CURATIVE HEALTH SERVICES, INC.
14 Research Way; Box 9052
East Setauket, NY 11733
April 30, 1997
To the Holder of the Common Stock of
CURATIVE HEALTH SERVICES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1997 Annual Meeting of Stockholders of Curative Health Services, Inc.
will be held on Thursday, May 29, 1997 at 10:00 a.m., New York time, at the
Company's corporate offices located at 14 Research Way, East Setauket, New York
11733, for the following purposes:
1. To nominate and elect seven (7) directors for terms
expiring at the 1998 Annual Meeting of Stockholders;
2. To ratify the appointment of Ernst & Young LLP as
independent auditors of the Company for fiscal 1997; and
3. To transact such other business as may properly be brought
before the Meeting.
It is important that your stock be represented at the Meeting regardless
of the number of shares that you hold. Whether or not you plan to attend the
Meeting in person, please complete, sign and date the enclosed proxy and return
it promptly in the accompanying postage-paid envelope.
By Order of the Board of Directors
JOHN C. PRIOR
Secretary
1
<PAGE>
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Curative Health Services, Inc. (the
"Company"), for use at the Annual Meeting of Stockholders (the "Meeting") to be
held Thursday, May 29, 1997, at 10:00 a.m., New York time, at the Company's
corporate offices located at 14 Research Way, East Setauket, New York 11733, and
any adjournment thereof, for the purposes set forth in the Notice of Meeting.
The shares represented by proxies in the form solicited will be voted in the
manner indicated by a stockholder. In the absence of instructions, the proxies
will be voted for the election of the nominees named in this Proxy Statement and
for the management proposals discussed herein and in accordance with the
judgment of the persons named in the proxy as to any other matters that properly
come before the meeting.
The mailing address of the executive office of the Company is 14 Research
Way, Box 9052, East Setauket, New York 11733-9052. This Proxy Statement and the
enclosed proxy are being furnished to stockholders of the Company on or about
April 30, 1997.
Returning your completed proxy will not prevent you from voting in person
at the Meeting should you be present and wish to do so. You may revoke your
proxy any time before the exercise thereof by written notice to the Secretary of
the Company, by the return of a new proxy to the Company, or by voting in person
at the Meeting. Shares voted as abstentions on any matter (or a "withhold vote
for" as to directors) will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum at the Meeting and as
unvoted, although present and entitled to vote, for purposes of determining the
approval of each matter as to which the shareholder has abstained. If a broker
submits a proxy which indicates that the broker does not have discretionary
authority as to certain shares to vote on one or more matters, those shares will
be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum at the Meeting, but will not be considered
as present and entitled to vote with respect to such matters.
Stockholders of record at the close of business on April 11, 1997 are
entitled to notice of and to vote at the Meeting. The issued and outstanding
capital stock of the Company entitled to vote as of April 11, 1997 consisted of
12,319,675 shares of common stock, $.01 par value per share (the "Common
Stock"). Each issued and outstanding share of Common Stock is entitled to one
vote.
A copy of the Company's Annual Report for the year ended December 31, 1996
is being furnished to each stockholder with this Proxy Statement.
PROPOSAL #1
ELECTION OF DIRECTORS
Section 3.02 of the Company's By-laws provides that the number of members
of the Board of Directors shall be seven or such other number as shall be
determined from time to time by resolution of the Board of Directors or the
stockholders. The Board of Directors has by resolution set the number of
directors at seven.
2
<PAGE>
The Company's By-laws provide that nominations of persons for election as
directors are to be made at a meeting of stockholders called for that purpose,
whether at the direction of the Board of Directors or by a stockholder as
provided in the By-laws. Seven directors are to be elected at the Meeting, each
to hold office until the next Annual Meeting of Stockholders and until his
successor is elected and qualified. The affirmative vote of a majority of the
shares of Common Stock present in person or by proxy and eligible to vote at the
Meeting is required to elect a nominee as director. The persons named in the
accompanying proxy will vote for the election of the nominees described herein,
unless authority to vote is withheld. The Board of Directors has been informed
that each of the nominees has consented to being named as a nominee and is
willing to serve as a director if elected; however, if any nominee should
decline or become unable to serve as a director for any reason, the proxy may be
voted for such other person as the proxies shall, in their discretion,
determine.
The following table lists the persons to be nominated for election as
directors and their offices in the Company, if any:
Name Position
John Vakoutis President and Chief Executive Officer;
Director
Gerardo Canet Director
Daniel A. Gregorie, MD Director
Lawrence Hoff Director
Timothy I. Maudlin Director
Gerard Moufflet Director
Lawrence J. Stuesser, Jr. Chairman of the Board and Director
Set forth below is certain information about each nominee for director of
the Company, including each such person's name, age and principal occupations
for the last five years.
John Vakoutis, 49, has served as President and Chief Executive Officer of
the Company since April 1995 and director of the Company since November 1994.
