CURATIVE HEALTH SERVICES INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)

X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the fiscal year ended December 31, 1997

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

[No Fee Required]

For the Transition Period From to
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

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (516) 232-7000

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

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

Yes X No______

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

As of March 2, 1998, 12,633,722 shares of Common Stock of
Curative Health Services, Inc. were outstanding and the aggregate
market value of such Common Stock held by nonaffiliates (based
upon its closing transaction price on such date) was
approximately $473 million.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Proxy Statement for its 1998 Annual
Meeting of Stockholders, which the Registrant intends to file not
later than 120 days following December 31, 1997, are incorporated
by reference to Part III of this Form 10-K Report.

PART I

Item 1 Business

General

Curative Health Services, Inc. is a leading disease management company in
the chronic wound care market. Currently, the Company manages, on behalf of
hospital clients, a nationwide network of Wound Care Centers(R) that offers a
comprehensive range of services which enable the Company to provide customized
wound care. The Company's Wound Management Program consists of diagnostic and
therapeutic treatment regimens which are designed to meet each patient's
specific wound care needs on a cost effective basis. The Company's treatment
regimens are based on critical pathways designed for wound healing. The Company
has a proprietary database of patient outcomes that the Company has collected
since 1988 containing approximately 175,000 patient records which indicate an
overall healing rate of approximately 80% for patients completing therapy. The
Company's Wound Care Center(R) network consists of 132 outpatient clinics
located on or near campuses of acute care hospitals in 33 states. The Company is
developing new service models for other health care delivery settings and
currently manages nine wound care programs at subacute and long term acute care
facilities and operates seven freestanding Wound Care Centers(R).

The Company believes that the high degree of specialization and expertise
offered by the Wound Care Centers(R) provide benefits: (i) to patients through
superior wound care, thus enhancing their quality of life, in many cases,
allowing them to avoid amputation; (ii) to affiliated hospitals by enabling them
to differentiate themselves from their competitors through better wound care
treatment outcomes, to reduce costs by decreasing inpatient lengths of stay and
to increase revenue through the introduction of new patients; (iii) to
affiliated physicians by providing greater access to patients; and (iv) to
insurers and managed care providers by offering a cost effective alternative to
traditional wound care.

Industry

Market Overview. Chronic wounds are common in patients with diabetes and
venous stasis disease, as well as in patients who are immobilized and afflicted
with pressure sores. A chronic wound generally is a wound which shows no signs
of significant healing in four weeks or has not healed in eight weeks. The
healing of a wound is dependent upon adequate blood flow to stimulate new cell
growth and combat infection. When adequate blood flow does not occur, the
healing process is retarded, often resulting in a chronic wound that can last
for months or years. Without effective treatment, a chronic wound may lead to
more severe medical conditions, such as infection, gangrene and amputation,
which are costly to payors and impede the quality of life for the patient.

According to Chronic Wound Care: A Clinical Source Book for Healthcare
Professionals (Health Management Publications, 1990), it is estimated that at
least three million people suffer from chronic wounds in the United States. Of
the three million people with chronic wounds, an estimated 1.5 million have
pressure sores, over 700,000 have diabetic ulcers, and over 600,000 suffer from
venous stasis ulcers. Diabetic ulcers are responsible for 60,000 limb
amputations each year, accounting for more than half of all such procedures not
related to trauma. Venous stasis disease and pressure sores often afflict the
elderly, who constitute the most rapidly growing segment of the U.S. population
and account for a disproportionately large share of total U.S. health care
expenditures. It is estimated that the wound care segment of the U.S. health
care industry generated $2 billion in expenditures in 1994. It is also
anticipated that the wound care market will continue to grow due to the aging
population and the increasing incidence of health disorders, such as diabetes,
which may lead to chronic wounds.

Traditional Approach to Chronic Wound Care. Traditional chronic wound care
treatment, which is typically administered by a primary care physician, relies
principally on cleansing and debriding the wound, controlling infection with
antibiotics and protecting the wound. For example, topical or oral antibiotics
are administered to decrease the bacterial count in the wound, protective
dressings are used to decrease tissue trauma and augment repair and various
topical agents are applied that chemically cleanse the wound and remove wound
exudate. These passive treatments do not directly stimulate the underlying wound
healing process. In many cases, the patient may have to see a number of health
care professionals before effective treatment is received. In addition, under
this traditional care model, patients must manage their own care, which often
leads to non-compliance and treatment failure which may lead to infection,
gangrene and amputation. Although wound care programs have begun to evolve to
more specialized and aggressive treatment regimens, the Company believes that a
significant medical need and market opportunity exists for products and services
that improve and accelerate the wound healing process.

2

The Curative Approach to Chronic Wound Care

The Company's Wound Management Program is a comprehensive array of
diagnostic and therapeutic treatment regimens with all the components of care
necessary to treat chronic wounds. The Company's Wound Management Program is
administered primarily through the Company's nationwide network of Wound Care
Centers. The Company believes the Wound Management Program provides a better
approach to chronic wound management than the traditional approach, which the
Company believes lacks comprehensive wound programs, effective technology,
positive outcomes and cost efficiency. Each Wound Management Program offers its
patients a multi-disciplinary team of health care professionals, including a
medical director, surgeon, nurse, case manager, nutritionist and
endocrinologist.

In most cases, patients arriving at the Company's Wound Care Centers have
been treated with traditional wound healing techniques, but continue to suffer
from chronic wounds. In some cases, patients come to a Wound Care Center after
they have received an opinion from their primary physician that limb amputation
is required. Upon the commencement of treatment under the Company's Wound
Management Program, medical personnel conduct a systematic diagnostic assessment
of the patient. Specialized treatment protocols are then established for the
patient, based on the underlying cause of the wound and the unique status of the
patient. After the assessment phase, the course of treatment in the Wound
Management Program may include revascularization, infection control, wound
debridement, growth factor therapy, skin grafting, nutrition, protection
devices, patient education, referrals, and effective management of care through
patient/provider communications.

To measure the effectiveness of the Company's Wound Management Program,
the Company has developed a functional assessment scoring system to measure the
healing of a wound. Under this system, a chronic wound is considered healed when
(i) it is completely covered by epithelium (i.e., a membranous cellular tissue
that covers and protects a wound as it heals), (ii) maturing skin is present in
the wound, (iii) there is minimal drainage from the wound, (iv) the wound
requires only a protective dressing and (v) the limb involved is functional. The
Company has a proprietary database of patient outcomes that the Company has
collected since 1988 containing approximately 175,000 patient records which
indicate an overall healing rate of approximately 80% for patients completing
therapy.

A unique aspect of the Company's Wound Management Program is the use of
Procuren(R), the Company's wound healing agent which is used to treat
approximately 18% of patients. Procuren(R) is a naturally occurring complex
mixture of several growth factors that promotes the growth of skin, soft tissue
and blood vessels. Procuren(R) is produced by stimulating the release of growth
factors from platelets contained in the patient's own blood. Blood is taken from
the patient at the treatment center and then sent to a Company-operated blood
processing facility located in the same state where the patient's blood was
drawn. To produce Procuren, the Company separates the platelets from the
remainder of the blood sample. Thrombin, a substance in the body that is active
in the wound healing process, is added to the platelets, causing the platelets
to release growth factors. The platelet shells are discarded and the growth
factors are diluted and placed in a buffered solution which is frozen until
used. When required as part of the patient's wound care treatment program,
Procuren is applied topically to the wound area by soaking a gauze dressing in
the Procuren solution and covering the wound area with the gauze. Procuren, as
part of a comprehensive treatment algorithm, has been used to treat over 45,000
patients to date. The Company believes that Procuren stimulates a normal wound
healing response in patients with chronic wounds in much the same way as the
body naturally initiates healing.

3

Company-sponsored studies suggest that the use of Procuren as part of the
Company's Wound Management Program is both efficacious and cost-effective. For
example, a Company-sponsored retrospective study of patients with diabetic
ulcers (who tend to have the most severe chronic wounds) published by CP Fylling
and PC McKeown in 1990 found that the average charges for a conventional
treatment program were $19,000 as compared to $14,000 for a specialized wound
management program that included the use of Procuren. In addition to costing
less, the specialized program had a healing rate of 79% as compared to 24% for
patients enrolled in the conventional treatment program. Furthermore, 60% of the
conventionally treated patients required amputations at the end of the study
compared with only 19% in the specialized group of patients.

Strategy

The Company's objective is to enhance its position as a leading disease
management company in the chronic wound care market. The Company's growth
strategy is to continue to improve and refine the Wound Management Program while
broadening its delivery models to cover the entire continuum of care for wound
management. Key elements of this strategy include:

Continue to Develop the Company's Nationwide Network of Outpatient Wound
Care Centers. The Company intends to continue to establish additional outpatient
Wound Care Centers on or near the campuses of acute care hospitals. Despite the
Company's rapid growth from 32 outpatient centers in 1991 to 132 outpatient
centers as of the end of 1997, the Company believes the opportunity for further
growth remains substantial. The Company has identified over 300 additional
markets in the United States which the Company believes have the population
necessary to support a dedicated wound care program. The Company believes
hospitals are continually seeking low cost, high quality solutions to wound
management such as those provided by the Company. In addition, the Company
believes it enables its hospital clients to differentiate themselves from their
competitors through better wound care treatment outcomes, reduced costs due to
decreased inpatient lengths of stay and increased revenue through the
introduction of new patients. As a result, the Company believes there is a
significant opportunity for the Company to continue to expand its Wound Care
Center operations through affiliation with acute care hospitals.

Develop New Service Models to Enhance Market Penetration. The Company is
actively developing new service models in new health care delivery settings such
as inpatient programs for subacute and long term care facilities (e.g., nursing
homes and long term acute care hospitals) and freestanding outpatient Wound Care
Centers. The Company currently operates seven freestanding outpatient Wound Care
Centers all of which have opened since October 1995, and nine inpatient
programs, including eight subacute care nursing home-based programs and one
subacute care hospital-based program, all but one of which has opened since
October 1995. Ultimately the Company may also expand its service models to
physician offices and the home. Pressure sores, the most common form of chronic
wound, usually occur among nursing home, subacute care and home patients due to
the sedentary lifestyle associated with those care settings. As the Company
further develops its inpatient service models, the Company believes it will
become more capable of penetrating the large pressure sore market. The
freestanding service model allows the Company to strategically grow its business
through select target marketing and enter markets where a suitable partner is
not available. Furthermore, the Company believes the freestanding model gives
the Company greater control over healing outcomes and the cost of services, both
of which are important when working with managed care providers.

Provide a Comprehensive Managed Care Product. In addition to providing new
revenue opportunities, the Company believes its ability to provide its services
as a comprehensive managed care product in a number of settings will increase
its attractiveness to managed care payors seeking to provide a continuum of care
while reducing risk. With its Wound Management Program and increasing presence
in multiple health care delivery settings, the Company can offer managed care
payors a shared risk relationship which the Company believes will provide better
patient healing outcomes and more cost-effective services for subscribers.

Enhance the Company's Wound Management Program. The Company currently
offers a unique Wound Management Program which includes assessment, vascular
studies, revascularization, infection control, wound debridement, growth factor
therapy, skin grafting, nutrition, protection devices, patient education,
referrals and effective management of care through patient/provider
communications. In addition, the Company is continually exploring and seeking
advances in wound care management services and products which could enhance its
current Wound Management Program. The Company is actively pursuing such advances
through the continuous development of its current services, and the
consideration of acquisition opportunities and co-marketing arrangements with
other providers of wound care products and services.

4

Expand Into Other Disease Management Areas. Longer term, the Company is
considering capitalizing on its disease management expertise by expanding its
services into other disease management areas to meet the growing continuum of
health care needs of patients and providers. The Company believes that there is
a significant market potential for the delivery of other disease management
services through its existing network of Wound Care Centers. The possibilities
for expansion of the Company's disease management services include the treatment
of chronic wound related diseases such as diabetes, as well as non-chronic wound
related diseases such as cardiovascular disorders.

Wound Care Operations

The Company's wound care operations offer health care providers the
opportunity to create specialty wound care departments designed to meet the
needs of chronic wound patients. The initial focus of the Company's wound care
operations has been hospital outpatient Wound Care Centers. The Company is
currently expanding its programmatic approach to wound care to alternate site
inpatient settings such as subacute inpatient facilities. In these models the
Company has established the wound care programs as cooperative ventures with
health care providers to offer a multi-disciplinary approach to the treatment of
chronic wounds. In addition, the Company is expanding its market penetration
with the establishment of freestanding outpatient Wound Care Centers.

Hospital Outpatient Wound Care Centers. Outpatient Wound Care Centers,
located on or near the campuses of acute care hospitals, represent the Company's
core business. A typical hospital outpatient Wound Care Center consists of 4,000
square feet of space comprising four to eight exam rooms, a nursing station, and
physician and administrative offices. These Wound Care Centers are designed to
deliver all necessary outpatient services for the treatment of chronic wounds,
with the hospital providing any inpatient care, such as revascularization or
surgical debridement.

The Company currently offers its hospital clients two outpatient Wound
Care Center models: a management model and an "under arrangement" model. The
differences between these two models relate primarily to the employment of the
clinical staff at the Wound Care Center and the basis for the management fees
paid to the Company. In the management model, the only employee of the Company
at the Wound Care Center is the Wound Care Center's Program Director, and the
Company generally receives a fixed monthly management fee and a variable case
management fee. In the "under arrangement" model, the Company employs all of the
clinical and administrative staff (other than physicians) at the Wound Care
Center and the Company generally receives fees based on the services provided to
each patient. In all other material respects the two models are identical. In
both models, physicians remain independent and the Company recruits and trains
the physicians and staff associated with the Wound Care Center. The physicians
providing services at a Wound Care Center are recruited by the Company primarily
from among the doctors who work at the hospital and practice in related areas.
In addition, in both models the Company develops, manages and provides Procuren
processing services for the Wound Care Center, and the Company's field support
departments provide the staff at each Wound Care Center with clinical oversight,
quality assurance, reimbursement consulting, sales and marketing and general
administrative support services. The terms of the Company's contract with each
hospital are negotiated individually. Generally, in addition to the management
fees described above, the contracts provide for development fees and Procuren
processing fees charged to the hospital based on utilization. In both models,
the hospital and the physician bill the patient for the services provided and
are responsible for seeking reimbursement from insurers or other third party
payors.

The first Wound Care Center opened in 1988 and there are currently 132
hospital outpatient Wound Care Centers in operation in 33 states. The Company
has entered into contracts or letters of intent with 16 hospitals to open
additional Wound Care Centers. The Company's hospital client base ranges from
medium-sized community-based hospitals to large hospitals affiliated with
national chains and not-for-profit hospitals in local markets. The Company
selects hospital clients based on a number of criteria. A suitable hospital
client typically can accommodate at least 200 inpatient beds, offers services
which complement the Wound Management Program, including physician specialists
in the areas of general, plastic and vascular surgery, endocrinology and
diabetes, is financially stable and has a solid reputation in the community it
serves. Of the Company's 132 current hospital outpatient Wound Care Centers, 102
are management model centers and 30 are "under arrangement" model centers.

5

At December 31, 1997, the Company had management contracts with 40 acute
care hospitals directly or indirectly owned by Columbia/HCA. These hospitals
collectively accounted for approximately 29% of the consolidated revenues of the
Company for the year ended December 31, 1997. The Company and Columbia/HCA have
been in discussions initiated by Columbia/HCA to standardize the management
contracts and operating procedures at the Wound Care Centers in hospitals owned
by Columbia/HCA, as well as any Wound Care Centers to be opened in hospitals
owned by Columbia/HCA in the future. Representatives of Columbia/HCA have
indicated to the Company that the purpose of the discussions is to provide
easier access to the Company's Wound Management Program and to enhance wound
care services at Columbia/HCA's hospitals. Although the Company believes that
standardizing the management contracts and operating procedures will ultimately
strengthen its relationship with Columbia/HCA, there can be no assurance these
discussions with Columbia/HCA will not result in changes which would have an
adverse impact on the Company's business, financial condition and results of
operations, including, without limitation, price concessions, contract
termination provisions less favorable to the Company, and increased costs borne
by the Company.

Inpatient Wound Care Programs. The Company is addressing the needs of the
inpatient wound care market through the development of inpatient programs. The
Company currently manages nine inpatient programs including eight subacute care
nursing home-based programs and one subacute care hospital-based program in five
states and plans to continue to develop similar inpatient programs. This model
is designed to access the segment of the chronic wound market comprised of
non-ambulatory patients in alternate site inpatient facilities. These patients
often have pressure sores resulting from inactivity. While not typically as
severe as diabetic or venous stasis ulcers, pressure sores represent the largest
segment of the chronic wound market. The training, field support and Procuren
processing services provided by the Company to a facility in connection with an
inpatient wound care program are similar to those provided to the Company's
hospital clients in connection with the hospital outpatient Wound Care Centers.
The Company typically manages between 10 and 20 beds per facility. Under the
Company's existing inpatient contracts, the staff of the inpatient program is
employed by the health care facility and the Company receives management fees on
a per patient basis, as well as Procuren processing fees based on utilization;
however, the Company's inpatient program model is still under development and
the terms of its future inpatient program contracts may not be the same as the
existing contracts.

Freestanding Outpatient Wound Care Centers. In the last quarter of 1995,
the Company began to establish freestanding Wound Care Centers in which the
Company is the owner and operator. The Company believes that this delivery model
will allow the Company to expand its market penetration in the outpatient
setting by allowing the Company to strategically penetrate markets without the
constraint of finding a hospital or contracting with competing hospitals. The
Company currently has seven freestanding centers in seven states and is planning
to slowly continue expansion of this model in select markets. The freestanding
Wound Care Centers resemble standard outpatient facilities or specialized
physician practices. The Company employs the staff of the Wound Care Center and
is responsible for billing patients for all services provided at the Wound Care
Center and for seeking reimbursement from third party payors. To date the
Company has not employed any of the physicians providing services at its
freestanding Wound Care Centers; however, the Company's freestanding Wound Care
Center model is still under development and the Company may employ physicians at
these models in the future.

Procuren Production Facilities. The Company currently produces Procuren in
36 facilities in 33 states, all of which are registered with the FDA as blood
processing facilities. The Company's personnel at these facilities produce
Procuren at the direction of Wound Care Center physicians.

6

Contract Terms and Renewals

Substantially all of the revenues of the Company are derived from
management contracts with acute care hospitals. The contracts generally have
initial terms of three to five years and many have automatic renewal terms
unless specifically terminated. During the year ending December 31, 1998, the
contract terms of 32 of the Company's management contracts will expire,
including 30 contracts which provide for automatic one-year renewals. The
contracts often provide for early termination either by the client hospital if
specified performance criteria are not satisfied, or by the Company under
various other circumstances. Historically, some contracts have expired without
renewal and others have been terminated by the Company or the client hospital
for various reasons prior to their scheduled expiration. Generally, the Company
elects to negotiate a mutual termination of a management contract if a client
hospital desires to terminate the contract prior to its stated term. The
continued success of the Company is subject to its ability to renew or extend
existing management contracts and obtain new management contracts. Hospitals
choose to terminate or not to renew contracts based on decisions to terminate
their programs or to convert their programs from independently managed programs
to programs operated internally. There can be no assurance that any hospital
will continue to do business with the Company following expiration of its
management contract or earlier, if such management contract is terminable prior
to expiration. In addition, any changes in the Medicare program or third party
reimbursement levels which generally have the effect of limiting or reducing
reimbursement levels for health services provided by programs managed by the
Company could result in the early termination of existing management contracts
and would adversely affect the ability of the Company to renew or extend
existing management contracts and to obtain new management contracts. The
termination or non-renewal of a material number of management contracts could
result in a significant decrease in the Company's net revenues and could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Managed Care Operations

The Company's managed care strategy is currently focused on marketing
Wound Care Center services to local managed care organizations ("MCOs") in
concert with its hospital clients' efforts to promote all hospital-based
services to such MCOs. In those instances where hospital clients are unable to
establish contractual relations with a large local MCO or in those markets where
the Company operates freestanding Wound Care Centers where it would otherwise be
appropriate, the Company seeks to establish relations directly with MCOs. The
Company's contractual arrangements with MCOs, which will vary based upon the
needs of the particular MCO, are expected to provide for the Company to receive
compensation on a fee-for-service, fixed case rate or at-risk capitation basis.
While the Company anticipates that initially most of its managed care contracts
will be fee-for-service or case rate contracts, it expects that at-risk
capitation could become a contracting method.

