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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- -------- Exchange Act of 1934
For the quarterly period ended March 31, 2003
OR
Transition report pursuant to Section 13 or 15 (d) of the Securities
- -------- Exchange Act of 1934
Commission File Number: 000-19370
Curative Health Services, Inc.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1503914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Motor Parkway
Hauppauge, New York 11788
(631) 232-7000
(Address and phone number of principal executive offices)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes X No
As of May 1, 2003, there were 12,342,687 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
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INDEX
Part I Financial Information Page No.
- ------ --------------------- --------
Item 1 Financial Statements:
Condensed Consolidated Income Statements
Three Months ended March 31, 2003 and 2002 3
Condensed Consolidated Balance Sheets
March 31, 2003 and December 31, 2002 4
Condensed Consolidated Statements of Cash Flows
Three Months ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 16
Item 4 Controls and Procedures 16
Part II Other Information Page No.
- ------- ----------------- --------
Item 1 Legal Proceedings 17
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 19
Part I Financial Information
- ------ ---------------------
Item 1 Financial Statements
Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
2003 2002
-------- --------
Revenues:
Products $ 50,450 $ 13,869
Services 7,570 8,895
------ ------
Total revenues 58,020 22,764
Costs and operating expenses:
Cost of product sales 37,387 10,339
Cost of services 3,478 3,917
Selling, general and administrative 11,058 4,924
------ ------
Total costs and operating expenses 51,923 19,180
------ ------
Income from operations 6,097 3,584
Interest income 2 36
Interest expense (487) (137)
------ ------
Income before taxes 5,612 3,483
Income taxes 2,217 1,433
------ ------
Net income $ 3,395 $ 2,050
====== ======
Net income per common share, basic $ .28 $ .21
====== ======
Net income per common share, diluted $ .25 $ .19
====== ======
Weighted average common shares, basic 12,206 9,653
====== ======
Weighted average common shares, diluted 13,920 10,962
====== ======
See accompanying notes
Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, 2003 December 31, 2002
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,998 $ 2,643
Accounts receivable, net 40,858 36,438
Inventories 13,741 12,766
Prepaids and other current assets 1,570 2,212
Deferred tax assets 2,957 2,957
------- -------
Total current assets 61,124 57,016
Property and equipment, net 4,666 3,284
Intangibles subject to amortization, net 1,617 1,652
Intangibles not subject to amortization (trade name) 735 636
Goodwill 127,121 122,877
Other assets 1,087 979
------- -------
Total assets $ 196,350 $ 186,444
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,816 $ 21,786
Accrued expenses 9,852 11,579
Current portion of long-term liabilities 7,046 6,102
------- -------
Total current liabilities 47,714 39,467
Long-term liabilities 24,087 26,076
Stockholders' equity:
Common stock 121 121
Additional paid in capital 106,073 106,124
Retained earnings 20,438 17,043
Notes receivable - stockholders (2,083) (2,387)
------- --------
Total stockholders' equity 124,549 120,901
------- -------
Total liabilities and stockholders' equity $ 196,350 $ 186,444
======= =======
See accompanying notes
Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2003 2002
------- -------
OPERATING ACTIVITIES:
Net income $ 3,395 $ 2,050
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 570 527
Provision for doubtful accounts 1,025 163
Equity in operations of investee - (8)
Changes in operating assets and liabilities:
Accounts receivable (3,928) (294)
Prepaid and other current assets (196) (1,907)
Accounts payable and accrued expenses 5,242 (7,110)
----- ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,108 (6,579)
INVESTING ACTIVITIES:
Specialty Pharmacy acquisitions, net of cash acquired (4,656) (20,418)
Purchases of property and equipment (1,812) (33)
----- ------
NET CASH USED IN INVESTING ACTIVITIES (6,468) (20,451)
FINANCING ACTIVITIES:
Proceeds from private placement, net of fees - 16,923
Stock repurchases (1,524) -
Proceeds from exercise of stock options 1,777 3,361
Repayment on credit facilities (538) -
----- ------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (285) 20,284
----- ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (645) (6,746)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,643 12,264
----- ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,998 $ 5,518
===== ======
SUPPLEMENTAL INFORMATION
Interest paid $ 428 $ 7
===== ======
Income taxes paid $ 115 $ -
===== ======
See accompanying notes
Curative Health Services, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2002 and notes
thereto contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for the three
months ended March 31, 2003 are not necessarily indicative of the results to be
expected for the entire fiscal year ending December 31, 2003.
Stock Based Compensation Plans
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and Accounting Principles Board ("APB") No. 28,
"Interim Financial Reporting," to require disclosure in the summary of
significant accounting policies of the effects of an entity's accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. While SFAS
No. 148 does not amend SFAS No. 123 to require companies to account for
employee stock options using the fair value method, the disclosure provisions
of SFAS No. 148 are applicable to all companies with stock-based employee
compensation, regardless of whether they account for that compensation using
the fair value method of SFAS No. 123 or the intrinsic value method of APB
No. 25, "Accounting for Stock Issued to Employees." The Company adopted
SFAS No. 148 effective December 31, 2002.
The Company grants options for a fixed number of shares to employees, directors,
consultants and advisors with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants under
the recognition and measurement principles of APB No. 25 and related
Interpretations because the Company believes the alternate fair value accounting
provided for under SFAS 123 requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded.
Curative Health Services, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation (continued)
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based compensation for the three months ended March 31, 2003 and 2002
(in thousands, except per share data):
Three Months Ended
March 31,
-------------------
2003 2002
------- -------
Net income, as reported $ 3,395 $ 2,050
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects 1,132 637
----- -----
Pro forma net income $ 2,263 $ 1,413
===== =====
Earnings per share:
Basic - as reported $ .28 $ .21
Basic - pro forma .19 .15
Diluted - as reported $ .25 $ .19
Diluted - pro forma .17 .13
Note 2. Reclassifications
Certain prior year amounts in the condensed consolidated financial statements
have been reclassified to conform to the current year classifications.
Note 3. Net Income per Common Share
Net income per common share, basic, is computed by dividing the net income by
the weighted average number of common shares outstanding. Net income per common
share, diluted, is computed by dividing adjusted net income (see below) by the
weighted average number of shares outstanding plus dilutive common share
equivalents. The following table sets forth the computation of weighted average
shares, basic and diluted, used in determining basic and diluted earnings per
share (in thousands):
Three Months Ended
March 31,
------------------
2003 2002
------ ------
Weighted average shares, basic 12,206 9,653
Effect of dilutive stock options and convertible notes 1,714 1,309
------ ------
Weighted average shares, diluted 13,920 10,962
====== ======
Curative Health Services, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Net Income per Common Share (continued)
Earnings per share, diluted, for the three months ended March 31, 2003 was
computed as follows (in thousands):
Net income, as reported $ 3,395
Add back interest related to convertible notes, net of tax 65
-----
Adjusted net income $ 3,460
=====
Note 4. Purchase of MedCare, Inc.
On February 3, 2003, the Company acquired MedCare, Inc. ("MedCare"), a specialty
pharmacy with locations in Alabama, Mississippi, West Virginia and Florida.
MedCare's primary product line is Synagis(R) for the prevention of respiratory
syncytial virus, while other product lines include growth hormone and hemophilia
clotting factor. The purchase price for MedCare was $6.6 million, of which $5.5
million was paid in cash, $.6 million in cash was placed into escrow for
purposes of providing for any indemnifications due to the Company and $.5
million in cash which was withheld pending delivery of agreed-upon working
capital. The Company acquired approximately $1.8 million of MedCare's assets,
including $1.5 million in accounts receivable and $.3 million in inventory. The
Company also assumed $1.6 million of MedCare's liabilities. The excess of the
acquisition cost over the fair value of identifiable net assets acquired was
approximately $6.4 million, consisting of approximately $.1 in covenants not to
compete, which are being amortized over three years from the date of
acquisition, and trade name and goodwill of approximately $.1 million and $6.2
million, respectively, which are not being amortized for book purposes per SFAS
No. 142, "Goodwill and Other Intangible Assets." Fair market valuations have not
yet been completed and, as such, the allocation of the purchase price is
preliminary, pending receipt of a formal valuation from the Company's valuation
consultants.
The acquisition of MedCare was consummated for purposes of expanding the
Company's Specialty Pharmacy business and was accounted for using the purchase
method of accounting. The accounts of MedCare and related goodwill are included
in the accompanying condensed consolidated balance sheets. The operating results
of MedCare are included in the accompanying condensed consolidated statements of
operations from the date of acquisition.
Unaudited pro forma amounts for the three months ended March 31, 2003 and 2002,
assuming the acquisition had occurred on January 1, 2002, are as follows (in
thousands, except per share data):
Three Months Ended
March 31,
------------------
2003 2002
-------- --------
Revenues $ 61,032 $ 35,695
Net income $ 3,604 $ 3,056
Net income per share, diluted $ .26 $ .26
Curative Health Services, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Purchase of MedCare, Inc. (continued)
The pro forma operating results shown above are not necessarily indicative of
operations in the periods following the acquisition. The unaudited pro forma
operating results include the results of Apex Therapeutic Care, Inc. ("Apex") as
if the Apex acquisition, which occurred on January 27, 2002, had occurred on
January 1, 2002.
