UNITED STATES                                   
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                              _________________

                                  FORM 10-K

                              _________________

(Mark One)

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

                 For the fiscal year ended December 31, 1998

                                      or

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

      [No Fee Required]

      For the Transition Period From       to

Commission File Number:  000-19370

                        Curative Health Services, Inc.

            (Exact name of registrant as specified in its charter)

                      MINNESOTA                         41-1503914
            (State or other jurisdiction of             (I.R.S. Employer
             incorporation or organization)          Identification Number)
             150 Motor Parkway
             Hauppauge, New York                             11788
            (Address of principal executive offices)       (Zip Code)


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

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

                                     None

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

                    Common Stock, par value $.01 per share
                               (Title of Class)

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

                                Yes X No______

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

    As of March  15,  1999,  10,288,510  shares of  Common  Stock of  Curative
Health Services,  Inc. were outstanding and the aggregate market value of such
Common Stock held by nonaffiliates  (based upon its closing  transaction price
on such date) was approximately $144 million.

                     DOCUMENTS INCORPORATED BY REFERENCE
    Portions of  Registrant's  Proxy  Statement for its 1999 Annual Meeting of
Stockholders,  which the  Registrant  intends  to file not later than 120 days
following  December 31,  1998,  are  incorporated  by reference to Part III of
this Form 10-K Report.
                                       1
<PAGE>

                                    PART I

Item 1  Business

General

      Curative Health Services,  Inc. is a leading disease  management company
in the chronic wound care market.  Currently,  the Company manages,  on behalf
of hospital clients,  a nationwide  network of Wound Care Centers that offers
a  comprehensive  range of  services  which  enable  the  Company  to  provide
customized  wound care. The Company's  Wound  Management  Program  consists of
diagnostic and therapeutic  treatment regimens which are designed to meet each
patient's  specific wound care needs on a cost effective  basis. The Company's
treatment   regimens  are  based  on  critical  pathways  designed  for  wound
healing.  The Company has a proprietary  database of patient outcomes that the
Company has collected  since 1988  containing  approximately  225,000  patient
records  which  indicate  an overall  healing  rate of  approximately  80% for
patients  completing  therapy.   The  Company's  Wound  Care  Center  network
consists of 154 outpatient  clinics  located on or near campuses of acute care
hospitals  in 33 states.  The Company is  developing  new  service  models for
other health care delivery  settings  including  inpatient acute care and long
term care facilities.  Additionally,  the Company operates seven  freestanding
Wound Care Centers.

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

Industry

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

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

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

                                       2
<PAGE>

The Curative Approach to Chronic Wound Care

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

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

      To measure the effectiveness of the Company's Wound Management  Program,
the Company has developed a functional  assessment  scoring  system to measure
the  healing of a wound.  Under this  system,  a chronic  wound is  considered
healed when (i) it is  completely  covered by epithelium  (i.e.,  a membranous
cellular  tissue that covers and protects a wound as it heals),  (ii) maturing
skin is present in the wound,  (iii) there is minimal drainage from the wound,
(iv) the wound  requires only a protective  dressing and (v) the limb involved
is  functional.  The Company has a  proprietary  database of patient  outcomes
that the Company has collected  since 1988  containing  approximately  225,000
patient  records which indicate an overall healing rate of  approximately  80%
for patients completing therapy.

      A unique aspect of the Company's Wound Management  Program is the use of
Procuren,   the  Company's  wound  healing  agent  which  is  used  to  treat
approximately  14% of  patients.  Procuren is a naturally  occurring  complex
mixture of several growth  factors.  Growth factors have been shown to promote
the growth of skin,  soft tissue and blood  vessels.  Procuren is produced by
stimulating  the release of growth  factors  from  platelets  contained in the
patient's own blood.  Blood is taken from the patient at the treatment  center
and then sent to a Company-operated  blood processing  facility located in the
same state  where the  patient's  blood was drawn.  To produce  Procuren,  the
Company  separates  the  platelets  from the  remainder  of the blood  sample.
Thrombin,  a  substance  in the  body  that is  active  in the  wound  healing
process,  is added to the  platelets,  causing the platelets to release growth
factors.  The  platelet  shells  are  discarded  and the  growth  factors  are
diluted and placed in a buffered  solution  which is frozen  until used.  When
required as part of the patient's  wound care treatment  program,  Procuren is
applied  topically  to the  wound  area by  soaking  a gauze  dressing  in the
Procuren  solution and covering  the wound area with the gauze.  Procuren,  as
part of a  comprehensive  treatment  algorithm,  has been  used to treat  over
50,000  patients to date.  The Company  believes  that  Procuren  stimulates a
normal wound  healing  response in patients  with  chronic  wounds in much the
same way as the body naturally initiates healing.