Mr. Vakoutis joined the Company in November 1994 as an Executive Vice President
and President, Wound Care business. Prior to joining the Company, Mr. Vakoutis
spent ten years at Critical Care America ("CCA"), a New York Stock Exchange
listed home infusion therapy company. In his role as Senior Vice President and
Chief Operating Officer of CCA, Mr. Vakoutis was responsible for re-engineering
product delivery methods and developing strategic partnerships with hospitals
and physician groups.
Gerardo Canet, 51, has been a director of the Company since July 1991.
Since February 1994, Mr. Canet has served as President and Chief Executive
Officer and a director of IntegraMed America, Inc., a publicly traded health
services concern. From November 1993 until his resignation from the Company in
January 1994, Mr. Canet served as Executive Vice President and President, Wound
Care business. Previously, he served as Senior Vice President and President,
Wound Care Center(R) Division of the Company since April 1989 and as Secretary
since December 1990. For 10 years prior to joining the Company, Mr. Canet served
as Executive Vice President, Chief Operating Officer and a director of Kimberly
Quality Care, Inc., and as President and Chief Executive Officer of Quality
Care, Inc., a predecessor of Kimberly Quality Care, Inc., a provider of home
health care services.
Daniel A. Gregorie, MD, 47, has been a director of the Company since
October 1996. Since June 1989, Dr. Gregorie has served as President and
Chief Executive Officer and a director of ChoiceCare Corporation, a publicly
traded HMO and managed care company. From 1988 to 1989 Dr. Gregorie was
President of Physician Management Services, Inc. of Hartford, Connecticut.
Dr. Gregorie served as President, Chief Executive Officer and Regional
Medical Director of Northeast Permanente Medical Group of Hartford,
Connecticut from 1982 to 1988 and Vice President and Associate Regional
Medical Director of Capital Area Permanente Medical Group of Washington, D.C.
from 1980 to 1982. Dr. Gregorie is also a director of Danniger Medical
Technology - Cross Medical, Inc.
3
<PAGE>
Lawrence Hoff, 68, has been a director of the Company since September
1990. Mr. Hoff was President and Chief Operating Officer of Upjohn Company
until his retirement in January 1990. Mr. Hoff who was employed at Upjohn
for 39 years, became its President in 1984, Vice President and General
Manager of the Domestic Pharmaceutical Operations in 1974 and served as a
director from 1973 until Upjohn's merger with Pharmacia in 1995. Mr. Hoff is
also a director of MedImmune, Inc., Pathogenesis, Inc. and Alpha Beta
Technologies, Inc., and previously served as a director of the American
Diabetes Association. Mr. Hoff currently serves in various capacities in
charitable organizations and was Chairman of the Pharmaceutical Manufacturers
Association in 1987.
Timothy I. Maudlin, 46, has been a director of the Company since 1984,
and served as Secretary of the Company from November 1984 to December 1990.
Mr. Maudlin served as President of the Company from October 1985 through
December 1986. Mr. Maudlin has been the Managing General Partner of Medical
Innovation Partners, a venture capital firm, since 1988 and since 1982 he has
been an officer of the affiliated management company of Medical Innovation
Partners. Mr. Maudlin is also a director of IVI Publishing, Inc.
Gerard Moufflet, 53, has been a director of the Company since November
1989. Since 1989, Mr. Moufflet has served as Senior Vice President of Advent
International Corporation, a venture capital firm. Prior to joining Advent, Mr.
Moufflet served as Corporate Vice President in charge of various Baxter
International European operations and spent 17 years in marketing, financial and
general management positions with that company's European businesses.
Lawrence J. Stuesser, Jr., 55, has been a director of the Company since
May 1993 and has served as Chairman of the Board since July 1995. Since June
1996 Mr. Stuesser has served as President and Chief Executive Officer of
Computer People, Inc. From August 1993 to May 1996 he was a private investor and
independent business consultant. Mr. Stuesser served as Chairman and Chief
Executive Officer of Kimberly Quality Care, Inc., a provider of home health care
services, from January 1991 to July 1993. Prior to that he was the Chief
Executive Officer of that company since its formation in September 1987. Mr.
Stuesser is also a director of IntegraMed America, Inc., and American Retirement
Corporation.
Committees of the Board of Directors
The Board of Directors has established an Audit Committee, a Compensation
Committee, a Nominating Committee, a Regulatory and Legal Committee and a Stock
Option Committee. The Audit Committee consists solely of outside directors, and
its members during the fiscal year ended December 31, 1996 ("Fiscal 1996") were
Messrs. Canet (as Chairman) and Moufflet. The Audit Committee generally reviews
the scope of the audit with the independent public accountants and meets with
them for the purpose of reviewing the results of the audit subsequent to its
completion. The members of the Compensation Committee during Fiscal 1996 were
Messrs. Stuesser (as Chairman), Maudlin and Moufflet. The Compensation Committee
reviews and approves the compensation, including bonuses and benefits (other
than the grant of stock options), of the executive officers of the Company. The
members of the Regulatory and Legal Committee during Fiscal 1996 were Messrs.
