Board of Directors that are consistent with Executive's duties and responsibilities identified in Section 1.1 hereof.
(c) A "Change of Control" shall mean any of the following:
(i)a sale of all or substantially all of the assets of the Company; (ii) the acquisition of more than eighty percent (80%) of the Common Stock of the Company (with all classes or series thereof treated as a single class) by any person or group of persons, except a Permitted Shareholder (as hereinafter defined), acting in concert. A "Permitted Shareholder" means a holder, as of the date of the Plan was adopted by the Company, of Common Stock;
(iii)a reorganization of the Company wherein the holders of Common Stock of the Company receive stock in another company, a merger of the Company with another company wherein there is an eighty percent (80%) or greater change in the ownership of the Common Stock of the Company as a result of such merger, or any other transaction in which the Company (other than as the parent corporation) is consolidated for federal income tax purposes or is eligible to be consolidated for federal income tax purposes with another corporation;
(iv) in the event that the Common Stock is traded on an established securities market, a public announcement that any person has acquired or has the right to acquire beneficial ownership of fifty-one percent (51%) or more of the then-outstanding Common Stock and for this purpose the terms "person" and "beneficial ownership" shall have the meanings provided in Section 13(d) of the Securities and Exchange Act of 1934 or related rules promulgated by the Securities and Exchange Commission, or the commencement of or public announcement of an intention to make a tender offer or exchange offer for fifty-one percent (51%) or more of the then outstanding Common Stock;
(v) a majority of the Board of Directors is not comprised of Continuing Directors. A "Continuing Director" means a director recommended by the Board of Directors of the Company for election as a director of the Company by the stockholders; or (vi) the Board of Directors of the Company, in its sole and absolute discretion, determines that there has been a sufficient change in the share ownership of the Company to constitute a change of effective ownership or control of the Company.
(d) "Good Reason" shall mean, within the twelve (12) month period immediately following a Change of Control, the occurrence of any one or more of the following events:
(i) the assignment to Executive of any duties inconsistent in any respect with Executive's position (including status, offices, title, and reporting requirements), authority, duties or other responsibilities as in effect immediately prior to the Change of Control or any other action of the Company that results in a diminishment in such position, authority, duties or responsibilities, other than an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice thereof given by Executive;
(ii) a reduction by the Company in Executive's Base Salary as in effect on the date hereof and as the same shall be increased from time to time hereafter;
(iii)the Company's requiring Executive to be based at a location in excess of fifty (50) miles from the location of Executive's principal office immediately prior to the Change of Control;
(iv) the failure by the Company to (a) continue in effect any material compensation or benefit plan, program, policy or practice in which Executive was participating at the time of the Change of Control or (b) provide Executive with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program, policy and practice as in effect immediately prior to the Change of Control (or as in effect following the Change of Control, if greater);
(v) the failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform this Agreement; and
(vi) any purported termination by the Company of Executive's employment that is not effected pursuant to a Notice of Termination (as defined below).
(e) "Date of Termination" shall mean the date specified in the Notice of Termination (as hereinafter defined) (except in the case of Executive's death, in which case Date of Termination shall be the date of death); provided, however, that if Executive's employment is terminated by the Company other than for Cause, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to Executive and if Executive's employment is terminated by Executive for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days from the date the Notice of Termination is given to the Company.
(f) "Notice of Termination" shall mean a written notice either from the Company to Executive, or Executive to the Company, that indicates Section 2 or the specific provision of Section 4 of this Agreement relied upon as the reason for such termination or nonrenewal, the Date of Termination, and, in reasonable detail, the facts and circumstances claimed to provide a basis for termination or nonrenewal pursuant to Section 2 or this Section 4 of this Agreement.
4.2 Termination Upon Death or Disability. This Agreement, and Executive's employment hereunder, shall terminate automatically and without the necessity of any action on the part of the Company upon the death of Executive. In addition, if at any time during the Term Executive shall become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his duties and services hereunder for (i) a period of six (6) consecutive months, or (ii) for shorter periods aggregating six (6) months during any twelve (12) month period, the Company may at any time after the last day of the sixth consecutive month of disability or the day on which the shorter periods of disability shall have equaled an aggregate of six (6) months, by written notice to Executive (but before Executive has recovered from such disability), terminate this Agreement and Executive's employment hereunder.
4.3 Company's and Executive's Right to Terminate--Prior to Change of Control. Prior to a Change of Control, this Agreement and Executive's employment hereunder may be terminated at any time by the Company, with or without Cause, upon thirty (30) days prior written notice to Executive, and by Executive, at any time, upon thirty (30) days prior written notice to the Company. Any termination of Executive's employment by the Company without Cause prior to a Change of Control that occurs at the request or insistence of any person (other than the Company) relating to such Change of Control shall be deemed to have occurred after the Change of Control for the purposes of this Agreement.
4.4 Company's and Executive's Right to Terminate--Following a Change of Control. Following a Change of Control, this Agreement and Executive's employment hereunder may be terminated at any time (i) by the Company, with or without Cause, upon thirty (30) days prior written notice to Executive, and (ii) by Executive for Good Reason upon thirty (30) days prior written notice to the Company. Executive's right to terminate his employment pursuant to this Section 4.4 shall not be affected by incapacity due to physical or mental illness. Executive's continued employment following a Change of Control shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder.
4.5 Compensation Upon Termination.
(a) Termination Prior to Change of Control. In the event the Company terminates (or elects not to renew) this Agreement without Cause, and such termination (or nonrenewal) without Cause occurs prior to any Change of Control, Executive shall be entitled to receive his Base Salary through the Date of Termination, the welfare benefits described in Section 3.2 for the Benefit Period, and not later than thirty (30) days after the Date of Termination, a lump sum severance payment equal to the product of two (2) times the sum of Executive's then Current Base Salary plus the arithmetic average of payments made to Executive pursuant to the Company's Executive Bonus Compensation Program with respect to the three (3) fiscal years immediately preceding the fiscal year in which the Date of Termination occurs. In addition, to the extent not otherwise required under the Company's Stock Option Plan or any award agreement with Executive, any unvested stock option awards theretofore awarded to Executive which would otherwise vest and become exercisable during the twelve (12) month period commencing on the Date of Termination shall vest and become exercisable on the Date of Termination. In the event this Agreement is terminated (or not renewed) for any reason other than by the Company without Cause, and such termination (or nonrenewal) occurs prior to a Change of Control, Executive shall not be entitled to the continuation of any compensation, bonuses or benefits provided hereunder, or any other payments following the Date of Termination, other than Base Salary earned through such Date of Termination.
(b) Termination Following Change of Control. If this Agreement is terminated (or not renewed) (i) by the Company without Cause, or (ii) by Executive for Good Reason during the twelve (12) month period immediately following a Change of Control, and such termination (or nonrenewal) occurs following a Change of Control, Executive shall be entitled to receive his full Base Salary through the Date of Termination, the welfare benefits described in Section 3.2 for the Benefit Period and, not later than thirty (30) days after the Date of Termination, a lump sum severance payment equal to the sum of (a) the Base Salary which would otherwise have been payable for the remainder (if any) of the then current Term, plus (ii) an amount equal the product of two (2) times the sum of Executive's then current annual Base Salary plus the arithmetic average of payments made to Executive pursuant to the Company's Executive Bonus Compensation Program with respect to the three (3) fiscal years immediately preceding the fiscal year in which the Date of Termination occurs. In addition, to the extent not otherwise required under the Company's Stock Option Plan or any award agreement with Executive, any unvested stock option awards theretofore awarded to Executive shall vest and become immediately exercisable in full. In the event this Agreement is terminated (or not renewed) for any reason other than (i) by the Company without Cause, or (ii) by Executive for Good Reason, and such termination (or nonrenewal) occurs following a Change of Control, Executive shall not be entitled to the continuation of any compensation, bonuses or benefits provided hereunder, or any other payments following the Date of Termination, other than Base Salary earned through the Date of Termination.