The Company's longer term managed care strategy is to establish a wound
care carve-out product with selected MCOs. The Company has begun to develop
tools to help MCOs assess their current wound care experiences (both clinical
outcomes and costs) against the Company's Wound Management Program in order to
demonstrate that a wound care carve-out product can provide added value. In
order to make itself more attractive to MCOs by offering a broader disease
management program, the Company intends, where appropriate, to align itself with
other disease management companies focused on case management or complementary
diseases such as cardiac care (venous statis management) and diabetes. The
Company expects that contracts for a carve-out product will provide at-risk
arrangements with MCOs (i.e., fixed case rates or capitation).

The Company's managed care operations are overseen by a Vice President of
Managed Care. To date, the Company's managed care operations have been limited.
Although the Company or its hospital clients have been reimbursed for wound
treatment by a number of MCOs on a case-by-case basis, the Company currently has
no contracts that require or incentivize subscribers to use the Company's wound
care services. There can be no assurance that the Company will be able to
successfully expand its managed care operations.

7

Sales and Marketing

The Company's sales and marketing strategy consists of a two-fold approach
involving the development of new wound care programs as well as the referral of
patients into the operating Wound Care Centers. To accomplish this strategy the
Company has divided the United States into five operating regions each headed by
a Regional Vice President. The sales and marketing effort in each region is
directed by a Regional Sales Manager under the supervision of the Regional Vice
President. The Regional Sales Manager is responsible for the activities of the
Professional Liaisons. The primary job of the Business Development Manager is
the development of new wound care programs. The Professional Liaisons are
primarily responsible for sales efforts related to community education directed
at physicians and other healthcare professionals, and increasing patient
enrollment at existing Wound Care Centers.

As of December 31, 1997, the sales force consisted of five Regional Sales
Managers, 9 Business Development Managers and 52 Professional Liaisons.

In addition to the above, a sales and marketing plan is developed each
year at each Wound Care Center. The execution of the plan is the responsibility
of the Program Director at the Wound Care Center. The plan details the
anticipated marketing for the year including radio, print and television
advertising as well as professional symposiums. The cost of this plan is
generally shared between the Company and the hospital. The Company markets the
Wound Care Center concept to hospitals as a therapeutic "Center of Excellence."
The Company believes that having a Wound Care Center can differentiate a
hospital from its competitors and can increase the hospital's revenues through
the introduction of new patients, which leads to an increase in ambulatory
surgeries, X-rays, laboratory tests and inpatient surgeries, such as
debridements, vascular surgeries and plastic surgeries. The Company has
demonstrated that Wound Care Centers provide significant incremental revenues to
participating hospitals, and therefore provide an attractive economic
opportunity for hospitals. Potential benefits to treating physicians include the
healing of difficult-to-heal wounds and an expansion of the physician's
practice.

Patents and Proprietary Rights

The Company's success depends in part on its ability to enforce patents,
maintain trade secret protection and operate without infringing on or violating
the proprietary rights of third parties. One U.S. patent has been issued, and
one additional application for a patent in the United States has been filed,
relating to the manufacture and use of Procuren for wound care. There can be no
assurance that any pending patent applications will be approved or that any
issued patents will provide the Company with competitive advantages in the
future or will not be challenged by any third parties or, if involved in a
challenge, will be found valid and infringed. Furthermore, there can be no
assurance that others will not design around the patents. The issued U.S. patent
is jointly owned by the University of Minnesota and the Company. The joint
interest of the University of Minnesota is licensed exclusively to the Company
under a paid in full, royalty free arrangement. The U.S. government has a
nonexclusive grant back license under the issued U.S. patent for all government
purposes. The additional pending U.S. application is owned by the Company and is
not subject to the government grant back license.

In addition to patent protection, the Company also relies, in part, on
trade secrets, proprietary know-how and technological advances which it seeks to
protect by measures such as confidentiality agreements with its employees,
consultants and other parties with whom it does business. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, that others will not independently
develop products similar to Procuren or that the Company's trade secrets and
proprietary know-how will not otherwise become known, be independently
discovered by others or found to be unprotected. The Company is aware of a
limited number of physicians who appear to be utilizing an autologous platelet
extract for the treatment of chronic wounds.

The Company has registered the names "Procuren" and "Wound Care Center" as
trademarks in the United States for use in connection with the Company's wound
care operations.

8

Government Regulation

The Company's Wound Care Centers and the production and marketing of its
products and services are subject to extensive regulation by numerous
governmental authorities in the United States, both federal and state. Although
the Company believes that it is currently in compliance with applicable laws,
regulations and rules, the Company recently received a Warning Letter from FDA
admonishing the Company for several alleged deviations from good manufacturing
practices at one of the Company's Wound Care Centers. The Company has responded
to the Warning Letter and believes that it has adequately addressed FDA's
concerns. However, there can be no assurance that FDA, another governmental
agency or a third party will not contend that certain aspects of the Company's
operations or procedures are subject to or are not in compliance with such laws,
regulations or rules or that the state or federal regulatory agencies or courts
would interpret such laws, regulations and rules in the Company's favor. The
sanctions for failure to comply with such laws, regulations or rules could
include denial of the right to conduct business, significant fines and criminal
penalties. Additionally, an increase in the complexity or substantive
requirements of such laws, regulations or rules could have a material adverse
effect on the business, financial position and results of operations of the
Company.

The FDA regulates drugs and biologics that move in interstate commerce and
requires that such products receive pre-marketing approval based on evidence of
safety and efficacy. Since Procuren is produced at one of the Company's blood
processing facilities in the state where the Wound Care Center which will
dispense the Procuren is located and so is not intended to be shipped across
state lines, the Company believes, based on the advice of its counsel, that
under current law and regulations, FDA approval is not required for the Company
to distribute and sell Procuren through the Wound Care Centers. The FDA is
currently reassessing its regulation of other autologous and somatic cell
products and has publicly stated that it believes that if any component of a
drug or biological or if any patient receiving such substance moves in
interstate commerce, a sufficient nexus with interstate commerce exists for FDA
to require pre-marketing approval and licensure. While the production of
Procuren includes components that are shipped in interstate commerce, to date
the FDA has not determined that Procuren, as currently prepared, is subject to
licensure or pre-market approval. However, in the recent FDA Warning Letter,
FDA objected to the Company providing Procuren to patients who reside in a state
other than the one in which the Wound Care Center is located. The Company has
advised FDA that it will cease providing Procuren to out-of-state patients.
Although the Company believes interstate shipment of the final biologic
product is required to trigger pre-marketing approval and licensure, a
determination by the FDA to require Procuren to obtain pre-marketing approval
would materially and adversely affect the Company.

Because FDA approval has not been required for Procuren, and state
approvals are generally limited to licensing of facilities, there has been no
independent determination of its efficacy by any governmental entity. If the FDA
were to require submission of a product license application ("PLA") as a
condition for the continued distribution and sale of Procuren, the Company might
have to demonstrate the safety, purity, potency and effectiveness of the product
through extensive clinical trials. Neither the Company nor any third party has
conducted the controlled clinical trials required to establish Procuren's
efficacy. Compliance with the requirements for a PLA is time-consuming and
involves the expenditure of substantial resources. There can be no assurance
that the Company would be able to establish efficacy or to obtain or maintain
the necessary FDA approvals to manufacture and distribute Procuren.

Any change in current regulatory interpretations by or positions of state
officials where the Wound Care Center's are located could adversely affect the
Company's distribution of Procuren within those states. In states where Wound
Care Centers are not currently located, the Company intends to utilize the same
approaches adopted elsewhere for achieving state compliance. However, state
regulatory requirements could adversely affect the Company's ability to
establish Wound Care Centers in such other states.

Various state and federal laws regulate the relationships between
providers of health care services and physicians and other clinicians, including
employment or service contracts, investment relationships and referrals for
certain designated health services. These laws include the fraud and abuse
provisions and referral restrictions of the Medicare and Medicaid statutes,
which prohibit the solicitation, payment, receipt or offering of any direct or
indirect remunerations for the referral of Medicare and Medicaid patients or for
the ordering or providing of Medicare or Medicaid covered services, items or
equipment. Violations of these provisions may result in civil or criminal
penalties for individuals or entities including exclusion from participation in
the Medicare or Medicaid programs. Several states have adopted similar laws that
cover patients in private programs as well as government programs. Because the
anti-fraud and abuse laws have been broadly interpreted, they limit the manner
in which the Company can operate its business and market its services to, and
contract for services with, other health care providers. No assurance can be
given regarding compliance in any particular factual situation, as there is no
procedure for advisory opinions from government officials.

9

Additionally, federal and some state laws impose restrictions on
physician's referrals for certain designated health services to entities with
which the physician has a financial relationship. The Company believes its
operations are structured to comply with these restrictions to the extent
applicable. However, periodically there are efforts to expand the scope of these
referral restrictions from its application to government health care programs to
all payors, and to additional health services. Certain states are considering
adopting similar restrictions or expanding the scope of existing restrictions.
There can be no assurance that the federal government or other states in which
the Company operates will not enact similar or more restrictive legislation or
restrictions that could under certain circumstances limit the manner in which
the Company can operate its business and have a negative impact on the Company's
business, financial condition and results of operations.

The laws of many states prohibit physicians from sharing professional fees
with non-physicians and prohibit non-physician entities, such as the Company,
from practicing medicine and from employing physicians to practice medicine. The
laws in most states regarding the corporate practice of medicine have been
subjected to limited judicial and regulatory interpretation. The Company
believes its current and planned activities do not constitute prohibited fee
splitting or violate any prohibition against the corporate practice of medicine.
There can be no assurance, however, that future interpretations of such laws
will not require structural or organizational modifications of the Company's
existing business.

Pursuant to the federal Occupational Safety and Health Act, employers have
a general duty to provide a work place for their employees that is safe from
hazard. The U.S. Occupational Safety and Health Administration ("OSHA") has
issued rules relevant to certain hazards that are found in the Company's blood
processing facilities. In addition, OSHA issued a standard in 1992 applicable to
protection of workers from blood-borne pathogens. Failure to comply with this
standard relating to blood-borne pathogens, other applicable OSHA rules or with
the general duty to provide a safe work place could subject the Company to
substantial fines and penalties.

Third Party Reimbursement

The Company, through its wound care operations, provides contractual
management services for fees and sells Procuren to acute care hospitals and
other health care providers. These providers, in turn, seek reimbursement from
third party payors, such as Medicare, Medicaid, health maintenance organizations
and private insurers, including Blue Cross/Blue Shield plans. The availability
of reimbursement from such payors has been a significant factor in the Company's
ability to increase its revenue streams and will be important for future growth.

In addition to hospital outpatient Wound Care Centers which it manages for
its clients, the Company owns and operates freestanding outpatient Wound Care
Centers. With respect to services and products provided through its freestanding
centers, the Company is subject to the risks inherent in third party
reimbursement, including the risks associated with billing third party payors.
As of December 31, 1997, the Company operated seven freestanding outpatient
Wound Care Centers which contributed approximately $2,542,000 or 3% of the
Company's revenues for the year ended December 31, 1997. However, the Company
anticipates that the number of, and amount of revenues attributable to, its
freestanding centers and other similar service models will increase in the
future as the Company pursues its strategy of expanding into new health care
delivery settings. See "Business--Strategy."

Each third party payor formulates its own coverage and reimbursements
policies. In 1992, the Health Care Financing Administration ("HCFA"), the agency
that administers the Medicare program nationally, published a national coverage
decision denying coverage for Procuren based on its determination that the
safety and efficacy of Procuren had not been established and so the use of
Procuren was not "reasonable and necessary" within the meaning of applicable
law. Procuren sales represent a significant part of the Company's revenues and
earnings and the Company believes that Procuren, as a component of its Wound
Management Program, is a significant component of the Company's services.
Although the Company has not, and the Company believes that its clients have
not, in general experienced difficulty in securing third party reimbursement for
Wound Care Center services and the use of Procuren from private insurers, some
hospitals have experienced denials, delays and difficulties in obtaining such
reimbursement. In some cases where Procuren reimbursement has been denied by a
payor, the hospitals have ceased providing Procuren to patients whose only means
of payment is through such payor. To the Company's knowledge, no widespread
denials have been received by hospitals regarding reimbursement for other Wound
Care Center services or reimbursement of management fees charged by the Company
to its hospital clients. The Company discusses coverage and reimbursement issues
with its hospital clients and third party payors on a regular basis. Such
discussions will continue as the Company seeks to maximize hospital
reimbursement for Procuren and other wound care services. Although no individual
coverage and reimbursement decision is material to the Company, a widespread
denial of reimbursement coverage for Procuren or other services would have a
material adverse effect on the Company's business, financial position and
results of operations.

10

Medicare regulations limit reimbursement for health care charges paid to
related parties. A party is considered "related" to a provider if there is
significant common ownership or common control by the provider. On occasion,
fiscal intermediaries under contract to HCFA to audit hospital Medicare claims
have asserted that one test for determining control for this purpose is whether
the percentage of the total revenues of the party received from services
rendered to the provider is so high that it effectively constitutes control.
Although the Company believes it does not currently receive sufficient revenues
from any customer, including Columbia/HCA, that would make it a related party,
it is possible that such regulations could limit the number of management
contracts that the Company could have with Columbia/HCA or any other client.

The Wound Care Centers managed by the Company on behalf of acute care
hospitals are treated as "provider based entities" for Medicare cost based
reimbursement purposes. This designation is required for the hospital based
program to be covered under the Medicare cost based reimbursement system. In
August 1996, HCFA published criteria for determining when programs may be
designated "provider based entities". The interpretation and application of
these criteria are not entirely clear and there is a risk that some of the
programs managed by the Company could be found not to be "provider based
entities". Although the Company believes that the programs it manages meet the
criteria to be designated "provider based entities", a widespread denial on such
designation would have a material adverse effect on the Company's business,
financial position and results of operations.

Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation thus far, the
Company anticipates that Congress and state legislatures will continue to review
and assess alternative health care delivery and payment systems and may in the
future propose and adopt legislation effecting fundamental changes in the health
care delivery system. It is possible that future legislation enacted by Congress
or state legislatures will contain provisions which may materially adversely
affect the business, financial position and results of operations of the Company
or may change the operating environment for the Company's targeted customers
(including hospitals and managed care organizations). Health care industry
participants may react to such legislation or the uncertainty surrounding
related proposals by curtailing or deferring expenditures and initiatives,
including those relating to the Company's programs and services. It is also
possible that future legislation either could result in modifications to the
nation's public and private health care insurance systems, which could affect
reimbursement policies in a manner adverse to the Company, or could encourage
integration or reorganization of the health care delivery system in a manner
that could materially affect the Company's ability to compete or to continue its
operations without substantial changes. The Company cannot predict which other
legislation relating to its business or to the health care industry may be
enacted, including legislation relating to third party reimbursement, or what
effect any such legislation may have on its business, financial position and
results of operations.

In the Balanced Budget Act of 1997, Congress directed HCFA to implement a
prospective payment system for all hospital outpatient services furnished to
Medicare patients on or after January 1, 1999. Under such a system, a
predetermined rate would be paid to providers for clinic services rendered,
regardless of the providers cost. Since the actual reimbursement methodology and
rates have not yet been determined, the effect on hospital reimbursement is
unknown. In the event that reimbursement rates are insufficient, the Company may
need to modify its management contracts with hospitals which could have a
material effect on the Company's business, financial condition and results of
operations.

11

Competition

The Company's principal competition in the chronic wound care market
consists of specialty clinics that have been established by some hospitals or
physicians. In the market for disease management products and services, the
Company faces competition from other disease management facilities, general
health care facilities and service providers, pharmaceutical companies,
biopharmaceutical companies and other competitors. Many of these companies have
substantially greater capital resources and marketing staffs, and greater
experience in commercializing products and services, than the Company. In
addition, recently developed technologies, or technologies that may be developed
in the future, are or may be the basis for products which compete with the
Company's chronic wound care products and which may be in direct competition
with Procuren. There can be no assurance that the Company will be able to enter
into co-marketing arrangements with respect to these products, or that the
Company will be able to compete effectively against such companies in the
future.

Employees

As of December 31, 1997, the Company employed 671 full-time employees, of
which 533 employees were in the wound care operations, 74 employees were in
Procuren production, 18 employees were in technical support and 46 employees
were in general administration and finance. The Company expects to add
additional personnel to its wound care operations in the next year. The Company
believes that its relations with its employees are good.

Item 2 Properties

The Company's headquarters and technical support facility is located in
East Setauket, Long Island, New York. The Company leases this 25,000 square foot
facility under a lease running through 2002. During 1997, the Company exercised
its lease termination rights and will discontinue the lease effective June 30,
1998. The Company entered into a lease agreement for its corporate headquarters,
comprised of a 30,000 square foot facility running through June 30, 2005,
located in Hauppauge, Long Island, New York and will move into this facility in
early 1998. The Company believes that its facilities are adequate and suitable
for its operation. The Company also leases one regional office for its wound
care operations totaling 4,100 square feet, seven freestanding Wound Care
Centers totaling 16,600 square feet and 18 production facilities totaling 37,000
square feet. The Company's facilities at the hospital outpatient Wound Care
Centers are owned or leased by the hospitals.

Item 3 Legal Proceedings

The Company, in the ordinary course of business is the subject of or party
to various lawsuits, the outcome of which in the opinion of management, will not
have a material adverse effect on its financial position or results of
operations.

Item 4 Submission of Matters to a Vote of Security Holders

None.

12

PART II

Item 5 Market for the Registrant's Common Equity and Related
Shareholder Matters

The Company's common stock is traded on The Nasdaq Stock Market under the
symbol "CURE". As of March 2, 1998, there were approximately 241 holders of
record of the Company's common stock. The Company has not paid any cash
dividends since its inception. The Company currently does not intend to pay cash
dividends in the foreseeable future but intends to retain all earnings, if any,
for use in its business operations.