Hoff (as Chairman) and Canet. The Regulatory and Legal Committee was formed to
monitor and review the status of the pending securities class action lawsuit and
make recommendations to the Board regarding the lawsuit. The members of the
Nominating Committee are Messrs. Stuesser (as Chairman), Maudlin and Vakoutis.
4
<PAGE>
The Nominating Committee will consider nominees for director recommended by
stockholders. In order to have nominees considered, stockholders must provide
the Nominating Committee with written notice of such proposal not later than 60
days following the end of the fiscal year to which the next annual meeting of
stockholders relates, together with such nominee's name, age, address, principal
occupations for the preceding 10 years, and a brief statement in support of such
nominee. The Nominating Committee is under no obligation to accept a nominee
proposed by a stockholder pursuant to the foregoing procedure. All nominations
ultimately made by the Nominating Committee are in such committee's sole
discretion. In the alternative, a stockholder may nominate persons for election
as directors by following the procedures set forth in the Company's By-laws. The
members of the Stock Option Committee during Fiscal 1996 were Messrs. Moufflet
(as Chairman) and Hoff. The Stock Option Committee, which is composed of
directors who are "disinterested persons" (as defined by Rule 16b-3 under the
Securities Exchange Act of 1934, as amended) was established to make all
determinations regarding the administration of the Company's Stock Option Plan
including determining persons to whom options shall be awarded, the number and
purchase price of the shares covered by each option and all other terms and
conditions of the Option award.
During Fiscal 1996 the Board of Directors met six times; the Stock Option
Committee met three times; the Audit Committee and the Compensation Committee
met two times; the Nominating Committee met once; and the Regulatory and Legal
Committee did not have a meeting. Each director attended at least 75% of all
meetings of the Board and applicable committees held during Fiscal 1996.
Compensation of Directors
In 1996 each non-employee director was paid an annual retainer of $12,000,
$1,000 for each Board meeting attended, $350 for each Board meeting participated
in by means of conference telephone, and reimbursement for expenses.
Additionally, non-employee directors received an annual retainer of $1,500 for
serving on each of the Audit Committee, Compensation Committee and the
Regulatory and Legal Committee, and $750 for serving on the Stock Option
Committee. Non-employee directors also received a fee of $500 for each Committee
meeting, except for meetings held on the same date as a Board meeting. In
addition, in consideration for his service as Chairman of the Board, Mr.
Stuesser was paid $55,000 in lieu of the annual retainer.
During 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
annual retainer and meeting fees in cash and, in lieu thereof, receive shares of
Common Stock having a market value at the date of issuance equal to the cash
payment.
During 1995, the Company established a Non-Employee Director Stock Option
Plan (the "Plan"). The purpose of the Plan is to promote the success of the
Company by attracting and retaining non-employee directors by supplementing
their cash compensation and providing a means for such directors to increase
their holdings of common stock. The Company believes it is important that the
interest of the directors be aligned with those of its shareholders and that the
Plan strengthens that link. The Plan provides for an automatic initial of
options to purchase 10,000 shares of common stock, at market value on date of
grant, to a non-employee director upon his or her initial election as a member
of the Board. Further, the Plan provides for the automatic grant of an option to
purchase 5,000 shares of common stock, at market value on date of grant, each
time a non-employee director is re-elected as a member of the Board. Upon his
initial election to the Board in October 1996, Dr. Gregorie was granted options
to purchase 10,000 shares of stock at $21.00 per share. Upon their re-election
to the Board in May 1996, the remaining five non-employee members of the Board
of Directors were each granted options to purchase 5,000 shares of common stock
at $24.875 per share.
5
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information about each executive officer of the
Company who is not a director of the Company, including name, age and principal
occupations during the past five years. All of the executive officers of the
Company are elected by the Board of Directors to serve until the next Annual
Meeting of the Board of Directors or until their successors are elected and
qualified.
Carol Gleber, 45, has served as Chief Operating Officer since August 1996
and Senior Vice President, Operations since February 1994. From 1989 to 1994 she
served as Regional Vice President for the Southwest Region. Ms. Gleber served as
a consultant to the Company from 1987 to 1989 prior to joining the Company. From
1983 to 1987, Ms. Gleber served as Vice President of VHAE Consulting Services
and was responsible for the National Strategy Practice which provided services
to VHA hospitals and physicians in diversification activities, including but not
limited to HMO/PPO's, Ambulatory and Outpatient Services.