(c) At Executive's option to be exercised by written notice to the Company, the severance benefits payable under this Section 4.5 shall be paid in accordance with the Company's normal payroll procedures over the twenty-four (24)month or longer period as contemplated by Section 4.5(b), as the case may be, corresponding to the amount of the payments instead of in a lump sum.
(d) Anything to the contrary contained herein notwithstanding, as a condition to Executive receiving severance benefits to be paid pursuant to this Section 4.5, Executive shall execute and deliver to the Company a general release in form and substance reasonably satisfactory to the Company releasing the Company and its officers, directors, employees and agents from all liabilities, claims and obligations of any nature whatsoever, excepting only the Company's obligations under this Agreement, under any Stock Option Award Agreements, and under any other employee benefit plans or programs in which Executive participates under Section 3.2 hereof, subject to all terms and conditions of such plans or programs and this Agreement.
(e) Anything to the contrary contained herein notwithstanding, in the event that any payment or benefit received or to be received by Executive in connection with a Change in Control of the Company or termination of Executive's employment (whether payable pursuant to the terms of this Agreement or any other plan, contract, agreement or arrangement with the Company, with any person whose actions result in a Change in Control of the Company or with any person constituting a member of an "affiliated group" as defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended (the "Code"), with the Company or with any person whose actions result in a Change in Control of the Company (collectively, the "Total Payments")) would not be deductible (in whole or in part) by the Company or such other person making such payment or providing such benefit solely as a result of Section 280G of the Code, the amount payable to Executive pursuant to this Section 4.5 shall be reduced until no portion of the Total Payments is not deductible solely as a result of Section 280G of the Code or such amount payable to Executive pursuant to Section 4.5 is reduced to zero. For purposes of this limitation, (a) no portion of the Total Payments the receipt or enjoyment of which Executive shall have effectively waived in writing prior to the date of payment of the amount pursuant to Section 4.5 shall be taken into account; (b) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company and reasonably acceptable to Executive does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code; (c) the payment pursuant to Section 4.5 shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in the immediately preceding clause (b)) in their entirety constitute reasonable compensation within the meaning of Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to in the immediately preceding clause (b); and (d) the value of any other non-cash benefit or of any deferred cash payment included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
5. Employment Covenants
5.1 Trade Secrets and Confidential Information. Executive agrees that he shall, during the course of his employment and thereafter, hold inviolate and keep secret all documents, materials, knowledge or other confidential business or technical information of any nature whatsoever disclosed to or developed by him or to which he had access as a result of his employment (hereinafter referred to as "Confidential Information"). Such Confidential Information shall include technical and business information, including, but not limited to, inventions, research and development, engineering, products, designs, manufacture, methods, systems, improvements, trade secrets, formulas, processes, marketing, merchandising, selling, licensing, servicing, customer lists, records or financial information, manuals or Company strategy concerning its business, strategy or policies. Executive agrees that all Confidential Information shall remain the sole and absolute property of the Company. During the course of his employment, Executive shall not use, disclose, disseminate, publish, reproduce or otherwise make available such Confidential Information to any person, firm, corporation or other entity, except for the purpose of conducting business on behalf of the Company. Following the Term, Executive shall not use, disclose, disseminate, publish, reproduce or otherwise make available such Confidential Information to any person, firm, corporation or other entity. Upon termination of his employment with the Company, Executive will leave with or deliver to the Company all records and any compositions, articles, devices, equipment and other items which disclose or embody Confidential Information including all copies or specimens thereof, whether prepared by him or by others. The foregoing restrictions on disclosure of Confidential Information shall apply so long as the information has not properly come into the public domain through no action of Executive.
5.2 Transfer of Inventions. Executive, for himself and his heirs and representatives, will promptly communicate and disclose to the Company, and upon request will, without additional compensation, execute all papers reasonably necessary to assign to the Company or the Company's nominees, free of encumbrance or restrictions, all inventions, discoveries, improvements, whether patentable or not, conceived or originated by Executive solely or jointly with others, at the Company's expense or at the Company's facilities, or at the Company's request, or in the course of his employment, or based on knowledge or information obtained during the Term. All such assignments shall include the patent rights in this and all foreign countries. Notwithstanding the foregoing, this Section 5.2 shall not apply to any invention for which no equipment, supplies, facilities or trade secret information of the Company was used and which was developed entirely on Executive's own time and (a) that does not relate (1) directly to the business of the Company or (2) to the Company's actual or demonstrably anticipated research or development, or (b) that does not result from any work performed by Executive for the Company.
5.3 Exclusivity of Employment. During the Term, Executive shall not directly or indirectly engage in any activity competitive with or adverse to the Company's business or welfare or render a material level of services of a business, professional or commercial nature to any other person or firm, whether for compensation or otherwise.
5.4 Covenant Not to Compete. Executive agrees to be bound and abide by the following covenant not to compete:
Term and Scope. During his employment with the Company and for a period of two (2) years after the Term, Executive will not render to any Conflicting Organization (as hereinafter defined), services, directly or indirectly, anywhere in the world in connection with any Conflicting Product, except that Executive may accept employment with a large Conflicting Organization whose business is diversified (and which has separate and distinct divisions) if Executive first certifies to the Board of Directors in writing that he has provided a copy of Section 5 of this Agreement to such prospective employer, that such prospective employer is a separate and distinct division of the Conflicting Organization and that Executive will not render services directly or indirectly in respect of any Conflicting Product (as hereinafter defined). Such two-year time period shall be tolled during any period that Executive is engaged in activity in violation of this covenant.
Judicial Action. Executive and the Company agree that, if the period of time or the scope of the restrictive covenant not to compete contained in this Section 5.4 shall be adjudged unreasonable in any court proceeding, then the period of time and/or scope shall be reduced accordingly, so that this covenant may be enforced in such scope and during such period of time as is judged by the court to be reasonable. In the event of a breach or violation of this Section 5.4 by Executive, the parties agree than in addition to all other remedies, the Company shall be entitled to equitable relief for specific performance, and Executive hereby agrees and acknowledges that the Company has no adequate remedy at law for the breach of the covenants contained herein. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
"Conflicting Product" means any product, method or process, system or service of any person or organization other than the Company, in existence or under development at the time Executive's employment with the Company terminates, that is the same as or similar to or competes with a product, method or process, system or service of or provided by the Company or any of its affiliates or about which Executive acquires Confidential Information.
"Conflicting Organization" means any person or organization which is engaged in or about to become engaged in, research on or development, production, marketing, licensing, selling or servicing of a Conflicting Product.
5.5 Disclosure to Prospective Employers. Executive will disclose to any prospective employer, prior to accepting employment, the existence of Section 5 of this Agreement. The obligation imposed by this Section 5.5 shall terminate two (2) years after termination of Executive's employment with the Company; provided, however, the running of such two-year period shall be tolled to the extent the covenant not to compete contained in Section 5.4(a) hereof is tolled.
6. Miscellaneous
6.1 Notices. Any notice required or permitted to be delivered hereunder shall be in writing and shall be deemed to be delivered on the earlier of (i) the date received, or (ii) the date of delivery, refusal or non-delivery indicated on the return receipt, if deposited in a United States Postal Service depository, postage prepaid, sent registered or certified mail, return receipt requested, addressed to the party to receive the same at the address of such party set forth below, or at such other address as may be designated in a notice delivered or mailed as herein provided.
