CURATIVE HEALTH SERVICES, INC.
Corporate Headquarters
150 Motor Parkway
Hauppauge, NY 11788
April 27, 1999
To Holders of the Common Stock of CURATIVE HEALTH SERVICES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1999 Annual Meeting of Stockholders of Curative Health Services,
Inc. will be held on Wednesday, May 26, 1999 at 10:00 a.m., New York time, at
the Company's corporate offices located at 150 Motor Parkway, Hauppauge, New
York 11788, for the following purposes:
1. To nominate and elect seven (7) directors for terms expiring
at the 2000 Annual Meeting of Stockholders;
2. 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
/s/ John C. Prior
------------------
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 Wednesday, May 26, 1999, at 10:00 a.m., New York time, at the Company's
corporate offices located at 150 Motor Parkway, Hauppauge, New York 11788, 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 150 Motor
Parkway, Hauppauge, New York 11788. This Proxy Statement and the enclosed proxy
are being furnished to stockholders of the Company on or about April 27, 1999.
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 8, 1999 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 8, 1999 consisted of
10,088,510 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,
1998 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 six 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.
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.
2
<PAGE>
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, 51, 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, 53, 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, 49, has been a director of the Company since
October 1996. Since October 1997 he has been an independent health care
consultant. From June 1989 to October 1997, Dr. Gregorie served as President
and Chief Executive Officer of ChoiceCare Corporation, a public company in the
HMO and managed care business. In 1996, Dr. Gregorie became a director of
ChoiceCare and in 1997 served as Chairman until October 1997. 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.
3
<PAGE>
Lawrence Hoff, 70, 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. Mr. Hoff currently serves in various capacities
in charitable organizations and was Chairman of the Pharmaceutical Manufacturers
Association in 1987.
Timothy I. Maudlin, 48, 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.
Gerard Moufflet, 55, 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. Mr.
Moufflet is also a director of Transcend Therapeutics, Inc.
Lawrence J. Stuesser, Jr., 57, 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., American Retirement
Corporation and Delphi Group plc.
Committees of the Board of Directors
The Board of Directors has established an Audit Committee, a
Compensation and Stock Option Committee, an Executive Committee, a Nominating
Committee, and a Regulatory Committee. The Audit Committee consists solely of
outside directors, and its members during the fiscal year ended December 31,
1998 ("Fiscal 1998") were Messrs. Canet (as Chairman) and Moufflet. The Audit
Committee generally reviews the scope of the audit with the independent public
auditors and meets with them for the purpose of reviewing the results of the
audit subsequent to its completion. The members of the Compensation and Stock
Option Committee during Fiscal 1998 were Dr. Gregorie (as Chairman), Messrs.
Hoff and Moufflet. All the members of the Compensation and Stock Option
Committee, are "non-employee directors" (as defined by Rule 16b-3 under the
Securities Exchange Act of 1934, as amended). The Compensation and Stock Option
Committee reviews and approves the compensation, including bonuses and benefits,
of the executive officers of the Company and makes 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. The members of the Executive Committee during 1998 were Messrs. Stuesser
(Chairman), Maudlin and Vakoutis. The Executive Committee was formed to review
and advise the Board on strategic initiatives including, without limitation,
equity investments, mergers, acquisitions and other business ventures. The
members of the Regulatory Committee during Fiscal 1998 were Mr. Hoff (as
Chairman) and Dr. Gregorie. The Regulatory Committee was formed to review and
advise the Board on regulatory and clinical issues. The members of the
Nominating Committee are Messrs. Stuesser (as Chairman) and Vakoutis. 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.
4
<PAGE>
During Fiscal 1998 the Board of Directors met six times; the
Compensation and Stock Option Committee met three times; the Audit Committee met
two times; and the Nominating Committee, Regulatory Committee and Executive
Committee each met once. Each director attended at least 75% of all meetings of
the Board and applicable committees held during Fiscal 1998.
Compensation of Directors
In 1998 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 Committee except the chairman of the Compensation and
Stock Option Committee for which a retainer fee of $2,500 is paid and the
Nominating Committee for which no fee is paid. 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 $48,000 in lieu of the annual
retainer, committee or meeting fees.