The following table sets forth, for the fiscal periods indicated, the
range of high and low sales prices of the common stock as quoted on The Nasdaq
National Market System:

High Low
1997
Fourth Quarter...... $ 32 7/8 $ 27 3/4
Third Quarter....... 32 28
Second Quarter...... 29 5/8 20 1/4
First Quarter....... 33 1/8 23

1996
Fourth Quarter...... $ 28 1/4 $ 18 1/2
Third Quarter....... 26 7/8 15 3/4
Second Quarter...... 28 17
First Quarter....... 21 3/8 13 1/4

13

Item 6 Selected Consolidated Financial Data

Five year selected consolidated financial data and other operating
information of Curative Health Services, Inc., and Subsidiaries follow:

Year Ended December 31,
1993 1994 1995 1996 1997
(In thousands, except per share and operating data)
Statement of Operations Data:

Revenues ....................................................................... $ 31,265 $ 40,567 $ 52,442 $ 67,395 $ 87,906

Costs and operating expenses:
Costs of products sales and services ........................................ 16,637 20,478 26,189 37,828 48,200

Selling, general and administrative ......................................... 12,050 15,177 18,209 19,208 22,617

Research and development .................................................... 7,852 6,480 4,143 - -

Restructuring charge ........................................................ - 1,684 - - -
------ ------ ------ ------ ------
Total costs and operating expenses ............................................. 36,539 43,819 48,541 57,036 70,817
------ ------ ------ ------ ------
Income (loss) from continuing operations
before interest income and minority
interest .................................................................... (5,274) (3,252) 3,901 10,359 17,089

Interest income ................................................................ 549 306 528 1,344 2,666

Minority interest in net loss of
consolidated subsidiary ..................................................... 336 218 - - -
--- --- --- --- ---

Income (loss) from continuing operations ....................................... (4,389) (2,728) 4,429 11,703 19,755

Income (loss) from discontinued operations ..................................... (188) (4,545) - - -
------ ------ ----- ----- -----
Income (loss) before income taxes .............................................. (4,577) (7,273) 4,429 11,703 19,755

Income taxes ................................................................... - - 219 1,008 3,293
----- ----- ----- ----- -----
Net income (loss) .............................................................. $ (4,577) $ (7,273) $ 4,210 $ 10,695 $ 16,462
===== ===== ===== ====== ======
Net income (loss) per common share, basic
Continuing operations .................................................... $ (0.44) $ (0.27) $ 0.41 $ 0.95 $ 1.33

Discontinued operations .................................................. (0.02) (0.46) - - -
---- ---- ---- ---- ----
Total .................................................................. $ (0.46) $ (0.73) $ 0.41 $ 0.95 $ 1.33
========= ========= ======== ======== ========
Denominator for basic earnings per share,
weighted average common shares .............................................. 9,900 9,943 10,192 11,212 12,404

The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No. 128,
Earnings per Share. For further discussion of earnings per share and the impact
of Statement No. 128, see the notes to the consolidated financial statements
beginning on page F-6

Operating Data:
Wound care facilities at end of period ......................................... 56 63 84 123 148

Number of new patients ......................................................... 16,235 22,529 30,023 38,699 48,722

Balance Sheet Data:
Working capital ................................................................ $ 11,709 $ 7,267 $ 12,575 $ 45,760 $ 62,583

Total assets ................................................................... 25,278 18,592 25,030 61,959 84,939
Long-term debts
(including capital lease obligation) ........................................ 515 1,254 1,198 1,044 7

Deficit ........................................................................ (26,862) (34,135) (29,925) (19,230) (2,768)

Stockholders' equity ........................................................... 16,837 9,778 15,611 50,270 72,592

14

Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations

Overview

The Company's principal business is the delivery of chronic wound care
services through its nationwide network of Wound Care Centers located in or near
acute care hospitals. Substantially all of the Company's revenues are currently
generated under its contracts with acute care hospitals for the management of
chronic wound care programs and the production of Procuren. The Company
currently markets two types of Wound Care Center management contracts to
hospitals: a management model and an "under arrangement" model.

In the management model, the Company provides management and support
services for a chronic wound care facility owned or leased by the hospital and
staffed by employees of the hospital, and generally receives a fixed monthly
management fee and a variable case management fee. In the "under arrangement"
model, the Company provides management and support services, as well as the
clinical and administrative staff, for a chronic wound care facility owned or
leased by the hospital, and generally receives fees based on the services
provided to each patient. In both models, physicians remain independent, and the
Company recruits and trains the physicians and staff associated with the Wound
Care Center. In addition, in both models, the Company receives fees for the
production of Procuren based on utilization.

Of the 132 hospital outpatient Wound Care Centers in operation as of
December 31, 1997, 102 were management model Wound Care Centers, and 30 were
"under arrangement" model Wound Care Centers. The Company's fees under its
management contracts with acute care hospitals are paid by the hospitals
directly. See "Business--Third Party Reimbursement."

The Company is currently expanding its chronic wound care operations into
new health care delivery settings, including inpatient facilities and
freestanding Wound Care Centers owned and operated by the Company. Although
these new models accounted for approximately 4% of the Company's revenues in
1997, the Company anticipates that the percentage of its revenues attributable
to these and other new models will increase in the future as the Company expands
its services across the continuum of care for wound management. These new models
are still in the development phase; however, the Company anticipates that the
nature of the revenues produced by and risks associated with these new models
may not be the same as those associated with its current business.

Business Realignment

In the Company's continuing effort to focus on its wound care service
business, during the second quarter of 1995, the Company instituted a further
realignment of its business activities which included the discontinuation of all
new product research and development. The Company's research and development
activities are now committed to the technical support of Procuren (expenses
classified in cost of sales). Also in 1995, the Company completed the
divestiture of its European operations with the sale of its majority-owned
German subsidiary.

Results of Operations

Fiscal Year 1996 vs. Fiscal Year 1997. The Company's revenues increased
from $67.4 million in 1996 to $87.9 million in 1997, a 30% increase. The
increased revenue is primarily attributable to the operation of 123 wound care
facilities at the end of 1996 compared with 148 at the end of 1997 and an 11%
increase in revenues at existing wound care facilities related to higher patient
volume. Total new patients to the wound care centers increased 26% from 38,699
in 1996 to 48,722 in 1997. The total number of patients receiving Procuren
therapy increased 8% from 7,912 in 1996 to 8,583 in 1997; however the percentage
of patients receiving Procuren decreased from 20% in 1996 to 18% in 1997. The
Company believes that this decrease is attributable primarily to an increase in
the percentage of less severe chronic wounds being treated at the Company's
Wound Care Centers, for which physicians are less likely to prescribe Procuren,
as well as a lack of available reimbursement for Medicare patients. The Company
believes that this shift in the severity of the wounds treated at a Wound Care
Center occurs as the local medical community becomes familiar with the services
offered by the Wound Care Center and refers a broader range of chronic wound
patients to the Wound Care Center for treatment. The Company anticipates that
the percentage of patients receiving Procuren will continue to decline gradually
in the future.

15

Costs of product sales and services increased from $37.8 million in 1996
to $48.2 million in 1997, a 27% increase. The increase is attributable to the
additional staffing and operating expenses of approximately $4.7 million
associated with the operation of 25 additional wound care facilities at the end
of 1997, as well as increased volume at existing wound care facilities.
Additionally, these 25 facilities include 15 under arrangement Wound Care
Centers and 1 freestanding Wound Care Center at which the services component of
costs is higher than at the Company's other facilities due to the additional
clinic staffing that these models require. As compared with 1996, the higher
services components at these facilities accounted for an additional $2.7 million
of the increase in product sales and services for 1997. As a percentage of
revenues, costs of product sales and services was 55% in 1997 compared with 56%
in 1996. The decrease is attributable to the ability of the Company to leverage
the fixed overhead components of the cost of product sales and services over a
growing revenue base.

Selling, general and administrative expenses increased from $19.2 million
in 1996 to $22.6 million in 1997, an 18% increase. The increase is attributable
to the additional staffing and operating expenses associated with the growth of
the wound care center business related to field support departments particularly
clinical operations, management information systems, costs related to a branding
campaign, and a charge of $.3 million related to the decision to relocate the
corporate office in 1998. As a percentage of revenues, selling, general and
administrative expenses were 26% in 1997 compared to 29% in 1996. The decrease
is attributable to the ability of the Company to obtain leverage by spreading
the costs of its overhead structure over a broader revenue base.

Interest income increased to $2.7 million in 1997 from $1.3 million in
1996. The increase is attributable to higher cash balances resulting from the
full year effect of investing the net proceeds of the $22.6 million common stock
offering during the third quarter of 1996 as well as cash provided by
operations.

Net income increased from $10.7 million or $.90 (diluted) per share in
1996 to $16.5 million or $1.27 (diluted) per share in 1997. The increase in
earnings of $5.8 million is primarily attributable to an improvement in
operating margins associated with the revenue growth particularly related to
existing wound care facilities and economies of scale achieved through market
growth. Additionally interest income increased in 1997 due to higher cash
balances but was offset by an increase in income taxes as a result of a higher
effective tax rate in 1997.

Fiscal Year 1995 vs. Fiscal Year 1996. The Company's revenues increased
from $52.4 million in 1995 to $67.4 million in 1996, a 29% increase. The
increased revenue is primarily attributable to the operation of 84 wound care
facilities at the end of 1995 compared with 123 at the end of 1996 and a 13%
increase in revenues at existing wound care facilities related to higher patient
volume. Total new patients to the wound care facilities increased 29% from
30,023 in 1995 compared to 38,699 in 1996. The total number of patients
receiving Procuren therapy increased 15% from 6,854 in 1995 compared to 7,912 in
1996; however, the percentage of patients receiving Procuren decreased from 23%
in 1995 to 20% in 1996. The Company believes that this decrease is attributable
primarily to an increase in the percentage of less severe chronic wounds being
treated at the Company's Wound Care Centers, for which physicians are less
likely to prescribe Procuren, as well as a lack of available reimbursement for
Medicare patients. The Company believes that this shift in the severity of the
wounds treated at a Wound Care Center occurs as the local medical community
becomes familiar with the services offered by the Wound Care Center and refers a
broader range of chronic wound patients to the Wound Care Center for treatment.
The Company anticipates that the percentage of patients receiving Procuren will
continue to decline gradually in the future.

Costs of product sales and services increased from $26.2 million in 1995
to $37.8 million in 1996, a 44% increase. Fiscal 1996 includes $1.9 million of
technical service costs which were reported as research and development expenses
for 1995. Excluding technical services costs, the increase in cost of product
sales and services from 1995 to 1996 was 37%. The increase is attributable to
additional staffing and operating expenses of approximately $4.8 million
associated with the operation of 39 additional wound care facilities at the end
of 1996, as well as increased volume at existing wound care facilities.
Additionally, these 39 facilities include five freestanding Wound Care Centers
and six additional under arrangement Wound Care Centers at which the services
component of costs is higher than at the Company's other facilities due to the
additional clinical staffing and expenses that these models require. As compared
with 1995, the higher services components at these facilities accounted for an
additional $2.2 million of the increase in product costs and services for 1996.
As a percentage of revenues, costs of product sales and services (excluding
technical services) was 50% in 1995 compared with 53% in 1996. The increase is
attributable to new Wound Care Centers which include a higher service component.

16

Selling, general and administrative expenses increased from $18.2 million
in 1995 to $19.2 million in 1996, a 5% increase. The increase is attributable to
additional staffing and operating expenses of approximately $1.5 million
associated with the growth in the wound care business particularly related to
field support departments, offset by a $0.5 million decrease in expenses related
to European operations which were discontinued in the second quarter of 1995. As
a percentage of revenues, selling, general and administrative expenses were 35%
in 1995 compared with 29% in 1996. The decrease is attributable to the
discontinuation of the European operations as well as the ability of the Company
to obtain leverage by spreading the costs of its overhead structure over a
broader revenue base.

Research and development expense was $4.1 million for 1995. The Company
did not incur any research and development expenses in 1996 since it
discontinued all new product research and development in the second quarter of
1995. Technical service costs associated with the support of Procuren are
classified as a cost of product sales. This classification began in 1996.

Interest income increased to $1.3 million in 1996 from $0.5 million in
1995. The increase was primarily due to higher cash balances resulting from the
net proceeds of the $22.6 million common stock offering in August 1996, as well
as cash provided from operations.

Net income improved from $4.2 million or $.39 per share in 1995 to $10.7
million or $.90 per share in 1996. The increase in earnings of $6.5 million is
primarily attributable to savings of approximately $2.2 million related to the
discontinuation of new product research and development, an improvement in
operating margins associated with the revenue growth particularly related to
existing Wound Care Centers and economies of scale achieved from market growth
and the termination of European operations.

Liquidity and Capital Resources

Working capital was $62.6 million at December 31, 1997 compared to $45.8
million at December 31, 1995. Total cash, cash equivalents and marketable
securities held-to-maturity as of December 31, 1997 was $58.6 million and was
invested primarily in highly liquid money market funds, commercial paper and
government securities. The ratio of current assets to current liabilities
increased from 5.3:1 at December 31, 1996 to 6.1:1 at December 31, 1997. The
increase in working capital and improvement in the ratio of current assets to
current liabilities was primarily attributable to the net income for fiscal year
1997.

Cash flows provided by operations for 1997 totaled $20.6 million primarily
attributable to the net income for the period. Cash flows provided by investing
activities for 1997 totaled approximately $12.6 million primarily attributable
to the excess of sales of marketable securities held to maturity over purchases
of $19.0 million offset by capital expenditures for furniture, equipment and
leasehold improvements of $6.5 million. Cash flows provided by financing
activities totaled $1.3 million for 1997 primarily attributable to net proceeds
from the exercise of stock options offset by payment of the loan guaranteed by
the Company for its former subsidiary, Curative Technologies, GmbH.

During 1997, the Company experienced a $1.9 million increase in net
accounts receivable primarily due to the increase in revenues. The average
number of days receivables were outstanding decreased from 59 days as of
December 31, 1996 to 54 days as of December 31, 1997. Further, compared to
December 31, 1996, the Company's accounts payable and accrued expenses increased
$1.8 million as of December 31, 1997.

In May 1995, the Company sold its 62% interest in its majority owned
German subsidiary to the subsidiary's general manager. In connection with the
sale, the Company made a working capital commitment of 0.5 million Deutsche Mark
(dm) which was paid in 1995. Additionally, the Company is entitled to future
contingent payments of 30% of the subsidiary's profits up to 0.5 million dm.
Additionally, there are contingent payments of approximately 1.0 million dm due
the Company representing previously advanced intercompany loans. Since the
subsidiary had a history of operating losses, the Company has not recorded any
amounts due from the subsidiary. In March 1997, the Company paid off the
revolving credit facility and no longer guarantees any debt of the former
subsidiary.

17

The Company's longer term cash requirements include working capital for
the further expansion of its wound care business. Other cash requirements are
anticipated for capital expenditures in the normal course of business. The
Company expects that, based on its current business plan, its existing cash,
cash equivalents and marketable securities will be sufficient to satisfy its
currently anticipated working capital needs. The effects of inflation and
foreign currency translation risks are considered immaterial.

Cautionary Statements

This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements include statements
regarding intent, belief or current expectations of the Company and its
management. These forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in
these statements. Factors that might cause such differences include, but are not
limited to, changes in the Company's level of business with Columbia/HCA
Healthcare Corporation, changes in the government regulations relating to the
Company's wound care operations or Procuren, uncertainties relating to health
care reform initiatives, changes in the availability of third party
reimbursements for the Company's products and services, and the other risks and
uncertainties detailed throughout this report and from time to time in the
Company's filings with the Securities and Exchange Commission.

Item 8 Consolidated Financial Statements and Supplementary Data

The information required by this item is incorporated herein by reference
to the Consolidated Financial Statements listed in Item 14(a) of Part IV of this
Report.

The following table sets forth the financial results of the Company for
the eight quarters ended December 31, 1997 and December 31, 1996:

Gross Income Per
Quarter Ended Revenues Profit Net Income Common Share
1997:
December 31 ........... $23,860 $10,833 $4,599 $.35
September 30 .......... 22,705 10,284 4,286 .33
June 30 ............... 21,687 9,793 3,912 .30
March 31 .............. 19,654 8,796 3,665 .28
1996:
December 31 ........... $18,628 $ 8,021 $3,390 $.26
September 30 .......... 17,462 7,600 2,989 .24
June 30 ............... 16,388 7,364 2,443 .21
March 31 .............. 14,917 6,582 1,873 .17

Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

Not applicable.

18

PART III

This information required by Part III of this Form 10-K is omitted from
this Report in that the Registrant will file a definitive proxy statement
pursuant to Regulation 14(a) for its 1997 Annual Meeting of Stockholders (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.

Item 10 Directors and Executive Offices of the Registrant

The information required by this Item is incorporated by reference to the
Company's Proxy Statement.

Item 11 Executive Compensation

The information required by this Item is incorporated by reference to the
Company's Proxy Statement.

Item 12 Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is incorporated by reference to the
Company's Proxy Statement.

Item 13 Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference to
the Company's Proxy Statement.

19

PART IV

Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K

(a) 1. Index to Financial Statements.

The following consolidated financial statements of
Curative Health Services, Inc. are included herein:

Page
Number

Report of Independent Auditors............................... F-1

Consolidated Balance Sheets at December 31, 1997 and 1996.... F-2

Consolidated Statements of Operations for each of the years
ended December 31, 1997, 1996 and 1995....................... F-3

Consolidated Statements of Stockholders' Equity for each of
the years ended December 31, 1997, 1996 and 1995............. F-4

Consolidated Statements of Cash Flows for each of the years
ended December 31, 1997, 1996 and 1995....................... F-5

Notes to Consolidated Financial Statements................... F-6

2. Financial Statement Schedules. The following financial
statement schedule of Curative Health Services, Inc. is
included herein:

Schedule Page

II Valuation and Qualifying Accounts and Reserves........... S-1

All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.

3. Exhibits. The exhibits listed in the accompanying Index to Exhibits
immediately following the financial statement schedules are filed with
this report.

(b) Reports on Form 8-K. No reports filed on Form 8-K filed by the Company
during the fiscal quarter ended December 31, 1997.

20

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned,
thereunto duly authorized.

CURATIVE HEALTH SERVICES, INC.

By:/s/ John Vakoutis
-----------------
John Vakoutis
President, Chief Executive Officer
and Director
Dated: March 27, 1998

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John Vakoutis and John C. Prior, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on
the dates indicated.

Signature Title Date

/s/ John Vakoutis President, Chief Executive Officer March 27, 1998
------------ (Principal Executive Officer) and Director
John Vakoutis

/s/ John C. Prior Senior Vice President Finance and March 27, 1998
------------- Chief Financial Officer
John C. Prior (Principal Financial and Accounting
Officer) and Secretary

/s/ Gerardo Canet Director March 27, 1998
-------------
Gerardo Canet

/s/ Daniel A. Gregorie, MD Director March 27, 1998
----------------------
Daniel A. Gregorie, MD

/s/ Lawrence C. Hoff Director March 27, 1998
----------------
Lawrence C. Hoff

/s/ Timothy I. Maudlin Director March 27, 1998
------------------
Timothy I. Maudlin

/s/ Gerard Moufflet Director March 27, 1998
---------------
Gerard Moufflet

/s/ Lawrence J. Stuesser Chairman of the Board and Director March 27, 1998
--------------------
Lawrence J. Stuesser

21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned,
thereunto duly authorized.

CURATIVE HEALTH SERVICES, INC.

By:_______________________________
John Vakoutis
President, Chief Executive Officer
and Director
Dated: March 27, 1998

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John Vakoutis and John C. Prior, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on
the dates indicated.

Signature Title Date

___________________ President, Chief Executive Officer March 27, 1998
John Vakoutis (Principal Executive Officer)and Director

___________________ Senior Vice President Finance and March 27, 1998
John C. Prior Chief Financial Officer (Principal
Financial and Accounting Officer)
and Secretary

___________________ Director March 27, 1998
Gerardo Canet

______________________ Director March 27, 1998
Daniel A. Gregorie, MD

___________________ Director March 27, 1998
Lawrence C. Hoff

___________________ Director March 27, 1998
Timothy I. Maudlin

___________________ Director March 27, 1998
Gerard Moufflet

____________________ Chairman of the Board and Director March 27, 1998
Lawrence J. Stuesser

22

Report of Independent Auditors

Board of Directors and Stockholders
Curative Health Services, Inc.