                                       3
<PAGE>

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

Strategy

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

      Continue  to Develop  the  Company's  Nationwide  Network of  Outpatient
Wound Care Centers.  The  Company intends to continue to establish  additional
outpatient  Wound  Care  Centers  on  or  near  the  campuses  of  acute  care
hospitals.  Despite the Company's  rapid growth from 32 outpatient  centers in
1991 to 154  outpatient  centers as of the end of 1998,  the Company  believes
the  opportunity  for  further  growth  remains  substantial.  The Company has
identified over 300 additional  markets in the United States which the Company
believes  have the  population  necessary  to support a  dedicated  wound care
program.  The Company  believes  hospitals are  continually  seeking low cost,
high  quality  solutions  to wound  management  such as those  provided by the
Company.  In addition,  the Company  believes it enables its hospital  clients
to differentiate  themselves from their competitors  through better wound care
treatment  outcomes,  reduced costs due to decreased inpatient lengths of stay
and increased  revenue through the introduction of new patients.  As a result,
the Company  believes  there is a significant  opportunity  for the Company to
continue to expand its Wound Care Center operations  through  affiliation with
acute care  hospitals.  Additionally  in  response  to the needs of acute care
hospitals in smaller rural markets the Company  developed a wound care program
which effectively  unbundles the Company's value added services.  Through this
program,  hospitals in smaller  markets can purchase  components  of the Wound
Management   Program  through  a  licensing   agreement  which  enables  these
hospitals to manage wound care patients.

      Develop New Service  Models to Enhance Market  Penetration.  During 1998
the Company discontinued  operating its nine subacute care inpatient programs,
due to third party reimbursement  changes.  The Company is actively developing
new service  models in new health care  delivery  settings  such as  inpatient
programs  for  acute  care  hospitals  and long term  care  facilities  (e.g.,
nursing homes and long term acute care  hospitals).  These new service  models
are  being  operated  as  a  service  from  the  Company's  existing  hospital
outpatient  Wound  Care  Centers.  Pressure  sores,  the most  common  form of
chronic wound,  usually occur among nursing home, acute care and home patients
due to the sedentary  lifestyle  associated  with those care settings.  As the
Company further  develops its inpatient  service models,  the Company believes
it will become more capable of  penetrating  the large  pressure  sore market.
The Company operates seven  freestanding  outpatient  Wound Care Centers.  The
freestanding  service model was developed by the Company to strategically grow
its  business  through  select  target  marketing  and enter  markets  where a
suitable  partner is not  available  or as a method of  attracting  a hospital
partner.  The Company  does not have any  immediate  plans to open  additional
freestanding  centers  and  expects  to  develop  some  existing  freestanding
centers into hospital outpatient Wound Care Centers.

      Provide a Comprehensive  Managed Care Product.  In addition to providing
new revenue  opportunities,  the Company  believes  its ability to provide its
services as a comprehensive  managed care product in a number of settings will
increase  its  attractiveness  to  managed  care  payors  seeking to provide a
continuum of care while reducing risk. With its Wound  Management  Program and
increasing  presence in multiple  health care delivery  settings,  the Company
can offer  managed  care payors a shared risk  relationship  which the Company
believes will provide better patient healing outcomes and more  cost-effective
services  for  subscribers.  Further,  in  1998  the  Company  entered  into a
development  and license  agreement with Accordant  Health  Services,  Inc., a
private disease  management  company.  As a strategic  partner,  Accordant has
been  licensed  by the  Company  to develop  and  market a wound care  disease
management  program to the  managed  care  market.  Additionally,  the Company
signed an agreement  with  Accordant in which the Company  agreed to an equity
investment of $4 million in Accordant.