To Company: Curative Health Services, Inc. 14 Research Way Box 9052 East Setauket, New York 11733-9052
Executive: John Vakoutis 35 Beach Road Belle Terre, New York 11777
6.2 Headings. The headings of the articles and sections of this Agreement are inserted for convenience only and shall not be deemed a part of or affect the construction or interpretation of any provision hereof.
6.3 Modifications; Waiver. No modification of any provision of this Agreement or waiver of any right or remedy herein provided shall be effective for any purpose unless specifically set forth in a writing signed by the party to be bound thereby. No waiver of any right or remedy in respect of any occurrence or event on one occasion shall be deemed a waiver of such right or remedy in respect of such occurrence or event on any other occasion.
6.4 Entire Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all other agreements, oral or written, heretofore made with respect thereto, including, without limitation, the Original Agreement.
6.5 Severability. Any provision of this Agreement prohibited by or unlawful or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be ineffective without affecting any other provision hereof. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived, to the end that this Employment Agreement be deemed to be a valid and binding agreement enforceable in accordance with its terms.
6.6 Controlling Law. This Agreement has been entered into by the parties in the State of New York and shall be continued and enforced in accordance with the laws of that State.
6.7 Assignments. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder to any entity that controls the Company, that the Company controls or that may be the result of the merger, consolidation, acquisition or reorganization of the Company and another entity. Executive agrees that this Agreement is personal to him and his rights and interest hereunder may not be assigned, nor may his obligations and duties hereunder be delegated (except as to delegation in the normal course of operation of the Company), and any attempted assignment or delegation in violation of this provision shall be void.
6.8 Attorney Fees. In the event of litigation between the parties, to enforce their respective rights under this Agreement, the prevailing party shall be entitled to receive from the non-prevailing party reimbursement of the prevailing party's reasonable attorney's fees and costs at all levels of trial and appeal.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
CURATIVE HEALTH SERVICES, INC.
By: Its: Chairman
Executive
Exhibit 10.15
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of September 1, 1997 (the "Effective Date"), between CURATIVE HEALTH SERVICES, INC., a Minnesota corporation (the "Company"), and CAROL GLEBER ("Executive").
WHEREAS, the Executive has been in the employ of the Company pursuant to that certain Employment Agreement (the "Original Agreement") dated as of August 1, 1989, as amended, on the terms and conditions set forth therein;
WHEREAS, the Company recognizes that Executive's contribution to the growth and success of the Company has been substantial and therefore desires to assure the Company of Executive's continued employment; and
WHEREAS, based on the foregoing, the Company and Executive now wish to amend and restate the terms of the Original Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements herein contained, the Company and Executive hereby agree that the Original Agreement shall be and is hereby amended and restated in its entirety to read as follows:
1. Employment
1.1 Employment and Duties. The Company hereby agrees to employ Executive for the Term (as hereinafter defined) as Senior Vice President and Chief Operating Officer, subject to the direction of the President, and in connection therewith, to perform such duties as she shall reasonably be directed by the President to perform. Executive hereby accepts such employment and agrees to render such services. Executive shall perform her duties and carry out her responsibilities hereunder in a diligent manner, shall devote her exclusive and full working time, attention and effort to the affairs of the Company, shall use her best efforts to promote the interests of the Company and shall be just and faithful in the performance of her duties and in carrying out her responsibilities.
1.2 Location. The principal location for performance of Executive's services hereunder shall be at the Company's office in Dallas, Texas, subject to reasonable travel requirements during the course of such performance.
2. Employment Term
The term of Executive's employment hereunder (the "Term") shall be deemed to commence on the Effective Date and shall end on the first anniversary of the Effective Date, unless sooner terminated as hereinafter provided; provided, however, that the Term shall be automatically renewed and extended for an additional period of one (1) year on each anniversary thereafter unless either party gives a Notice of Termination (as defined below) to the other party at least three (3) months prior to such anniversary.
3. Compensation and Benefits
3.1 Cash Compensation.
Base Salary. The Company shall pay Executive an annual salary of $210,000 payable in bi-weekly installments, in arrears (the "Base Salary"). The Base Salary shall be reviewed annually by the Company's Board of Directors and may be increased, but not decreased (unless mutually agreed upon by Executive and the Company).
(b) Bonus Plan. Executive shall be entitled to participate in the Company's Executive Bonus Compensation Program, in accordance with and subject to the terms and provisions thereof.
3.2 Participation in Benefit Plans. Executive shall be entitled to participate in all employee benefit plans or programs of the Company to the extent that her position, title, tenure, salary, age, health and other qualifications make her eligible to participate. The Company does not guarantee the continuance of any particular employee benefit plan or program during the Term, and Executive's participation in any such plan or program shall be subject to all terms, provisions, rules and regulations applicable thereto. Executive will be entitled to twenty (20) days of vacation per year, to be used in accordance with the Company's vacation policy for senior executives as it may change from time to time. For the Benefit Period, if any, (as hereinafter defined), the Company will arrange to provide Executive with welfare benefits (including life and health insurance benefits) of substantially similar design and cost to Executive as the welfare benefits and other employee benefits available to Executive prior to Executive's or the Company's, as the case may be, receipt of Notice of Termination (as hereinafter defined). In the event that Executive shall obtain full-time employment providing welfare benefits during the Benefit Period, such benefits as otherwise receivable hereunder by Executive shall be discontinued.
3.3 Expenses. The Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by her in the performance of her duties under this Agreement. Executive shall keep detailed and accurate records of expenses incurred in connection with the performance of her duties hereunder and reimbursement therefor shall be in accordance with policies and procedures to be established from time to time by the Board.
3.4 Automobile Expenses. During the Term, Executive shall be entitled to the use of an automobile leased in the name of the Company. The Executive shall be repaid by the Company for all automobile expenses incurred by the Executive in the performance of her duties under this Agreement.
4. Termination of Employment
4.1 Definitions
(a) "Benefit Period" shall mean (i) the twelve (12) month period commencing on the Date of Termination which occurs in connection with a termination of employment described in the first sentence of Section 4.5(a), or (ii) the twenty-four (24) month period commencing on the Date of Termination which occurs in connection with a termination of employment described in the first sentence of Section 4.5(b).
(b) "Cause" shall mean any of the following:
(i) any act or failure to act (or series or combination thereof) by Executive done with the intent to harm in any material respect to the interests of the Company;
(ii) the commission by Executive of a felony;
(iii)the perpetration by Executive of a dishonest act or common law fraud against the Company or any subsidiary thereof;
(iv) a grossly negligent act or failure to act (or series or combination thereof) by Executive detrimental in any material respect to the interests of the Company;
(v) the material breach by Executive of her agreements or obligations under this Agreement; or
(vi) the continued refusal to follow the directives of the President or Board of Directors that are consistent with Executive's duties and responsibilities identified in Section 1.1 hereof.