In 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.
In 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 their
re-election to the Board in May 1998, the non-employee members of the Board of
Directors were each granted options to purchase 5,000 shares of common stock at
$27.50 per share.
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.
5
<PAGE>
Carol Gleber, 47, 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., 62, 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, 45, 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, 57, has served as Vice President Central Region 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 medicine, as well as discussions
regarding mergers, acquisitions, facility development and operations.
William C. Tella, 41, has served as Vice President of Corporate
Development and Communications since December 1995. From October 1993 to 1995,
he served as Vice President of Sales and Marketing. Mr. Tella held the position,
Director of Marketing from November 1987 to 1993. Prior to joining the Company,
Mr. Tella spent three years at Pharmacia Deltec, Inc. ("PDI"), a medical device
company. In his role as Senior Marketing Director at PDI, Mr. Tella was
responsible for product design and development of home infusion technology.
Robert Heisler, 53, has served as Vice President Northeast Region since
January 1992. From December 1989 until 1991 he served as the Company's first
Director of Sales. Prior to joining the Company Mr. Heisler was the General
Manager of Execumed, LTD, a New York based Corporate Health services company;
from 1981-1986 Mr. Heisler held Corporate Marketing and regional management
positions with Quality Care and Kimberly Quality Care in the home health
industry.
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 1998 exceeded $100,000 (the "named
executive officers").
<TABLE>
<CAPTION>
==============================================================================================
Long Term
Annual Compensation Compensation
Other Securities All
Name and Principal Annual Underlying Other
Position Year Salary Bonus Comp. Options Comp.
($) ($) (1) ($) (2) (#) ($) (3)
==============================================================================================
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
John Vakoutis 1998 285,012 217,554 - 18,500 3,200
President & Chief 1997 266,734 282,293 - 260,000 3,200
Executive Officer 1996 235,000 284,860 - 55,000 3,525
Carol Gleber 1998 225,000 145,827 - 7,500 3,200
Sr. Vice President 1997 188,366 169,611 - 110,000 3,200
and Chief Operating 1996 163,926 157,770 - 17,000 2,308
Officer
John C. Prior 1998 185,000 121,827 - 7,500 3,200
Sr. Vice President 1997 161,423 153,751 - 67,500 3,200
of Finance and 1996 146,000 171,770 - 17,500 2,100
Chief Financial Officer
Howard Jones 1998 190,500 102,870 - 7,500 3,200
Sr. Vice President 1997 195,175 110,556 - 5,500 3,200
Technical Services 1996 200,700 173,498 - 12,500 2,858
William C. Tella(4) 1998 136,895 72,508 - 3,500 3,200
Vice President 1997 123,452 66,496 - 2,500 2,469
Corporate Development
and Communication
</TABLE>
(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 $50,000 or ten percent (10%)of
salary and bonus for any of the named individuals.
(3) Represents company matching contributions to 401k Plan.
(4) Mr. Tella became an executive officer of the Company in December 1997.
7
<PAGE>
Stock Option Tables
The following tables summarize stock option grants and exercises during
Fiscal 1998 to or by the named executive officers, and the value of the options
held by such persons at the end of Fiscal 1998.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1998
==============================================================================================
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
================================================================================================
% of
Number of Total
Securities Options
Underlying Granted to
Options Employees Exercise
Granted in Fiscal Price Expiration
Name (#) (1) Year ($/Sh) Date 5% ($) 10% ($)
===============================================================================================
<S> <C> <C> <C> <C> <C> <C>
John Vakoutis 18,500 8.4% $ 29.5625 6/11/2008 $ 344,551 $ 869,581
Carol Gleber 7,500 3.4% 29.5625 6/11/2008 139,683 352,533
John C. Prior 7,500 3.4% 29.5625 6/11/2008 139,683 352,533
Howard Jones 7,500 3.4% 29.5625 6/11/2008 139,683 352,533
William C. Tella 3,500 1.6% 29.5625 6/11/2008 65,185 164,515
</TABLE>
(1) The options are exercisable beginning one year from the date of grant 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 initial
exercisability date.