                                       4
<PAGE>

      Enhance the Company's Wound Management  Program.  The  Company currently
offers a unique Wound Management Program which includes  assessment,  vascular
studies,  revascularization,  infection  control,  wound  debridement,  growth
factor  therapy,  skin  grafting,   nutrition,   protection  devices,  patient
education,    referrals   and    effective    management   of   care   through
patient/provider  communications.  In  addition,  the  Company is  continually
exploring and seeking advances in wound care management  services and products
which could  enhance  its current  Wound  Management  Program.  The Company is
actively  pursuing such advances  through the  continuous  development  of its
current  services,  and the  consideration  of acquisition  opportunities  and
co-marketing  arrangements  with other  providers  of wound care  products and
services.  Current product  offerings  include  furnishing  hyperbaric  oxygen
services to interested  hospital partners,  alliance with companies  marketing
new wound care technologies and developing clinical research  capabilities for
the wound care center network.

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

Wound Care Operations

      The  Company's  wound care  operations  offer health care  providers the
opportunity to create  specialty wound care  departments  designed to meet the
needs of chronic wound  patients.  The initial  focus of the  Company's  wound
care operations has been hospital  outpatient Wound Care Centers.  The Company
is currently  expanding its  programmatic  approach to wound care to inpatient
settings  such as acute  care  hospitals  and long  term care  facilities.  In
these settings the Company is  establishing a wound care program with existing
hospital  Wound Care  Centers to offer a  inter-disciplinary  approach  to the
treatment  of chronic  wounds in the  inpatient  settings.  In  addition,  the
Company has established  freestanding outpatient Wound Care Centers.

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

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

                                       5
<PAGE>

      The first Wound Care Center  opened in 1988 and there are  currently 154
hospital  outpatient  Wound  Care  Centers  in  operation  in 33  states.  The
Company has entered  into  contracts or letters of intent with 18 hospitals to
open  additional  Wound Care  Centers.  The  Company's  hospital  client  base
ranges  from  medium-sized   community-based   hospitals  to  large  hospitals
affiliated  with  national  chains  and  not-for-profit   hospitals  in  local
markets.   The  Company  selects   hospital  clients  based  on  a  number  of
criteria.  A suitable  hospital client  typically can accommodate at least 200
inpatient  beds,   offers  services  which  complement  the  Wound  Management
Program,  including physician specialists in the areas of general, plastic and
vascular surgery,  endocrinology and diabetes, is financially stable and has a
solid  reputation  in the  community it serves.  Of the  Company's 154 current
hospital  outpatient Wound Care Centers,  110 are management model centers and
44 are "under arrangement" model centers.

      In expanding its product offering, the Company furnishes hyperbaric oxygen
therapy (HBO) services to interested  hospital partners  operating  outpatient
wound care centers.  These services  generally include furnishing HBO chambers
and  managing  the  program.  The Company  current  manages 16 HBO programs at
existing   hospital   outpatient   Wound  Care  Centers  which  accounted  for
approximately 2% of the Company's revenue.

      At December  31,  1998,  the Company had  management  contracts  with 32
acute care  hospitals  directly or  indirectly  owned by  Columbia/HCA.  These
hospitals  collectively  accounted for  approximately  25% of the consolidated
revenues of the Company for the year ended  December 31,  1998.  In 1998 there
were 8  Columbia/HCA  hospital  contracts  that  terminated  and  closed.  The
Company expects that the Columbia/HCA  hospitals collectively will account for
less than 20% of future revenues.  The Company and  Columbia/HCA  have been in
discussions  initiated by Columbia/HCA to standardize the management contracts
and  operating  procedures  at the Wound Care  Centers in  hospitals  owned by
Columbia/HCA,  as well as any Wound  Care  Centers  to be opened in  hospitals
owned  by  Columbia/HCA  in  the  future.  There  can  be no  assurance  these
discussions with  Columbia/HCA  will not result in changes which would have an
adverse impact on the Company's  business,  financial condition and results of
operations,   including,  without  limitation,  contract  terminations,  price
concessions,  contract  termination  provisions less favorable to the Company,
and increased costs borne by the Company.