We have audited the accompanying consolidated balance sheets of Curative
Health Services, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Curative Health
Services, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

/s/ Ernst & Young LLP

Melville, New York
February 9, 1998

F - 1

23

CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

December 31,

1997 1996
-------------------------

ASSETS
Cash and cash equivalents ............................................................... $ 39,746 $ 5,226
Marketable securities held-to-maturity .................................................. 18,807 37,838
Accounts receivable (less allowance of $2,492
and $941 at December 31, 1997 and 1996, respectively) ................................... 14,211 12,319
Deferred tax asset ...................................................................... 1,235 -
Prepaid and other current assets ........................................................ 924 1,022
------ ------
Total current assets ................................................................. 74,923 56,405
Property and equipment, net ............................................................. 9,268 4,754
Other assets ............................................................................ 748 800
------ ------
Total assets ......................................................................... $ 84,939 $ 61,959
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts payable ........................................................................ $ 8,846 $ 7,368
Accrued expenses ........................................................................ 3,454 3,137
Capital lease obligations ............................................................... 40 140
------ ------
Total current liabilities ............................................................ 12,340 10,645
Long term debt ............................................................................. - 1,000
Capital lease obligations .................................................................. 7 44
Stockholders' equity:
Preferred stock, $.01 par value per share; 10,000,000
shares authorized, none issued ....................................................... - -
Preferred stock, Series A Junior Participating,
par value $.01 per share, 500,000 shares authorized, none issued ..................... - -
Common stock, $.01 par value per share; 50,000,000
shares authorized,12,561,342 shares issued and
outstanding (12,215,423 shares in 1996) .............................................. 125 121

Additional paid in capital ........................................................... 75,235 69,421
Deficit .............................................................................. (2,768) (19,230)
------ ------
72,592 50,312
Subscription receivable .............................................................. - (42)
------ ------
Total stockholders' equity ........................................................... 72,592 50,270
------ ------
Total liabilities and stockholders' equity .............................................. $ 84,939 $ 61,959
======== ========

See notes to consolidated financial statements
F - 2

24

CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)

Year Ended December 31,
1997 1996 1995
----------------------------------------

Revenues ..................................................................... $87,906 $67,395 $52,442
Costs and operating expenses:
Costs of product sales and services ....................................... 48,200 37,828 26,189
Selling, general and administrative ....................................... 22,617 19,208 18,209
Research and development .................................................. - - 4,143
------ ------ ------
Total costs and operating expenses ..................................... 70,817 57,036 48,541

Income from operations ....................................................... 17,089 10,359 3,901
Interest income .............................................................. 2,666 1,344 528
------ ------ ------
Income before income taxes ................................................... 19,755 11,703 4,429
Income taxes ................................................................. 3,293 1,008 219
------ ------ ------
Net income ................................................................... $16,462 $10,695 $ 4,210
======= ======= =======
Net income per common share, basic ........................................... $ 1.33 $ .95 $ .41
======= ======= =======
Net income per common share, diluted ......................................... $ 1.27 $ .90 $ .39
======= ======= =======

Denominator for basic earnings per share, weighted average
common shares ................................................................ 12,404 11,212 10,192
Denominator for diluted earnings per share, weighted ======= ======= =======
average common shares assuming conversions ................................ 12,954 11,909 10,768
======= ======= =======

See notes to consolidated financial statements
F - 3

25

See notes to consolidated financial statements
F - 4
CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)

Foreign
Additional Currency Total
Common Stock Paid in Translation Subscription Stockholders'
Shares Amount Capital Deficit Adjustment Receivable Equity
-------------------------------------------------------------------------------------

Balance, December 31, 1994 .................. 10,024,686 $ 100 $ 44,034 $(34,135) $ (179) $ (42) $ 9,778

Foreign currency
translation adjustment ................... 179 179
Exercise of warrants ..................... 5,803 -
Exercise of options ...................... 396,280 4 1,397 1,401
Tax benefit from stock option
exercises .............................. 43 43
Net income for 1995 ...................... 4,210 4,210
-------------------------------------------------------------------------------------
Balance, December 31, 1995 ................. 10,426,769 104 45,474 (29,925) - (42) 15,611
Secondary public offering, net
of expenses of $1,806 .................... 1,437,500 14 22,618 22,632
Exercise of warrants ..................... 102,608 1 1
Exercise of options ...................... 248,546 2 1,249 1,251
Tax benefit from stock option
exercises ............................. 80 80
Net income for 1996 ...................... 10,695 10,695
-------------------------------------------------------------------------------------
Balance, December 31, 1996 .................. 12,215,423 121 69,421 (19,230) - (42) 50,270
Subscription receivable .................. 42 42
Exercise of options ...................... 345,919 4 2,414 2,418
Tax benefit from stock option
exercises ............................. 3,400 3,400
Net income for 1997 ...................... 16,462 16,462
-------------------------------------------------------------------------------------
Balance, December 31, 1997 .................. 12,561,342 $ 125 $ 75,235 $ (2,768) $ - $ - $ 72,592
=====================================================================================

See notes to consolidated financial statements
F - 4

26

CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Year Ended December 31,
-----------------------
1997 1996 1995
--------------------------------------

OPERATING ACTIVITIES:
Net income ...................................................................... $ 16,462 $ 10,695 $ 4,210
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation & amortization ................................................... 2,014 1,185 998
Provision for doubtful accounts ............................................... 1,648 782 150
Write-off of abandoned patent applications .................................... - - 382
Loss on sale of CTGmbH ........................................................ - - 111
Deferred income taxes ......................................................... (1,235) - -
Tax benefit from stock option exercises ....................................... 3,400 80 43
Change in operating assets and liabilities:
Increase in accounts receivable ............................................... (3,540) (5,325) (1,524)
Decrease (increase) in prepaid and other current assets ....................... 98 (202) 324
Increase in accounts payable and accrued expenses ............................. 1,795 2,447 1,254
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................................... 20,642 9,662 5,948
INVESTING ACTIVITIES:
Sale of CT GmbH ................................................................. - - (286)
Purchases of property and equipment ............................................. (6,476) (2,505) (2,001)
Purchases of marketable securities held-to-maturity ............................. (56,781) (38,923) (12,418)
Sales of marketable securities held-to-maturity ................................. 75,812 10,450 5,861
------ ------ ------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ............................. 12,555 (30,978) (8,844)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options, warrants
and subscription receivable ................................................... 2,460 1,252 1,401
Proceeds from secondary public offering, net of expenses ........................ - 22,632 -
Principal payments on capital lease obligations and revolving
line of credit ................................................................ (1,137) (177) (143)
NET CASH PROVIDED BY FINANCING ACTIVITIES ....................................... 1,323 23,707 1,258
Effect of exchange rate changes on cash and cash equivalents .................... - - 14

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 34,520 2,391 (1,624)
Cash and cash equivalents at beginning of year .................................. 5,226 2,835 4,459
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................................ $ 39,746 $ 5,226 $ 2,835
======== ======== ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid ................................................................. $ 31 $ 93 $ 119
======== ======== ========
See Notes E and F for Non-Cash Transactions

See notes to consolidated financial statements
F - 5

27

CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997

NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization: The Company was organized under the laws of the State of
Minnesota in October 1984. It is a disease management company in the chronic
wound care business. The Company manages a nationwide network of Wound Care
Centers that offers patients a multi-disciplinary comprehensive wound treatment
program. The Company's management agreements with hospitals and other health
care providers generally have a term of 5 years.

Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. In May 1995, the
Company sold its 62% interest in its German subsidiary (See Note B). Operating
results of that subsidiary for the first five months of 1995 are included in the
consolidated operating results. Intercompany balances and transactions have been
eliminated in consolidation.

Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Net Income Per Share: In 1997, the Financial Accounting Standards Board
("FASB") issued Statement No. 128, "Earnings per Share". FASB No. 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earning per share amounts for all
periods have been presented, and where appropriate, restated to conform to FASB
No. 128 requirements.

Foreign Currency Translation: Revenues and expenses of subsidiary
operations denominated in foreign currencies have been translated at average
rates for the applicable periods.

Property and Equipment: Property and equipment are recorded at cost.
Depreciation of property and equipment is provided using the straight-line
method over the estimated useful lives (generally 5 to 7 years). Leased
equipment capitalized and leasehold improvements are amortized over the life of
the lease or the useful life of the related asset, whichever is shorter.

Research and Development: All costs relating to research and development
activities are expensed in the year in which they are incurred.

Other Assets: As of December 31, 1996 and 1997, other assets consist of
costs associated with filing patent and trademark applications which totaled
$800,000 and $748,000, respectively. During 1995 the Company wrote-off deferred
patent costs of $382,000 related to patent applications no longer being pursued.
In December 1992, the Company received broad patent coverage on wound healing
agents derived from platelets. Costs and expenses related to this patent of
$920,000 are being amortized over the life of the patent (17 years) and
trademarks of $75,000 are being amortized over the estimated life of the
trademark (20 years) using the straight-line method.

Cash and Cash Equivalents: Cash and cash equivalents represent demand
deposits with banks, certificates of deposit with maturities of less than three
months at time of purchase and highly liquid money market fund investments.

Marketable Securities Held-to-Maturity: Held-to-maturity marketable
securities represent highly liquid money market instruments with maturities of
greater than three months at time of purchase. These securities, consisting
principally of securities of U.S. Government agencies maturing at various dates
through November 1998, are valued at amortized cost which approximates market.
The Company's investment policy gives primary

F - 6

28

NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

consideration to safety of principal, liquidity and return. The Company invests
its funds with institutions that have high credit ratings and to date has not
experienced any losses on its investments. The Company follows the provisions of
FASB No. 115 "Accounting for Certain Investments in Debt and Equity Securities."
This pronouncement requires all companies with investments in debt and equity
securities to classify these securities as held-to-maturity, trading, or
available for sale. The Company classifies its investments in such securities as
held-to-maturity as the Company has the intent and ability to hold these
securities to maturity. As of December 31, 1996 and 1997, the Company had
approximately $53,000 and $20,000 of unrealized gains on marketable securities,
respectively.

Concentration of Credit Risk: Substantially all of the Company's revenues
have been generated from Wound Care Centers which the Company has established as
cooperative ventures with acute care hospitals in the United States to provide a
multi-disciplinary treatment protocol for chronic wounds. The Company provides
contractual management services for fees and sells Procuren to acute care
hospitals and other health care providers. Credit is extended based on an
evaluation of the hospital's financial condition and collateral is generally not
required.

Revenues: Revenues are recognized when products are dispensed or as
contractual management services are rendered.

Income Taxes: The Company follows the provisions of FASB No. 109,
"Accounting for Income Taxes." Under FASB No. 109, the liability method is used
in accounting for income taxes, whereby deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

Stock Based Compensation Plans: In October 1995, FASB issued Statement No.
123, "Accounting for Stock-Based Compensation," which requires all companies to
either recognize expense for stock-based awards based on their fair market value
on the date of grant, or provide pro forma disclosures of the effects "as if"
the Company had recognized the stock-based compensation expense. The Company
adopted the new rules in 1996. As permitted by FASB No. 123, the Company has
provided disclosure of the pro forma impact on net income and earnings per share
as if the fair value-based method had been applied (See Note G).

NOTE B -- ACQUISITIONS AND DIVESTITURES

During the second quarter of 1995, the Company sold its 62% interest in its
German subsidiary to the subsidiary's general manager. In connection with the
sale, the Company made a working capital commitment of 0.5 million Deutsche
Marks (dm) which was paid in 1995. Additionally, the Company is entitled to
future contingent payments of 30 percent of the former subsidiary's profits up
to 500,000 dm. There are contingent payments ofapproximately one million dm due
the Company representing previously advanced intercompany loans. Since the
former subsidiary has had a history of operating losses, the Company has not
recorded any amounts due. Further, the Company remains a guarantor of the former
subsidiary's revolving credit facility of 1.4 million dm ($1.0 million) and is
obligated to make the interest payments on the outstanding indebtedness. The
accounting for the sale resulted in a charge to operations of $111,000 in 1995.
As a result of the transaction, the accounts of the foreign subsidiary are no
longer consolidated (See Note I).

F - 7

29

NOTE C -- PROPERTY AND EQUIPMENT

A summary of property and equipment and related accumulated depreciation
and amortization follows:

December 31,
------------
1997 1996
--------------
(In thousands)
Property and equipment........................... $10,295 $5,616
Leased equipment capitalized..................... 1,371 1,371
Leasehold improvements........................... 4,450 2,653
----- -----
16,116 9,640
Less accumulated depreciation and amortization... 6,848 4,886
----- -----
$ 9,268 $4,754
===== =====

NOTE D -- ACCRUED EXPENSES

Accrued expenses are as follows:
December 31,
------------
1997 1996
--------------
(In thousands)

Incentive compensation and benefits $ 3,393 $ 3,016
Research and technical service contracts 61 121
----- -----
$ 3,454 $ 3,137
======= =======

NOTE E -- LEASES

The Company has entered into several noncancellable operating leases for
the rental of certain office space expiring in various years through 2005. The
Company also leases certain equipment under noncancellable capital and operating
leases expiring in various years through 1999. The principal lease for office
space provides for initial monthly rental of $47,875 escalating to $52,854 in
the final year. The following is a schedule of future minimum lease payments, by
year and in the aggregate, under capital leases and noncancellable operating
leases with initial or remaining terms of one year or more at December 31, 1997:

Capital Leases Operating Leases
-------------- ----------------
(In thousands)
1998.............................. $ 43 $ 2,031
1999 ............................. 7 1,474
2000 ............................. - 1,234
2001.............................. - 950
2002.............................. - 720
Thereafter........................ - 1,564
----- -----
Total minimum lease payments...... 50 $7,973
======
Less amounts representing interest (3)
-----
Present value of net minimum lease payments
($40 current portion)............ $ 47
=====

Equipment acquired under capital leases approximated $140,000 in 1995.
Rent expense for all operating leases was approximately $2,118,000, $1,498,000
and $897,000 for the years ended December 31, 1997, 1996 and 1995, respectively.

F - 8

30

NOTE F -- STOCKHOLDERS' EQUITY

Common Stock: In August 1996 the Company completed a secondary public
offering of 1,437,500 shares of common stock at a price of $17.00 per share.
Expenses related to this offering were approximately $1,806,000.

Director Share Purchase Program: In April 1993, the Company established a
Director Share Purchase Program (the "Program") to encourage ownership of its
common stock by its directors. Under the Program, each non-employee director can
elect to forego receipt of cash payments for director's annual retainer and
meeting fees and, in lieu thereof, receive shares of common stock at market
value equal to the cash payment. The Program authorized the issuance of up to
120,000 shares of the Company's common stock at market value. At December 31,
1997 and 1996, 118,406 shares of common stock were reserved for future issuance
under the Program.

Warrants: In August 1995, the Company exchanged 5,803 shares of common
stock for 12,500 shares issuable under warrants originally issued in connection
with a working capital loan agreement entered into December 1990 and terminated
in October 1991. In April 1996, the Company exchanged 102,608 shares of common
stock for 166,667 shares issuable under a bridge financing agreement entered
into in April 1991 and terminated upon the closing of the Company's 1991 initial
public offering. There was no cash exchanged in either transaction. As of
December 31, 1997 and 1996, all outstanding warrants have been exercised.

Rights Plan: On October 25, 1995, the Board of Directors of the Company
declared a dividend of one preferred share purchase right per share for each
outstanding share of common stock of the Company. The dividend was paid on
November 6, 1995 to shareholders of record on that date. Under certain
circumstances each right may be exercised to purchase one-one hundredth of a
share of Series A Junior Participating Preferred Stock, par value $.01, of the
Company for $65. The rights which are redeemable by the Company at $.01 per
right expire in November 2005. The purchase right issued under the Company's
Rights Agreement dated October 22, 1995 provides the holder "in the event of (i)
the acquisition of 15% or more of the Company's outstanding common stock by an
Acquiring Person (as defined in the Rights Agreement), (ii) the commencement of
a tender offer or exchange offer which results in a person or group owning 15%
or more of the Company's common stock, to exercise each right (other than rights
held by an Acquiring Person) to purchase common stock of the Company or a
successor company with a market value of twice the $65 exercise price.

NOTE G -- STOCK BASED COMPENSATION PLANS

The Company has stock option plans which provide for the granting of
non-qualified or incentive options to employees, directors, consultants and
advisors. The plans authorize granting of up to 2,581,695 shares of the
Company's common stock at the market value at the date of such grants. All
options are exercisable at times as determined by the Board of Directors not to
exceed ten years after the grant date.

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related Interpretations ("APB
25") in accounting for its stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of FASB No. 123,
"Accounting for Stock-Based Compensation", requires use of option valuation
models that were not developed for use in valuing such stock options. Under APB
25, because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.

Pro forma information regarding net income and net income per share is
required by Statement 123, and has been determined as if the Company has
accounted for its stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions at December 31, 1997, 1996 and 1995 respectively: risk-free interest
rate of 5.61%, 6.36% and 6.36%; no dividend yields; volatility factor of the
expected market price of

F - 9

31

NOTE G -- STOCK BASED COMPENSATION PLANS (Continued)

the Company's common stock of 58.0%, 62.2% and 62.2%; and a weighted-average
expected life of the options of 4.0 years.

The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options. The Company's pro forma
information is as follows:
(in thousands, except per share data)
1997 1996 1995
Net Income: As Reported $ 16,462 $ 10,695 $ 4,210
Pro Forma 14,949 10,088 4,126
Basic EPS: As Reported $ 1.33 $ .95 $ .41
Pro Forma 1.21 .90 .40
Diluted EPS: As Reported $ 1.27 $ .90 $ .39
Pro Forma 1.15 .85 .38

As required by FASB No. 123, the fair value method of accounting has not
been applied to options granted prior to January 1, 1995. As a result, the pro
forma compensation cost may not be representative of that to be expected in
future years.

Information as to options for shares of common stock granted as of
December 31, 1997, 1996 and 1995 is as follows:

1997 1996 1995
-------------------------------------------------------------------------------------
Weighted Avg Weighted Avg Weighted Avg
Options Exercise Price Options Exercise Price Options Exercise Price
------------------------- ------------------------- --------------------------

Outstanding at beginning of year 1,177,833 $ 15.04 1,131,611 $ 6.37 1,333,784 $ 5.21
Granted.............. 625,500 28.43 348,100 21.91 297,700 8.73
Exercised............ (345,919) 6.99 (248,546) 5.11 (396,280) 4.39
Cancelled............ (103,800) 19.74 (53,332) 10.98 (103,593) 5.33
---------- ------ ---------- ------ ---------- ------
Outstanding at end of year 1,353,614 22.92 1,177,833 15.04 1,131,611 6.37
========== ========= =========
Exercisable at end of year 338,303 318,481 315,238
======= ======= =======
Weighted average fair value of
options granted... $ 14.86 $11.64 $ 4.66
======= ======= ======

F - 10

32

NOTE G -- STOCK BASED COMPENSATION PLANS (Continued)

The following table summarizes information about stock options outstanding
at December 31, 1997:
Weighted Average
Options Options Remaining
Exercise Price Outstanding Exercisable Contractual Life (InYears)

$ 1.55 - $ 4.75 188,228 78,038 4.9
4.875 - 7.00 148,800 47,400 5.4
8.50 - 10.125 85,200 50,250 7.5
13.25 - 20.00 151,811 78,980 8
20.25 - 27.25 311,575 83,635 8.7
27.50 - 33.06 468,000 0 9.5
------- ------ ---
1,353,614 338,303 6.7
========= ======= ===

At December 31, 1997, 1,435,172 shares of common stock were reserved for
future issuance.

NOTE H -- INCOME TAXES

Deferred income taxes are determined on the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
determined based on the difference between the tax basis of an asset or
liability and its reported amount in the consolidated financial statements using
enacted tax rates. Future tax benefits attributable to these differences are
recognized to the extent that realization of such benefits is more likely than
not.

Significant components of the Company's deferred tax assets as of December
31, 1997 and 1996 are as follows:
1997 1996

Accrued expenses, deductible when paid $ 1,032 $ 366
Book over tax depreciation 203 163
Net operating loss carryforwards - 5,600
----- -----
1,235 6,129
Valuation allowance - (6,129)
Net deferred tax assets $ 1,235 $ -0-

The Company reduced its valuation allowance for deferred tax assets by
$5,871,000 and $500,000 during the years ended December 31, 1996 and 1995,
respectively.