(c) A "Change of Control" shall mean any of the following:
(i) a sale of all or substantially all of the assets of the Company; (ii) the acquisition of more than eighty percent (80%) of the Common Stock of the Company (with all classes or series thereof treated as a single class) by any person or group of persons, except a Permitted Shareholder (as hereinafter defined), acting in concert. A "Permitted Shareholder" means a holder, as of the date of the Plan was adopted by the Company, of Common Stock;
(iii)a reorganization of the Company wherein the holders of Common Stock of the Company receive stock in another company, a merger of the Company with another company wherein there is an eighty percent (80%) or greater change in the ownership of the Common Stock of the Company as a result of such merger, or any other transaction in which the Company (other than as the parent corporation) is consolidated for federal income tax purposes or is eligible to be consolidated for federal income tax purposes with another corporation;
(iv) in the event that the Common Stock is traded on an established securities market, a public announcement that any person has acquired or has the right to acquire beneficial ownership of fifty-one percent (51%) or more of the then-outstanding Common Stock and for this purpose the terms "person" and "beneficial ownership" shall have the meanings provided in Section 13(d) of the Securities and Exchange Act of 1934 or related rules promulgated by the Securities and Exchange Commission, or the commencement of or public announcement of an intention to make a tender offer or exchange offer for fifty-one percent (51%) or more of the then outstanding Common Stock;
(v) a majority of the Board of Directors is not comprised of Continuing Directors. A "Continuing Director" means a director recommended by the Board of Directors of the Company for election as a director of the Company by the stockholders; or
(vi) the Board of Directors of the Company, in its sole and absolute discretion, determines that there has been a sufficient change in the share ownership of the Company to constitute a change of effective ownership or control of the Company.
(d) "Good Reason" shall mean, within the twelve (12) month period immediately following a Change of Control, the occurrence of any one or more of the following events:
(i) the assignment to Executive of any duties inconsistent in any respect with Executive's position (including status, offices, title, and reporting requirements), authority, duties or other responsibilities as in effect immediately prior to the Change of Control or any other action of the Company that results in a diminishment in such position, authority, duties or responsibilities, other than an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice thereof given by Executive; (ii) a reduction by the Company in Executive's Base Salary as in effect on the date hereof and as the same shall be increased from time to time hereafter;
(iii)the Company's requiring Executive to be based at a location in excess of fifty (50) miles from the location of Executive's principal office immediately prior to the Change of Control;
(iv) the failure by the Company to (a) continue in effect any material compensation or benefit plan, program, policy or practice in which Executive was participating at the time of the Change of Control or (b) provide Executive with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program, policy and practice as in effect immediately prior to the Change of Control (or as in effect following the Change of Control, if greater);
(v) the failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform this Agreement; and
(vi) any purported termination by the Company of Executive's employment that is not effected pursuant to a Notice of Termination (as defined below).
(e) "Date of Termination" shall mean the date specified in the Notice of Termination (as hereinafter defined) (except in the case of Executive's death, in which case Date of Termination shall be the date of death); provided, however, that if Executive's employment is terminated by the Company other than for Cause, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to Executive and if Executive's employment is terminated by Executive for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days from the date the Notice of Termination is given to the Company.
(f) "Notice of Termination" shall mean a written notice either from the Company to Executive, or Executive to the Company, that indicates Section 2 or the specific provision of Section 4 of this Agreement relied upon as the reason for such termination, the Date of Termination, and, in reasonable detail, the facts and circumstances claimed to provide a basis for termination or nonrenewal pursuant to Section 2 or this Section 4 of this Agreement.
4.2 Termination Upon Death or Disability. This Agreement, and Executive's employment hereunder, shall terminate automatically and without the necessity of any action on the part of the Company upon the death of Executive. In addition, if at any time during the Term Executive shall become physically or mentally disabled, whether totally or partially, so that she is unable substantially to perform her duties and services hereunder for (i) a period of six (6) consecutive months, or (ii) for shorter periods aggregating six (6) months during any twelve (12) month period, the Company may at any time after the last day of the sixth consecutive month of disability or the day on which the shorter periods of disability shall have equaled an aggregate of six (6) months, by written notice to Executive (but before Executive has recovered from such disability), terminate this Agreement and Executive's employment hereunder.
4.3 Company's and Executive's Right to Terminate--Prior to Change of Control. Prior to a Change of Control, this Agreement and Executive's employment hereunder may be terminated at any time by the Company, with or without Cause, upon thirty (30) days prior written notice to Executive, and by Executive, at any time, upon thirty (30) days prior written notice to the Company. Any termination of Executive's employment by the Company without Cause prior to a Change of Control that occurs at the request or insistence of any person (other than the Company) relating to such Change of Control shall be deemed to have occurred after the Change of Control for the purposes of this Agreement.
4.4 Company's and Executive's Right to Terminate--Following a Change of Control. Following a Change of Control, this Agreement and Executive's employment hereunder may be terminated at any time (i) by the Company, with or without Cause, upon thirty (30) days prior written notice to Executive, and (ii) by Executive for Good Reason upon thirty (30) days prior written notice to the Company-. Executive's right to terminate her employment pursuant to this Section 4.4 shall not be affected by incapacity due to physical or mental illness. Executive's continued employment following a Change of Control shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder.
4.5 Compensation Upon Termination.
(a) Termination Prior to Change of Control. In the event the Company terminates (or elects not to renew) this Agreement without Cause, and such termination (or nonrenewal) without Cause occurs prior to any Change of Control, Executive shall be entitled to receive her Base Salary through the Date of Termination, the welfare benefits described in Section 3.2 for the Benefit Period, and not later than thirty (30) days after the Date of Termination, a lump sum severance payment equal to the sum of Executive's then Current Base Salary plus the arithmetic average of payments made to Executive pursuant to the Company's Executive Bonus Compensation Program with respect to the three (3) fiscal years immediately preceding the fiscal year in which the Date of Termination occurs. In addition, to the extent not otherwise required under the Company's Stock Option Plan or any award agreement with Executive, any unvested stock option awards theretofore awarded to Executive which would otherwise vest and become exercisable during the twelve (12) month period commencing on the Date of Termination shall vest and become exercisable on the Date of Termination. In the event this Agreement is terminated (or not renewed) for any reason other than by the Company without Cause, and such termination (or nonrenewal) occurs prior to a Change of Control, Executive shall not be entitled to the continuation of any compensation, bonuses or benefits provided hereunder, or any other payments following the Date of Termination, other than Base Salary earned through such Date of Termination.
(b) Termination Following Change of Control. If this Agreement is terminated (or not renewed) (i) by the Company without Cause, or (ii) by Executive for Good Reason during the twelve (12) month period immediately following a Change of Control, -and such termination (or nonrenewal) occurs following a Change of Control, Executive shall be entitled to receive her full Base Salary through the Date of Termination, the welfare benefits described in Section 3.2 for the Benefit Period and, not later than thirty (30) days after the Date of Termination, a lump sum severance payment equal to the product of two (2) times the sum of Executive's then current Base Salary plus the arithmetic average of payments made to Executive pursuant to the Company's Executive Bonus Program with respect to the three (3) fiscal years immediately preceding the fiscal year in which the Date of Termination occurs. In addition, to the extent not otherwise required under the Company's Stock Option Plan or any award agreement with Executive, any unvested stock option awards theretofore awarded to Executive shall vest and become immediately exercisable in full. In the event this Agreement is terminated (or not renewed) for any reason other than (i)by the Company without Cause, or (ii) by Executive for Good Reason-, and such termination (or nonrenewal) occurs following a Change of Control, Executive shall not be entitled to the continuation of any compensation, bonuses or benefits provided hereunder, or any other payments following the Date of Termination, other than Base Salary earned through the Date of Termination.
(c) At Executive's option to be exercised by written notice to the Company, the severance benefits payable under this Section 4.5 shall be paid in accordance with the Company's normal payroll procedures over the twelve (12) or twenty-four (24-) month period, as the case may be, corresponding to the amount of the payments instead of in a lump sum.
(d) Anything to the contrary contained herein notwithstanding, as a condition to Executive receiving severance benefits to be paid pursuant to this Section 4.5, Executive shall execute and deliver to the Company a general release in form and substance reasonably satisfactory to the Company releasing the Company and its officers, directors, employees and agents from all liabilities, claims and obligations of any nature whatsoever, excepting only the Company's obligations under this Agreement, under any Stock Option Award Agreements, and under any other employee benefit plans or programs in which Executive participates under Section 3.2 hereof, subject to all terms and conditions of such plans or programs and this Agreement.