8
<PAGE>
OPTION EXERCISES IN FISCAL 1998
AND
VALUE AT END OF FISCAL 1998
<TABLE>
<CAPTION>
==============================================================================================
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the Money Options at
Acquired on Value Fiscal Year End (#) Fiscal Year End ($)
Exercise Realized
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable (1)
==============================================================================================
<S> <C> <C> <C> <C>
John Vakoutis 35,000 $ 1,160,635 117,492 / 323,508 $ 2,419,153 /$ 2,242,128
Carol Gleber 3,000 94,125 25,972 / 121,878 329,129 / 551,246
John C. Prior 39,250 1,185,588 26,331 / 79,919 444,415 / 414,085
Howard Jones - - 44,249 / 11,877 996,308 / 64,130
William C. Tella - - 22,266 / 9,184 490,637 / 130,376
==============================================================================================
</TABLE>
(1) Calculation is based on the difference between the closing price of the
Common Stock on December 31, 1998 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 as of April 17, 1995 and September 1, 1997.
Under the employment agreement, as amended, Mr. Vakoutis receives an annual
salary of $285,000 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 has 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 upon 30 days' prior written notice to the Company. In the
event the Company terminates the employment agreement without cause prior to a
change of control (defined below), Mr. Vakoutis will be entitled to receive a
lump sum severance payment equal to two times Mr. Vakoutis' then current base
salary plus the arithmetic average of payments made to Mr. Vakoutis pursuant to
the Company's Executive Bonus Compensation Program with respect to the three
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
Common Stock Option Plan, any unvested stock option awards that would have
vested during the twelve month period following the date of termination shall
vest and become immediately exercisable in full. If the employment agreement is
terminated (or not renewed) by the Company without cause or by Mr. Vakoutis for
good reason during the twelve month period immediately following a change in
control (or is terminated or not renewed prior to a change in control at the
request or insistence of any person in connection with a change in control), Mr.
Vakoutis shall be entitled to a lump sum severance payment equal to the sum of
the base salary which would otherwise have been payable for the remainder of the
then current term plus an amount equal to the product of two times the sum of
the then current annual base pay plus the arithmetic average of payments made to
Mr. Vakoutis pursuant to the Company's Executive Bonus Compensation Program with
respect to the three 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, any unvested stock option awards
shall vest and become immediately exercisable in full. 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. On September 1, 1997, the Company entered into an amended and restated
employment agreement with Mr. Prior. Under the employment agreement, Mr. Prior
receives an annual base salary of $175,000 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. The employment agreement has 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. Prior, and Mr. Prior 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 prior to a change of control (defined below) or elect
not to renew, Mr. Prior will be entitled to receive a lump sum severance payment
equal to Mr. Prior's then current base salary plus the arithmetic average of
payments made to Mr. Prior pursuant to the Company's Executive Bonus
Compensation Program with respect to the three 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, any unvested stock
option awards that would have vested during the twelve month period following
the date of termination shall vest and become immediately exercisable in full.
If the employment agreement is terminated (or not renewed) by the Company
without cause or by Mr. Prior for good reason during the twelve month period
immediately following a change in control (or is terminated or not renewed prior
to a change in control at the request or insistence of any person in connection
with a change in control), Mr. Prior shall be entitled to a lump sum severance
payment equal to the product of two times the sum of the then current annual
base salary plus the arithmetic average of payments made to Mr. Prior pursuant
to the Company's Executive Bonus Compensation Program with respect to the three
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, any unvested stock option awards shall vest and
become immediately exercisable in full. 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 two years thereafter.
10
<PAGE>
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. On September 1, 1997, the Company entered
into an amended and restated employment agreement with Ms. Gleber. Under the
employment agreement, Ms. Gleber initially received an annual salary of $210,000
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. The employment agreement has 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 Ms. Gleber, and Ms. Gleber 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 prior to a
change of control (defined below) or elects not to renew, Ms. Gleber will be
entitled to receive a lump sum severance payment equal to Ms. Gleber's then
current base salary plus the arithmetic average of payments made to Ms. Gleber
pursuant to the Company's Executive Bonus Compensation Program with respect to
the three 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, any unvested stock option awards that would have
vested during the twelve month period following the date of termination shall
vest and become immediately exercisable in full. If the employment agreement is
terminated (or not renewed) by the Company without cause or by Ms. Gleber for
good reason during the twelve month period immediately following a change in
control (or is terminated or not renewed prior to a change in control at the
request or insistence of any person in connection with a change in control), Ms.