Significant components of the provision (benefit) for income taxes are
presented below:

1997 1996 1995
------------------------
Current:
Federal $ 7,340 $ 4,553 $ 1,161
State 1,050 780 137
Deferred (1,235) - -
Utilization of net operating
loss carryforwards (3,862) (4,325) (1,079)
------ ------ ------
Total Income Tax Provision $ 3,293 $ 1,008 $ 219
======== ======== ========
F - 11

33

NOTE H -- INCOME TAXES (Continued)

A reconciliation of the Federal statutory tax rate with the effective tax rate
is as follows:

1997 1996 1995
------------------------

Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes net
of Federal benefit 3.5% 4.0% 2.0%
Reduction in valuation allowance (6.2%) - -
Tax benefit of net operating
loss carryforwards (23.0%) (30.0%) (31.0%)
Other 7.4% - -
----- ----- -----
Effective Tax Rate 16.7% 9.0% 5.0%
===== ===== =====

NOTE I -- LOANS PAYABLE AND LONG TERM DEBT

In December 1992, the Company's German subsidiary entered into a 1.4
million deutsche mark (dm) revolving credit facility. In April 1994, this
facility was increased to approximately 1.9 million dm, with 1.4 million dm
converted to a term loan due in May 1998, and .5 million dm as a revolving
credit facility reviewed for renewal annually. The facility provides for 10.0%
interest on outstanding balances. The Company was a guarantor of this long-term
facility for up to 1.4 million dm (approximately $1.0 million outstanding at
December 31, 1996). In May 1995, the Company sold its 62% interest in its German
subsidiary. As part of the sale agreement the Company continued to guarantee the
long term loan and assumed responsibility for the interest payments on that
loan. In March 1997, the Company paid off the revolving credit facility and no
longer guarantees any debt of the former subsidiary.

NOTE J -- MAJOR CUSTOMERS

In 1995, 1996 and 1997, the Company derived 24%, 28% and 29% of its
consolidated revenues from one customer, respectively.

NOTE K -- LEGAL PROCEEDINGS

In December 1994, the Company entered into a settlement agreement with the
United States Department of Health and Human Services in connection with claims
raised under the Civil False Claims Act against the Company and UltraMed, a
former subsidiary which was sold in February 1994.

Under the settlement agreement UltraMed agreed to pay $2.1 million to the
United States, payable in equal semi annual installments through 1997 and the
Company guaranteed the obligations of UltraMed to the United States. The Company
advanced $0.3 million to UltraMed in 1994 in order for UltraMed to meet the
initial obligations under the settlement agreement. In connection with the
guarantee, the Company made payments totaling $1.6 million in 1995 to fully
satisfy the obligation. The Company charged operations $0.7 million in 1994 and
$1.2 million in 1995 related to the obligation. The payments and related charges
to operations were made as a result of the inability of UltraMed to liquidate
its assets at previously estimated values and the continuing deterioration of
the UltraMed business.

On December 6, 1996, the United States District Court for the Eastern
District of New York approved the class action settlement in a lawsuit filed
against the Company and certain of its officers by a shareholder. The settlement
disposed of allegations by the shareholder that the Company failed to meet its
disclosure obligations with respect to certain practices of UltraMed, Inc. The
Company denied any liability or wrongdoing and the settlement

F - 12

34

NOTE K -- LEGAL PROCEEDINGS (Continued)

was neither an admission of any liability or wrongdoing by the Company or any of
its officers or employees. The action was settled for a total payment of
$500,000 of which 50% was paid by the Company's insurer.

The Company, in the ordinary course of business is the subject of or party
to various lawsuits, the outcome of which in the opinion of management, will not
have a material adverse effect on the consolidated financial statements.

NOTE L -- EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

1997 1996 1995
--------------------------------
(In thousands)
Denominator:
Denominator for basic earnings per
share, weighted average shares 12,404 11,212 10,192

Effect of dilutive employee stock options 550 697 576
------ ------ ------

Denominator for diluted earnings per share,
adjusted weighted average shares and
assumed conversions 12,954 11,909 10,768

The numerator for basic and diluted earnings per share for the years ended
December 31, 1997, 1996 and 1995 is the net income for the period.

F - 13

35

Schedule II

CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED DECEMBER 31, 1997

COL. A COL.B COL. C COL. D COL. E
ADDITIONS

Balance at Charged to Charged to Balance at
Beginning Costs and Other Account Deductions End
DESCRIPTION of Period Expenses Describe Describe of Period

Year ended December 31, 1997:
Allowance for doubtful accounts $ 941,000 $ 1,648,000 $ - $ 97,000(3) $ 2,492,000
========== ============= ====== ========= ============
Allowance for deferred tax valuation $6,129,000 $ - $ - $6,129,000(4) $ -
=========== ============= ====== ========== ============

Year ended December 31, 1996:
Allowance for doubtful accounts $ 514,000 $ 782,000 $ - $(355,000)(2) $ 941,000
========= ============= ====== ========== ============
Allowance for deferred tax valuation $12,000,000 $ - $ - $5,871,000(4) $ 6,129,000
============ ============= ====== ========== ============

Year ended December 31, 1995:
Allowance for doubtful accounts $ 364,000 $ 150,000 $ - $ - $ 514,000
========== ============ ===== ========== ============
Allowance for deferred tax valuation $12,500,000 $ (500,000)(1)$ - $ - $ 12,000,000
=========== ============ ===== ========== ============

(1) Offset by (decrease) increase in net deferred tax assets
(2) Accounts written off during 1996
(3) Accounts written off during 1997
(4) Reduction in allowances

S-1

36

INDEX TO EXHIBITS

Exhibit No. Description Page No.

3.1 Articles of Incorporation of the Company (1)

3.2 Bylaws of the Company (1)

4.0 Rights Agreement, dated as of October 25, 1995 between
Curative Technologies, Inc. and Bank Minnesota,
National Association, as Rights Agent (7)

4.1 Stock Purchase Agreement, dated July 6, 1989, among
the Company and certain investors named therein (1)(Ex. 4.2)

10.1 Technology Transfer Agreement, dated September 21, 1990,
between Curative Technologies GmbH and the Company (1)(Ex. 10.8)

10.2 Contractual Agreement for Wound Healing Product
effective as of January 1, 1988, between the Company
and the University of Minnesota Hospital and Clinic (1)(Ex. 10.17)

10.3 Form of Wound Care Center(R)Contract (1)(Ex. 10.18)

10.4 Lease Agreement dated June 13, 1989, between
In-House Partners and the Company (1)(Ex. 10.21)

10.5 Employment Agreement, dated as of September 1, 1997
between John C. Prior and the Company *

10.6 1991 Stock Option Plan (1)(Ex. 10.27)**

10.7 Amendment No.3 to the 1991 Stock Option Plan (2)**

10.8 Amended and Restated Bridge Financing Commitment
Agreement, dated April 30, 1991, with a form of
warrant attached (1)(Ex. 10.28)

10.8.1 Amendment to Stock Subscription Warrant for Shares
of Common Stock of Curative Technologies, Inc. (9)

10.9 Curative Health Services, Inc., Director Share
Purchase Program (3)**

10.10 Employment Agreement, dated as of October 21, 1993,
between Howard Jones and the Company (4)**

10.11 Curative Health Services, Inc. Employee 401(k) Savings
Plan, as amended and restated (5)**

10.12 Settlement Agreement by and between the University of
California, David R. Knighton and the Company dated
September 1, 1993 (6)

10.13 Settlement Agreement by and among the United States
of America and UltraMed, Inc., Robert Baurys,
Susan Hrim, Cy Corgan, Chris Rosenski and the Company
dated October 18, 1994 and related agreements (6)

10.14 Amendment of Employment Agreement, dated September 1, 1997
between John Vakoutis and the Company *

10.15 Employment Agreement dated as of September 1, 1997, between
Carol Gleber and the Company *

10.16 Employment Agreement dated as of June 17, 1987, between
Gary Jensen and the Company (6)**

10.17 Memorandum of Understanding-Settlement of Shareholder Lawsuit (10)

10.18 Final Judgment and Order of Dismissal with Prejudice
of Class Action (11)

10.19 Curative Technologies, Inc. Non-Employee Director
Stock Option Plan (8)

22. Subsidiaries of the Registrant *

23. Consent of Ernst & Young LLP *

* Filed herewith
** Required to be filed pursuant to Item 601(b)(10)(ii)or(iii) (A) of
Regulation S-K.
(1) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Company's Registration Statement on Form S-1
(No. 33-39880).
(2) Incorporated by reference to Exhibit 10.25.1 to the Company's Quarterly
Report's on Form 10-Q for the quarter ended June 30,1996.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-8 (filed July 7, 1993, No. 33-65710).
(4) Incorporated by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K filed for the year ended December 31, 1993.
(5) Incorporated by reference to the Company's Registration Statement on Form
S-8 (filed October 13, 1994, No. 33-85188).
(6) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K filed for the year ended
December 31, 1994.
(7) Incorporated by reference to similarly numbered exhibit to the Company's
Current Report on Form 8-K dated November 6, 1995.
(8) Incorporated by reference to Exhibit 10.25.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.
(9) Incorporated by reference to Exhibit 25.1 filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(10) Incorporated by reference to Exhibit 10.42 to the Company's Annual
Report on Form 10-K filed for the year ended December 31, 1995.
(11) Incorporated by reference to Exhibit 10.43 to the Company's Annual
Report on Form 10-K filed for the year ended December 31, 1996.

37

Exhibit 22

SUBSIDIARIES OF THE REGISTRANT

The following is a list of all of the subsidiaries of the registrant:

1. Wound Care Centers(R) of America Incorporated, organized under the laws of
Delaware.

2. CHS Services, Inc., organized under the laws of Delaware.

38

Exhibit 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-54880) pertaining to the Curative Health Services, Inc. and
subsidiaries 1991 Stock Option Plan, as amended, in the Registration Statement
(Form S-8 No. 33-19370) pertaining to the Curative Health Services, Inc. and
subsidiaries Director Share Purchase Program and in the Registration Statement
(Form S-8 No. 33-85188) pertaining to the Curative Health Services, Inc. and
subsidiaries Employee 401(k) Savings Plan of our report dated February 9, 1998,
with respect to the consolidated financial statements and schedule of Curative
Health Services, Inc. and subsidiaries included in the Annual Report (Form 10-K)
for the year ended December 31, 1997.

/s/ Ernst & Young LLP

Melville, New York
March 27, 1998

39

Exhibit 10.14

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made effective as of September 1, 1997 (the "Effective Date"), between CURATIVE
HEALTH SERVICES, INC., a Minnesota corporation (the "Company"), and JOHN
VAKOUTIS ("Executive").

WHEREAS, the Executive has been in the employ of the Company pursuant
to that certain Employment Agreement (the "Original Agreement") dated as of
October 26, 1994, as amended, on the terms and conditions set forth therein;

WHEREAS, the Company recognizes that Executive's contribution to the
growth and success of the Company has been substantial and therefore desires to
assure the Company of Executive's continued employment; and

WHEREAS, based on the foregoing, the Company and Executive now wish
to amend and restate the terms of the Original Agreement.

NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree that the Original Agreement shall be and is hereby amended and restated in
its entirety to read as follows:

1. Employment

1.1 Employment and Duties. The Company hereby agrees to employ Executive
for the Term (as hereinafter defined) as President and Chief Executive Officer,
subject to the direction of the Board of Directors, and in connection therewith,
to perform such duties as he shall reasonably be directed by the Board of
Directors to perform. Executive hereby accepts such employment and agrees to
render such services. Executive shall perform his duties and carry out his
responsibilities hereunder in a diligent manner, shall devote his exclusive and
full working time, attention and effort to the affairs of the Company, shall use
his best efforts to promote the interests of the Company and shall be just and
faithful in the performance of his duties and in carrying out his
responsibilities.

1.2 Location. The principal location for performance of Executive's
services hereunder shall be at the Company's executive offices, which are
currently located in East Setauket, New York, subject to reasonable travel
requirements during the course of such performance.

1.3 Board of Directors. Executive agrees to accept election and to serve
during all or any part of the Term as a director of the Company and of any
subsidiary or affiliate of the Company, without any compensation therefor other
than that specified herein, if elected to any such position by the Board of
Directors or by the stockholders of the Company or of any subsidiary or
affiliate, as the case may be. The Company will use its best efforts to cause
and maintain the election of Executive to the Company's Board of Directors. In
connection therewith, the Company shall use its best efforts to include
Executive in the management slate for election as a director at every annual
meeting of shareholders of the Company at which his term as a director would
otherwise expire. Upon the termination of this Agreement or Executive's
employment hereunder for any reason, Executive shall resign from the Board and
from all other positions as an officer or director of any of the Company's
subsidiaries or affiliates.

2. Employment Term

The term of Executive's employment hereunder (the "Term") shall be deemed
to commence on the Effective Date and shall end on the first anniversary of the
Effective Date, unless sooner terminated as hereinafter provided; provided,
however, that the Term shall be automatically renewed and extended for an
additional period of one (1) year on each anniversary thereafter unless either
party gives a Notice of Termination (as defined below) to the other party at
least three (3) months prior to such anniversary.

3. Compensation and Benefits

3.1 Cash Compensation.

Base Salary. The Company shall pay Executive an annual salary of
$285,000 payable in bi-weekly installments, in arrears (the
"Base Salary"). The Base Salary shall be reviewed annually by
the Company's Board of Directors and may be increased, but not
decreased (unless mutually agreed upon by Executive and the
Company).

(b) Bonus Plan. Executive shall be entitled to participate in the
Company's Executive Bonus Compensation Program, in accordance
with and subject to the terms and provisions thereof.

3.2 Participation in Benefit Plans. Executive shall be entitled to
participate in all employee benefit plans or programs of the Company to the
extent that his position, title, tenure, salary, age, health and other
qualifications make him eligible to participate. The Company does not guarantee
the continuance of any particular employee benefit plan or program during the
Term, and Executive's participation in any such plan or program shall be subject
to all terms, provisions, rules and regulations applicable thereto. Executive
will be entitled to twenty (20) days of vacation per year, to be used in
accordance with the Company's vacation policy for senior executives as it may
change from time to time. For the Benefit Period, if any, (as hereinafter
defined), the Company will arrange to provide Executive with welfare benefits
(including life and health insurance benefits) of substantially similar design
and cost to Executive as the welfare benefits and other employee benefits
available to Executive prior to Executive's or the Company's, as the case may
be, receipt of Notice of Termination (as hereinafter defined). In the event that
Executive shall obtain full-time employment providing welfare benefits during
the Benefit Period, such benefits as otherwise receivable hereunder by Executive
shall be discontinued.

3.3 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement. Executive shall keep detailed
and accurate records of expenses incurred in connection with the performance of
his duties hereunder and reimbursement therefor shall be in accordance with
policies and procedures to be established from time to time by the Board.

3.4 Automobile Expenses. During the Term, Executive shall be entitled to
the use of an automobile leased in the name of the Company. The Executive shall
be repaid by the Company for all automobile expenses incurred by the Executive
in the performance of his duties under this Agreement.

4. Termination of Employment

4.1 Definitions

(a) "Benefit Period" shall mean (i) the twenty-four (24) month period
commencing on the Date of Termination which occurs in connection with a
termination of employment described in the first sentence of Section 4.5(a), or
(ii) the period consisting of the remainder, if any, of the then current Term in
which occurs a termination of employment described in the first sentence of
Section 4.5(b), plus the immediately succeeding twenty-four (24) month period.

(b) "Cause" shall mean any of the following:

(i) any act or failure to act (or series or combination
thereof) by Executive done with the intent to harm in any material respect to
the interests of the Company;

(ii) the commission by Executive of a felony;

(iii)the perpetration by Executive of a dishonest act
or common law fraud against the Company or any subsidiary thereof;

(iv) a grossly negligent act or failure to act (or series or
combination thereof) by Executive detrimental in any material respect to the
interests of the Company;

(v) the material breach by Executive of his agreements or
obligations under this Agreement; or

(vi) the continued refusal to follow the directives of the Board
of Directors that are consistent with Executive's duties and responsibilities
identified in Section 1.1 hereof.

(c) A "Change of Control" shall mean any of the following:

(i)a sale of all or substantially all of the assets of the
Company;
(ii) the acquisition of more than eighty percent (80%) of the
Common Stock of the Company (with all classes or series thereof treated as a
single class) by any person or group of persons, except a Permitted Shareholder
(as hereinafter defined), acting in concert. A "Permitted Shareholder" means a
holder, as of the date of the Plan was adopted by the Company, of Common Stock;

(iii)a reorganization of the Company wherein the holders of
Common Stock of the Company receive stock in another company, a merger of the
Company with another company wherein there is an eighty percent (80%) or greater
change in the ownership of the Common Stock of the Company as a result of such
merger, or any other transaction in which the Company (other than as the parent
corporation) is consolidated for federal income tax purposes or is eligible to
be consolidated for federal income tax purposes with another corporation;

(iv) in the event that the Common Stock is traded on an
established securities market, a public announcement that any person has
acquired or has the right to acquire beneficial ownership of fifty-one percent
(51%) or more of the then-outstanding Common Stock and for this purpose the
terms "person" and "beneficial ownership" shall have the meanings provided in
Section 13(d) of the Securities and Exchange Act of 1934 or related rules
promulgated by the Securities and Exchange Commission, or the commencement of or
public announcement of an intention to make a tender offer or exchange offer for
fifty-one percent (51%) or more of the then outstanding Common Stock;

(v) a majority of the Board of Directors is not comprised of
Continuing Directors. A "Continuing Director" means a director recommended by
the Board of Directors of the Company for election as a director of the Company
by the stockholders; or
(vi) the Board of Directors of the Company, in its sole and
absolute discretion, determines that there has been a sufficient change in the
share ownership of the Company to constitute a change of effective ownership or
control of the Company.

(d) "Good Reason" shall mean, within the twelve (12) month period
immediately following a Change of Control, the occurrence of any one or more of
the following events:

(i) the assignment to Executive of any duties inconsistent in
any respect with Executive's position (including status, offices, title, and
reporting requirements), authority, duties or other responsibilities as in
effect immediately prior to the Change of Control or any other action of the
Company that results in a diminishment in such position, authority, duties or
responsibilities, other than an insubstantial and inadvertent action that is
remedied by the Company promptly after receipt of notice thereof given by
Executive;

(ii) a reduction by the Company in Executive's Base Salary as in
effect on the date hereof and as the same shall be increased from time to time
hereafter;

(iii)the Company's requiring Executive to be based at a location
in excess of fifty (50) miles from the location of Executive's principal office
immediately prior to the Change of Control;

(iv) the failure by the Company to (a) continue in effect any
material compensation or benefit plan, program, policy or practice in which
Executive was participating at the time of the Change of Control or (b) provide
Executive with compensation and benefits at least equal (in terms of benefit
levels and/or reward opportunities) to those provided for under each employee
benefit plan, program, policy and practice as in effect immediately prior to the
Change of Control (or as in effect following the Change of Control, if greater);

(v) the failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and agree to perform this
Agreement; and

(vi) any purported termination by the Company of Executive's
employment that is not effected pursuant to a Notice of Termination (as defined
below).

(e) "Date of Termination" shall mean the date specified in the Notice
of Termination (as hereinafter defined) (except in the case of Executive's
death, in which case Date of Termination shall be the date of death); provided,
however, that if Executive's employment is terminated by the Company other than
for Cause, the date specified in the Notice of Termination shall be at least
thirty (30) days from the date the Notice of Termination is given to Executive
and if Executive's employment is terminated by Executive for Good Reason, the
date specified in the Notice of Termination shall not be more than sixty (60)
days from the date the Notice of Termination is given to the Company.

(f) "Notice of Termination" shall mean a written notice either from
the Company to Executive, or Executive to the Company, that indicates Section 2
or the specific provision of Section 4 of this Agreement relied upon as the
reason for such termination or nonrenewal, the Date of Termination, and, in
reasonable detail, the facts and circumstances claimed to provide a basis for
termination or nonrenewal pursuant to Section 2 or this Section 4 of this
Agreement.

4.2 Termination Upon Death or Disability. This Agreement, and Executive's
employment hereunder, shall terminate automatically and without the necessity of
any action on the part of the Company upon the death of Executive. In addition,
if at any time during the Term Executive shall become physically or mentally
disabled, whether totally or partially, so that he is unable substantially to
perform his duties and services hereunder for (i) a period of six (6)
consecutive months, or (ii) for shorter periods aggregating six (6) months
during any twelve (12) month period, the Company may at any time after the last
day of the sixth consecutive month of disability or the day on which the shorter
periods of disability shall have equaled an aggregate of six (6) months, by
written notice to Executive (but before Executive has recovered from such
disability), terminate this Agreement and Executive's employment hereunder.