Howard Jones, Ph.D., 60, has served as Senior Vice President of Technical
Services since August 1995. From November 1993 to August 1995 Dr. Jones served
as Executive Vice President and President, Research and Development. Dr. Jones
served as a director of the Company from November 1993 to May 1996. Prior to
joining the Company, Dr. Jones served as Senior Vice President of Drug
Development at Cypros Pharmaceutical Corporation since May 1991, and prior to
that as Vice President at Amylin Pharmaceuticals, Inc., since May 1989. From
1984 to 1989, Dr. Jones served as a Senior Director of research and
administration for Bristol-Myers Squibb Products Division.
John C. Prior, 43, has served as Senior Vice President, Finance and Chief
Financial Officer since August 1995. From February 1991 to August 1995 Mr. Prior
served as Vice President of Finance and has been Secretary since October 1993.
From July 1987 to February 1991 he served as Controller of the Company. From
1979 to 1987, Mr. Prior held a variety of positions in the Health Care
Auditing/Consulting Group of KPMG Peat Marwick and was promoted to Senior
Manager in 1984.
Gary Jensen, 55, has served as Vice President Central Region, Wound Care
Business Unit since February 1995, and prior to that as Regional Vice President,
Southeast Region since 1987. From 1985 to 1987, Mr. Jensen served as President,
Jensen & Associates, a health management company. In that capacity, Mr. Jensen
provided management consultation regarding behavioral medicines, as well as
discussions regarding mergers, acquisitions, facility development and
operations.
6
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and each of the other executive officers of the Company
whose salary and bonus earned in Fiscal 1996 exceeded $100,000 (the "named
executive officers").
================================================================================
Long Term
Annual Compensation Compensation
================================================================================
Other Securities All
Name and Principal Annual Underlying Other
Position Year Salary Bonus Comp. Options Comp.
($) ($)(1) ($)(2) (#) ($)(5)
================================================================================
================================================================================
John Vakoutis (3) 1996 235,000 284,860 - 55,000 3,525
President & Chief 1995 198,846 143,500 - 50,000 -
Executive Officer 1994 21,346 - - 175,000 -
Howard Jones 1996 200,700 173,498 - 12,500 2,858
Sr. Vice President 1995 200,700 76,581 - 17,500 -
Technical Services 1994 195,200 40,000 - - -
Carol Gleber 1996 163,926 157,770 - 17,000 2,308
Sr. Vice President 1995 139,080 64,500 - 17,500 -
and Chief Operating 1994 125,753 56,000 - 15,000 -
Officer
John C. Prior 1996 146,000 171,770 - 17,500 2,100
Sr. Vice President 1995 129,500 61,750 - 17,500 -
of Finance and 1994 122,000 20,300 - 10,000 -
Chief Financial Officer
Gary Jensen 1996 123,663 69,615 - 6,250 1,646
Vice President 1995 111,950 88,340 - 10,000 -
Central Region
(1) Represents amounts awarded under the Company's Incentive Compensation Plan
for the fiscal year indicated. All such awards are actually paid in the
fiscal year immediately following the year for which the award is made.
(2) Amounts paid did not exceed the lesser of $50,000 or ten percent (10%) of
salary and bonus for any of the named individuals.
7
<PAGE>
(3) Mr. Vakoutis joined the Company as an executive officer in November
1994.
(4) Mr. Jensen became an executive officer of the Company in February 1995.
(5) Represents company matching contributions to 401k Plan.
Stock Option Tables
The following tables summarize stock option grants and exercises during
Fiscal 1996 to or by the named executive officers, and the value of the options
held by such persons at the end of Fiscal 1996.
Option Grants in Fiscal 1996
================================================================================
Potential
Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
================================================================================
% of
Number of Total
Securities Options
Underlying Granted to
Date Options Employees Exercise
of Granted in Fiscal Price Expiration
Name Grant (#) Year ($/Sh) Date 5% ($) 10% ($)
(1) (2)
================================================================================
John Vakoutis 4/01/96 55,000 15.8% $18.125 4/01/2006 $628,031 $1,585,031
Howard Jones 5/30/96 12,500 3.6% 24.875 5/30/2006 195,891 494,391
Carol Gleber 5/30/96 17,000 4.9% 24.875 5/30/2006 266,411 672,371
John C. Prior 4/01/96 17,500 5.0% 18.125 4/01/2006 199,828 504,328
Gary Jensen 5/30/96 6,250 1.8% 24.875 5/30/2006 97,945 247,195
(1) The options are exercisable beginning one year from the date of grant
(exercisability date) with respect to one-third of the shares and
thereafter become exercisable with respect to the balance of the shares in
equal installments on the last day of each of the eight successive three
month periods following the exercisability date.