Note 5. Segment Information
The Company adheres to the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company has two
reportable segments: Specialty Pharmacy Services and Specialty Healthcare
Services. In its Specialty Pharmacy Services business unit, the Company
contracts with insurance companies and other payors to provide direct to patient
distribution of, and other support services, including the provision or
coordination of injection or infusion services related to, biopharmaceutical
and pharmaceutical products. In its Specialty Healthcare Services business unit,
the Company contracts with hospitals to manage outpatient Wound Care Center(R)
programs. The Company evaluates segment performance based on income from
operations. For the three months ended March 31, 2003, management estimates that
corporate general and administrative expenses allocated to the reportable
segments are 53 percent for Specialty Pharmacy Services and 47 percent for
Specialty Healthcare Services. Such allocations are not necessarily indicative
of costs that would be absorbed or eliminated in the event of a sale of the
Specialty Healthcare Services business which the Company is currently exploring.
Intercompany transactions are eliminated to arrive at consolidated totals.
The following tables present the results of operations and total assets of the
reportable segments of the Company for the three months ended March 31, 2003 and
2002 (in thousands):
At and for the three months ended March 31, 2003
-------------------------------------------------
Specialty Specialty Eliminating
Pharmacy Healthcare Entries Total
---------- ---------- ----------- ---------
Revenues $ 50,450 $ 7,570 - $ 58,020
Income from operations $ 5,580 $ 517 - $ 6,097
Total assets $ 160,967 $ 13,875 $ 21,508 $ 196,350
At and for the three months ended March 31, 2002
-------------------------------------------------
Specialty Specialty Eliminating
Pharmacy Healthcare Entries Total
---------- ---------- ----------- ---------
Revenues $ 13,869 $ 8,895 - $ 22,764
Income from operations $ 1,380 $ 2,204 - $ 3,584
Total assets $ 99,022 $ 46,511 $ (1,710) $ 143,823
Curative Health Services, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Employee and Facility Termination Costs
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which nullifies Emerging Issues Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities initiated after December 31,
2002. SFAS No. 146 establishes fair value as the objective for initial
measurement of liabilities related to exit or disposal activities and requires
that such liabilities be recognized when incurred.
In the first quarter of 2003, the Company consolidated its pharmacy operations
in California which resulted in the termination of a total of 25 employees and
the vacating of a leased facility. The Company recorded a charge of $1.6 million
related to this activity.
The following provides a reconciliation of the related costs associated with the
pharmacy consolidation, which are included in Selling, General and
Administrative expenses on the accompanying condensed consolidated income
statement for the three months ended March 31, 2003 (in thousands):
Costs Costs Paid
Beginning Charged or Otherwise Ending
Balance to Expense Settled Balance
--------- ---------- ------------ -------
Employee termination costs $ - $ 871 $ 596 $ 275
Facility termination costs - 759 68 691
- ----- --- ---
$ - $ 1,630 $ 664 $ 966
===== === ===
Note 7. Changes in Capital Structure
During the first three months of 2003, the Company had the following significant
changes in capital structure:
Repurchase of Common Stock. On January 29, 2003, the selling shareholder of
Hemophilia Access, Inc. ("HAI") exercised a put option right under the Stock
Purchase Agreement of HAI, requiring the Company to repurchase shares issued to
acquire HAI. The Company repurchased 97,070 of such shares of common stock for
approximately $1.5 million.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Curative Health Services, Inc. ("Curative" or the "Company") is a leading
disease management company that operates in two business segments: Specialty
Pharmacy Services and Specialty Healthcare Services. In its Specialty Pharmacy
operations, the Company purchases various pharmaceutical products, including
both biopharmaceuticals (biological products, e.g., hemophilia factor), as well
as pharmaceuticals (i.e., drugs), from suppliers and then contracts with
insurance companies and other payors to provide direct to patient distribution
of such products and related education about, reimbursement and other support
services (including the provision or coordination of injection or infusion
services) related to these biopharmaceutical and pharmaceutical products. The
Company's Specialty Pharmacy revenues are derived primarily from payments made
by insurance companies, governmental and other payors for the purchase and
distribution of these biopharmaceuticals and pharmaceuticals and for injection
or infusion services provided. Further, as part of its Specialty Pharmacy
operations, the Company provides biopharmaceutical and pharmaceutical product
distribution and support services under contracts with retail pharmacies for
which it receives product supply and related service fees. The
biopharmaceutical and pharmaceutical products distributed and the injection or
infusion therapies offered by the Company are used by patients with chronic
conditions such as hemophilia, respiratory syncytial virus, immune system
disorders, rheumatoid arthritis, hepatitis C, multiple sclerosis, post
chemotherapy and growth hormone deficiency. The Specialty Pharmacy Services
business unit contracts with 316 payors and 20 retail pharmacies.
The Specialty Healthcare Services business unit contracts with hospitals to
manage outpatient Wound Care Center programs. These Wound Care Center programs
offer a comprehensive range of services that enables the Company to provide
patient specific wound care diagnosis and treatments on a cost-effective basis.
Specialty Healthcare Services currently operates two types of Wound Care Center
programs with hospitals: a management model and an "under arrangement" model.
In the management model, Specialty Healthcare Services 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 or a combination of a fixed monthly management fee
and a variable case management fee. In the "under arrangement" model, Specialty
Healthcare Services 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.
Specialty Healthcare Services offers assistance in recruiting and provides
training in wound care to the physicians and staff associated with the Wound
Care Center programs. As of March 31, 2003, the Company had 80 management and
eight "under arrangement" Wound Care Center programs.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these condensed consolidated
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. On an on-going basis, management evaluates its estimates
and judgments, including those related to revenue recognition, bad debts,
inventories, income taxes and intangibles. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. Management believes
the following critical accounting policies, among others, affect its more
significant judgments and estimates used in the preparation of its condensed
consolidated financial statements:
Revenue recognition. Specialty Pharmacy Services' revenues are recognized, net
of any contractual allowances, when the product is shipped to a patient, retail
pharmacy or a physician's office. Specialty Healthcare Services' revenues are
recognized after the management services are rendered and are billed monthly in
arrears.
Trade receivables: Considerable judgment is required in assessing the ultimate
realization of receivables, including the current financial condition of the
customer, age of the receivable and the relationship with the customer. The
Company estimates its allowances for doubtful accounts using these factors. If
the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. In circumstances where the Company is aware of a
specific customer's inability to meet its financial obligations (e.g.,
bankruptcy filings), a specific reserve for bad debts is recorded against
amounts due to reduce the receivable to the amount the Company reasonably
believes will be collected. For all other customers, the Company has reserves
for bad debt based upon the total accounts receivable balance. As of March 31,
2003, the Company's reserve for accounts receivable was approximately 7.7
percent of total receivables.
Inventories: Inventories are carried at the lower of cost or market on a first
in, first out basis. Inventory consists of high cost biopharmaceutical and
pharmaceutical products that, in many cases, require refrigeration or other
special handling. As a result, inventories are subject to spoilage or shrinkage.
On a quarterly basis, the Company performs a physical inventory and determines
whether any shrinkage or spoilage adjustments are needed. Although the Company
believes its inventory balances at March 31, 2003 are reasonably accurate, there
can be no assurances that spoilage or shrinkage adjustments will not be needed
in the future. The recording of any such reserve may have a negative impact on
the Company's operating results.
Deferred tax assets: The Company has approximately $3.0 million in deferred tax
assets as of March 31, 2003 to record against future income. The Company does
not have a valuation allowance against this asset as it believes it is more
likely than not that the tax assets will be realized. The Company has considered
future income expectations and prudent tax strategies in assessing the need for
a valuation allowance. In the event the Company determines in the future that it
needs to record a valuation allowance, an adjustment to deferred tax assets
would be charged against income in the period of determination.
Goodwill and intangibles: Goodwill represents the excess of purchase price over
the fair value of net assets acquired. Intangibles consist of the separately
identifiable intangibles, such as pharmacy and customer relationships, covenants
not to compete and trademarks. Effective January 1, 2002, the Company adopted
SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that
goodwill and intangible assets with indefinite lives no longer be amortized but
rather be reviewed annually, or more frequently if impairment indicators arise,
for impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. In
assessing the recoverability of the Company's goodwill and intangibles, the
Company must make assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. If these estimates
or assumptions change in the future, the Company may need to record an
impairment charge for these assets. An impairment charge would reduce operating
income in the period it was determined that the charge was needed.
Results of Operations
Revenues. The Company's revenues for the first quarter of 2003 increased 154
percent to $58.0 million compared to $22.8 million for the first quarter of the
prior fiscal year.