4.3 Company's and Executive's Right to Terminate--Prior to Change of
Control. Prior to a Change of Control, this Agreement and Executive's employment
hereunder may be terminated at any time by the Company, with or without Cause,
upon thirty (30) days prior written notice to Executive, and by Executive, at
any time, upon thirty (30) days prior written notice to the Company. Any
termination of Executive's employment by the Company without Cause prior to a
Change of Control that occurs at the request or insistence of any person (other
than the Company) relating to such Change of Control shall be deemed to have
occurred after the Change of Control for the purposes of this Agreement.

4.4 Company's and Executive's Right to Terminate--Following a Change of
Control. Following a Change of Control, this Agreement and Executive's
employment hereunder may be terminated at any time (i) by the Company, with or
without Cause, upon thirty (30) days prior written notice to Executive, and (ii)
by Executive for Good Reason upon thirty (30) days prior written notice to the
Company. Executive's right to terminate his employment pursuant to this Section
4.4 shall not be affected by incapacity due to physical or mental illness.
Executive's continued employment following a Change of Control shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.

4.5 Compensation Upon Termination.

(a) Termination Prior to Change of Control. In the event the Company
terminates (or elects not to renew) this Agreement without Cause, and such
termination (or nonrenewal) without Cause occurs prior to any Change of Control,
Executive shall be entitled to receive his Base Salary through the Date of
Termination, the welfare benefits described in Section 3.2 for the Benefit
Period, and not later than thirty (30) days after the Date of Termination, a
lump sum severance payment equal to the product of two (2) times the sum of
Executive's then Current Base Salary plus the arithmetic average of payments
made to Executive pursuant to the Company's Executive Bonus Compensation Program
with respect to the three (3) fiscal years immediately preceding the fiscal year
in which the Date of Termination occurs. In addition, to the extent not
otherwise required under the Company's Stock Option Plan or any award agreement
with Executive, any unvested stock option awards theretofore awarded to
Executive which would otherwise vest and become exercisable during the twelve
(12) month period commencing on the Date of Termination shall vest and become
exercisable on the Date of Termination. In the event this Agreement is
terminated (or not renewed) for any reason other than by the Company without
Cause, and such termination (or nonrenewal) occurs prior to a Change of Control,
Executive shall not be entitled to the continuation of any compensation, bonuses
or benefits provided hereunder, or any other payments following the Date of
Termination, other than Base Salary earned through such Date of Termination.

(b) Termination Following Change of Control. If this Agreement is
terminated (or not renewed) (i) by the Company without Cause, or (ii) by
Executive for Good Reason during the twelve (12) month period immediately
following a Change of Control, and such termination (or nonrenewal) occurs
following a Change of Control, Executive shall be entitled to receive his full
Base Salary through the Date of Termination, the welfare benefits described in
Section 3.2 for the Benefit Period and, not later than thirty (30) days after
the Date of Termination, a lump sum severance payment equal to the sum of (a)
the Base Salary which would otherwise have been payable for the remainder (if
any) of the then current Term, plus (ii) an amount equal the product of two (2)
times the sum of Executive's then current annual Base Salary plus the arithmetic
average of payments made to Executive pursuant to the Company's Executive Bonus
Compensation Program with respect to the three (3) fiscal years immediately
preceding the fiscal year in which the Date of Termination occurs. In addition,
to the extent not otherwise required under the Company's Stock Option Plan or
any award agreement with Executive, any unvested stock option awards theretofore
awarded to Executive shall vest and become immediately exercisable in full. In
the event this Agreement is terminated (or not renewed) for any reason other
than (i) by the Company without Cause, or (ii) by Executive for Good Reason, and
such termination (or nonrenewal) occurs following a Change of Control, Executive
shall not be entitled to the continuation of any compensation, bonuses or
benefits provided hereunder, or any other payments following the Date of
Termination, other than Base Salary earned through the Date of Termination.

(c) At Executive's option to be exercised by written notice to the
Company, the severance benefits payable under this Section 4.5 shall be paid in
accordance with the Company's normal payroll procedures over the twenty-four
(24)month or longer period as contemplated by Section 4.5(b), as the case may
be, corresponding to the amount of the payments instead of in a lump sum.

(d) Anything to the contrary contained herein notwithstanding, as a
condition to Executive receiving severance benefits to be paid pursuant to this
Section 4.5, Executive shall execute and deliver to the Company a general
release in form and substance reasonably satisfactory to the Company releasing
the Company and its officers, directors, employees and agents from all
liabilities, claims and obligations of any nature whatsoever, excepting only the
Company's obligations under this Agreement, under any Stock Option Award
Agreements, and under any other employee benefit plans or programs in which
Executive participates under Section 3.2 hereof, subject to all terms and
conditions of such plans or programs and this Agreement.

(e) Anything to the contrary contained herein notwithstanding, in the
event that any payment or benefit received or to be received by Executive in
connection with a Change in Control of the Company or termination of Executive's
employment (whether payable pursuant to the terms of this Agreement or any other
plan, contract, agreement or arrangement with the Company, with any person whose
actions result in a Change in Control of the Company or with any person
constituting a member of an "affiliated group" as defined in Section 280G(d)(5)
of the Internal Revenue Code of 1986, as amended (the "Code"), with the Company
or with any person whose actions result in a Change in Control of the Company
(collectively, the "Total Payments")) would not be deductible (in whole or in
part) by the Company or such other person making such payment or providing such
benefit solely as a result of Section 280G of the Code, the amount payable to
Executive pursuant to this Section 4.5 shall be reduced until no portion of the
Total Payments is not deductible solely as a result of Section 280G of the Code
or such amount payable to Executive pursuant to Section 4.5 is reduced to zero.
For purposes of this limitation, (a) no portion of the Total Payments the
receipt or enjoyment of which Executive shall have effectively waived in writing
prior to the date of payment of the amount pursuant to Section 4.5 shall be
taken into account; (b) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel selected by the Company and
reasonably acceptable to Executive does not constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code; (c) the payment pursuant
to Section 4.5 shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in the immediately preceding clause (b))
in their entirety constitute reasonable compensation within the meaning of
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
in the immediately preceding clause (b); and (d) the value of any other non-cash
benefit or of any deferred cash payment included in the Total Payments shall be
determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.

5. Employment Covenants

5.1 Trade Secrets and Confidential Information. Executive agrees that he
shall, during the course of his employment and thereafter, hold inviolate and
keep secret all documents, materials, knowledge or other confidential business
or technical information of any nature whatsoever disclosed to or developed by
him or to which he had access as a result of his employment (hereinafter
referred to as "Confidential Information"). Such Confidential Information shall
include technical and business information, including, but not limited to,
inventions, research and development, engineering, products, designs,
manufacture, methods, systems, improvements, trade secrets, formulas, processes,
marketing, merchandising, selling, licensing, servicing, customer lists, records
or financial information, manuals or Company strategy concerning its business,
strategy or policies. Executive agrees that all Confidential Information shall
remain the sole and absolute property of the Company. During the course of his
employment, Executive shall not use, disclose, disseminate, publish, reproduce
or otherwise make available such Confidential Information to any person, firm,
corporation or other entity, except for the purpose of conducting business on
behalf of the Company. Following the Term, Executive shall not use, disclose,
disseminate, publish, reproduce or otherwise make available such Confidential
Information to any person, firm, corporation or other entity. Upon termination
of his employment with the Company, Executive will leave with or deliver to the
Company all records and any compositions, articles, devices, equipment and other
items which disclose or embody Confidential Information including all copies or
specimens thereof, whether prepared by him or by others. The foregoing
restrictions on disclosure of Confidential Information shall apply so long as
the information has not properly come into the public domain through no action
of Executive.

5.2 Transfer of Inventions. Executive, for himself and his heirs and
representatives, will promptly communicate and disclose to the Company, and upon
request will, without additional compensation, execute all papers reasonably
necessary to assign to the Company or the Company's nominees, free of
encumbrance or restrictions, all inventions, discoveries, improvements, whether
patentable or not, conceived or originated by Executive solely or jointly with
others, at the Company's expense or at the Company's facilities, or at the
Company's request, or in the course of his employment, or based on knowledge or
information obtained during the Term. All such assignments shall include the
patent rights in this and all foreign countries. Notwithstanding the foregoing,
this Section 5.2 shall not apply to any invention for which no equipment,
supplies, facilities or trade secret information of the Company was used and
which was developed entirely on Executive's own time and (a) that does not
relate (1) directly to the business of the Company or (2) to the Company's
actual or demonstrably anticipated research or development, or (b) that does not
result from any work performed by Executive for the Company.

5.3 Exclusivity of Employment. During the Term, Executive shall not
directly or indirectly engage in any activity competitive with or adverse to the
Company's business or welfare or render a material level of services of a
business, professional or commercial nature to any other person or firm, whether
for compensation or otherwise.

5.4 Covenant Not to Compete. Executive agrees to be bound and abide by
the following covenant not to compete:

Term and Scope. During his employment with the Company and for a
period of two (2) years after the Term, Executive will not render to any
Conflicting Organization (as hereinafter defined), services, directly or
indirectly, anywhere in the world in connection with any Conflicting Product,
except that Executive may accept employment with a large Conflicting
Organization whose business is diversified (and which has separate and distinct
divisions) if Executive first certifies to the Board of Directors in writing
that he has provided a copy of Section 5 of this Agreement to such prospective
employer, that such prospective employer is a separate and distinct division of
the Conflicting Organization and that Executive will not render services
directly or indirectly in respect of any Conflicting Product (as hereinafter
defined). Such two-year time period shall be tolled during any period that
Executive is engaged in activity in violation of this covenant.

Judicial Action. Executive and the Company agree that, if the
period of time or the scope of the restrictive covenant not to compete contained
in this Section 5.4 shall be adjudged unreasonable in any court proceeding, then
the period of time and/or scope shall be reduced accordingly, so that this
covenant may be enforced in such scope and during such period of time as is
judged by the court to be reasonable. In the event of a breach or violation of
this Section 5.4 by Executive, the parties agree than in addition to all other
remedies, the Company shall be entitled to equitable relief for specific
performance, and Executive hereby agrees and acknowledges that the Company has
no adequate remedy at law for the breach of the covenants contained herein.
Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:

"Conflicting Product" means any product, method or process, system or
service of any person or organization other than the Company, in existence
or under development at the time Executive's employment with the Company
terminates, that is the same as or similar to or competes with a product,
method or process, system or service of or provided by the Company or any
of its affiliates or about which Executive acquires Confidential
Information.

"Conflicting Organization" means any person or organization which is
engaged in or about to become engaged in, research on or development,
production, marketing, licensing, selling or servicing of a Conflicting
Product.

5.5 Disclosure to Prospective Employers. Executive will disclose to any
prospective employer, prior to accepting employment, the existence of Section 5
of this Agreement. The obligation imposed by this Section 5.5 shall terminate
two (2) years after termination of Executive's employment with the Company;
provided, however, the running of such two-year period shall be tolled to the
extent the covenant not to compete contained in Section 5.4(a) hereof is tolled.

6. Miscellaneous

6.1 Notices. Any notice required or permitted to be delivered hereunder
shall be in writing and shall be deemed to be delivered on the earlier of (i)
the date received, or (ii) the date of delivery, refusal or non-delivery
indicated on the return receipt, if deposited in a United States Postal Service
depository, postage prepaid, sent registered or certified mail, return receipt
requested, addressed to the party to receive the same at the address of such
party set forth below, or at such other address as may be designated in a notice
delivered or mailed as herein provided.

To Company: Curative Health Services, Inc.
14 Research Way
Box 9052
East Setauket, New York 11733-9052

Executive: John Vakoutis
35 Beach Road
Belle Terre, New York 11777

6.2 Headings. The headings of the articles and sections of this Agreement
are inserted for convenience only and shall not be deemed a part of or affect
the construction or interpretation of any provision hereof.

6.3 Modifications; Waiver. No modification of any provision of this
Agreement or waiver of any right or remedy herein provided shall be effective
for any purpose unless specifically set forth in a writing signed by the party
to be bound thereby. No waiver of any right or remedy in respect of any
occurrence or event on one occasion shall be deemed a waiver of such right or
remedy in respect of such occurrence or event on any other occasion.

6.4 Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other
agreements, oral or written, heretofore made with respect thereto, including,
without limitation, the Original Agreement.

6.5 Severability. Any provision of this Agreement prohibited by or
unlawful or unenforceable under any applicable law of any jurisdiction shall as
to such jurisdiction be ineffective without affecting any other provision
hereof. To the full extent, however, that the provisions of such applicable law
may be waived, they are hereby waived, to the end that this Employment Agreement
be deemed to be a valid and binding agreement enforceable in accordance with its
terms.

6.6 Controlling Law. This Agreement has been entered into by the parties
in the State of New York and shall be continued and enforced in accordance with
the laws of that State.

6.7 Assignments. The Company shall have the right to assign this Agreement
and to delegate all rights, duties and obligations hereunder to any entity that
controls the Company, that the Company controls or that may be the result of the
merger, consolidation, acquisition or reorganization of the Company and another
entity. Executive agrees that this Agreement is personal to him and his rights
and interest hereunder may not be assigned, nor may his obligations and duties
hereunder be delegated (except as to delegation in the normal course of
operation of the Company), and any attempted assignment or delegation in
violation of this provision shall be void.

6.8 Attorney Fees. In the event of litigation between the parties, to
enforce their respective rights under this Agreement, the prevailing party shall
be entitled to receive from the non-prevailing party reimbursement of the
prevailing party's reasonable attorney's fees and costs at all levels of trial
and appeal.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.

CURATIVE HEALTH SERVICES, INC.

By:
Its: Chairman

Executive

Exhibit 10.15

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made effective as of September 1, 1997 (the "Effective Date"), between CURATIVE
HEALTH SERVICES, INC., a Minnesota corporation (the "Company"), and CAROL GLEBER
("Executive").

WHEREAS, the Executive has been in the employ of the Company pursuant
to that certain Employment Agreement (the "Original Agreement") dated as of
August 1, 1989, as amended, on the terms and conditions set forth therein;

WHEREAS, the Company recognizes that Executive's contribution to the
growth and success of the Company has been substantial and therefore desires to
assure the Company of Executive's continued employment; and

WHEREAS, based on the foregoing, the Company and Executive now wish
to amend and restate the terms of the Original Agreement.

NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree that the Original Agreement shall be and is hereby amended and restated in
its entirety to read as follows:

1. Employment

1.1 Employment and Duties. The Company hereby agrees to employ Executive
for the Term (as hereinafter defined) as Senior Vice President and Chief
Operating Officer, subject to the direction of the President, and in connection
therewith, to perform such duties as she shall reasonably be directed by the
President to perform. Executive hereby accepts such employment and agrees to
render such services. Executive shall perform her duties and carry out her
responsibilities hereunder in a diligent manner, shall devote her exclusive and
full working time, attention and effort to the affairs of the Company, shall use
her best efforts to promote the interests of the Company and shall be just and
faithful in the performance of her duties and in carrying out her
responsibilities.

1.2 Location. The principal location for performance of Executive's
services hereunder shall be at the Company's office in Dallas, Texas, subject to
reasonable travel requirements during the course of such performance.

2. Employment Term

The term of Executive's employment hereunder (the "Term") shall be deemed
to commence on the Effective Date and shall end on the first anniversary of the
Effective Date, unless sooner terminated as hereinafter provided; provided,
however, that the Term shall be automatically renewed and extended for an
additional period of one (1) year on each anniversary thereafter unless either
party gives a Notice of Termination (as defined below) to the other party at
least three (3) months prior to such anniversary.

3. Compensation and Benefits

3.1 Cash Compensation.

Base Salary. The Company shall pay Executive an annual salary of
$210,000 payable in bi-weekly installments, in arrears (the
"Base Salary"). The Base Salary shall be reviewed annually by
the Company's Board of Directors and may be increased, but not
decreased (unless mutually agreed upon by Executive and the
Company).

(b) Bonus Plan. Executive shall be entitled to participate in the
Company's Executive Bonus Compensation Program, in accordance
with and subject to the terms and provisions thereof.

3.2 Participation in Benefit Plans. Executive shall be entitled to
participate in all employee benefit plans or programs of the Company to the
extent that her position, title, tenure, salary, age, health and other
qualifications make her eligible to participate. The Company does not guarantee
the continuance of any particular employee benefit plan or program during the
Term, and Executive's participation in any such plan or program shall be subject
to all terms, provisions, rules and regulations applicable thereto. Executive
will be entitled to twenty (20) days of vacation per year, to be used in
accordance with the Company's vacation policy for senior executives as it may
change from time to time. For the Benefit Period, if any, (as hereinafter
defined), the Company will arrange to provide Executive with welfare benefits
(including life and health insurance benefits) of substantially similar design
and cost to Executive as the welfare benefits and other employee benefits
available to Executive prior to Executive's or the Company's, as the case may
be, receipt of Notice of Termination (as hereinafter defined). In the event that
Executive shall obtain full-time employment providing welfare benefits during
the Benefit Period, such benefits as otherwise receivable hereunder by Executive
shall be discontinued.

3.3 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by her in the
performance of her duties under this Agreement. Executive shall keep detailed
and accurate records of expenses incurred in connection with the performance of
her duties hereunder and reimbursement therefor shall be in accordance with
policies and procedures to be established from time to time by the Board.

3.4 Automobile Expenses. During the Term, Executive shall be entitled to
the use of an automobile leased in the name of the Company. The Executive shall
be repaid by the Company for all automobile expenses incurred by the Executive
in the performance of her duties under this Agreement.

4. Termination of Employment

4.1 Definitions

(a) "Benefit Period" shall mean (i) the twelve (12) month period
commencing on the Date of Termination which occurs in connection with a
termination of employment described in the first sentence of Section 4.5(a), or
(ii) the twenty-four (24) month period commencing on the Date of Termination
which occurs in connection with a termination of employment described in the
first sentence of Section 4.5(b).

(b) "Cause" shall mean any of the following:

(i) any act or failure to act (or series or combination
thereof) by Executive done with the intent to harm in any material respect to
the interests of the Company;

(ii) the commission by Executive of a felony;

(iii)the perpetration by Executive of a dishonest act or
common law fraud against the Company or any subsidiary thereof;

(iv) a grossly negligent act or failure to act (or series or
combination thereof) by Executive detrimental in any material respect to the
interests of the Company;

(v) the material breach by Executive of her agreements or
obligations under this Agreement; or

(vi) the continued refusal to follow the directives of the
President or Board of Directors that are consistent with Executive's duties and
responsibilities identified in Section 1.1 hereof.

(c) A "Change of Control" shall mean any of the following:

(i) a sale of all or substantially all of the assets of the
Company;
(ii) the acquisition of more than eighty percent (80%) of the
Common Stock of the Company (with all classes or series thereof treated as a
single class) by any person or group of persons, except a Permitted Shareholder
(as hereinafter defined), acting in concert. A "Permitted Shareholder" means a
holder, as of the date of the Plan was adopted by the Company, of Common Stock;

(iii)a reorganization of the Company wherein the holders of
Common Stock of the Company receive stock in another company, a merger of the
Company with another company wherein there is an eighty percent (80%) or greater
change in the ownership of the Common Stock of the Company as a result of such
merger, or any other transaction in which the Company (other than as the parent
corporation) is consolidated for federal income tax purposes or is eligible to
be consolidated for federal income tax purposes with another corporation;

(iv) in the event that the Common Stock is traded on an
established securities market, a public announcement that any person has
acquired or has the right to acquire beneficial ownership of fifty-one percent
(51%) or more of the then-outstanding Common Stock and for this purpose the
terms "person" and "beneficial ownership" shall have the meanings provided in
Section 13(d) of the Securities and Exchange Act of 1934 or related rules
promulgated by the Securities and Exchange Commission, or the commencement of or
public announcement of an intention to make a tender offer or exchange offer for
fifty-one percent (51%) or more of the then outstanding Common Stock;

(v) a majority of the Board of Directors is not comprised of
Continuing Directors. A "Continuing Director" means a director recommended by
the Board of Directors of the Company for election as a director of the Company
by the stockholders; or

(vi) the Board of Directors of the Company, in its sole and
absolute discretion, determines that there has been a sufficient change in the
share ownership of the Company to constitute a change of effective ownership or
control of the Company.