8
<PAGE>
OPTION EXERCISES IN FISCAL 1996
AND
VALUE AT END OF FISCAL 1996
================================================================================
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the Money Options
Shares Fiscal Year End (#) at Fiscal Year End ($)
Acquired on Value
Exercise Realized
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable (1)
===============================================================================================
<S> <C> <C> <C> <C> <C> <C>
John Vakoutis 35,000 $ 493,225 47,500 / 197,500 $ 1,061,743 / $3,711,193
Howard Jones 40,000 615,000 47,292 / 82,708 952,806 / 1,453,822
Carol Gleber - - 9,575 / 42,325 210,797 / 606,273
John C. Prior 17,500 373,603 27,875 / 42,625 603,876 / 672,373
Gary Jensen 6,700 123,575 0 / 21,750 0 / 360,333
===============================================================================================
</TABLE>
(1) Calculation is based on the difference between the closing price of the
Common Stock on December 31, 1996 and the exercise price of the options for
each optionee.
Employment and Other Agreements
On October 26, 1994 the Company entered into an employment agreement with
Mr. Vakoutis which was amended effective April 17, 1995 when Mr. Vakoutis was
appointed President and Chief Executive Officer. Under the amended employment
agreement, Mr. Vakoutis receives an annual salary of $205,000 and is entitled to
participate in any incentive compensation programs in effect from time to time
for executives of the Company. The salary under the employment agreement is
subject to annual review and increase by the Compensation Committee. The
employment agreement had an initial term of one year and renews automatically
for additional one year periods unless notice of termination is given at least
three months prior to renewal. The Company may terminate the employment
agreement at any time with or without cause upon 30 days' prior written notice
to Mr. Vakoutis, and Mr. Vakoutis may terminate the employment agreement at any
time upon 30 days' prior written notice to the Company. In the event the Company
terminates the employment agreement without cause, Mr. Vakoutis will be entitled
to receive severance payments equal to Mr. Vakoutis' monthly base salary at
termination for a period of 24 months provided that payments during the second
half of the 24 month period are subject to offset for any income Mr. Vakoutis
receives related to other employment. The employment agreement grants to Mr.
Vakoutis certain stock options and payment of moving and temporary living
expenses. The employment agreement also restricts Mr. Vakoutis from competing
with the Company under certain circumstances during his employment with the
Company and for a period of two years thereafter.
9
<PAGE>
On October 21, 1993 the Company entered into an employment agreement with
Dr. Jones pursuant to which Dr. Jones agreed to serve as Executive Vice
President of Research and Development of the Company. Under the employment
agreement, Dr. Jones initially received an annual salary of $185,000, and is
entitled to participate in any incentive compensation program in effect from
time to time for executives of the Company with a minimum bonus of $40,000 in
1994. The salary under the employment agreement is subject to annual review and
increase by the Compensation Committee. The employment agreement had an initial
term through December 1, 1994 and has since been automatically renewed for a
subsequent one year term. The Company may terminate the employment agreement at
any time with or without cause upon 30 days' prior written notice to Dr. Jones.
Dr. Jones may terminate the employment agreement at any time upon 90 days' prior
written notice to the Company. In the event the Company terminates the
employment agreement without cause, Dr. Jones will be entitled to receive
severance payments equal to Dr. Jones' monthly base salary at termination for a
period of nine months after termination of the employment agreement. The
employment agreement grants to Dr. Jones certain stock options and payment of
moving and temporary living expenses. The employment agreement also restricts
Dr. Jones from competing with the Company under certain circumstances during his
employment with the Company and for a period of two years thereafter.
On July 6, 1987, the Company entered into an employment agreement with Mr.
Prior pursuant to which Mr. Prior agreed to serve as Controller of the Company.
The employment agreement had an initial term through June 30, 1988 and has since
been automatically renewed for subsequent one year terms. Mr. Prior was promoted
to Vice President, Finance and Chief Financial Officer in February 1991. Under
the employment agreement, Mr. Prior initially received an annual base salary of
$75,000 and is entitled to participate in any incentive compensation program in
effect from time to time for executives of the Company. The salary under the
employment agreement is subject to annual review and increase by the
Compensation Committee. Also under the employment agreement, Mr. Prior received
an option to purchase shares of the Company's Common Stock. The Company has the
right to terminate the employment agreement at any time with cause, or upon 90
days' prior written notice to Mr. Prior without cause, and Mr. Prior may
terminate the employment agreement at any time upon 90 days' prior written
notice to the Company. The employment agreement also restricts Mr. Prior from
competing with the Company under certain circumstances during his employment
with the Company and for a period of one year thereafter.
On August 1, 1989, the Company entered into an employment agreement with
Ms. Gleber, pursuant to which Ms. Gleber agreed to serve as Regional Vice
President of the Company. Ms. Gleber was promoted to Senior Vice President,
Wound Care Business in February 1994. The employment agreement may be terminated
at any time by either the Company or Ms. Gleber on 90 days' prior written
notice. Under the employment agreement, Ms. Gleber initially received an annual
salary of $68,000 and is entitled to participate in any incentive compensation
program in effect from time to time for executives of the Company. The salary
under the employment agreement is subject to annual review and increase by the
Compensation Committee. Also under the employment agreement, Ms. Gleber received
an option to purchase shares of the Company's Common Stock. The employment
agreement also restricts Ms. Gleber from competing with the Company under
certain circumstances during her employment with the Company and for a period of
two years thereafter.