      Inpatient  Wound Care  Programs.  In 1998,  the  Company  closed  nine
inpatient  subacute  care  nursing  home-based  programs in five states due to
third  party  reimbursement  changes  and  has no  plans  to  develop  similar
inpatient  programs in the near future.  This model was designed to access the
segment of the chronic wound market  comprised of  non-ambulatory  patients in
subacute  inpatient  facilities.  The Company is  addressing  the needs of the
inpatient   wound  care  market  through  the  development  of  new  inpatient
programs.   These   patients   often  have  pressure   sores   resulting  from
inactivity.  While  not  typically  as  severe as  diabetic  or venous  stasis
ulcers,  pressure  sores  represent  the largest  segment of the chronic wound
market. The Company has developed a Wound Reduction  Assessment  Programsm for
its affiliated  acute care hospitals with  outpatient  wound care centers that
is  directed  at  assisting   those  hospitals  in  identifying  and  managing
inpatients  in the acute care  hospital  that are at risk or who  suffer  from
chronic  wounds.  The program is primarily  directed at reducing the length of
stay of those  patients  in the  acute  care  setting.  The  Company  has also
developed  a  Wound  Outreach  Programsm,  whereby  a  nurse  practitioner  or
physician  assistant from an affiliated  outpatient wound care center provides
wound related  services to long term care facilities in surrounding  cachement
areas.   Both   programs   are  in  the  early  stages  of   development   and
implementation.  There  can  be no  assurance  that  these  programs  will  be
successful in the future.

      Freestanding  Outpatient Wound Care  Centers.  In late 1995, the Company
began to  establish  freestanding  Wound Care  Centers in which the Company is
the owner  and  operator.  The  Company  believes  that  this  delivery  model
allowed  the  Company  to expand  its  market  penetration  in the  outpatient
setting by allowing the Company to  strategically  penetrate  markets  without
the   constraint  of  finding  a  hospital  or   contracting   with  competing
hospitals.  The  Company  currently  has seven  freestanding  centers in seven
states.  The  Company  does not have any  immediate  plans to open  additional
freestanding  centers  and  expects  to  develop  some  existing  freestanding
centers into hospitals  outpatient wound care centers.  The freestanding Wound
Care Centers resemble standard outpatient  facilities or specialized physician
practices.  The  Company  employs  the staff of the Wound  Care  Center and is
responsible for billing  patients for all services  provided at the Wound Care
Center and for  seeking  reimbursement  from third party  payors.  To date the
Company  has not  employed  any of the  physicians  providing  services at its
freestanding  Wound Care Centers;  however,  the Company may employ physicians
at these models in the future.