(d) "Good Reason" shall mean, within the twelve (12) month period
immediately following a Change of Control, the occurrence of any one or more of
the following events:

(i) the assignment to Executive of any duties inconsistent in
any respect with Executive's position (including status, offices, title, and
reporting requirements), authority, duties or other responsibilities as in
effect immediately prior to the Change of Control or any other action of the
Company that results in a diminishment in such position, authority, duties or
responsibilities, other than an insubstantial and inadvertent action that is
remedied by the Company promptly after receipt of notice thereof given by
Executive;
(ii) a reduction by the Company in Executive's Base Salary as in
effect on the date hereof and as the same shall be increased from time to time
hereafter;

(iii)the Company's requiring Executive to be based at a location
in excess of fifty (50) miles from the location of Executive's principal office
immediately prior to the Change of Control;

(iv) the failure by the Company to (a) continue in effect any
material compensation or benefit plan, program, policy or practice in which
Executive was participating at the time of the Change of Control or (b) provide
Executive with compensation and benefits at least equal (in terms of benefit
levels and/or reward opportunities) to those provided for under each employee
benefit plan, program, policy and practice as in effect immediately prior to the
Change of Control (or as in effect following the Change of Control, if greater);

(v) the failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and agree to perform this
Agreement; and

(vi) any purported termination by the Company of Executive's
employment that is not effected pursuant to a Notice of Termination (as defined
below).

(e) "Date of Termination" shall mean the date specified in the Notice
of Termination (as hereinafter defined) (except in the case of Executive's
death, in which case Date of Termination shall be the date of death); provided,
however, that if Executive's employment is terminated by the Company other than
for Cause, the date specified in the Notice of Termination shall be at least
thirty (30) days from the date the Notice of Termination is given to Executive
and if Executive's employment is terminated by Executive for Good Reason, the
date specified in the Notice of Termination shall not be more than sixty (60)
days from the date the Notice of Termination is given to the Company.

(f) "Notice of Termination" shall mean a written notice either from
the Company to Executive, or Executive to the Company, that indicates Section 2
or the specific provision of Section 4 of this Agreement relied upon as the
reason for such termination, the Date of Termination, and, in reasonable detail,
the facts and circumstances claimed to provide a basis for termination or
nonrenewal pursuant to Section 2 or this Section 4 of this Agreement.

4.2 Termination Upon Death or Disability. This Agreement, and Executive's
employment hereunder, shall terminate automatically and without the necessity of
any action on the part of the Company upon the death of Executive. In addition,
if at any time during the Term Executive shall become physically or mentally
disabled, whether totally or partially, so that she is unable substantially to
perform her duties and services hereunder for (i) a period of six (6)
consecutive months, or (ii) for shorter periods aggregating six (6) months
during any twelve (12) month period, the Company may at any time after the last
day of the sixth consecutive month of disability or the day on which the shorter
periods of disability shall have equaled an aggregate of six (6) months, by
written notice to Executive (but before Executive has recovered from such
disability), terminate this Agreement and Executive's employment hereunder.

4.3 Company's and Executive's Right to Terminate--Prior to Change of
Control. Prior to a Change of Control, this Agreement and Executive's employment
hereunder may be terminated at any time by the Company, with or without Cause,
upon thirty (30) days prior written notice to Executive, and by Executive, at
any time, upon thirty (30) days prior written notice to the Company. Any
termination of Executive's employment by the Company without Cause prior to a
Change of Control that occurs at the request or insistence of any person (other
than the Company) relating to such Change of Control shall be deemed to have
occurred after the Change of Control for the purposes of this Agreement.

4.4 Company's and Executive's Right to Terminate--Following a Change of
Control. Following a Change of Control, this Agreement and Executive's
employment hereunder may be terminated at any time (i) by the Company, with or
without Cause, upon thirty (30) days prior written notice to Executive, and (ii)
by Executive for Good Reason upon thirty (30) days prior written notice to the
Company-. Executive's right to terminate her employment pursuant to this Section
4.4 shall not be affected by incapacity due to physical or mental illness.
Executive's continued employment following a Change of Control shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.

4.5 Compensation Upon Termination.

(a) Termination Prior to Change of Control. In the event the Company
terminates (or elects not to renew) this Agreement without Cause, and such
termination (or nonrenewal) without Cause occurs prior to any Change of Control,
Executive shall be entitled to receive her Base Salary through the Date of
Termination, the welfare benefits described in Section 3.2 for the Benefit
Period, and not later than thirty (30) days after the Date of Termination, a
lump sum severance payment equal to the sum of Executive's then Current Base
Salary plus the arithmetic average of payments made to Executive pursuant to the
Company's Executive Bonus Compensation Program with respect to the three (3)
fiscal years immediately preceding the fiscal year in which the Date of
Termination occurs. In addition, to the extent not otherwise required under the
Company's Stock Option Plan or any award agreement with Executive, any unvested
stock option awards theretofore awarded to Executive which would otherwise vest
and become exercisable during the twelve (12) month period commencing on the
Date of Termination shall vest and become exercisable on the Date of
Termination. In the event this Agreement is terminated (or not renewed) for any
reason other than by the Company without Cause, and such termination (or
nonrenewal) occurs prior to a Change of Control, Executive shall not be entitled
to the continuation of any compensation, bonuses or benefits provided hereunder,
or any other payments following the Date of Termination, other than Base Salary
earned through such Date of Termination.

(b) Termination Following Change of Control. If this Agreement is
terminated (or not renewed) (i) by the Company without Cause, or (ii) by
Executive for Good Reason during the twelve (12) month period immediately
following a Change of Control, -and such termination (or nonrenewal) occurs
following a Change of Control, Executive shall be entitled to receive her full
Base Salary through the Date of Termination, the welfare benefits described in
Section 3.2 for the Benefit Period and, not later than thirty (30) days after
the Date of Termination, a lump sum severance payment equal to the product of
two (2) times the sum of Executive's then current Base Salary plus the
arithmetic average of payments made to Executive pursuant to the Company's
Executive Bonus Program with respect to the three (3) fiscal years immediately
preceding the fiscal year in which the Date of Termination occurs. In addition,
to the extent not otherwise required under the Company's Stock Option Plan or
any award agreement with Executive, any unvested stock option awards theretofore
awarded to Executive shall vest and become immediately exercisable in full. In
the event this Agreement is terminated (or not renewed) for any reason other
than (i)by the Company without Cause, or (ii) by Executive for Good Reason-, and
such termination (or nonrenewal) occurs following a Change of Control, Executive
shall not be entitled to the continuation of any compensation, bonuses or
benefits provided hereunder, or any other payments following the Date of
Termination, other than Base Salary earned through the Date of Termination.

(c) At Executive's option to be exercised by written notice to the
Company, the severance benefits payable under this Section 4.5 shall be paid in
accordance with the Company's normal payroll procedures over the twelve (12) or
twenty-four (24-) month period, as the case may be, corresponding to the amount
of the payments instead of in a lump sum.

(d) Anything to the contrary contained herein notwithstanding, as a
condition to Executive receiving severance benefits to be paid pursuant to this
Section 4.5, Executive shall execute and deliver to the Company a general
release in form and substance reasonably satisfactory to the Company releasing
the Company and its officers, directors, employees and agents from all
liabilities, claims and obligations of any nature whatsoever, excepting only the
Company's obligations under this Agreement, under any Stock Option Award
Agreements, and under any other employee benefit plans or programs in which
Executive participates under Section 3.2 hereof, subject to all terms and
conditions of such plans or programs and this Agreement.

(e) Anything to the contrary contained herein notwithstanding, in the
event that any payment or benefit received or to be received by Executive in
connection with a Change in Control of the Company or termination of Executive's
employment (whether payable pursuant to the terms of this Agreement or any other
plan, contract, agreement or arrangement with the Company, with any person whose
actions result in a Change in Control of the Company or with any person
constituting a member of an "affiliated group" as defined in Section 280G(d)(5)
of the Internal Revenue Code of 1986, as amended (the "Code"), with the Company
or with any person whose actions result in a Change in Control of the Company
(collectively, the "Total Payments")) would not be deductible (in whole or in
part) by the Company or such other person making such payment or providing such
benefit solely as a result of Section 280G of the Code, the amount payable to
Executive pursuant to this Section 4.5 shall be reduced until no portion of the
Total Payments is not deductible solely as a result of Section 280G of the Code
or such amount payable to Executive pursuant to Section 4.5 is reduced to zero.
For purposes of this limitation, (a) no portion of the Total Payments the
receipt or enjoyment of which Executive shall have effectively waived in writing
prior to the date of payment of the amount pursuant to Section 4.5 shall be
taken into account; (b) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel selected by the Company and
reasonably acceptable to Executive does not constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code; (c) the payment pursuant
to Section 4.5 shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in the immediately preceding clause (b))
in their entirety constitute reasonable compensation within the meaning of
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
in the immediately preceding clause (b); and (d) the value of any other non-cash
benefit or of any deferred cash payment included in the Total Payments shall be
determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.

5. Employment Covenants

5.1 Trade Secrets and Confidential Information. Executive agrees that she
shall, during the course of her employment and thereafter, hold inviolate and
keep secret all documents, materials, knowledge or other confidential business
or technical information of any nature whatsoever disclosed to or developed by
her or to which she had access as a result of her employment (hereinafter
referred to as "Confidential Information"). Such Confidential Information shall
include technical and business information, including, but not limited to,
inventions, research and development, engineering, products, designs,
manufacture, methods, systems, improvements, trade secrets, formulas, processes,
marketing, merchandising, selling, licensing, servicing, customer lists, records
or financial information, manuals or Company strategy concerning its business,
strategy or policies. Executive agrees that all Confidential Information shall
remain the sole and absolute property of the Company. During the course of her
employment, Executive shall not use, disclose, disseminate, publish, reproduce
or otherwise make available such Confidential Information to any person, firm,
corporation or other entity, except for the purpose of conducting business on
behalf of the Company. Following the Term, Executive shall not use, disclose,
disseminate, publish, reproduce or otherwise make available such Confidential
Information to any person, firm, corporation or other entity. Upon termination
of her employment with the Company, Executive will leave with or deliver to the
Company all records and any compositions, articles, devices, equipment and other
items which disclose or embody Confidential Information including all copies or
specimens thereof, whether prepared by her or by others. The foregoing
restrictions on disclosure of Confidential Information shall apply so long as
the information has not properly come into the public domain through no action
of Executive.

5.2 Transfer of Inventions. Executive, for herself and her heirs and
representatives, will promptly communicate and disclose to the Company, and upon
request will, without additional compensation, execute all papers reasonably
necessary to assign to the Company or the Company's nominees, free of
encumbrance or restrictions, all inventions, discoveries, improvements, whether
patentable or not, conceived or originated by Executive solely or jointly with
others, at the Company's expense or at the Company's facilities, or at the
Company's request, or in the course of her employment, or based on knowledge or
information obtained during the Term. All such assignments shall include the
patent rights in this and all foreign countries. Notwithstanding the foregoing,
this Section 5.2 shall not apply to any invention for which no equipment,
supplies, facilities or trade secret information of the Company was used and
which was developed entirely on Executive's own time and (a) that does not
relate (1) directly to the business of the Company or (2) to the Company's
actual or demonstrably anticipated research or development, or (b) that does not
result from any work performed by Executive for the Company.

5.3 Exclusivity of Employment. During the Term, Executive shall not
directly or indirectly engage in any activity competitive with or adverse to the
Company's business or welfare or render a material level of services of a
business, professional or commercial nature to any other person or firm, whether
for compensation or otherwise.

5.4 Covenant Not to Compete. Executive agrees to be bound and abide by
the following covenant not to compete:

Term and Scope. During her employment with the Company and for a
period of two (2) years after the Term, Executive will not render to any
Conflicting Organization (as hereinafter defined), services, directly or
indirectly, anywhere in the world in connection with any Conflicting Product,
except that Executive may accept employment with a large Conflicting
Organization whose business is diversified (and which has separate and distinct
divisions) if Executive first certifies to the Board of Directors in writing
that she has provided a copy of Section 5 of this Agreement to such prospective
employer, that such prospective employer is a separate and distinct division of
the Conflicting Organization and that Executive will not render services
directly or indirectly in respect of any Conflicting Product (as hereinafter
defined). Such two-year time period shall be tolled during any period that
Executive is engaged in activity in violation of this covenant.

Judicial Action. Executive and the Company agree that, if the
period of time or the scope of the restrictive covenant not to compete contained
in this Section 5.4 shall be adjudged unreasonable in any court proceeding, then
the period of time and/or scope shall be reduced accordingly, so that this
covenant may be enforced in such scope and during such period of time as is
judged by the court to be reasonable. In the event of a breach or violation of
this Section 5.4 by Executive, the parties agree than in addition to all other
remedies, the Company shall be entitled to equitable relief for specific
performance, and Executive hereby agrees and acknowledges that the Company has
no adequate remedy at law for the breach of the covenants contained herein.

Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:

"Conflicting Product" means any product, method or process, system or
service of any person or organization other than the Company, in existence
or under development at the time Executive's employment with the Company
terminates, that is the same as or similar to or competes with a product,
method or process, system or service of or provided by the Company or any
of its affiliates or about which Executive acquires Confidential
Information.

"Conflicting Organization" means any person or organization which is
engaged in or about to become engaged in, research on or development,
production, marketing, licensing, selling or servicing of a Conflicting
Product.

5.5 Disclosure to Prospective Employers. Executive will disclose to any
prospective employer, prior to accepting employment, the existence of Section 5
of this Agreement. The obligation imposed by this Section 5.5 shall terminate
two (2) years after termination of Executive's employment with the Company;
provided, however, the running of such two-year period shall be tolled to the
extent the covenant not to compete contained in Section 5.4(a) hereof is tolled.

6. Miscellaneous

6.1 Notices. Any notice required or permitted to be delivered hereunder
shall be in writing and shall be deemed to be delivered on the earlier of (i)
the date received, or (ii) the date of delivery, refusal or non-delivery
indicated on the return receipt, if deposited in a United States Postal Service
depository, postage prepaid, sent registered or certified mail, return receipt
requested, addressed to the party to receive the same at the address of such
party set forth below, or at such other address as may be designated in a notice
delivered or mailed as herein provided.

To Company: Curative Health Services, Inc.
14 Research Way
Box 9052
East Setauket, New York 11733-9052

Executive: Carol Gleber
3010 Wren Lane
Richardson, Texas 75082

6.2 Headings. The headings of the articles and sections of this Agreement
are inserted for convenience only and shall not be deemed a part of or affect
the construction or interpretation of any provision hereof.

6.3 Modifications; Waiver. No modification of any provision of this
Agreement or waiver of any right or remedy herein provided shall be effective
for any purpose unless specifically set forth in a writing signed by the party
to be bound thereby. No waiver of any right or remedy in respect of any
occurrence or event on one occasion shall be deemed a waiver of such right or
remedy in respect of such occurrence or event on any other occasion.

6.4 Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other
agreements, oral or written, heretofore made with respect thereto, including,
without limitation, the Original Agreement.

6.5 Severability. Any provision of this Agreement prohibited by or
unlawful or unenforceable under any applicable law of any jurisdiction shall as
to such jurisdiction be ineffective without affecting any other provision
hereof. To the full extent, however, that the provisions of such applicable law
may be waived, they are hereby waived, to the end that this Employment Agreement
be deemed to be a valid and binding agreement enforceable in accordance with its
terms.

6.6 Controlling Law. This Agreement has been entered into by the parties
in the State of New York and shall be continued and enforced in accordance with
the laws of that State.

6.7 Assignments. The Company shall have the right to assign this Agreement
and to delegate all rights, duties and obligations hereunder to any entity that
controls the Company, that the Company controls or that may be the result of the
merger, consolidation, acquisition or reorganization of the Company and another
entity. Executive agrees that this Agreement is personal to her and her rights
and interest hereunder may not be assigned, nor may her obligations and duties
hereunder be delegated (except as to delegation in the normal course of
operation of the Company), and any attempted assignment or delegation in
violation of this provision shall be void.

6.8 Attorney Fees. In the event of litigation between the parties, to
enforce their respective rights under this Agreement, the prevailing party shall
be entitled to receive from the non-prevailing party reimbursement of the
prevailing party's reasonable attorney's fees and costs at all levels of trial
and appeal.

IN WITNESS WHEREOF, the parties have executed this Agreement as of
the Effective Date.

CURATIVE HEALTH SERVICES, INC.

By:
Its: President

Executive

Exhibit 10.5

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made effective as of September 1, 1997 (the "Effective Date"), between CURATIVE
HEALTH SERVICES, INC., a Minnesota corporation (the "Company"), and JOHN C.
PRIOR ("Executive").

WHEREAS, the Executive has been in the employ of the Company pursuant
to that certain Employment Agreement (the "Original Agreement") dated as of July
6, 1987, as amended, on the terms and conditions set forth therein;

WHEREAS, the Company recognizes that Executive's contribution to the
growth and success of the Company has been substantial and therefore desires to
assure the Company of Executive's continued employment; and

WHEREAS, based on the foregoing, the Company and Executive now wish
to amend and restate the terms of the Original Agreement.

NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree that the Original Agreement shall be and is hereby amended and restated in
its entirety to read as follows:

1. Employment

1.1 Employment and Duties. The Company hereby agrees to employ Executive
for the Term (as hereinafter defined) as Senior Vice President and Chief
Financial Officer, subject to the direction of the President, and in connection
therewith, to perform such duties as he shall reasonably be directed by the
President to perform. Executive hereby accepts such employment and agrees to
render such services. Executive shall perform his duties and carry out his
responsibilities hereunder in a diligent manner, shall devote his exclusive and
full working time, attention and effort to the affairs of the Company, shall use
his best efforts to promote the interests of the Company and shall be just and
faithful in the performance of his duties and in carrying out his
responsibilities.

1.2 Location. The principal location for performance of Executive's
services hereunder shall be at the Company's executive offices, which are
currently located in East Setauket, New York, subject to reasonable travel
requirements during the course of such performance.

2. Employment Term

The term of Executive's employment hereunder (the "Term") shall be deemed
to commence on the Effective Date and shall end on the first anniversary of the
Effective Date, unless sooner terminated as hereinafter provided; provided,
however, that the Term shall be automatically renewed and extended for an
additional period of one (1) year on each anniversary thereafter unless either
party gives a Notice of Termination (as defined below) to the other party at
least three (3) months prior to such anniversary.

3. Compensation and Benefits

3.1 Cash Compensation.

Base Salary. The Company shall pay Executive an annual salary of
$175,000 payable in bi-weekly installments, in arrears (the
"Base Salary"). The Base Salary shall be reviewed annually by
the Company's Board of Directors and may be increased, but not
decreased (unless mutually agreed upon by Executive and the
Company).

(b) Bonus Plan. Executive shall be entitled to participate in the
Company's Executive Bonus Compensation Program, in accordance
with and subject to the terms and provisions thereof.

3.2 Participation in Benefit Plans. Executive shall be entitled to
participate in all employee benefit plans or programs of the Company to the
extent that his position, title, tenure, salary, age, health and other
qualifications make him eligible to participate. The Company does not guarantee
the continuance of any particular employee benefit plan or program during the
Term, and Executive's participation in any such plan or program shall be subject
to all terms, provisions, rules and regulations applicable thereto. Executive
will be entitled to twenty (20) days of vacation per year, to be used in
accordance with the Company's vacation policy for senior executives as it may
change from time to time. For the Benefit Period, if any, (as hereinafter
defined), the Company will arrange to provide Executive with welfare benefits
(including life and health insurance benefits) of substantially similar design
and cost to Executive as the welfare benefits and other employee benefits
available to Executive prior to Executive's or the Company's, as the case may
be, receipt of Notice of Termination (as hereinafter defined). In the event that
Executive shall obtain full-time employment providing welfare benefits during
the Benefit Period, such benefits as otherwise receivable hereunder by Executive
shall be discontinued.