(e) Anything to the contrary contained herein notwithstanding, in the event that any payment or benefit received or to be received by Executive in connection with a Change in Control of the Company or termination of Executive's employment (whether payable pursuant to the terms of this Agreement or any other plan, contract, agreement or arrangement with the Company, with any person whose actions result in a Change in Control of the Company or with any person constituting a member of an "affiliated group" as defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended (the "Code"), with the Company or with any person whose actions result in a Change in Control of the Company (collectively, the "Total Payments")) would not be deductible (in whole or in part) by the Company or such other person making such payment or providing such benefit solely as a result of Section 280G of the Code, the amount payable to Executive pursuant to this Section 4.5 shall be reduced until no portion of the Total Payments is not deductible solely as a result of Section 280G of the Code or such amount payable to Executive pursuant to Section 4.5 is reduced to zero. For purposes of this limitation, (a) no portion of the Total Payments the receipt or enjoyment of which Executive shall have effectively waived in writing prior to the date of payment of the amount pursuant to Section 4.5 shall be taken into account; (b) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company and reasonably acceptable to Executive does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code; (c) the payment pursuant to Section 4.5 shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in the immediately preceding clause (b)) in their entirety constitute reasonable compensation within the meaning of Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to in the immediately preceding clause (b); and (d) the value of any other non-cash benefit or of any deferred cash payment included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
5. Employment Covenants
5.1 Trade Secrets and Confidential Information. Executive agrees that she shall, during the course of her employment and thereafter, hold inviolate and keep secret all documents, materials, knowledge or other confidential business or technical information of any nature whatsoever disclosed to or developed by her or to which she had access as a result of her employment (hereinafter referred to as "Confidential Information"). Such Confidential Information shall include technical and business information, including, but not limited to, inventions, research and development, engineering, products, designs, manufacture, methods, systems, improvements, trade secrets, formulas, processes, marketing, merchandising, selling, licensing, servicing, customer lists, records or financial information, manuals or Company strategy concerning its business, strategy or policies. Executive agrees that all Confidential Information shall remain the sole and absolute property of the Company. During the course of her employment, Executive shall not use, disclose, disseminate, publish, reproduce or otherwise make available such Confidential Information to any person, firm, corporation or other entity, except for the purpose of conducting business on behalf of the Company. Following the Term, Executive shall not use, disclose, disseminate, publish, reproduce or otherwise make available such Confidential Information to any person, firm, corporation or other entity. Upon termination of her employment with the Company, Executive will leave with or deliver to the Company all records and any compositions, articles, devices, equipment and other items which disclose or embody Confidential Information including all copies or specimens thereof, whether prepared by her or by others. The foregoing restrictions on disclosure of Confidential Information shall apply so long as the information has not properly come into the public domain through no action of Executive.
5.2 Transfer of Inventions. Executive, for herself and her heirs and representatives, will promptly communicate and disclose to the Company, and upon request will, without additional compensation, execute all papers reasonably necessary to assign to the Company or the Company's nominees, free of encumbrance or restrictions, all inventions, discoveries, improvements, whether patentable or not, conceived or originated by Executive solely or jointly with others, at the Company's expense or at the Company's facilities, or at the Company's request, or in the course of her employment, or based on knowledge or information obtained during the Term. All such assignments shall include the patent rights in this and all foreign countries. Notwithstanding the foregoing, this Section 5.2 shall not apply to any invention for which no equipment, supplies, facilities or trade secret information of the Company was used and which was developed entirely on Executive's own time and (a) that does not relate (1) directly to the business of the Company or (2) to the Company's actual or demonstrably anticipated research or development, or (b) that does not result from any work performed by Executive for the Company.
5.3 Exclusivity of Employment. During the Term, Executive shall not directly or indirectly engage in any activity competitive with or adverse to the Company's business or welfare or render a material level of services of a business, professional or commercial nature to any other person or firm, whether for compensation or otherwise.
5.4 Covenant Not to Compete. Executive agrees to be bound and abide by the following covenant not to compete:
Term and Scope. During her employment with the Company and for a period of two (2) years after the Term, Executive will not render to any Conflicting Organization (as hereinafter defined), services, directly or indirectly, anywhere in the world in connection with any Conflicting Product, except that Executive may accept employment with a large Conflicting Organization whose business is diversified (and which has separate and distinct divisions) if Executive first certifies to the Board of Directors in writing that she has provided a copy of Section 5 of this Agreement to such prospective employer, that such prospective employer is a separate and distinct division of the Conflicting Organization and that Executive will not render services directly or indirectly in respect of any Conflicting Product (as hereinafter defined). Such two-year time period shall be tolled during any period that Executive is engaged in activity in violation of this covenant.
Judicial Action. Executive and the Company agree that, if the period of time or the scope of the restrictive covenant not to compete contained in this Section 5.4 shall be adjudged unreasonable in any court proceeding, then the period of time and/or scope shall be reduced accordingly, so that this covenant may be enforced in such scope and during such period of time as is judged by the court to be reasonable. In the event of a breach or violation of this Section 5.4 by Executive, the parties agree than in addition to all other remedies, the Company shall be entitled to equitable relief for specific performance, and Executive hereby agrees and acknowledges that the Company has no adequate remedy at law for the breach of the covenants contained herein.
Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
"Conflicting Product" means any product, method or process, system or service of any person or organization other than the Company, in existence or under development at the time Executive's employment with the Company terminates, that is the same as or similar to or competes with a product, method or process, system or service of or provided by the Company or any of its affiliates or about which Executive acquires Confidential Information.
"Conflicting Organization" means any person or organization which is engaged in or about to become engaged in, research on or development, production, marketing, licensing, selling or servicing of a Conflicting Product.
5.5 Disclosure to Prospective Employers. Executive will disclose to any prospective employer, prior to accepting employment, the existence of Section 5 of this Agreement. The obligation imposed by this Section 5.5 shall terminate two (2) years after termination of Executive's employment with the Company; provided, however, the running of such two-year period shall be tolled to the extent the covenant not to compete contained in Section 5.4(a) hereof is tolled.
6. Miscellaneous
6.1 Notices. Any notice required or permitted to be delivered hereunder shall be in writing and shall be deemed to be delivered on the earlier of (i) the date received, or (ii) the date of delivery, refusal or non-delivery indicated on the return receipt, if deposited in a United States Postal Service depository, postage prepaid, sent registered or certified mail, return receipt requested, addressed to the party to receive the same at the address of such party set forth below, or at such other address as may be designated in a notice delivered or mailed as herein provided.
To Company: Curative Health Services, Inc. 14 Research Way Box 9052 East Setauket, New York 11733-9052
Executive: Carol Gleber 3010 Wren Lane Richardson, Texas 75082
6.2 Headings. The headings of the articles and sections of this Agreement are inserted for convenience only and shall not be deemed a part of or affect the construction or interpretation of any provision hereof.
6.3 Modifications; Waiver. No modification of any provision of this Agreement or waiver of any right or remedy herein provided shall be effective for any purpose unless specifically set forth in a writing signed by the party to be bound thereby. No waiver of any right or remedy in respect of any occurrence or event on one occasion shall be deemed a waiver of such right or remedy in respect of such occurrence or event on any other occasion.
6.4 Entire Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all other agreements, oral or written, heretofore made with respect thereto, including, without limitation, the Original Agreement.
6.5 Severability. Any provision of this Agreement prohibited by or unlawful or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be ineffective without affecting any other provision hereof. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived, to the end that this Employment Agreement be deemed to be a valid and binding agreement enforceable in accordance with its terms.