Product revenues increased $36.5 million, or 263 percent, to $50.4 million in
the first quarter of 2003 from $13.9 million in the first quarter of 2002. The
increase is primarily the result of growth of hemophilia patient related
revenues and the inclusion of Synagis(R), IVIG and infusable revenues as the
result of the Specialty Pharmacy acquisitions completed in the first quarter of
2003 and throughout 2002. For the first quarter of 2003, product revenues
included $28.5 million of hemophilia related products, $16.8 million in
Synagis(R) sales, $4.0 million in IVIG and infusables sales and $1.1 million
of other injectable products. For the same period in 2002, product revenues
included $11.5 million of hemophilia related products and $2.4 million of other
injectable products. Synagis(R), a product used for the prevention of
respiratory syncytial virus in infants, is a seasonal product used primarily in
the months of October through April which corresponds with the Company's first
and fourth quarters. As a result, Synagis(R) revenues will be insignificant in
the Company's second and third quarters.
Service revenues, attributed entirely to the Specialty Healthcare Services
business unit, decreased 15 percent to $7.6 million in the first quarter of 2003
from $8.9 million in the first quarter of 2002. The service revenues decrease of
$1.3 million for the first quarter 2003 is attributable to the operation of 88
Wound Care Center programs at the end of the first quarter of 2003 as compared
to 96 at the end of the first quarter of the prior fiscal year as the result of
contract terminations and renegotiation. Program terminations by client
hospitals have been effected for such reasons as reduced reimbursement,
financial restructuring, layoffs, bankruptcies or even hospital closings. The
continued termination, non-renewal or renegotiations of a material number of
management contracts or the inability to sign new contracts could result in a
continued decline in the Company's Specialty Healthcare Services business unit
revenue. The Company is currently exploring the possibility of a sale of the
Specialty Healthcare Services business unit.
Cost of Product Sales. Cost of product sales increased $27.1 million, or 263
percent, to $37.4 million in the first quarter 2003 from $10.3 million in the
first quarter of 2002. The increase is attributable to the internal growth of
hemophilia patient revenues and the inclusion of the Specialty Pharmacy
acquisitions completed in the first quarter of 2003 and throughout 2002. As a
percentage of product sales, the cost of product sales for the first quarter of
2003 was 74 percent compared to 75 percent for the same period in 2002.
Cost of Services. Cost of services, attributed entirely to the Specialty
Healthcare Services business unit, decreased $.4 million, or 10 percent, to $3.5
million in the first quarter of 2003 from $3.9 million in the first quarter of
2002. The decrease is attributable to reduced staffing and operating expenses of
approximately $.4 million related to the operation of 88 programs at the end of
the first quarter of 2003 as compared to 96 programs operating at the end of the
first quarter 2002, offset by additional costs of $.2 million related to new
programs. Additionally, there were three fewer under-arrangement programs in
operation at the end of the first quarter of 2003 as compared to the same period
for 2002, at which the services component of costs is higher than at the
Company's other centers due to the additional clinical staffing and expenses
that these models require. For the first quarter of 2003, this reduction in the
number of under-arrangement programs accounted for approximately $.2 million of
the decrease in the cost of services. As a percentage of service revenues, the
cost of services for the first quarter of 2003 was 46 percent compared to 44
percent for the same period in 2002. This increase is primarily attributable to
the decline in service revenues.
Selling, General and Administrative. Selling, general and administrative
expenses increased $6.2 million, or 127 percent, to $11.1 million for the first
quarter of 2003 from $4.9 million for the first quarter 2002. For the first
three months of 2003, selling, general and administrative expenses consisted of
$4.3 million related to the Specialty Pharmacy Services business, $1.2 million
related to the Specialty Healthcare Services business, $2.9 related to corporate
services and $2.7 million in special charges, including $1.6 million in expenses
related to the Company's consolidation of its pharmacy operations in
California and $1.1 million in legal and other costs associated with the
settlement of executive departures in March 2002. The increase of $6.1 million
is primarily due to an increase of $3.0 million of Specialty Pharmacy Services
expenses attributable to the Specialty Pharmacy acquisitions completed in the
first quarter of 2003 and throughout 2002, increased costs of $.3 million
related to additional corporate staff to support these acquisitions and $2.7
million in special charges. As a percentage of revenues, selling, general and
administrative expenses were 19 percent in the first quarter of 2003 compared to
22 percent for 2002. The improvement in the first quarter of 2003 is due to the
increased revenue base.
Net Income. Net income was $3.4 million, or $.25 per diluted share, in the first
quarter of 2003 compared to $2.1 million, or $.19 per diluted share, in the
first quarter of 2002. The increases in earnings of $1.3 million, including
special charges of $2.7 million, for the first quarter of 2003 is primarily
attributable to the inclusion of the Specialty Pharmacy acquisitions completed
in the first quarter of 2003 and throughout 2002.
Liquidity and Capital Resources
Working capital was $13.4 million at March 31, 2003 compared to $17.5 million at
December 31, 2002. Total cash and cash equivalents as of March 31, 2003 was $2.0
million. The ratio of current assets to current liabilities was 1.3:1 at March
31, 2003 and 1.4:1 at December 31, 2002. The decrease in the Company's working
capital and current ratio is primarily attributable to the acquisition of
MedCare completed in the first quarter of 2003.
Cash flows provided by operating activities for the three months ended March 31,
2003 totaled $6.1 million, the majority of which is attributable to $3.4 million
in net income and an increase in accounts payable and accrued expenses of $5.2
million, offset by an increase in accounts receivable, net of $1.8 million.
Cash flows used in investing activities totaled $6.5 million primarily
attributable to $6.1 million used in the acquisition of MedCare and $1.8 million
used in fixed asset purchases, offset by $1.6 million in proceeds received from
accounts receivable, indemnification and other claims related to the purchases
of eBioCare.com, Inc. ("eBioCare") and Apex, transactions which were recorded as
purchase price adjustments. Cash flows used in financing activities totaled $.3
million, attributable to $1.5 million of cash used for repurchase of stock used
in the purchase of HAI and $.5 million used in net repayment of debt
obligations, offset by proceeds of $1.8 million from the exercise of stock
options.
For the first three months of 2003, the Company experienced a net increase in
accounts receivable of $4.4 million attributable to the growth in revenues as
the result of the Specialty Pharmacy acquisitions. Days sales outstanding were
65 days as of March 31, 2003, as compared to 62 days at December 31, 2002. At
March 31, 2003, days sales outstanding for the Specialty Pharmacy Services
business were 65 days and 67 days for the Specialty Healthcare business.
As of March 31, 2003, the Company's current portion of long-term liabilities of
$7.0 million included $3.9 million representing the current portion of the
Company's borrowings from its commercial lender, $2.0 million representing the
current portion of the Department of Justice ("DOJ") obligation and $1.1 million
representing the current portion of a convertible note payable used in
connection with the purchase of Apex in February 2002. As of March 31, 2003, the
Company's long-term liabilities of $24.1 million included $3.5 million related
to the DOJ obligation, a $2.7 million promissory note representing the long-term
portion of the convertible note used in the purchase of Apex, $6.0 million in
convertible notes payable related to the purchase of Infinity Infusion Care,
Ltd. in June 2002, $3.0 million in a convertible note payable related to the
purchase of Home Care of New York, Inc. in October 2002 and $8.9 million in
borrowed funds from the Company's commercial lender.
The Company's longer term cash requirements include working capital for the
expansion of its Specialty Pharmacy Services business and Specialty Healthcare
Services business and for acquisitions. Other cash requirements are anticipated
for capital expenditures in the normal course of business, including the
acquisition of software, computers and equipment related to the Company's
management information systems. Additionally, as of March 31, 2003, the Company
has a $5.5 million obligation, payable over approximately three years, to the
DOJ related to the settlement of its litigation previously disclosed, as well as
bank debt and convertible notes totaling $25.6 million payable over various
periods through 2007. In March 2003, the Company signed a commitment with GE
Healthcare Financial Services for $35 million in financing, expandable on a
best-efforts basis for an additional $45 million to finance future acquisitions.
The Company expects that, based on its current business plan, its existing cash
and cash equivalents and available credit will be sufficient to satisfy its
working capital needs and minimal acquisitions at least through March 31, 2004.
Any acquisitions of substantial size may require the Company to either increase
its credit facilities, issue equity or offer some combination of both debt and
equity. The effect of inflation risk is considered immaterial.
Cautionary Statement
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, those
described under the heading, "Critical Accounting Policies and Estimates"
herein, or those described in Exhibit 99.1 to this Form 10-Q and other factors
described in the Company's future filings with the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not have operations subject to risks of material foreign
currency fluctuations, nor does it use derivative financial instruments in its
operations or investment portfolios. The Company places its investments in
instruments that meet high credit quality standards, as specified in the
Company's investment policy guidelines. The Company does not expect any material
loss with respect to its investment portfolio or exposure to market risks
associated with interest rates.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-14(c) and
Rule 15d-14(c) under the Exchange Act) as of a date (the "Evaluation
Date") within 90 days prior to the filing date of this report. Based
upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the Evaluation Date, our disclosure
controls and procedures were effective in timely alerting them to the
material information relating to us (or our consolidated subsidiaries)
required to be included in our periodic SEC filings.