Gleber shall be entitled to a lump sum severance payment equal to the product of
two times the sum of the then current annual base salary plus the arithmetic
average of payments made to Ms. Gleber pursuant to the Company's Executive Bonus
Compensation Program with respect to the three 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 any
unvested stock option awards shall vest and become immediately exercisable in
full. The employment agreement also restricts Ms. Gleber from competing with the
Company under certain circumstances during his employment with the Company and
for a period of two years thereafter.
On November 17, 1987, the Company entered into an employment agreement
with Mr. Tella, pursuant to which Mr. Tella agreed to serve as Director of
Marketing of the Company. The employment agreement may be terminated at any time
by the Company upon 120 days' prior written notice or by Mr. Tella on 90 days'
prior written notice. Under the employment agreement, Mr. Tella 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. Tella received an option to purchase shares of the Company's Common Stock.
In December 1995, Mr. Tella was promoted to Vice President of Corporate
Development and Communications. On December 17, 1997, the Company entered into
an amendment to its employment agreement with Mr. Tella pursuant to which if the
Company terminates Mr. Tella's employment without cause, Mr. Tella is entitled
to receive his then current base salary prorated on a monthly basis for the nine
month period immediately following date of termination. The amended employment
agreement also restricts Mr. Tella from competing with the Company under certain
circumstances during his employment with the Company and for a period of two
years thereafter.
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; a change in the members of the Board of
Directors such that a majority of the Board of Directors was not recommended by
the Board of Directors for election by the stockholder; 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.
11
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total return on the Company's
Common Stock during the five year period ended December 31, 1998 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,
1994 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>
1993 $100.000 $100.000 $100.000
1994 62.791 94.873 97.685
1995 265.116 134.184 123.923
1996 515.116 165.007 123.724
1997 565.116 202.436 126.089
1998 623.256 284.573 108.125
</TABLE>
12
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee of the Board of Directors
(the "Committee") is responsible for reviewing the performance of the Company's
executive officers and establishing their compensation, including base salary,
bonus incentive compensation and other benefits, if any as well as grants to
executive officers and other employees long-term compensation incentives in the
form of stock options pursuant to the Curative Health Services, Inc. 1991 Stock
Option Plan, as amended. The Committee also makes recommendations as to
compensation policies for the overall Company. The Committee is composed of
three independent, non-employee directors. The key objectives of the 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.
In 1997, the Committee retained an outside compensation consultant to
conduct a Strategic Compensation Review of the Company's four senior executive
officers including the President and Chief Executive Officer, Senior Vice
President and Chief Operating Officer, Senior Vice President of Finance and
Chief Financial Officer and Senior Vice President of Technical Services. The
review encompassed base salary, annual incentive compensation and long-term
incentive compensation. The review included discussions with selected senior
management executives and members of the Committee and an analysis of
competitive compensation data for senior executives compiled from a 15 company
peer group. As a result of the 1997 review the Committee adjusted base salaries
and stock option grants in September 1997 for certain executives including the
President and Chief Executive Officer. In establishing the 1998 compensation,
the Committee referred to the 1997 Strategic Compensation Review.
Base Salary
The Committee sets base salaries for executive officers (including the
President and Chief Executive Officer) with reference to the specific
responsibilities of the executive officer, his or her experience in the
industry, and other competitive factors. 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, 1998 by an average of
approximately 5.6 percent over their base salaries for the prior year.
13
<PAGE>
The base salary for Mr. Vakoutis who served as President and Chief
Executive Officer, was not increased for the year ended December 31, 1998. Mr.
Vakoutis' base salary was previously adjusted to $ 285,000 effective September
1, 1997 based on the results of the 1997 Strategic Compensation Review.