6.6 Controlling Law. This Agreement has been entered into by the parties in the State of New York and shall be continued and enforced in accordance with the laws of that State.
6.7 Assignments. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder to any entity that controls the Company, that the Company controls or that may be the result of the merger, consolidation, acquisition or reorganization of the Company and another entity. Executive agrees that this Agreement is personal to her and her rights and interest hereunder may not be assigned, nor may her obligations and duties hereunder be delegated (except as to delegation in the normal course of operation of the Company), and any attempted assignment or delegation in violation of this provision shall be void.
6.8 Attorney Fees. In the event of litigation between the parties, to enforce their respective rights under this Agreement, the prevailing party shall be entitled to receive from the non-prevailing party reimbursement of the prevailing party's reasonable attorney's fees and costs at all levels of trial and appeal.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
CURATIVE HEALTH SERVICES, INC.
By: Its: President
Executive
Exhibit 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of September 1, 1997 (the "Effective Date"), between CURATIVE HEALTH SERVICES, INC., a Minnesota corporation (the "Company"), and JOHN C. PRIOR ("Executive").
WHEREAS, the Executive has been in the employ of the Company pursuant to that certain Employment Agreement (the "Original Agreement") dated as of July 6, 1987, as amended, on the terms and conditions set forth therein;
WHEREAS, the Company recognizes that Executive's contribution to the growth and success of the Company has been substantial and therefore desires to assure the Company of Executive's continued employment; and
WHEREAS, based on the foregoing, the Company and Executive now wish to amend and restate the terms of the Original Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements herein contained, the Company and Executive hereby agree that the Original Agreement shall be and is hereby amended and restated in its entirety to read as follows:
1. Employment
1.1 Employment and Duties. The Company hereby agrees to employ Executive for the Term (as hereinafter defined) as Senior Vice President and Chief Financial Officer, subject to the direction of the President, and in connection therewith, to perform such duties as he shall reasonably be directed by the President to perform. Executive hereby accepts such employment and agrees to render such services. Executive shall perform his duties and carry out his responsibilities hereunder in a diligent manner, shall devote his exclusive and full working time, attention and effort to the affairs of the Company, shall use his best efforts to promote the interests of the Company and shall be just and faithful in the performance of his duties and in carrying out his responsibilities.
1.2 Location. The principal location for performance of Executive's services hereunder shall be at the Company's executive offices, which are currently located in East Setauket, New York, subject to reasonable travel requirements during the course of such performance.
2. Employment Term
The term of Executive's employment hereunder (the "Term") shall be deemed to commence on the Effective Date and shall end on the first anniversary of the Effective Date, unless sooner terminated as hereinafter provided; provided, however, that the Term shall be automatically renewed and extended for an additional period of one (1) year on each anniversary thereafter unless either party gives a Notice of Termination (as defined below) to the other party at least three (3) months prior to such anniversary.
3. Compensation and Benefits
3.1 Cash Compensation.
Base Salary. The Company shall pay Executive an annual salary of $175,000 payable in bi-weekly installments, in arrears (the "Base Salary"). The Base Salary shall be reviewed annually by the Company's Board of Directors and may be increased, but not decreased (unless mutually agreed upon by Executive and the Company).
(b) Bonus Plan. Executive shall be entitled to participate in the Company's Executive Bonus Compensation Program, in accordance with and subject to the terms and provisions thereof.
3.2 Participation in Benefit Plans. Executive shall be entitled to participate in all employee benefit plans or programs of the Company to the extent that his position, title, tenure, salary, age, health and other qualifications make him eligible to participate. The Company does not guarantee the continuance of any particular employee benefit plan or program during the Term, and Executive's participation in any such plan or program shall be subject to all terms, provisions, rules and regulations applicable thereto. Executive will be entitled to twenty (20) days of vacation per year, to be used in accordance with the Company's vacation policy for senior executives as it may change from time to time. For the Benefit Period, if any, (as hereinafter defined), the Company will arrange to provide Executive with welfare benefits (including life and health insurance benefits) of substantially similar design and cost to Executive as the welfare benefits and other employee benefits available to Executive prior to Executive's or the Company's, as the case may be, receipt of Notice of Termination (as hereinafter defined). In the event that Executive shall obtain full-time employment providing welfare benefits during the Benefit Period, such benefits as otherwise receivable hereunder by Executive shall be discontinued.
3.3 Expenses. The Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement. Executive shall keep detailed and accurate records of expenses incurred in connection with the performance of his duties hereunder and reimbursement therefor shall be in accordance with policies and procedures to be established from time to time by the Board.
3.4 Automobile Expenses. During the Term, Executive shall be entitled to the use of an automobile leased in the name of the Company. The Executive shall be repaid by the Company for all automobile expenses incurred by the Executive in the performance of his duties under this Agreement.
4. Termination of Employment
4.1 Definitions
(a) "Benefit Period" shall mean (i) the twelve (12) month period commencing on the Date of Termination which occurs in connection with a termination of employment described in the first sentence of Section 4.5(a), or (ii) the twenty-four (24) month period commencing on the Date of Termination which occurs in connection with a termination of employment described in the first sentence of Section 4.5(b).
(b) "Cause" shall mean any of the following:
(i) any act or failure to act (or series or combination thereof) by Executive done with the intent to harm in any material respect to the interests of the Company;
(ii) the commission by Executive of a felony;
(iii)the perpetration by Executive of a dishonest act or common law fraud against the Company or any subsidiary thereof;
(iv) a grossly negligent act or failure to act (or series or combination thereof) by Executive detrimental in any material respect to the interests of the Company;
(v) the material breach by Executive of his agreements or obligations under this Agreement; or
(vi) the continued refusal to follow the directives of the President or Board of Directors that are consistent with Executive's duties and responsibilities identified in Section 1.1 hereof.
(c) A "Change of Control" shall mean any of the following:
(i) a sale of all or substantially all of the assets of the Company; (ii) the acquisition of more than eighty percent (80%) of the Common Stock of the Company (with all classes or series thereof treated as a single class) by any person or group of persons, except a Permitted Shareholder (as hereinafter defined), acting in concert. A "Permitted Shareholder" means a holder, as of the date of the Plan was adopted by the Company, of Common Stock;
(iii)a reorganization of the Company wherein the holders of Common Stock of the Company receive stock in another company, a merger of the Company with another company wherein there is an eighty percent (80%) or greater change in the ownership of the Common Stock of the Company as a result of such merger, or any other transaction in which the Company (other than as the parent corporation) is consolidated for federal income tax purposes or is eligible to be consolidated for federal income tax purposes with another corporation;
(iv) in the event that the Common Stock is traded on an established securities market, a public announcement that any person has acquired or has the right to acquire beneficial ownership of fifty-one percent (51%) or more of the then-outstanding Common Stock and for this purpose the terms "person" and "beneficial ownership" shall have the meanings provided in Section 13(d) of the Securities and Exchange Act of 1934 or related rules promulgated by the Securities and Exchange Commission, or the commencement of or public announcement of an intention to make a tender offer or exchange offer for fifty-one percent (51%) or more of the then outstanding Common Stock;
(v) a majority of the Board of Directors is not comprised of Continuing Directors. A "Continuing Director" means a director recommended by the Board of Directors of the Company for election as a director of the Company by the stockholders; or
(vi) the Board of Directors of the Company, in its sole and absolute discretion, determines that there has been a sufficient change in the share ownership of the Company to constitute a change of effective ownership or control of the Company.