(b) Changes in internal controls.
There were no significant changes made in our internal controls during
the period covered by this report or, to our knowledge, in other
factors that could significantly affect these controls subsequent to
the date of their evaluation.
Curative Health Services, Inc. and Subsidiaries
Part II Other Information
- ------- -----------------
Item 1. Legal Proceedings
In the normal course of its business, the Company may be involved in lawsuits,
claims, audits and investigations, including any arising out of services or
products provided by or to the Company's operations, personal injury claims and
employment disputes, the outcome of which, in the opinion of management, will
not have a material adverse effect on the Company's financial position or
results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit 10.1 Employment agreement dated as of March 5, 2003 between
Michelle LeDell and the Company
Exhibit 10.2 Employment agreement dated as of March 5, 2003 between
Alan Jackson and the Company
Exhibit 10.3 Amendment No. 1 to Curative Health Services, Inc. 2001
Broad-Based Stock Incentive Plan
Exhibit 10.4 Amendment No. 2 to Curative Health Services, Inc. 2001
Broad-Based Stock Incentive Plan
Exhibit 99.1 Cautionary Statements
Exhibit 99.2 Certification of Chief Executive Officer pursuant to
18 U.S.C. ss.1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Exhibit 99.3 Certification of Chief Financial Officer pursuant to
18 U.S.C. ss.1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
The Company has excluded from the exhibits filed with this report
instruments defining the rights of holders of long-term convertible debt of
the Company where the total amount of the securities authorized under such
instruments does not exceed 10 percent of its total assets. The Company
hereby agrees to furnish a copy of any of these instruments to the SEC upon
request.
(b) Form 8-K
--------
Form 8-K filed February 5, 2003, reporting under Item 5 on the press
release announcing the Company's acquisition of MedCare, Inc.
Form 8-K filed February 14, 2003, reporting under Item 5 to provide the
director and executive compensation information for the purpose of being
incorporated by reference into the Company's Registration Statement on Form
S-3, filed on February 4, 2003, in accordance with the requirements of
Response 8B of Item J. of the SEC's Telephone Interpretations Manual.
Form 8-K filed February 18, 2003, reporting under Item 5 on the press
release announcing the Company's earnings for the fourth quarter and full
year ended December 31, 2002.
Form 8-K filed February 28, 2003, reporting under Item 5 on the amendment
of the Registration Rights and Lock-Up Agreement between the Company and
the shareholders of Apex Therapeutic Care, Inc., in connection with the
Company's acquisition of Apex on February 28, 2002, and the date and number
of shares of the Company's common stock that will become freely tradeable
in accordance with the amendment.
SIGNATURES
Pursuant to the requirements 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.
Date: May 15, 2003
Curative Health Services, Inc.
(Registrant)
/s/ Joseph Feshbach
-----------------------
Joseph Feshbach
Chief Executive Officer and Chairman
(Principal Executive Officer)
/s/ Thomas Axmacher
-----------------------
Thomas Axmacher
Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATIONS
I, Joseph Feshbach, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Curative Health
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ Joseph Feshbach
-----------------------
Joseph Feshbach
Chief Executive Officer
CERTIFICATIONS
I, Thomas Axmacher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Curative Health
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ Thomas Axmacher
-----------------------
Thomas Axmacher
Chief Financial Officer
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective
as of March 5, 2003 (the "Effective Date"), between CURATIVE HEALTH SERVICES,
INC., a Minnesota corporation (the "Company"), and Michelle LeDell
("Executive").
WHEREAS, the Company wishes to retain Executive as a key
employee; and
WHEREAS, the Company and Executive want the terms and
conditions of Executive's employment to be governed by this Agreement;
NOW, THEREFORE, in consideration of the promises and the
mutual covenants and agreements herein contained, intending to be legally bound,
the Company and Executive hereby agree 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 - Human
Resources, subject to the direction of the Chief Executive Officer, and in
connection therewith, to perform such duties as she shall reasonably be directed
by the Chief Executive Officer 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 St. Louis Park,
Minnesota, 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 the first anniversary unless either
party gives a Notice of Termination (as defined below) to the other party prior
to the first anniversary.
3. Compensation and Benefits
3.1 Cash Compensation.
(a) Base Salary. The Company shall pay Executive an
annual salary of $130,069 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 Annual Corporate Bonus
Plan, 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, active employment status 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 a 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 therefore 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 and in accordance with the
Company's automobile policy, Executive shall be reimbursed by the Company for
the monthly lease expense for an automobile leased in the name of the Executive,
in an aggregate amount not to exceed $500.00 per month.
4. Termination of Employment
4.1 Definitions
(a) "Benefit Period" shall mean (i) the six (6) 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 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(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 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 Chief Executive Officer 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 fifty percent
(50%) 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 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 (other
than a subsidiary of the Company), a merger of the Company with another company
wherein there is a fifty percent (50%) 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 more than fifty
percent (50%) 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
more than fifty percent (50%) 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 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 equalled 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 six (6) months of EMPLOYEE's then
current Base Salary plus a pro-rated bonus based on Executive's performance in
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 sum of
Executive's then current Base Salary plus a pro-rated bonus based on Executive's
performance in 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 six (6) or
twelve (12) 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 subsidiaries, affiliates and their respective 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 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:
(a) 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.
(b) 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.
(c) 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 which is related to the areas of disease management,
wound care or specialty pharmaceutical services, or the
provision or sale of data in respect thereof, 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 subsidiaries or affiliates in existence or under
development at the time Executive's employment with the
Company terminates or about which Executive acquires
Confidential Information.
"Conflicting Organization" means any person or organization
which is engaged in disease management, wound care or
specialty pharmaceutical services, or the provision or sale of
data in respect thereof, and which is, 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.
5.6 Non-Solicitation. For one (1) year after termination of employment
with the Company for any reason, the Executive shall not directly or indirectly
solicit or hire, or assist any other person in soliciting or hiring, any
employee of the Company (as of the date of termination) or any person who, as of
the date of termination, was in the process of being recruited by the Company or
induce any such employee to terminate his or her employment with the Company.
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.
150 Motor Parkway, 4th Floor
Hauppauge, NY 11788
Attention: Nancy F. Lanis, Executive Vice
President, General Counsel and Secretary
Executive: Michelle LeDell
5118 Paul Drive
Brooklyn Center, MN 55429
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 offer letter dated January 21, 2002.
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: /s/ Joseph L. Feshbach
--------------------------
Name: Joseph L. Feshbach
Title: Chairman and Chief Executive Officer
Executive: /s/ Michelle LeDell
-------------------
Name: Michelle LeDell
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of
March 5, 2003 (the "Effective Date"), between CURATIVE HEALTH SERVICES, INC., a
Minnesota corporation (the "Company"), and Alan Jackson ("Executive").
WHEREAS, the Company wishes to retain Executive as a key
employee; and
WHEREAS, the Company and Executive want the terms and conditions
of Executive's employment to be governed by this Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, intending to be legally bound, the
Company and Executive hereby agree 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 - Information
Systems and Chief Information Officer, subject to the direction of the Chief
Executive Officer, and in connection therewith, to perform such duties as he
shall reasonably be directed by the Chief Executive Officer 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 Hauppauge, 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 the first anniversary unless either party
gives a Notice of Termination (as defined below) to the other party prior to the
first anniversary.
3. Compensation and Benefits
3.1 Cash Compensation.
(a) Base Salary. The Company shall pay Executive an annual salary
of $170,477.50 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 Annual Corporate Bonus Plan, 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, active employment status 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 a 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 therefore 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 and in accordance with the
Company's automobile policy, Executive shall be reimbursed by the Company for
the monthly lease expense for an automobile leased in the name of the Executive,
in an aggregate amount not to exceed $500.00 per month.
4. Termination of Employment
4.1 Definitions
(a) "Benefit Period" shall mean (i) the six (6) 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 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(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 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
Chief Executive Officer 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 fifty percent (50%) 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 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 (other than a
subsidiary of the Company), a merger of the Company with another company wherein
there is a fifty percent (50%) 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 more than fifty
percent (50%) 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
more than fifty percent (50%) 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 equalled 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 six (6) month's of EMPLOYEE's
annual Base Salary plus a pro-rated bonus based on Executive's performance in
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
Executive's then current Base Salary plus a pro-rated bonus based on Executive's
performance in 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 six (6) or
twelve (12) 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 subsidiaries, affiliates and their respective 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 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:
(a) 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.
(b) 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.
(c) 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
which is related to the areas of disease management, wound care or
specialty pharmaceutical services, or the provision or sale of data
in respect thereof, 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 subsidiaries or affiliates in existence
or under development at the time Executive's employment with the
Company terminates or about which Executive acquires Confidential
Information.
"Conflicting Organization" means any person or organization which is
engaged in disease management, wound care or specialty
pharmaceutical services, or the provision or sale of data in respect
thereof, and which is, 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.