                                       6
<PAGE>

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

Contract Terms and Renewals

      Substantially  all of the  revenues  of the  Company  are  derived  from
management  contracts with acute care hospitals.  The contracts generally have
initial  terms of three to five years and many have  automatic  renewal  terms
unless  specifically  terminated.  During the year ending  December  31, 1999,
the contract  terms of 47 of the Company's  management  contracts will expire,
including 44 contracts  which provide for  automatic  one-year  renewals.  The
contracts  often provide for early  termination  either by the client hospital
if specified  performance criteria are not satisfied,  or by the Company under
various  other  circumstances.   Historically,  some  contracts  have  expired
without  renewal and others have been  terminated by the Company or the client
hospital  for various  reasons  prior to their  scheduled  expiration.  During
1998,  two hospital  contracts  expired  without  renewal and an additional 14
hospital contracts were terminated prior to their scheduled  expiration by the
client  hospital  and in some cases by the  Company.  Generally,  the  Company
elects to negotiate a mutual termination of a management  contract if a client
hospital  desires to  terminate  the contract  prior to its stated  term.  The
continued  success of the Company is subject to its ability to renew or extend
existing management contracts and obtain new management  contracts.  Hospitals
choose to terminate or not to renew  contracts based on decisions to terminate
their  programs  or to  convert  their  programs  from  independently  managed
programs to programs operated  internally.  There can be no assurance that any
hospital will continue to do business  with the Company  following  expiration
of its  management  contract  or  earlier,  if  such  management  contract  is
terminable  prior to  expiration.  In  addition,  any changes in the  Medicare
program or third party  reimbursement  levels which  generally have the effect
of limiting or reducing  reimbursement  levels for health services provided by
programs  managed by the  Company  could  result in the early  termination  of
existing  management  contracts and would adversely  affect the ability of the
Company to renew or extend  existing  management  contracts  and to obtain new
management  contracts.  The termination or non-renewal of a material number of
management  contracts could result in a significant  decrease in the Company's
net  revenues  and could  have a  material  adverse  effect  on the  Company's
business, financial condition and results of operations.


Managed Care Operations

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

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

                                       7
<PAGE>

      In 1998 the Company  entered into a  development  and license  agreement
with Accordant Health  Services,  Inc. a private disease  management  company.
As a strategic partner,  Accordant has been licensed by the Company to develop
and market a wound care disease  management program to the managed care market
including,   Health  Maintenance  Organizations  (HMO's),  Preferred  Provider
Organization  (PPO's)  and  insurance   companies.   The  wound  care  disease
management    program   being    developed   will   include   impact   models,
assessment/intervention  tools and  outcome  reporting.  The model is expected
to be a "carve in" approach  where by  registered  nurses will monitor  health
plan subscribers  identified as chronic wound patients through care management
programs.  The case  management  software  supports and prompts  collection of
disease  specific  data  points  utilized by the  registered  nurses to assist
patients in caring for the chronic  condition,  identify and monitor  patients
at risk and educate  patients in  preventative  measures.  The nurses  conduct
proactive patient monitoring that assesses patient compliance,  complications,
functional  and  clinical   health  status  and  patient   satisfaction.   The
respective  health plans are then  provided  reports.  The program is expected
to be launched in the second half of 1999.  Additionally,  the Company  signed
an  agreement  with  Accordant  in  which  the  Company  agreed  to an  equity
investment of $4 million in Accordant.

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


Community Education and Marketing

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

      As of December 31, 1998, the Company had five Regional Sales  Directors,
11 Business  Development  Managers,  five Sales  Managers and 60  Professional
Liaisons.

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

                                       8
<PAGE>


Patents and Proprietary Rights

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

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

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


Government Regulation

      The  Company's  Wound Care Centers and the  production  and marketing of
its products and  services  are subject to  extensive  regulation  by numerous
governmental  authorities  in the  United  States,  both  federal  and  state.
Although  the  Company  believes  that  it is  currently  in  compliance  with
applicable laws,  regulations and rules, the Company received a Warning Letter
from FDA in March 1998 admonishing the Company for several alleged  deviations
from  good  manufacturing  practices  at  one  of  the  Company's  Wound  Care
Centers.  The Company has  responded to the Warning  Letter and believes  that
it  has  adequately  addressed  FDA's  concerns.  However,  there  can  be  no
assurance  that FDA,  another  governmental  agency or a third  party will not
contend that certain  aspects of the Company's  operations  or procedures  are
subject to or are not in compliance  with such laws,  regulations  or rules or
that the state or federal  regulatory  agencies or courts would interpret such
laws,  regulations  and  rules  in the  Company's  favor.  The  sanctions  for
failure to comply with such laws,  regulations  or rules could include  denial
of the right to conduct business,  significant  fines and criminal  penalties.
Additionally,  an increase in the  complexity or substantive  requirements  of
such laws,  regulations  or rules could have a material  adverse effect on the
business, financial position and results of operations of the Company.