(d) "Good Reason" shall mean, within the twelve (12) month period immediately following a Change of Control, the occurrence of any one or more of the following events:
(i) the assignment to Executive of any duties inconsistent in any respect with Executive's position (including status, offices, title, and reporting requirements), authority, duties or other responsibilities as in effect immediately prior to the Change of Control or any other action of the Company that results in a diminishment in such position, authority, duties or responsibilities, other than an insubstantial and inadvertent action that is remedied by the Company promptly after receipt of notice thereof given by Executive;
(ii) a reduction by the Company in Executive's Base Salary as in effect on the date hereof and as the same shall be increased from time to time hereafter;
(iii)the Company's requiring Executive to be based at a location in excess of fifty (50) miles from the location of Executive's principal office immediately prior to the Change of Control;
(iv) the failure by the Company to (a) continue in effect any material compensation or benefit plan, program, policy or practice in which Executive was participating at the time of the Change of Control or (b) provide Executive with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program, policy and practice as in effect immediately prior to the Change of Control (or as in effect following the Change of Control, if greater);
(v) the failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform this Agreement; and
(vi) any purported termination by the Company of Executive's employment that is not effected pursuant to a Notice of Termination (as defined below).
(e) "Date of Termination" shall mean the date specified in the Notice of Termination (as hereinafter defined) (except in the case of Executive's death, in which case Date of Termination shall be the date of death); provided, however, that if Executive's employment is terminated by the Company other than for Cause, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to Executive and if Executive's employment is terminated by Executive for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days from the date the Notice of Termination is given to the Company.
(f) "Notice of Termination" shall mean a written notice either from the Company to Executive, or Executive to the Company, that indicates Section 2 or the specific provision of Section 4 of this Agreement relied upon as the reason for such termination or nonrenewal, the Date of Termination, and, in reasonable detail, the facts and circumstances claimed to provide a basis for termination or nonrenewal pursuant to Section 2 or this Section 4 of this Agreement.
4.2 Termination Upon Death or Disability. This Agreement, and Executive's employment hereunder, shall terminate automatically and without the necessity of any action on the part of the Company upon the death of Executive. In addition, if at any time during the Term Executive shall become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his duties and services hereunder for (i) a period of six (6) consecutive months, or (ii) for shorter periods aggregating six (6) months during any twelve (12) month period, the Company may at any time after the last day of the sixth consecutive month of disability or the day on which the shorter periods of disability shall have equaled an aggregate of six (6) months, by written notice to Executive (but before Executive has recovered from such disability), terminate this Agreement and Executive's employment hereunder.
4.3 Company's and Executive's Right to Terminate--Prior to Change of Control. Prior to a Change of Control, this Agreement and Executive's employment hereunder may be terminated at any time by the Company, with or without Cause, upon thirty (30) days prior written notice to Executive, and by Executive, at any time, upon thirty (30) days prior written notice to the Company. Any termination of Executive's employment by the Company without Cause prior to a Change of Control that occurs at the request or insistence of any person (other than the Company) relating to such Change of Control shall be deemed to have occurred after the Change of Control for the purposes of this Agreement.
4.4 Company's and Executive's Right to Terminate--Following a Change of Control. Following a Change of Control, this Agreement and Executive's employment hereunder may be terminated at any time (i) by the Company, with or without Cause, upon thirty (30) days prior written notice to Executive, and (ii) by Executive for Good Reason upon thirty (30) days prior written notice to the Company. Executive's right to terminate his employment pursuant to this Section 4.4 shall not be affected by incapacity due to physical or mental illness. Executive's continued employment following a Change of Control shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder.
4.5 Compensation Upon Termination.
(a) Termination Prior to Change of Control. In the event the Company terminates (or elects not to renew) this Agreement without Cause, and such termination (or nonrenewal) without Cause occurs prior to any Change of Control, Executive shall be entitled to receive his Base Salary through the Date of Termination, the welfare benefits described in Section 3.2 for the Benefit Period, and not later than thirty (30) days after the Date of Termination, a lump sum severance payment equal to the sum of Executive's then Current Base Salary plus the arithmetic average of payments made to Executive pursuant to the Company's Executive Bonus Compensation Program with respect to the three (3) fiscal years immediately preceding the fiscal year in which the Date of Termination occurs. In addition, to the extent not otherwise required under the Company's Stock Option Plan or any award agreement with Executive, any unvested stock option awards theretofore awarded to Executive which would otherwise vest and become exercisable during the twelve (12) month period commencing on the Date of Termination shall vest and become exercisable on the Date of Termination. In the event this Agreement is terminated (or not renewed) for any reason other than by the Company without Cause, and such termination (or nonrenewal) occurs prior to a Change of Control, Executive shall not be entitled to the continuation of any compensation, bonuses or benefits provided hereunder, or any other payments following the Date of Termination, other than Base Salary earned through such Date of Termination.
(b) Termination Following Change of Control. If this Agreement is terminated (or not renewed) (i) by the Company without Cause, or (ii) by Executive for Good Reason during the twelve (12) month period immediately following a Change of Control, and such termination (or nonrenewal) occurs following a Change of Control, Executive shall be entitled to receive his full Base Salary through the Date of Termination, the welfare benefits described in Section 3.2 for the Benefit Period and, not later than thirty (30) days after the Date of Termination, a lump sum severance payment equal to the product of two (2) times the sum of Executive's then current Base Salary plus the arithmetic average of payments made to Executive pursuant to the Company's Executive Bonus Compensation Program with respect to the three (3) fiscal years immediately preceding the fiscal year in which the Date of Termination occurs. In addition, to the extent not otherwise required under the Company's Stock Option Plan or any award agreement with Executive, any unvested stock option awards theretofore awarded to Executive shall vest and become immediately exercisable in full. In the event this Agreement is terminated (or not renewed) for any reason other than (i) by the Company without Cause, or (ii) by Executive for Good Reason, and such termination (or nonrenewal) occurs following a Change of Control, Executive shall not be entitled to the continuation of any compensation, bonuses or benefits provided hereunder, or any other payments following the Date of Termination, other than Base Salary earned through the Date of Termination.
(c) At Executive's option to be exercised by written notice to the Company, the severance benefits payable under this Section 4.5 shall be paid in accordance with the Company's normal payroll procedures over the twelve (12) or twenty-four (24) month period, as the case may be, corresponding to the amount of the payments instead of in a lump sum.
(d) Anything to the contrary contained herein notwithstanding, as a condition to Executive receiving severance benefits to be paid pursuant to this Section 4.5, Executive shall execute and deliver to the Company a general release in form and substance reasonably satisfactory to the Company releasing the Company and its officers, directors, employees and agents from all liabilities, claims and obligations of any nature whatsoever, excepting only the Company's obligations under this Agreement, under any Stock Option Award Agreements, and under any other employee benefit plans or programs in which Executive participates under Section 3.2 hereof, subject to all terms and conditions of such plans or programs and this Agreement.