5.6 Non-Solicitation. For one (1) year after termination of employment
with the Company for any reason, the Executive shall not directly or indirectly
solicit or hire, or assist any other person in soliciting or hiring, any
employee of the Company (as of the date of termination) or any person who, as of
the date of termination, was in the process of being recruited by the Company or
induce any such employee to terminate his or her employment with the Company.
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.
150 Motor Parkway, 4th Floor
Hauppauge, NY 11788
Attention: Nancy F. Lanis, Executive Vice President,
General Counsel and Secretary
Executive: Alan Jackson
129 W. Henrietta Avenue
Oceanside, New York 11572
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 employment agreement dated September 29, 1999.
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: /s/ Joseph L. Feshbach
----------------------
Name: Joseph L. Feshbach
Title: Chairman and Chief Executive Officer
Executive: /s/ Alan Jackson
----------------
Name: Alan Jackson
Exhibit 10.3
AMENDMENT NO. 1 TO CURATIVE HEALTH SERVICES, INC.
2001 BROAD-BASED STOCK INCENTIVE PLAN
WHEREAS, Curative Health Services, Inc.'s (the "Company") 2001 Broad-Based
Stock Incentive Plan, (the "Plan") provides that 1,000,000 shares of Company
common stock may be issued pursuant to Awards (as defined in the Plan) granted
under the Plan.
WHEREAS, the Board of Directors of the Company wishes to increase the
number of shares available for issuance pursuant to Awards to 2,000,000 shares
of Common Stock.
1. The first sentence of Section 4(a) of the Plan is hereby amended and restated
in its entirety to read as follows:
Subject to adjustment as provided in Section 4(c) of the Plan, the
aggregate number of Shares that may be issued under all Awards under the
Plan shall be 2,000,000.
Effective: June 21, 2002
Exhibit 10.4
AMENDMENT NO. 2 TO CURATIVE HEALTH SERVICES, INC.
2001 BROAD-BASED STOCK INCENTIVE PLAN
WHEREAS, Curative Health Services, Inc.'s (the "Company") 2001 Broad-Based
Stock Incentive Plan, as amended (the "Plan") provides that 2,000,000 shares of
Company common stock may be issued pursuant to Awards (as defined in the Plan)
granted under the Plan.
WHEREAS, the Board of Directors of the Company wishes to make additional
amendments to the Plan as set forth herein.
1. Section 5 of the Plan is hereby amended and restated in its entirety to read
as follows:
Section 5. Eligibility.
--------- -----------
Any Eligible Person shall be eligible to be designated a
Participant. In determining which Eligible Persons shall receive an Award
and the terms of any Award, the Committee may take into account the nature
of the Services rendered by the respective Eligible Persons, their present
and potential contributions to the success of the Company or such other
factors as the Committee, in its discretion, shall deem relevant.
Notwithstanding the foregoing, the Committee shall not have the authority
to grant Awards to Participants who are officers and directors of the
Company in an aggregate amount that equals or exceeds 50% of the Shares
authorized for issuance pursuant to Section 4(a) of the Plan.
2. Section 6(a) (iii) of the Plan is hereby amended by adding the following
sentence at the end of that section:
Notwithstanding the foregoing, no executive officer or director of
the Company shall make payment to the Company of the exercise price of any
Option by means of a promissory note.
3. Section 6(f) of the Plan is hereby amended by adding the following sentence
at the end of that section:
Notwithstanding the foregoing, no executive officer or director of
the Company shall make payment to the Company of the consideration of any
other Award by means of a promissory note.
4. Section 6(g) (iii) of the Plan is hereby amended by adding the following
sentence at the end of that section:
Notwithstanding the foregoing, no executive officer or director of
the Company shall make payment to the Company relating to an Award by
means of a promissory note.
Effective: March 27, 2003
Exhibit 99.1
RISK FACTORS
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information without fear of litigation so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the statement. We desire to take
advantage of these "safe harbor" provisions and are filing this Exhibit 99.1 in
order to do so. Accordingly, we hereby identify the following important factors
which could cause our actual results to differ materially from any such results
which may be projected, forecast, estimated or budgeted by us in forward-looking
statements made by us from time to time in reports, proxy statements,
registration statements and other written communications, or in oral
forward-looking statements made from time to time by the Company's officers and
agents. We do not intend to update any of these forward-looking statements after
the date of this Form 10-Q to conform them to actual results.
RISK RELATED TO OUR BUSINESS
If we fail to comply with the terms of our settlement agreement with the
government, we could be subject to additional litigation or other governmental
actions which would be harmful to our business.
On December 28, 2001, we entered into a settlement with the Department of
Justice, the United States Attorney for the Southern District of New York, the
United States Attorney for the Middle District of Florida and the U.S.
Department of Health and Human Services, Office of the Inspector General, in
connection with all federal investigations and legal proceedings related to the
whistleblower lawsuits previously pending against us in the United States
District Court for the Southern District of New York and the United States
District Court for the District of Columbia. The focus of the government
investigation and resolution was the allegation that we improperly caused our
hospital customers to seek reimbursement for a portion of our management fees
that included costs related to advertising and marketing activities by our
personnel. Under the terms of the settlement, we were released from claims
associated with services we provided to hospitals, and we agreed to pay the
United States a $9 million initial payment, with an additional $7.5 million to
be paid over the next four years. As of March 31, 2003, a balance of $5.5
million was left on this obligation. Pursuant to the settlement, we will be
required to fulfill certain additional obligations, including abiding by a
five-year Corporate Integrity Agreement (which incorporates much of our existing
compliance program), avoiding violations of law and providing certain
information to the Department of Justice from time to time. If we fail or if we
are accused of failing to comply with the terms of the settlement, we may be
subject to additional litigation or other governmental actions. In addition, as
part of the settlement, we consented to the entry of a judgment for $28 million
against us if we fail to comply with the terms of the settlement.
We are involved in litigation which may harm the value of our business.
In the normal course of our business, we are involved in lawsuits, claims,
audits and investigations, including any arising out of services or products
provided by or to our operations, personal injury claims and employment
disputes, the outcome of which, in the opinion of management, will not have a
material adverse effect on our financial position or results of operations.
We have a concentration of revenues and of payors
Approximately 49 percent of our revenues for the three months ended March 31,
2003 were derived from sales of products needed by patients with hemophilia.
Further, approximately 46 percent of our revenues were derived from products
and/or services provided to patients covered under various state Medicaid
programs. Currently, many states are experiencing budget deficits that may
require reductions in health care related expenditures. Any reductions in
benefit payments made by any state related to the products or services we
provide may have a material adverse effect on our financial position or results
of operations.
If we are unable to manage our growth effectively, our business will be harmed.
Our growth strategy will likely place a strain on our resources, and if we
cannot effectively manage our growth, our business will be harmed. In connection
with our growth strategy, we will likely experience a large increase in the
number of our employees, the size of our programs and the scope of our
operations. Our ability to manage this growth and to be successful in the future
will depend partly on our ability to retain skilled employees, enhance our
management team and improve our management information and financial control
systems.
As part of our growth strategy, we continue to evaluate acquisition
opportunities. Acquisitions involve many risks, including:
o the specialty pharmacy industry is undergoing consolidation; therefore,
we may experience difficulty in identifying suitable candidates and
negotiating and consummating acquisitions on attractive terms;
o in the industry in which our Specialty Pharmacy Services division
operates, customers have a strong affiliation with their
community-based representatives; it is sometimes difficult to retain
and assimilate the community-based representatives of companies we
acquire;
o because of the relationships between community-based representatives
and customers, the loss of a single community-based representative may
entail the loss of a significant number of customers, and we are,
therefore, subject to a significant potential for loss of customers,
especially during the periods in which we attempt to integrate
newly-acquired businesses;
o a growth strategy that involves significant acquisitions results in a
diversion of our management's attention from existing operations.
We could also be exposed to unknown or contingent liabilities resulting from the
pre-acquisition operations of the entities we acquire, such as liability for
failure to comply with health care or reimbursement laws.
We may need additional capital to finance our growth and capital requirements,
which could prevent us from fully pursuing our growth strategy.
In order to implement our present growth strategy, we will need substantial
capital resources and will incur, from time to time, short- and long-term
indebtedness, the terms of which will depend on market and other conditions. Due
to uncertainties inherent in the capital markets (e.g., availability of capital,
fluctuation of interest rates, etc.), we cannot be certain that existing or
additional financing will be available to us on acceptable terms, if at all. As
a result, we could be unable to fully pursue our growth strategy. Further,
additional financing may involve the issuance of equity securities that would
reduce the percentage ownership of our then current shareholders.
We could be adversely affected by an impairment of the significant amount of
goodwill on our financial statements.
Our Specialty Pharmacy acquisitions resulted in the recording of a significant
amount of goodwill on our financial statements. The goodwill was recorded
because the fair value of the net assets acquired was less than the purchase
price. We may not realize the full value of this goodwill. As such, we evaluate
on at least an annual basis whether events and circumstances indicate that all
or some of the carrying value of goodwill is no longer recoverable, in which
case we would write off the unrecoverable goodwill as a charge to our earnings.