      The FDA regulates  drugs and biologics that move in interstate  commerce
and  requires  that such  products  receive  pre-marketing  approval  based on
evidence  of safety and  efficacy.  Since  Procuren  is produced at one of the
Company's  blood  processing  facilities  in the state  where  the Wound  Care
Center  which will  dispense the Procuren is located and so is not intended to
be shipped across state lines,  the Company  believes,  based on the advice of
its  counsel,  that under  current law and  regulations,  FDA  approval is not
required for the Company to  distribute  and sell  Procuren  through the Wound
Care  Centers.  The FDA is  currently  reassessing  its  regulation  of  other
autologous and somatic cell products and has publicly  stated that it believes
that if any  component  of a drug or  biological  or if any patient  receiving
such  substance  moves  in  interstate   commerce,  a  sufficient  nexus  with
interstate  commerce  exists for FDA to  require  pre-marketing  approval  and
licensure.  The FDA has  indicated  to the Company that the status of Procuren
would  be  addressed  by the FDA in a  future  Federal  Register  publication,
possibly as a part of the FDA's  overall  regulation of other  autologous  and
somatic cell products.  While the production of Procuren  includes  components
that are shipped in interstate  commerce,  to date the FDA has not  determined
that Procuren,  as currently  prepared,  is subject to licensure or pre-market
approval.  However,  in the March 1998 FDA Warning Letter, FDA objected to the
Company  providing  Procuren to patients  who reside in a state other than the
one in which the Wound Care Center is located.  The Company  ceased  providing
Procuren to out-of-state  patients.  Although the Company believes  interstate
shipment of the final  biologic  product is required to trigger  pre-marketing
approval and  licensure,  a  determination  by the FDA to require  Procuren to
obtain  pre-marketing  approval  would  materially  and  adversely  affect the
Company.

                                       9
<PAGE>

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

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

      Various  state and  federal  laws  regulate  the  relationships  between
providers  of health  care  services  and  physicians  and  other  clinicians,
including  employment  or  service  contracts,  investment  relationships  and
referrals  for certain  designated  health  services.  These laws  include the
fraud and abuse  provisions  and  referral  restrictions  of the  Medicare and
Medicaid  statutes,  which  prohibit  the  solicitation,  payment,  receipt or
offering of any direct or indirect  remunerations for the referral of Medicare
and  Medicaid  patients  or for the  ordering  or  providing  of  Medicare  or
Medicaid   covered   services,   items  or  equipment.   Violations  of  these
provisions  may  result in civil or  criminal  penalties  for  individuals  or
entities  including  exclusion from  participation in the Medicare or Medicaid
programs.  Several  states have adopted  similar  laws that cover  patients in
private  programs as well as government  programs.  Because the anti-fraud and
abuse laws have been broadly  interpreted,  they limit the manner in which the
Company can operate its  business and market its services to, and contract for
services with, other health care providers.

      The  Company has had  contracts  to operate  Wound Care  Centers at more
than  thirty  (32)  hospitals  operated  by  Columbia/HCA.  The United  States
Department  of  Justice  is  actively  investigating  Columbia/HCA,   and  has
extended  its  investigation  of  Columbia/HCA  to  a  review  of  significant
management  contracts between  Columbia/HCA and other organizations  including
contracts  with the  Company.  The  Company  is not aware of any  allegations,
findings,  or conclusions by the government  that any portion of the fees paid
by Columbia/HCA to the Company were not properly  claimed by Columbia/HCA  for
purposes  of  Medicare  cost  reimbursement  (or any other cost  reimbursement
program),  or that there has been any  misconduct.  The Company cannot predict
the outcome of the  government's  review of its contracts  with  Columbia/HCA,
which are similar to the  contracts  the  Company has with its other  hospital
partners.  If the government  were to conclude that the Company has engaged in
any misconduct,  it could result in affecting the Company's  relationship with
all its hospital customers including Columbia/HCA,  substantial monetary fines
and  penalties,  and exclusion  from  governmental  health care programs which
could have a material adverse effect on the business,  financial  position and
results of operations of the Company.