(e) Anything to the contrary contained herein notwithstanding, in the event that any payment or benefit received or to be received by Executive in connection with a Change in Control of the Company or termination of Executive's employment (whether payable pursuant to the terms of this Agreement or any other plan, contract, agreement or arrangement with the Company, with any person whose actions result in a Change in Control of the Company or with any person constituting a member of an "affiliated group" as defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended (the "Code"), with the Company or with any person whose actions result in a Change in Control of the Company (collectively, the "Total Payments")) would not be deductible (in whole or in part) by the Company or such other person making such payment or providing such benefit solely as a result of Section 280G of the Code, the amount payable to Executive pursuant to this Section 4.5 shall be reduced until no portion of the Total Payments is not deductible solely as a result of Section 280G of the Code or such amount payable to Executive pursuant to Section 4.5 is reduced to zero. For purposes of this limitation, (a) no portion of the Total Payments the receipt or enjoyment of which Executive shall have effectively waived in writing prior to the date of payment of the amount pursuant to Section 4.5 shall be taken into account; (b) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company and reasonably acceptable to Executive does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code; (c) the payment pursuant to Section 4.5 shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in the immediately preceding clause (b)) in their entirety constitute reasonable compensation within the meaning of Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to in the immediately preceding clause (b); and (d) the value of any other non-cash benefit or of any deferred cash payment included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
5. Employment Covenants
5.1 Trade Secrets and Confidential Information. Executive agrees that he shall, during the course of his employment and thereafter, hold inviolate and keep secret all documents, materials, knowledge or other confidential business or technical information of any nature whatsoever disclosed to or developed by him or to which he had access as a result of his employment (hereinafter referred to as "Confidential Information"). Such Confidential Information shall include technical and business information, including, but not limited to, inventions, research and development, engineering, products, designs, manufacture, methods, systems, improvements, trade secrets, formulas, processes, marketing, merchandising, selling, licensing, servicing, customer lists, records or financial information, manuals or Company strategy concerning its business, strategy or policies. Executive agrees that all Confidential Information shall remain the sole and absolute property of the Company. During the course of his employment, Executive shall not use, disclose, disseminate, publish, reproduce or otherwise make available such Confidential Information to any person, firm, corporation or other entity, except for the purpose of conducting business on behalf of the Company. Following the Term, Executive shall not use, disclose, disseminate, publish, reproduce or otherwise make available such Confidential Information to any person, firm, corporation or other entity. Upon termination of his employment with the Company, Executive will leave with or deliver to the Company all records and any compositions, articles, devices, equipment and other items which disclose or embody Confidential Information including all copies or specimens thereof, whether prepared by him or by others. The foregoing restrictions on disclosure of Confidential Information shall apply so long as the information has not properly come into the public domain through no action of Executive.
5.2 Transfer of Inventions. Executive, for himself and his heirs and representatives, will promptly communicate and disclose to the Company, and upon request will, without additional compensation, execute all papers reasonably necessary to assign to the Company or the Company's nominees, free of encumbrance or restrictions, all inventions, discoveries, improvements, whether patentable or not, conceived or originated by Executive solely or jointly with others, at the Company's expense or at the Company's facilities, or at the Company's request, or in the course of his employment, or based on knowledge or information obtained during the Term. All such assignments shall include the patent rights in this and all foreign countries. Notwithstanding the foregoing, this Section 5.2 shall not apply to any invention for which no equipment, supplies, facilities or trade secret information of the Company was used and which was developed entirely on Executive's own time and (a) that does not relate (1) directly to the business of the Company or (2) to the Company's actual or demonstrably anticipated research or development, or (b) that does not result from any work performed by Executive for the Company.
5.3 Exclusivity of Employment. During the Term, Executive shall not directly or indirectly engage in any activity competitive with or adverse to the Company's business or welfare or render a material level of services of a business, professional or commercial nature to any other person or firm, whether for compensation or otherwise.
5.4 Covenant Not to Compete. Executive agrees to be bound and abide by the following covenant not to compete:
Term and Scope. During his employment with the Company and for a period of two (2) years after the Term, Executive will not render to any Conflicting Organization (as hereinafter defined), services, directly or indirectly, anywhere in the world in connection with any Conflicting Product, except that Executive may accept employment with a large Conflicting Organization whose business is diversified (and which has separate and distinct divisions) if Executive first certifies to the Board of Directors in writing that he has provided a copy of Section 5 of this Agreement to such prospective employer, that such prospective employer is a separate and distinct division of the Conflicting Organization and that Executive will not render services directly or indirectly in respect of any Conflicting Product (as hereinafter defined). Such two-year time period shall be tolled during any period that Executive is engaged in activity in violation of this covenant.
Judicial Action. Executive and the Company agree that, if the period of time or the scope of the restrictive covenant not to compete contained in this Section 5.4 shall be adjudged unreasonable in any court proceeding, then the period of time and/or scope shall be reduced accordingly, so that this covenant may be enforced in such scope and during such period of time as is judged by the court to be reasonable. In the event of a breach or violation of this Section 5.4 by Executive, the parties agree than in addition to all other remedies, the Company shall be entitled to equitable relief for specific performance, and Executive hereby agrees and acknowledges that the Company has no adequate remedy at law for the breach of the covenants contained herein.
Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
"Conflicting Product" means any product, method or process, system or service of any person or organization other than the Company, in existence or under development at the time Executive's employment with the Company terminates, that is the same as or similar to or competes with a product, method or process, system or service of or provided by the Company or any of its affiliates or about which Executive acquires Confidential Information.
"Conflicting Organization" means any person or organization which is engaged in or about to become engaged in, research on or development, production, marketing, licensing, selling or servicing of a Conflicting Product.
5.5 Disclosure to Prospective Employers. Executive will disclose to any prospective employer, prior to accepting employment, the existence of Section 5 of this Agreement. The obligation imposed by this Section 5.5 shall terminate two (2) years after termination of Executive's employment with the Company; provided, however, the running of such two-year period shall be tolled to the extent the covenant not to compete contained in Section 5.4(a) hereof is tolled.
6. Miscellaneous
6.1 Notices. Any notice required or permitted to be delivered hereunder shall be in writing and shall be deemed to be delivered on the earlier of (i) the date received, or (ii) the date of delivery, refusal or non-delivery indicated on the return receipt, if deposited in a United States Postal Service depository, postage prepaid, sent registered or certified mail, return receipt requested, addressed to the party to receive the same at the address of such party set forth below, or at such other address as may be designated in a notice delivered or mailed as herein provided.
To Company: Curative Health Services, Inc. 14 Research Way Box 9052 East Setauket, New York 11733-9052
Executive: John C. Prior 48 Avalon Circle Smithtown, New York 11787
6.2 Headings. The headings of the articles and sections of this Agreement are inserted for convenience only and shall not be deemed a part of or affect the construction or interpretation of any provision hereof.
6.3 Modifications; Waiver. No modification of any provision of this Agreement or waiver of any right or remedy herein provided shall be effective for any purpose unless specifically set forth in a writing signed by the party to be bound thereby. No waiver of any right or remedy in respect of any occurrence or event on one occasion shall be deemed a waiver of such right or remedy in respect of such occurrence or event on any other occasion.
6.4 Entire Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all other agreements, oral or written, heretofore made with respect thereto, including, without limitation, the Original Agreement.
6.5 Severability. Any provision of this Agreement prohibited by or unlawful or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be ineffective without affecting any other provision hereof. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived, to the end that this Employment Agreement be deemed to be a valid and binding agreement enforceable in accordance with its terms.
6.6 Controlling Law. This Agreement has been entered into by the parties in the State of New York and shall be continued and enforced in accordance with the laws of that State.
6.7 Assignments. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder to any entity that controls the Company, that the Company controls or that may be the result of the merger, consolidation, acquisition or reorganization of the Company and another entity. Executive agrees that this Agreement is personal to him and his rights and interest hereunder may not be assigned, nor may his obligations and duties hereunder be delegated (except as to delegation in the normal course of operation of the Company), and any attempted assignment or delegation in violation of this provision shall be void.
6.8 Attorney Fees. In the event of litigation between the parties, to enforce their respective rights under this Agreement, the prevailing party shall be entitled to receive from the non-prevailing party reimbursement of the prevailing party's reasonable attorney's fees and costs at all levels of trial and appeal.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
CURATIVE HEALTH SERVICES, INC.
By: Its: President
Executive