Since our growth strategy will likely involve the acquisition of other
companies, we may record additional goodwill in the future. The possible
write-off of this goodwill could negatively impact our future earnings. We will
also be required to allocate a portion of the purchase price of any acquisition
to the value of any intangible assets that meet the criteria specified in the
Statement of Financial Accounting Standards No. 141, "Business Combinations,"
such as marketing, customer or contract-based intangibles. The amount allocated
to these intangible assets could be amortized over a fairly short period. As a
result, our earnings and the market price of our common stock could be
negatively affected.
We are highly dependent on our relationships with a limited number of
biopharmaceutical and pharmaceutical suppliers, and the loss of any of these
relationships could significantly affect our ability to sustain or grow our
revenues.
The biopharmaceutical and pharmaceutical industries are susceptible to product
shortages. Some of the products that we distribute, such as factor VIII blood
clotting products and intravenous immune globulins, have experienced shortages
in the recent past. Suppliers were unable to increase production to meet rising
global demand. This shortage has recently ended, and while supply has
significantly increased, demand continues to grow. For the three month ended
March 31, 2003, approximately 43 percent, or $21.7 million, of our Specialty
Pharmacy Services revenues were derived from our sale of factor VIII. We
purchased our supplies of blood clotting products from five suppliers, including
Baxter Healthcare Corp., Novo Nordisk Pharmaceuticals, Inc., Wyeth, Alpha
Therapeutics Corp. and Aventis Behring. The Company believes that these five
suppliers represent substantially all of the production capacity for recombinant
factor VIII. In the event that one of these suppliers is unable to continue to
supply us with products, it is uncertain whether the remaining suppliers would
be able to make up any shortfall resulting from such inability. Our ability to
take on additional customers or to acquire other specialty pharmacy businesses
with significant hemophilia customer bases could be affected negatively in the
event we are unable to secure adequate supplies of our products from these
suppliers. In addition, MedImmune, Inc. is the sole supplier of Synagis(R), a
product used to treat respiratory syncytial virus in infants. In the event
MedImmune is unable to provide us with an adequate supply of Synagis(R) product
for any reason, our ability to add and service patients would be impaired. If
these products, or any of the other drugs or products that we distribute, are in
short supply for long periods of time, our business could be harmed.
If additional providers obtain access to favorably priced products we handle,
our business could be harmed.
Because we do not receive federal grants under the Public Health Service Act, we
are not eligible to participate directly in a federal pricing program
administered by the Federal Health Resources and Services Administration's
Public Health Service, which allows certain entities with such grants, such as
certain hospitals and hemophilia treatment centers, to obtain discounts on
drugs, including certain biopharmaceutical products (e.g., hemophilia clotting
factor) which products represented 49 percent of our total Company revenues for
the three months ended March 31, 2003. To the best of our knowledge, these
entities benefit by being able to acquire, pursuant to this federal program,
products competitive with ours at prices lower than our cost for the same
products. Our customers, where eligible, may elect to obtain hemophilia clotting
factor, or other products, from such lower-cost entities and this would result
in a loss of revenue.
Recent investigations into reporting of average wholesale prices could reduce
our pricing and margins.
Many government payors, including Medicare and Medicaid, as well as some private
payors, pay us directly or indirectly based upon the drug's average wholesale
price. If a drug's average wholesale price declines, and if we are unable to
recoup the full amount of such decline from our customers, we will lose
revenues. Biopharmaceutical products (biological products, e.g., hemophilia
factor) and pharmaceutical products (i.e., drugs) are included as part of this
drug reimbursement methodology. Most of Specialty Pharmacy Services' revenues
results from reimbursement methodologies based on the average wholesale price of
our products. Average wholesale price for most drugs is compiled and published
by private companies, such as First DataBank, Inc., from information provided by
manufacturers. Various federal and state government agencies have been
investigating whether the reported average wholesale price of many drugs,
including some that we sell, is an appropriate or accurate measure of the market
price of the drugs. As reported in the "Wall Street Journal," there are also
several whistleblower lawsuits pending against various drug manufacturers in
connection with the appropriateness of the manufacturer's average wholesale
price for a particular drug. These government investigations and lawsuits
involve allegations that manufacturers reported artificially inflated average
wholesale prices of various drugs to First DataBank, which, in turn, reported
these prices to its subscribers, including many state Medicaid agencies who then
included these average wholesale prices in the state's reimbursement policies.
In 2001, Bayer Corporation, an occasional supplier of hemophilia factor to us,
agreed to pay $14 million in a settlement with the federal government and 45
states in order to close an investigation regarding these charges. Bayer also
entered into a five-year corporate integrity agreement with the government, in
which Bayer agreed to provide information on the average sale price of its drugs
to the government. In February 2000, First DataBank published a Market Price
Survey of 437 drugs, which was significantly lower than the historic average
wholesale price for a number of the clotting factor and intravenous immune
globulin products that we sell. Consequently, a number of state Medicaid
agencies have revised their payment methodology as a result of the Market Price
Survey. Although the Centers for Medicare and Medicaid Services ("CMS") had also
announced that Medicare fiscal agents should calculate the amount that they pay
for Medicare claims for certain drugs by using the lower prices on the First
DataBank Market Price Survey, the proposal to include clotting factor in the
lower Medicare pricing was withdrawn. CMS announced that it will seek
legislation that would establish payments to cover the administrative costs of
suppliers of clotting factor as a supplement to a lower average wholesale price
pricing for hemophilia factor.
On September 21, 2001, the United States House Subcommittees on Health and
Oversight & Investigations held hearings to examine how Medicare reimburses
providers for the cost of drugs. In conjunction with that hearing, the United
States General Accounting Office issued its Draft Report recommending that
Medicare establish payment levels for part-B prescription drugs and their
delivery and administration that are more closely related to their costs, and
that payments for drugs be set at levels that reflect actual market transaction
prices and the likely acquisition costs to providers. On March 14, 2002, the
Senate Finance Committee's Subcommittee on Health conducted a hearing on
Medicare drug reimbursement issues, including average wholesale price. This
hearing reflects Congress' interest in possibly changing the manner in which the
government reimburses providers for drugs.
More recently, on January 10, 2003, the United States General Accounting Office
issued a report on Medicare payment for blood clotting factor finding that,
similar to earlier findings about other drugs Medicare pays for, in 2001,
Medicare's payment for blood clotting products exceeded the actual acquisition
costs of providers. The government's inquiries and the changes occurring in the
reporting of average wholesale price and its related effects on Medicare and
Medicaid prices could have a negative effect on our business. For example, if
the reduced average wholesale price published by First DataBank for the drugs
that we sell are ultimately adopted as the standard by which we are paid by
government payors or private payors, this could have an adverse effect on our
business, including reducing the pricing and margins on certain of our products.
The government's inquiries and the changes occurring in the reporting of average
wholesale price and its related effects on Medicare and Medicaid prices could
have a negative effect on our business. For example, if the reduced average
wholesale prices published by First DataBank for the drugs that we sell are
ultimately adopted as the standard by which we are paid by government payors or
private payors, this could have an adverse effect on our business, including
reducing the pricing and margins on certain of our products.
Our business would be harmed if demand for our products and services is reduced.
Reduced demand for our products and services, in either our Specialty Pharmacy
Services or Specialty Healthcare Services businesses, could be caused by a
number of circumstances, including:
o customer shifts to treatment regimens other than those we offer;
o new treatments or methods of delivery of existing drugs that do not
require our specialty products and services;
o the recall of a drug;
o adverse reactions caused by a drug;
o the expiration or challenge of a drug patent;
o competing treatment from a new drug, a new use of an existing drug or
genetic therapy;
o drug companies cease to develop, supply and generate demand for drugs
that are compatible with the services we provide;
o drug companies stop outsourcing the services we provide or fail to
support existing drugs or develop new drugs;
o governmental or private initiatives that would alter how drug
manufacturers, health care providers or pharmacies promote or sell
products and services;
o the loss of a managed care or other payor relationship covering a
number of high revenue customers;
o the cure of a disease we service.
Our business involves risks of professional, product and hazardous substance
liability, and any inability to obtain adequate insurance may adversely affect
our business.
The provision of health services entails an inherent risk of professional
malpractice, regulatory violations and other similar claims. Claims, suits or
complaints relating to health services and products provided by physicians,
pharmacists or nurses in connection with our Specialty Pharmacy Services and
Specialty Healthcare Services programs may be asserted against us in the future.
Our operations involve the handling of bio-hazardous materials. Our employees,
like those of all companies that provide services dealing with human blood
specimens, may be exposed to risks of infection from AIDS, hepatitis and other
blood-borne diseases if appropriate laboratory practices are not followed.
Although we believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal
regulations, the risk of accidental infection or injury from these materials
cannot be completely eliminated. In the event of such an accident, we could be
held liable for any damages that result, and such liability could harm our
business.