On June 17, 1987, the Company entered into an employment agreement with
Mr. Jensen, pursuant to which Mr. Jensen agreed to serve as Regional Vice
President of the Company. The employment agreement may be terminated at any time
by the Company upon 120 days' prior written notice or by Mr. Jensen on 90 days'
prior written notice. Under the employment agreement, Mr. Jensen initially
received an annual salary of $65,000 and is entitled to participate in any
incentive compensation program in effect from time to time for executives of the
Company. The salary under the employment agreement is subject to annual review
and increase by the Compensation Committee. Also under the employment agreement,
Mr. Jensen received an option to purchase shares of the Company's Common Stock.
The employment agreement also restricts Mr. Jensen from competing with the
Company under certain circumstances during his employment with the Company and
for a period of one year thereafter.
10
<PAGE>
In August 1995, the outstanding options held by the executive officers of
the Company were amended to provide for the acceleration of vesting of the
options upon a change in control of the Company. For the purpose of these
amendments, the term "change in control" includes a sale of substantially all of
the Company's assets; the acquisition by a person or group of beneficial
ownership of 51% or more of the outstanding Common Stock or the commencement of
a tender offer for such an acquisition; a merger in which the shareholders of
the Company receive shares of another company; a reorganization, merger or other
transaction resulting in the consolidation of the Company with another company
for federal income tax purposes; and any other transaction in which there is a
sufficient change in the share ownership of the Company to change the effective
control of the Company.
PERFORMANCE GRAPH
The graph below compares the cumulative total return on the Company's
Common Stock during the five year period ended December 31, 1996 with the
cumulative total return of the Nasdaq Composite Index and the Nasdaq Health
Services Index (assuming the investment of $100 in each vehicle on January 1,
1992 and reinvestment of all dividends).
COMPARISON OF CUMULATIVE TOTAL RETURN
NASDAQ US STOCKS, CURATIVE COMMON & NASDAQ HEALTH SERVICES INDICES
================================================================================
<TABLE>
<CAPTION>
Curative Health NASDAQ NASDAQ
Services, Inc. U.S. Stocks Health Services
<S> <C> <C> <C>
1991 $100.000 $100.000 $100.000
1992 40.141 116.378 103.596
1993 35.915 133.595 119.525
1994 19.014 130.586 128.240
1995 80.282 184.675 162.893
1996 155.986 227.158 163.044
</TABLE>
11
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for establishing the compensation of the Company's executive
officers, including base salary, bonus incentive compensation and other
benefits, if any. The Committee is composed of three independent, non-employee
directors. The Stock Option Committee grants to executive officers long-term
compensation incentives in the form of stock options pursuant to the Curative
Health Services, Inc. 1991 Stock Option Plan, as amended. The key objectives of
the Committee and the Stock Option Committee in administering executive
compensation are the following:
Aligning the economic interests of executive officers with both
the short-and long-term interests of stockholders.
Motivating executive officers to undertake strategic business
initiatives and rewarding them accordingly.
Attracting and retaining key executive officers who will
contribute to the long-term success of the Company.
At present, there are three main components of compensation for executive
officers: base salary, short-term incentive compensation in the form of annual
bonuses and long-term incentive compensation in the form of stock options.
Base Salary
The Committee sets base salaries for executive officers (including the
President and Chief Executive Officer) with reference to salaries for comparable
officers in peer group companies in the health care industry, as determined by
salary data obtained by the Company. The specific responsibilities of an
executive officer, his or her experience in the industry, and other competitive
factors also influence the Committee when making individual salary
determinations. The Committee reviews each executive officer's base salary
annually and makes appropriate adjustments depending upon industry trends in
executive salaries, Company financial and operating performance, and such
individual's performance and contribution to the Company's growth and success.
Based upon these factors, the Committee increased the base salaries of the
Company's executive officers (other than the President and Chief Executive
Officer) for the year ended December 31, 1996 by an average of approximately ten
percent over their base salaries for the prior year.
The base salary for Mr. John Vakoutis who served as President and Chief
Executive Officer, was increased by 15 percent for the year ended December 31,
1996 to $235,000. In determining this salary, the Committee assessed the factors
and criteria enumerated above, as well as Mr. Vakoutis' role in connection with
a number of the Company's accomplishments during the prior year including,
without limitation, the Company's revenue growth of 29 percent in fiscal 1995,
the Company's first fiscal year of profitability in 1995 and a record year in
the number of new wound care programs implemented. Based upon this assessment,
the Committee believed that the increase was an appropriate reward for Mr.
Vakoutis' performance.