3.3 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement. Executive shall keep detailed
and accurate records of expenses incurred in connection with the performance of
his duties hereunder and reimbursement therefor shall be in accordance with
policies and procedures to be established from time to time by the Board.

3.4 Automobile Expenses. During the Term, Executive shall be entitled to
the use of an automobile leased in the name of the Company. The Executive shall
be repaid by the Company for all automobile expenses incurred by the Executive
in the performance of his duties under this Agreement.

4. Termination of Employment

4.1 Definitions

(a) "Benefit Period" shall mean (i) the twelve (12) month period
commencing on the Date of Termination which occurs in connection with a
termination of employment described in the first sentence of Section 4.5(a), or
(ii) the twenty-four (24) month period commencing on the Date of Termination
which occurs in connection with a termination of employment described in the
first sentence of Section 4.5(b).

(b) "Cause" shall mean any of the following:

(i) any act or failure to act (or series or combination
thereof) by Executive done with the intent to harm in any material respect to
the interests of the Company;

(ii) the commission by Executive of a felony;

(iii)the perpetration by Executive of a dishonest act or
common law fraud against the Company or any subsidiary thereof;

(iv) a grossly negligent act or failure to act (or series or
combination thereof) by Executive detrimental in any material respect to the
interests of the Company;

(v) the material breach by Executive of his agreements or
obligations under this Agreement; or

(vi) the continued refusal to follow the directives of the
President or Board of Directors that are consistent with Executive's duties and
responsibilities identified in Section 1.1 hereof.

(c) A "Change of Control" shall mean any of the following:

(i) a sale of all or substantially all of the assets of the
Company;
(ii) the acquisition of more than eighty percent (80%) of the
Common Stock of the Company (with all classes or series thereof treated as a
single class) by any person or group of persons, except a Permitted Shareholder
(as hereinafter defined), acting in concert. A "Permitted Shareholder" means a
holder, as of the date of the Plan was adopted by the Company, of Common Stock;

(iii)a reorganization of the Company wherein the holders of
Common Stock of the Company receive stock in another company, a merger of the
Company with another company wherein there is an eighty percent (80%) or greater
change in the ownership of the Common Stock of the Company as a result of such
merger, or any other transaction in which the Company (other than as the parent
corporation) is consolidated for federal income tax purposes or is eligible to
be consolidated for federal income tax purposes with another corporation;

(iv) in the event that the Common Stock is traded on an
established securities market, a public announcement that any person has
acquired or has the right to acquire beneficial ownership of fifty-one percent
(51%) or more of the then-outstanding Common Stock and for this purpose the
terms "person" and "beneficial ownership" shall have the meanings provided in
Section 13(d) of the Securities and Exchange Act of 1934 or related rules
promulgated by the Securities and Exchange Commission, or the commencement of or
public announcement of an intention to make a tender offer or exchange offer for
fifty-one percent (51%) or more of the then outstanding Common Stock;

(v) a majority of the Board of Directors is not comprised of
Continuing Directors. A "Continuing Director" means a director recommended by
the Board of Directors of the Company for election as a director of the Company
by the stockholders; or

(vi) the Board of Directors of the Company, in its sole and
absolute discretion, determines that there has been a sufficient change in the
share ownership of the Company to constitute a change of effective ownership or
control of the Company.

(d) "Good Reason" shall mean, within the twelve (12) month period
immediately following a Change of Control, the occurrence of any one or more of
the following events:

(i) the assignment to Executive of any duties inconsistent in
any respect with Executive's position (including status, offices, title, and
reporting requirements), authority, duties or other responsibilities as in
effect immediately prior to the Change of Control or any other action of the
Company that results in a diminishment in such position, authority, duties or
responsibilities, other than an insubstantial and inadvertent action that is
remedied by the Company promptly after receipt of notice thereof given by
Executive;

(ii) a reduction by the Company in Executive's Base Salary as in
effect on the date hereof and as the same shall be increased from time to time
hereafter;

(iii)the Company's requiring Executive to be based at a location
in excess of fifty (50) miles from the location of Executive's principal office
immediately prior to the Change of Control;

(iv) the failure by the Company to (a) continue in effect any
material compensation or benefit plan, program, policy or practice in which
Executive was participating at the time of the Change of Control or (b) provide
Executive with compensation and benefits at least equal (in terms of benefit
levels and/or reward opportunities) to those provided for under each employee
benefit plan, program, policy and practice as in effect immediately prior to the
Change of Control (or as in effect following the Change of Control, if greater);

(v) the failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and agree to perform this
Agreement; and

(vi) any purported termination by the Company of Executive's
employment that is not effected pursuant to a Notice of Termination (as defined
below).

(e) "Date of Termination" shall mean the date specified in the Notice
of Termination (as hereinafter defined) (except in the case of Executive's
death, in which case Date of Termination shall be the date of death); provided,
however, that if Executive's employment is terminated by the Company other than
for Cause, the date specified in the Notice of Termination shall be at least
thirty (30) days from the date the Notice of Termination is given to Executive
and if Executive's employment is terminated by Executive for Good Reason, the
date specified in the Notice of Termination shall not be more than sixty (60)
days from the date the Notice of Termination is given to the Company.

(f) "Notice of Termination" shall mean a written notice either from
the Company to Executive, or Executive to the Company, that indicates Section 2
or the specific provision of Section 4 of this Agreement relied upon as the
reason for such termination or nonrenewal, the Date of Termination, and, in
reasonable detail, the facts and circumstances claimed to provide a basis for
termination or nonrenewal pursuant to Section 2 or this Section 4 of this
Agreement.

4.2 Termination Upon Death or Disability. This Agreement, and Executive's
employment hereunder, shall terminate automatically and without the necessity of
any action on the part of the Company upon the death of Executive. In addition,
if at any time during the Term Executive shall become physically or mentally
disabled, whether totally or partially, so that he is unable substantially to
perform his duties and services hereunder for (i) a period of six (6)
consecutive months, or (ii) for shorter periods aggregating six (6) months
during any twelve (12) month period, the Company may at any time after the last
day of the sixth consecutive month of disability or the day on which the shorter
periods of disability shall have equaled an aggregate of six (6) months, by
written notice to Executive (but before Executive has recovered from such
disability), terminate this Agreement and Executive's employment hereunder.

4.3 Company's and Executive's Right to Terminate--Prior to Change of
Control. Prior to a Change of Control, this Agreement and Executive's employment
hereunder may be terminated at any time by the Company, with or without Cause,
upon thirty (30) days prior written notice to Executive, and by Executive, at
any time, upon thirty (30) days prior written notice to the Company. Any
termination of Executive's employment by the Company without Cause prior to a
Change of Control that occurs at the request or insistence of any person (other
than the Company) relating to such Change of Control shall be deemed to have
occurred after the Change of Control for the purposes of this Agreement.

4.4 Company's and Executive's Right to Terminate--Following a Change of
Control. Following a Change of Control, this Agreement and Executive's
employment hereunder may be terminated at any time (i) by the Company, with or
without Cause, upon thirty (30) days prior written notice to Executive, and (ii)
by Executive for Good Reason upon thirty (30) days prior written notice to the
Company. Executive's right to terminate his employment pursuant to this Section
4.4 shall not be affected by incapacity due to physical or mental illness.
Executive's continued employment following a Change of Control shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.

4.5 Compensation Upon Termination.

(a) Termination Prior to Change of Control. In the event the Company
terminates (or elects not to renew) this Agreement without Cause, and such
termination (or nonrenewal) without Cause occurs prior to any Change of Control,
Executive shall be entitled to receive his Base Salary through the Date of
Termination, the welfare benefits described in Section 3.2 for the Benefit
Period, and not later than thirty (30) days after the Date of Termination, a
lump sum severance payment equal to the sum of Executive's then Current Base
Salary plus the arithmetic average of payments made to Executive pursuant to the
Company's Executive Bonus Compensation Program with respect to the three (3)
fiscal years immediately preceding the fiscal year in which the Date of
Termination occurs. In addition, to the extent not otherwise required under the
Company's Stock Option Plan or any award agreement with Executive, any unvested
stock option awards theretofore awarded to Executive which would otherwise vest
and become exercisable during the twelve (12) month period commencing on the
Date of Termination shall vest and become exercisable on the Date of
Termination. In the event this Agreement is terminated (or not renewed) for any
reason other than by the Company without Cause, and such termination (or
nonrenewal) occurs prior to a Change of Control, Executive shall not be entitled
to the continuation of any compensation, bonuses or benefits provided hereunder,
or any other payments following the Date of Termination, other than Base Salary
earned through such Date of Termination.

(b) Termination Following Change of Control. If this Agreement is
terminated (or not renewed) (i) by the Company without Cause, or (ii) by
Executive for Good Reason during the twelve (12) month period immediately
following a Change of Control, and such termination (or nonrenewal) occurs
following a Change of Control, Executive shall be entitled to receive his full
Base Salary through the Date of Termination, the welfare benefits described in
Section 3.2 for the Benefit Period and, not later than thirty (30) days after
the Date of Termination, a lump sum severance payment equal to the product of
two (2) times the sum of Executive's then current Base Salary plus the
arithmetic average of payments made to Executive pursuant to the Company's
Executive Bonus Compensation Program with respect to the three (3) fiscal years
immediately preceding the fiscal year in which the Date of Termination occurs.
In addition, to the extent not otherwise required under the Company's Stock
Option Plan or any award agreement with Executive, any unvested stock option
awards theretofore awarded to Executive shall vest and become immediately
exercisable in full. In the event this Agreement is terminated (or not renewed)
for any reason other than (i) by the Company without Cause, or (ii) by Executive
for Good Reason, and such termination (or nonrenewal) occurs following a Change
of Control, Executive shall not be entitled to the continuation of any
compensation, bonuses or benefits provided hereunder, or any other payments
following the Date of Termination, other than Base Salary earned through the
Date of Termination.

(c) At Executive's option to be exercised by written notice to the
Company, the severance benefits payable under this Section 4.5 shall be paid in
accordance with the Company's normal payroll procedures over the twelve (12) or
twenty-four (24) month period, as the case may be, corresponding to the amount
of the payments instead of in a lump sum.

(d) Anything to the contrary contained herein notwithstanding, as a
condition to Executive receiving severance benefits to be paid pursuant to this
Section 4.5, Executive shall execute and deliver to the Company a general
release in form and substance reasonably satisfactory to the Company releasing
the Company and its officers, directors, employees and agents from all
liabilities, claims and obligations of any nature whatsoever, excepting only the
Company's obligations under this Agreement, under any Stock Option Award
Agreements, and under any other employee benefit plans or programs in which
Executive participates under Section 3.2 hereof, subject to all terms and
conditions of such plans or programs and this Agreement.

(e) Anything to the contrary contained herein notwithstanding, in the
event that any payment or benefit received or to be received by Executive in
connection with a Change in Control of the Company or termination of Executive's
employment (whether payable pursuant to the terms of this Agreement or any other
plan, contract, agreement or arrangement with the Company, with any person whose
actions result in a Change in Control of the Company or with any person
constituting a member of an "affiliated group" as defined in Section 280G(d)(5)
of the Internal Revenue Code of 1986, as amended (the "Code"), with the Company
or with any person whose actions result in a Change in Control of the Company
(collectively, the "Total Payments")) would not be deductible (in whole or in
part) by the Company or such other person making such payment or providing such
benefit solely as a result of Section 280G of the Code, the amount payable to
Executive pursuant to this Section 4.5 shall be reduced until no portion of the
Total Payments is not deductible solely as a result of Section 280G of the Code
or such amount payable to Executive pursuant to Section 4.5 is reduced to zero.
For purposes of this limitation, (a) no portion of the Total Payments the
receipt or enjoyment of which Executive shall have effectively waived in writing
prior to the date of payment of the amount pursuant to Section 4.5 shall be
taken into account; (b) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel selected by the Company and
reasonably acceptable to Executive does not constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code; (c) the payment pursuant
to Section 4.5 shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in the immediately preceding clause (b))
in their entirety constitute reasonable compensation within the meaning of
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
in the immediately preceding clause (b); and (d) the value of any other non-cash
benefit or of any deferred cash payment included in the Total Payments shall be
determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.

5. Employment Covenants

5.1 Trade Secrets and Confidential Information. Executive agrees that he
shall, during the course of his employment and thereafter, hold inviolate and
keep secret all documents, materials, knowledge or other confidential business
or technical information of any nature whatsoever disclosed to or developed by
him or to which he had access as a result of his employment (hereinafter
referred to as "Confidential Information"). Such Confidential Information shall
include technical and business information, including, but not limited to,
inventions, research and development, engineering, products, designs,
manufacture, methods, systems, improvements, trade secrets, formulas, processes,
marketing, merchandising, selling, licensing, servicing, customer lists, records
or financial information, manuals or Company strategy concerning its business,
strategy or policies. Executive agrees that all Confidential Information shall
remain the sole and absolute property of the Company. During the course of his
employment, Executive shall not use, disclose, disseminate, publish, reproduce
or otherwise make available such Confidential Information to any person, firm,
corporation or other entity, except for the purpose of conducting business on
behalf of the Company. Following the Term, Executive shall not use, disclose,
disseminate, publish, reproduce or otherwise make available such Confidential
Information to any person, firm, corporation or other entity. Upon termination
of his employment with the Company, Executive will leave with or deliver to the
Company all records and any compositions, articles, devices, equipment and other
items which disclose or embody Confidential Information including all copies or
specimens thereof, whether prepared by him or by others. The foregoing
restrictions on disclosure of Confidential Information shall apply so long as
the information has not properly come into the public domain through no action
of Executive.

5.2 Transfer of Inventions. Executive, for himself and his heirs and
representatives, will promptly communicate and disclose to the Company, and upon
request will, without additional compensation, execute all papers reasonably
necessary to assign to the Company or the Company's nominees, free of
encumbrance or restrictions, all inventions, discoveries, improvements, whether
patentable or not, conceived or originated by Executive solely or jointly with
others, at the Company's expense or at the Company's facilities, or at the
Company's request, or in the course of his employment, or based on knowledge or
information obtained during the Term. All such assignments shall include the
patent rights in this and all foreign countries. Notwithstanding the foregoing,
this Section 5.2 shall not apply to any invention for which no equipment,
supplies, facilities or trade secret information of the Company was used and
which was developed entirely on Executive's own time and (a) that does not
relate (1) directly to the business of the Company or (2) to the Company's
actual or demonstrably anticipated research or development, or (b) that does not
result from any work performed by Executive for the Company.

5.3 Exclusivity of Employment. During the Term, Executive shall not
directly or indirectly engage in any activity competitive with or adverse to the
Company's business or welfare or render a material level of services of a
business, professional or commercial nature to any other person or firm, whether
for compensation or otherwise.

5.4 Covenant Not to Compete. Executive agrees to be bound and abide by
the following covenant not to compete:

Term and Scope. During his employment with the Company and for a
period of two (2) years after the Term, Executive will not render to any
Conflicting Organization (as hereinafter defined), services, directly or
indirectly, anywhere in the world in connection with any Conflicting Product,
except that Executive may accept employment with a large Conflicting
Organization whose business is diversified (and which has separate and distinct
divisions) if Executive first certifies to the Board of Directors in writing
that he has provided a copy of Section 5 of this Agreement to such prospective
employer, that such prospective employer is a separate and distinct division of
the Conflicting Organization and that Executive will not render services
directly or indirectly in respect of any Conflicting Product (as hereinafter
defined). Such two-year time period shall be tolled during any period that
Executive is engaged in activity in violation of this covenant.

Judicial Action. Executive and the Company agree that, if the
period of time or the scope of the restrictive covenant not to compete contained
in this Section 5.4 shall be adjudged unreasonable in any court proceeding, then
the period of time and/or scope shall be reduced accordingly, so that this
covenant may be enforced in such scope and during such period of time as is
judged by the court to be reasonable. In the event of a breach or violation of
this Section 5.4 by Executive, the parties agree than in addition to all other
remedies, the Company shall be entitled to equitable relief for specific
performance, and Executive hereby agrees and acknowledges that the Company has
no adequate remedy at law for the breach of the covenants contained herein.

Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:

"Conflicting Product" means any product, method or process, system or
service of any person or organization other than the Company, in existence
or under development at the time Executive's employment with the Company
terminates, that is the same as or similar to or competes with a product,
method or process, system or service of or provided by the Company or any
of its affiliates or about which Executive acquires Confidential
Information.

"Conflicting Organization" means any person or organization which is
engaged in or about to become engaged in, research on or development,
production, marketing, licensing, selling or servicing of a Conflicting
Product.

5.5 Disclosure to Prospective Employers. Executive will disclose to any
prospective employer, prior to accepting employment, the existence of Section 5
of this Agreement. The obligation imposed by this Section 5.5 shall terminate
two (2) years after termination of Executive's employment with the Company;
provided, however, the running of such two-year period shall be tolled to the
extent the covenant not to compete contained in Section 5.4(a) hereof is tolled.

6. Miscellaneous

6.1 Notices. Any notice required or permitted to be delivered hereunder
shall be in writing and shall be deemed to be delivered on the earlier of (i)
the date received, or (ii) the date of delivery, refusal or non-delivery
indicated on the return receipt, if deposited in a United States Postal Service
depository, postage prepaid, sent registered or certified mail, return receipt
requested, addressed to the party to receive the same at the address of such
party set forth below, or at such other address as may be designated in a notice
delivered or mailed as herein provided.

To Company: Curative Health Services, Inc.
14 Research Way
Box 9052
East Setauket, New York 11733-9052

Executive: John C. Prior
48 Avalon Circle
Smithtown, New York 11787

6.2 Headings. The headings of the articles and sections of this Agreement
are inserted for convenience only and shall not be deemed a part of or affect
the construction or interpretation of any provision hereof.

6.3 Modifications; Waiver. No modification of any provision of this
Agreement or waiver of any right or remedy herein provided shall be effective
for any purpose unless specifically set forth in a writing signed by the party
to be bound thereby. No waiver of any right or remedy in respect of any
occurrence or event on one occasion shall be deemed a waiver of such right or
remedy in respect of such occurrence or event on any other occasion.

6.4 Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other
agreements, oral or written, heretofore made with respect thereto, including,
without limitation, the Original Agreement.

6.5 Severability. Any provision of this Agreement prohibited by or
unlawful or unenforceable under any applicable law of any jurisdiction shall as
to such jurisdiction be ineffective without affecting any other provision
hereof. To the full extent, however, that the provisions of such applicable law
may be waived, they are hereby waived, to the end that this Employment Agreement
be deemed to be a valid and binding agreement enforceable in accordance with its
terms.

6.6 Controlling Law. This Agreement has been entered into by the parties
in the State of New York and shall be continued and enforced in accordance with
the laws of that State.

6.7 Assignments. The Company shall have the right to assign this Agreement
and to delegate all rights, duties and obligations hereunder to any entity that
controls the Company, that the Company controls or that may be the result of the
merger, consolidation, acquisition or reorganization of the Company and another
entity. Executive agrees that this Agreement is personal to him and his rights
and interest hereunder may not be assigned, nor may his obligations and duties
hereunder be delegated (except as to delegation in the normal course of
operation of the Company), and any attempted assignment or delegation in
violation of this provision shall be void.

6.8 Attorney Fees. In the event of litigation between the parties, to
enforce their respective rights under this Agreement, the prevailing party shall
be entitled to receive from the non-prevailing party reimbursement of the
prevailing party's reasonable attorney's fees and costs at all levels of trial
and appeal.

IN WITNESS WHEREOF, the parties have executed this Agreement as of
the Effective Date.

CURATIVE HEALTH SERVICES, INC.

By:
Its: President

Executive