Our operations expose us to product and professional liability risks that are
inherent in managing the delivery of wound care services and the provision and
marketing of biopharmaceutical and pharmaceutical products. We currently
maintain professional and product liability insurance coverage of $25 million in
the aggregate. Because we cannot predict the nature of future claims that may be
made, we can not assure you that the coverage limits of our insurance would be
adequate to protect us against any potential claims, including claims based upon
the transmission of infectious disease, contaminated product or otherwise. In
addition, we may not be able to obtain or maintain professional and product
liability insurance in the future on acceptable terms or with adequate coverage
against potential liabilities.
We rely on key community-based representatives whose absence or loss could harm
our business.
The success of our Specialty Pharmacy Services division depends upon our ability
to retain key employees known as community-based representatives, and the loss
of their services could adversely affect our business and prospects. Our
community-based representatives are our chief contact and maintain the primary
relationship with our customers and the loss of a single community-based
representative could result in the loss of a significant number of customers. We
do not have key man insurance on any of our community-based representatives. In
addition, our success will depend, among other things, upon the successful
recruitment and retention of qualified personnel, and we may not be able to
retain all of our key management personnel or be successful in recruiting
additional replacements should that become necessary.
Our inability to maintain a number of important contractual relationships could
adversely affect our operations.
Substantially all of the revenues of our Specialty Healthcare Services
operations are derived from management contracts with acute care hospitals. As
of March 31, 2003, we had 88 management contracts. The contracts generally have
initial terms of three to five years, and many have automatic renewal terms
unless specifically terminated. During the remainder of the year ending
December 31, 2003, the contract terms of 24 of our management contracts will
expire, including 17 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 us under various
other circumstances. Historically, some contracts have expired without renewal,
and others have been terminated by us or the client hospital for various reasons
prior to their scheduled expiration. During the first three months of 2003, one
contract expired without renewal, and an additional five contracts were
terminated prior to their scheduled expiration. Generally, these contracts were
terminated by hospitals because of the Specialty Healthcare Services legal
action, hospital financial difficulties and Medicare reimbursement changes which
reduced hospital revenues. Our continued success is subject to our ability to
renew or extend existing management contracts and obtain new management
contracts. Any hospital may decide not to continue to do business with us
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 us could result in the early termination of existing
management contracts and could adversely affect our ability 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
harm our business.
In addition, a portion of the revenues of our Specialty Pharmacy Services
operations is derived from contractual relationships with retail pharmacies. Our
success is subject to the continuation of these relationships, and termination
of one or more of these relationships could harm our business.
Our business will suffer if we lose relationships with payors.
We are highly dependent on reimbursement from non-governmental payors. Many
payors seek to limit the number of providers that supply drugs to their
enrollees. From time to time, payors with whom we have relationships require
that we and our competitors bid to keep their business, and, therefore, due to
the uncertainties involved in any bidding process, we may either not be retained
or our margins may be adversely affected. The loss of a significant number of
payor relationships, or an adverse change in the financial condition of a
significant number of payors could result in the loss of a significant number of
patients and harm our business.
Changes in reimbursement rates may cause reductions in the revenues of our
operations.
As a result of the Balanced Budget Act of 1997, CMS (formerly Health Care
Financing Administration) implemented the Outpatient Prospective Payment System
for all hospital outpatient department services furnished to Medicare patients
beginning August 2000. Under the system, a predetermined rate is paid to
hospitals for clinical services rendered, regardless of the hospital's cost. The
new payment system does not provide comparable reimbursement for previously
reimbursed services, and the payment rates for many services are insufficient
for many of our hospital customers, resulting in revenue and income shortfalls
for the Wound Care Center programs managed by us on behalf of the hospitals. As
a result, during 2002 and 2001, we renegotiated and modified many of our
management contracts, which has resulted in reduced revenue and income to us
from those modified contracts and, in numerous cases, contract termination.
These renegotiations resulted in reduced revenues of approximately $4.2 million.
In addition, we lost approximately $9.7 million in revenues as the result of
contract terminations. At any time during any given year, 10 percent to 20
percent of hospital contracts are being renegotiated. We expect that contract
renegotiation and modification with many of our hospital customers will
continue, and this could result in further reduced revenues and income to us
from those contracts and even contract terminations. These results could harm
our business.
The Wound Care Center programs managed by Specialty Healthcare Services on
behalf of acute care hospitals are generally treated as "provider based
entities" for Medicare reimbursement purposes. This designation is required for
the hospital based program to be covered under the Medicare outpatient
reimbursement system. With the Outpatient Prospective Payment System, Medicare
published criteria for determining when programs may be designated "provider
based entities." Programs that existed prior to October 1, 2000 are
grandfathered by CMS to be "provider based entities" until the start of their
next cost reporting period beginning on or after July 1, 2003. At that time, the
hospital will submit an attestation to the appropriate Regional Office,
attesting that the program meets all the requirements for provider based
designation. Programs that started on or after October 1, 2000 are required to
file an application for provider based designation status. We timely advised
each of our hospital clients of the mandatory application procedures. Of the
eight "under arrangement" models in our Specialty Healthcare Services business
unit, where we, not the hospital, employ the clinical and administrative staff
that work in the center, four are potentially at risk for not meeting the
criteria for a "provider based entity." As a result, Specialty Healthcare
Services has been in discussions with its "under arrangement" hospital customers
to convert the programs to management models where the hospital employs the
clinical and administrative staff. Although we believe that the programs we
manage substantially meet the current criteria to be designated "provider based
entities," a widespread denial of such designation would harm our business.
In recent years, competition for patients, efforts by traditional third-party
payors to contain or reduce health care costs, and the increasing influence of
managed care payors, such as health maintenance organizations, have resulted in
reduced rates of reimbursement. If these trends continue, they could harm our
business. The profitability of our Specialty Pharmacy operations depends on
reimbursement from third-party payors because our customers seek reimbursement
from third-party payors for the cost of drugs and related medical supplies that
we distribute. Changes in reimbursement policies of private and governmental
third-party payors, including policies relating to the Medicare, Medicaid and
other federally funded programs, could reduce the amounts reimbursed to these
customers for our products and, in turn, the amount these customers would be
willing to pay for our products and services. In addition, where we have direct
relationships with payors, changes in their reimbursement policies may reduce
amounts payable directly to us by such payors. Changes in those reimbursement
policies could affect our customers, which in turn could harm our business.
Our business could be harmed by changes in Medicare or Medicaid.
Changes in the Medicare, Medicaid or similar government programs or the amounts
paid by those programs for our services may adversely affect our earnings. Such
programs are highly regulated and subject to frequent and substantial changes
and cost containment measures. In recent years, changes in these programs have
limited and reduced reimbursement to providers. According to a Kaiser Family
Foundation report released on September 19, 2002, 45 states reported they took
actions to decrease Medicaid spending on 2002, and 41 reported they would take
additional actions to decrease Medicaid spending in 2003. As a result of our
Specialty Pharmacy acquisitions, we expect the percentage of our revenues
attributable to federal and state programs to increase. In September 2002, the
Bush administration proposed deep reductions in Medicare payments for a wide
range of drugs provided as outpatient services by hospitals. Among the drugs
included in this proposal is hemophilia products. If this proposal is adopted,
we cannot predict whether state Medicaid programs would adopt similar pricing.
We are subject to pricing pressures and other risks involved with commercial
payors.
Commercial payors, such as managed care organizations and traditional indemnity
insurers, increasingly are requesting fee structures and other arrangements
providing for health care providers to assume all or a portion of the financial
risk of providing care. The lowering of reimbursement rates, increasing medical
review of bills for services and negotiating for reduced contract rates could
harm our business. Pricing pressures by commercial payors may continue, and our
business may be adversely affected by these trends.
Also, continued growth in managed care and capitated plans have pressured health
care providers to find ways of becoming more cost competitive. Managed care
organizations have grown substantially in terms of the percentage of the
population they cover and in terms of the portion of the health care economy
they control. Managed care organizations have continued to consolidate to
enhance their ability to influence the delivery of health care services and to
exert pressure to control health care costs. A rapid increase in the percentage
of revenue derived from managed care payors or under capitated arrangements
without a corresponding decrease in our operating costs could harm our business.
There is substantial competition in our industry, and we may not be able to
compete successfully.
Our Specialty Pharmacy Services business faces competition from other disease
management entities, general health care facilities and service providers,
biopharmaceutical companies, pharmaceutical companies as well as other
competitors. Many of these companies have substantially greater capital
resources and marketing staffs and greater experience in commercializing
products and services than we have. The principal competition with our Specialty
Healthcare Services business consists of specialty clinics that have been
established by some hospitals or physicians. Additionally, there are some
private companies which provide wound care services through a hyperbaric oxygen
therapy program format. 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 our chronic wound care services. We may not be able
to enter into co-marketing arrangements with respect to these products, and we
may not be able to compete effectively against such companies in the future.
If we are unable to effectively adapt to changes in the health care industry,
our business will be harmed.