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Bonus Incentive Compensation
The executive officers of the Company (including the President and Chief
Executive Officer) participate in the Company's Annual Incentive Compensation
Program, pursuant to which each executive officer is eligible to earn a cash
bonus for each fiscal year of the Company equal to a predetermined percentage of
such officer's base salary, as a function of the Company's achievement of
operating earnings goals and certain other milestones. Furthermore, a
predetermined weighing of the earnings goals and certain milestones is set for
each officer. Additionally, the executive officers (except the Vice President of
Wound Care Business Unit) are eligible to participate in an earnings
over-achievement incentive.
At the beginning of each fiscal year of the Company, the Committee
establishes earnings goals for the Company for such year, and a matrix
containing pre-determined percentages of the executive officers' base salary
that will be paid in the form of a cash bonus if the Company achieves targeted
earnings goals. The percentages increase as the earnings goals exceed
established levels. In addition, at the beginning of each fiscal year the
Committee establishes certain operational milestones for the Company related to
revenue growth, the achievement of healing outcomes of patients treated at the
wound care programs, the opening of specified numbers of Wound Care programs,
other meaningful corporate goals which the Company might expect to accomplish in
such fiscal year and an individual milestone for each officer. The Committee
also establishes a specified percentage of the executive officers' base salaries
that will be paid in relation to the achievement of each milestone. The earnings
goals and the special milestones established by the Committee will permit the
executive officers, except the President and Chief Executive Officer, to earn up
to 60 percent of their base salary in the form of a cash bonus. Additionally,
the executive officers, except the Vice President of the Central Region,
participate in an earnings over-achievement incentive pursuant to which each
executive office is entitled to earn a cash bonus equal to a predetermined
percent of operating earnings in excess established operating earnings goals.
The executive officers' actual bonuses are awarded and paid in the following
fiscal year once the Company's financial results and milestone achievements for
the prior fiscal year have been finally determined.
For fiscal 1996, the Company exceeded operating earnings expectations and
as a result, the officers of the Company earned the maximum payout potential
operating earnings portion of the program. The executive officers, except the
President and Chief Executive Officer, on average were awarded 58 percent of
their base salary in the form of cash bonus compensation related to the
operating earnings and milestone achievements for fiscal 1996. Approximately 31
percent related to the achievement of operating earnings goals and 27 percent
related to the accomplishment of special milestones. Additionally, each of the
executive officers, except the President and Chief Executive Officer and the
Vice President of the Central Region, earned $67,700 related to earnings
over-achievement incentive. Mr. Gary Jensen, Vice President of Wound Care
business, participated in a cash bonus program related to the achievement of
sales and earnings goals, program development targets and achievements of
healing outcomes of patients treated at the wound care programs for the business
unit in which Mr. Jensen was responsible. In recognition of his efforts and
contributions to the Company's successful public offering in August 1996, the
Committee awarded Mr. John Prior, Chief Financial Officer, a discretionary cash
bonus of $20,000.
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The revenue and earnings goals and special milestones described above
permit Mr. Vakoutis, President and Chief Executive Officer, to earn up to 70
percent of his base salary in the form of cash bonus. Additionally, Mr.
Vakoutis' participation in the operating earnings over-achievement incentive
entitles him to earn an amount equal to four percent of operating earnings in
excess of established operating earnings goals. Mr. Vakoutis earned the maximum
payout of 70 percent of his base salary. Approximately 42 percent related to the
achievement of operating earnings goals and 28 percent related to the successful
accomplishment of special milestone enumerated above. Mr. Vakoutis earned an
additional $90,360 related to operating earnings over-achievement incentive. In
recognition of his efforts and contributions to the Company's successful public
offering in August 1996, the Committee awarded Mr. Vakoutis a discretionary cash
bonus of $30,000.
Stock Options
From time to time, the Stock Option Committee grants to executive officers
long-term compensation incentives in the form of stock options pursuant to the
Curative Health Services, Inc. 1991 Stock Option Plan, as amended. Such options
are granted with a view toward attracting and retaining executive officers and
other employees by giving such persons a stake in the long-term success of the
Company. In fiscal 1996, the Company granted stock options to most executive
officers and management level employees. All of the executive officers,
including the President and Chief Executive Officer, were awarded individual
stock option grants. The size of each option grant was determined by the Stock
Option Committee based in part on published survey data and on a subjective
assessment of observed market practices for similar positions in similar
industries and overall individual performance.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended, sets a
$1.0 million limit on the amount of deductible compensation that can be paid in
any year to an executive officer of the Company. "Qualified performance-based
compensation" (as defined under Section 162(m)) is excluded from the calculation
of this $1.0 million limit. Although the Committee does not believe that the
annual compensation for 162(m) purposes for any of the Company's executive
officers will exceed $1.0 million in fiscal 1997, the Company has taken the
necessary steps to allow stock options granted under the 1991 Stock Option Plan
to qualify as "qualified performance-based compensation" and so be excluded from
this calculation.