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 weighting 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 Board of
Directors approves 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 these
targeted goals is approved by the Committee. 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 and Northeast Region, participate in an earnings
over-achievement incentive pursuant to which each executive officer is entitled
to earn a cash bonus equal to a predetermined percent of operating earnings in
excess of 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 1998, 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 57 percent of
their base salary in the form of cash bonus compensation related to the
operating earnings and milestone achievements for fiscal 1998. Approximately 30
percent related to the achievement of operating earnings goals and 27 percent
related to the accomplishment of special milestones. Additionally, the executive
officers, except the President and Chief Executive Officer and the Vice
Presidents of the Central Region and Northeast Region, on average earned $6,429
related to earnings over-achievement incentive.
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 $18,046 related to operating earnings over-achievement incentive.
14
<PAGE>
Stock Options
In 1996, the Company established a Long-Term Incentive Compensation
Program (the "Program") for granting stock options pursuant to the Company's
1991 Stock Option Plan. 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. Stock option grants are made for
an annual performance cycle. The number of shares for an annual grant is
determined by the ratio of the average of the month end market price per share
to a percentage of the base salary or average base salary for each executive
officer. The exercise price for each annual grant is the market price per share
at the close of business on the date grants are approved by the Stock Option
Committee. In fiscal 1997, the executive officers, excluding the President and
Chief Executive Officer, were awarded on average individual stock option grants
equal to the ratio of an average market price of $28.60 to 63 percent of base
salary. The annual grant for Mr. Vakoutis, President and Chief Executive Officer
was equal to the ratio of the average market price of $28.60 to 125 percent of
his base salary.
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.
Members of the Compensation and Stock Option Committee:
Daniel A, Gregorie, MD, Chairman
Lawrence Hoff, Member
Gerard Moufflet, Member
15
<PAGE>
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 15, 1999 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. The persons named in the table below have sole voting and investment
power with respect to all shares of common stock shown by their names below.
<TABLE>
<CAPTION>
Percentage of
Amount and Nature Common Stock
Name and Address of Beneficial Ownership Outstanding
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Timothy I. Maudlin........................ 12,500 (1) *
Gerardo Canet............................. 16,417 (2) *
Daniel A. Gregorie, MD.................... 8,582 (3) *
Howard Jones.............................. 45,749 (1) *
Lawrence Hoff............................. 12,600 (4) *
Lawrence J. Stuesser, Jr.................. 38,500 (5) *
John Vakoutis............................. 128,332 (1) 1.2%
Gerard Moufflet........................... 22,500 (6) *
John C. Prior............................. 36,458 (7) *
Carol Gleber.............................. 31,222 (1) *
William C. Tella.......................... 25,336 (8) *
All directors and executive officers as
a group (13 persons).................. 400,325 (9) 3.7%
</TABLE>
* Ownership does not exceed 1%
(1) Represents shares subject to currently exercisable options.
(2) Includes 10,417 shares subject to current exercisable options.
(3) Includes 7,082 shares subject to currently exercisable options.
(4) Includes 12,500 shares subject to currently exercisable options.
(5) Includes 37,500 shares subject to currently exercisable options.
(6) Includes 12,500 shares subject to currently exercisable options.
(7) Includes 31,875 shares subject to currently exercisable options.
(8) Includes 24,595 shares subject to currently exercisable options.
(9) Includes 376,401 shares subject to currently exercisable options by all
directors and executive officers as a group. Does not include 580,510
shares currently unexercisable by directors and officers as a group.
16
<PAGE>
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 in compliance.
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 2000 Annual
Meeting of the Stockholders of the Company must be received by the Company no
later than December 24, 1999 in order to qualify for inclusion in the Proxy
Statement and form of Proxy relating to that meeting. If the Company does not
receive notice of any other stockholder proposal to be presented at the 2000
Annual Meeting before March 27, 2000, then the persons named in the proxy
solicited by the Board for that meeting will be allowed to exercise
discretionary voting power to vote on that proposal.
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.
INDEPENDENT AUDITORS
Ernst & Young LLP 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.
17
<PAGE>
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.
Hauppauge, New York By Order of the Board of Directors
April 27, 1999
/s/ John C. Prior
------------------
JOHN C. PRIOR
Secretary