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, we
anticipate 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 as well as changes to the Medicare Program's coverage and
payments of the drugs and services we provide. It is possible that future
legislation enacted by Congress or state legislatures will contain provisions
that may harm our business, or may change the operating environment for our
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 our 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, or coverage for
biopharmaceutical and pharmaceutical products, which could affect reimbursement
policies in a manner adverse to us, or could encourage integration or
reorganization of the health care delivery system in a manner that could
materially and adversely affect our ability to compete or to continue our
operations without substantial changes. Other legislation relating to our
business or to the health care industry may be enacted, including legislation
relating to third-party reimbursement, and such legislation may have a negative
effect on our business.
Our industry is subject to extensive government regulation, and noncompliance by
us or our suppliers, our customers or our referral sources could harm our
business.
The marketing, labeling, dispensing, storage, provision and purchase of drugs,
health supplies and health services including the biopharmaceutical and
pharmaceutical products we provide, are extensively regulated by federal and
state governments, and if we fail or are accused of failing to comply with laws
and regulations, our business could be harmed. Our business could also be harmed
if the suppliers, customers or referral sources we work with are accused of
violating laws or regulations. The applicable regulatory framework is complex,
and the laws are very broad in scope. Many of these laws remain open to
interpretation and have not been addressed by substantive court decisions. The
federal government, or states in which we operate, could, in the future, enact
more restrictive legislation or interpret existing laws and regulations in a
manner that could limit the manner in which we can operate our business and have
a negative impact on our business.
There are a number of state and federal laws and regulations that apply to our
operations including, but not limited to:
o The federal "anti-kickback law" prohibits the offer or solicitation of
remuneration in return for the referral of patients covered by almost
all governmental programs, or the arrangement or recommendation of the
purchase of any item, facility or service covered by those programs.
The Health Insurance Portability and Accountability Act of 1996, or
HIPAA, created new violations for fraudulent activity applicable to
both public and private health care benefit programs and prohibits
inducements to Medicare or Medicaid eligible patients to influence
their decision to seek specific items and services reimbursed by the
government or to choose a particular provider. The potential sanctions
for violations of these laws include significant fines, exclusion from
participation in the Medicare and Medicaid programs and criminal
sanctions. Although some "safe harbor" regulations attempt to clarify
when an arrangement will not violate the anti-kickback law, our
business arrangements and the services we provide may not fit within
these safe harbors. Failure to satisfy a safe harbor requires further
analysis of whether the parties violated the anti-kickback law. In
addition to the anti-kickback law, many states have adopted similar
kickback and/or fee-splitting laws, which can affect the financial
relationships we may have with physicians, vendors, other retail
pharmacies and patients. The finding of a violation of the federal
laws or one of these state laws could harm our business.
o In 2000, the Department of Health and Human Services issued final
regulations implementing the Administrative Simplification provision
of HIPAA concerning the maintenance, transmission and security of
electronic health information, particularly individually identifiable
information. The regulations, when effective, will require the
development and implementation of security and transaction standards
for all electronic health information and impose significant use and
disclosure obligations on entities that send or receive individually
identifiable electronic health information. As a result of these
regulations, we anticipate new expenditures in ensuring that patient
data kept on our computer networks are in compliance with these
regulations. While we believe that we will be in compliance by the
applicable deadlines, the cost of reaching compliance may harm our
business. Also, failure to comply with these regulations or wrongful
disclosure of confidential patient information could result in the
imposition of administrative or criminal sanctions, including exclusion
from the Medicare and state Medicaid programs. In addition, if we
choose to distribute drugs through new distribution channels such
as the Internet, we will have to comply with government regulations
that apply to those distribution channels, which could harm our
business.
o The Ethics in Patient Referrals Act of 1989, as amended, commonly
referred to as the "Stark Law," prohibits physician referrals to
entities with which the physician or their immediate family members
have a "financial relationship." A violation of the Stark Law is
punishable by civil sanctions, including significant fines and
exclusion from participation in Medicare and Medicaid.
o State laws prohibit the practice of medicine, pharmacy and nursing
without a license. To the extent that we assist patients and providers
with prescribed treatment programs, a state could consider our
activities to constitute the practice of medicine. Our nurses must
obtain state licenses to provide nursing services we provide to some of
our patients. In addition, in some states, coordination of nursing
services for patients could necessitate licensure as a home health
agency and/or could necessitate the need to use licensed nurses to
provide certain patient directed services. If we are found to have
violated those laws, we could face civil and criminal penalties and be
required to reduce, restructure or even cease our business in that
state.
o Pharmacies (retail, mail-order and wholesale) as well as pharmacists
often must obtain state licenses to operate and dispense drugs.
Pharmacies must also obtain licenses in some states in order to operate
and provide goods and services to residents of those states. In
addition, our pharmacies may be required by the federal Drug
Enforcement Agency, as well as by similar state agencies, to obtain
registration to handle controlled substances, including certain
prescription drugs, and to follow specified labeling and record-keeping
requirements for such substances. If we are unable to maintain our
licenses, or if states place burdensome restrictions or limitations on
non-resident pharmacies, this could limit or affect our ability to
operate in some states which could harm our business.
o Federal and state investigations and enforcement actions continue to
focus on the health care industry, scrutinizing a wide range of items
such as joint venture arrangements, referral and billing practices,
product discount arrangements, home health care services, dissemination
of confidential patient information, clinical drug research trials and
gifts for patients or referral sources.
o We are subject to federal and state laws prohibiting entities and
individuals from knowingly and willfully making claims to Medicare and
Medicaid, and other third party payors, that contain false or
fraudulent information. The federal False Claims Act encourages
private individuals to file suits on behalf of the government against
health care providers such as us. As such suits are generally filed
under seal with a court to allow the government adequate time to
investigate and determine whether it will intervene in the action,
health care providers affected are often unaware of the suit until the
government has made its determination and the seal is lifted.
Violations or alleged violations of such laws, and any related suits
could result in significant financial or criminal sanctions or
exclusion from participation in the Medicare and Medicaid programs.
There is a delay between our performance of services and our reimbursement.
The health care industry is characterized by delays that typically range from
three to nine months between when services are provided and when the
reimbursement or payment for these services is received. This makes working
capital management, including prompt and diligent billing and collection, an
important factor in our results of operations and liquidity. Trends in the
industry may further extend the collection period and impact our working
capital.
We rely heavily on a limited number of shipping providers, and our business
would be harmed if our rates are increased or our providers are unavailable.
A significant portion of our revenues result from the sale of drugs we deliver
to our patients, and a significant amount of our products are shipped by mail
order, overnight courier, retail pharmacy or in person through our
community-based representatives. The costs incurred in shipping are not passed
on to our customers and, therefore, changes in these costs directly impact our
margins. We depend heavily on these outsourced shipping services for efficient,
cost effective delivery of our product. The risks associated with this
dependence include:
o any significant increase in shipping rates;
o strikes or other service interruptions by these carriers; and
o spoilage of high cost drugs during shipment, since our drugs often
require special handling, such as refrigeration.
RISK RELATED TO OUR COMMON STOCK
Possible volatility of stock price in the public market.
The market price of our common stock has experienced, and may continue to
experience, substantial volatility. Over the past eight quarters, the market
price of our common stock has ranged from a low of $5.20 per share in the second
quarter of 2001 to a high of $22.75 in the first quarter of 2002. Many factors
have influenced the common stock price in the past, including fluctuations in
our earnings and changes in our financial position, management changes, low
trading volume, and negative publicity and uncertainty resulting from the legal
actions brought against us. In addition, the securities markets have, from time
to time, experienced significant broad price and volume fluctuations that may be
unrelated to the operating performance of particular companies. All of these
factors could adversely affect the market price of our common stock.
Provisions of our articles of incorporation and Minnesota law may make it more
difficult for you to receive a change-in-control premium. Our Board's ability to
designate and issue up to 10 million shares of preferred stock and issue up to
50 million shares of common stock could adversely affect the voting power of the
holders of common stock, and could have the effect of making it more difficult
for a person to acquire, or could discourage a person from seeking to acquire,
control of our company. If this occurred, you could lose the opportunity to
receive a premium on the sale of your shares in a change of control transaction.
In addition, the Minnesota Business Corporation Act contains provisions that
would have the effect of restricting, delaying or preventing altogether certain
business combinations with any person who becomes an interested stockholder.
Interested stockholders include, among others, any person who, together with
affiliates and associates, acquires 10 percent or more of a corporation's voting
stock in a transaction which is not approved by a duly constituted committee of
the Board of the corporation. These provisions could also limit your ability to
receive a premium in a change of control transaction.
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Curative Health Services, Inc. (the
"Company") on Form 10-Q for the period ended March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph
Feshbach, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ Joseph Feshbach
-----------------------
Joseph Feshbach
Chief Executive Officer
May 15, 2003
A signed original of this written statement required by Section 906 has been
provided to Curative Health Services, Inc. and will be retained by Curative
Health Services, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.
Exhibit 99.3
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Curative Health Services, Inc. (the
"Company") on Form 10-Q for the period ended March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas
Axmacher, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ Thomas Axmacher
-----------------------
Thomas Axmacher
Chief Financial Officer
May 15, 2003
A signed original of this written statement required by Section 906 has been
provided to Curative Health Services, Inc. and will be retained by Curative
Health Services, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.