Lawrence Hoff, Member, Stock Option Committee
Timothy I. Maudlin, Member, Compensation Committee
Gerard Moufflet, Member, Compensation Committee and Stock Option Committee
Lawrence J. Stuesser, Member, Compensation Committee
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 31, 1997 with respect to (1) each person who owned of
record or was known by the Company to own beneficially more than 5 percent of
the issued and outstanding shares of Common Stock, (2) each director, (3) each
named executive officer, and (4) all directors and executive officers as a
group.
Percentage of
Amount and Nature Common Stock
Name and Address of Beneficial Ownership(1) Outstanding
- --------------------------------------------------------------------------------
RCM Capital Management L.L.C........... 993,690 (2) 8.1%
Four Embarcadaro Center; Suite 2900
San Francisco, CA 94111
American Century Companies, Inc........ 750,000 (3) 6.1%
4500 Main Street
Kansas City, MO 64141-9210
Timothy I. Maudlin..................... 29,822 (4) *
Gerardo Canet.......................... 2,418 (5) *
Daniel A. Gregorie, MD................. - *
Howard Jones........................... 40,607 (6) *
Lawrence Hoff.......................... 12,500 (7) *
Lawrence J. Stuesser, Jr............... 46,000 (8) *
John Vakoutis.......................... 12,500 (9) *
Gerard Moufflet........................ 2,500 (9) *
John C. Prior.......................... 34,156 (10) *
Carol Gleber........................... 10,575 (9) *
Gary Jensen............................ - *
All directors and executive officers as
a group (11 persons)............... 191,078 (11) 1.5%
* Ownership does not exceed 1%
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common stock.
(2) Information based on two Schedules 13G dated February 3, 1997, filed with
the Securities and Exchange Commission by Dresdner Bank AG ("Dresdner") and
by RCM Capital Management L.L.C. ("RCM"), a wholly-owned subsidiary of
Dresdner, and certain of its affiliates. According to such Schedules, RCM
and its affiliates exercise sole voting power over 846,690 of such shares,
sole dispositive power over 905,690 of such shares and shared dispositive
power over 88,000 of such shares.
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(3) Information based on Schedule 13G dated February 5, 1997, filed with the
Securities and Exchange Commission by American Century Companies, Inc. and
certain of its affiliates.
(4) Includes 20,500 shares subject to currently exercisable options and 7,968
shares owned by Mr. Maudlin's spouse and children.
(5) Includes 418 shares subject to currently exercisable options.
(6) Includes 38,750 shares subject to currently exercisable options.
(7) Includes 2,500 shares subject to currently exercisable options.
(8) Includes 36,000 shares subject to current exercisable options.
(9) Represents shares subject to currently exercisable options.
(10) Includes 29,875 shares subject to currently exercisable options.
(11) Includes 153,618 shares subject to currently exercisable options by all
directors and executive officers as a group.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and all persons who beneficially own
more than ten percent of the outstanding shares of the Company's Common Stock to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of such Common Stock. Directors, executive
officers and ten percent or more beneficial owners are also required to furnish
the Company with copies of all Section 16(a) reports filed. Based solely on a
review of the copies of such forms and certain representations, the Company
believes that all Section 16(a) filing requirements applicable to its executive
officers, directors and ten percent shareholders were complied with, except that
the initial report of beneficial ownership on Form 3 for Dr. Daniel Gregorie
related to the options granted to purchase 10,000 shares of stock upon his
initial election to the Board was inadvertently filed late.
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PROPOSAL #2
RATIFICATION OF AUDITORS
The Board of Directors, based upon the recommendation of its Audit
Committee, has appointed Ernst & Young LLP as auditors for the Company for the
fiscal year ending December 31, 1997 and recommends that the stockholders ratify
that appointment. Ernst & Young has acted as independent auditors for the
Company since September 1986. Representatives of that firm are expected to be
present at the Meeting, will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions from
stockholders.
OTHER ACTION
The Board of Directors of the Company is not aware at this time of any
other matters which will be presented for action at the Meeting. However, if any
matters other than those referred to above properly come before the meeting, it
is the intention of the persons named in the enclosed proxy to vote such proxy
in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of the Stockholders of the Company must be received by the Company for
inclusion in the Proxy Statement and form of Proxy relating to that meeting no
later than December 31, 1997.
NO INCORPORATION BY REFERENCE
The information under the headings "Performance Graph" and "Compensation
Committee Report on Executive Compensation" shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates the information by reference, and shall not
otherwise be deemed filed under such acts.
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SOLICITATION STATEMENT
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made primarily by mail, but regular employees of the
Company may solicit proxies personally, by telephone or telegram. Brokers,
nominees, custodians and fiduciaries have been requested to forward solicitation
materials to obtain voting instructions from beneficial owners of stock
registered in their names, and the Company will reimburse such parties for their
reasonable charges and expenses in connection therewith.
East Setauket, New York By Order of the Board of Directors
April 30, 1997
John C. Prior
Secretary