                                       10
<PAGE>

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

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

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

Third Party Reimbursement

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

      In addition to hospital  outpatient  Wound Care Centers which it manages
for its clients, the Company owns and operates  freestanding  outpatient Wound
Care  Centers.  With  respect to services and  products  provided  through its
freestanding  centers,  the Company is subject to the risks  inherent in third
party  reimbursement,  including the risks associated with billing third party
payors.  As of December  31, 1998,  the Company  operated  seven  freestanding
outpatient Wound Care Centers which  contributed  approximately  $3,335,000 or
3% of the Company's  revenues for the year ended  December 31, 1998.  However,
the  Company   anticipates   that  the  number  of,  and  amount  of  revenues
attributable  to, its  freestanding  centers will decrease in the future since
the Company does not have any immediate plans to open additional  freestanding
centers  and  expects to  develop  some  existing  freestanding  centers  into
hospital outpatient wound care centers. See "Business-Strategy."

                                      11
<PAGE>

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

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

      The Wound Care  Centers  managed by the  Company on behalf of acute care
hospitals  are treated as "provider  based  entities" for Medicare cost based
reimbursement  purposes.  This  designation is required for the hospital based
program to be covered under the Medicare cost based  reimbursement  system. In
August 1996 and again in May 1998,  HCFA  published  criteria for  determining
when   programs   may   be   designated   "provider   based   entities".   The
interpretation  and  application  of these criteria are not entirely clear and
there is a risk that some of the  programs  managed  by the  Company  could be
found not to be "provider based  entities".  In 1998, the Company modified the
terms  of  6  under  arrangement  contracts  to  comply  with  provider  based
guidelines  which  resulted in a reduction  in revenue  from those  contracts.
Although  the Company  believes  that the programs it manages meet the current
criteria to be designated  "provider based entities",  a widespread  denial on
such  designation  would  have a  material  adverse  effect  on the  Company's
business, financial position and results of operations.

      In the Balanced Budget Act of 1997,  Congress directed HCFA to implement
a prospective payment system for all hospital  outpatient  department services
furnished to Medicare  patients on or after January 1, 1999.  However,  due to
complexities  HCFA  faces in order for all of its  systems  to be "Year  2000"
compliant,  HCFA has  announced  that the  actual  implementation  of this new
payment  system will be sometime  after  January 1, 2000.  In September  1998,
HCFA published  proposed  rules,  for comment,  which  delininate the proposed
framework,  services and operation of the Prospective  Payment  System.  Under
the proposed  system,  a  predetermined  rate would be paid to  hospitals  for
clinic  services  rendered,  regardless  of  the  hospitals  cost.  Due to the
complexities  of  the  proposed  system  and  since  the  final  reimbursement
methodology  and rates have not yet been  determined,  the effect on  hospital
reimbursement  is  speculative.  In the  event  that  reimbursement  rates are
insufficient,  the Company may need to modify its  management  contracts  with
hospitals  which  could  have a  material  effect on the  Company's  business,
financial  condition  and results of  operations.  Additionally,  the proposed
rules  include  new criteria for programs to be  designated a "provider  based
entity".  The  interpretation  and application of these new proposed  criteria
are not entirely clear and there is risk that some of the programs  managed by
the  Company  could be  determined  not to be  "provider  based  entities".  A
widespread  denial on such designation could have a material adverse effect on
the Company's business, financial position and results of operations.

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

                                       12
<PAGE>


Competition

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

Employees

      As of December 31, 1998, the Company  employed 731 full-time  employees,
of which 599 employees  were in the wound care  operations,  66 employees were
in  Procuren  production,  18  employees  were  in  technical  support  and 48
employees were in general  administration and finance.  The Company expects to
add  additional  personnel to its wound care  operations in the next year. The
Company believes that its relations with its employees are good.

Item 2  Properties

      The Company's  headquarters and technical support facility is located in
Hauppauge,  Long Island,  New York. The Company leases this 30,000 square foot
facility under a lease through 2005. The Company  believes that its facilities
are  adequate  and  suitable  for its  operation.  The Company also leases one
field  operations  office for its wound care operations  totaling 4,100 square
feet,  seven  freestanding  Wound Care Centers totaling 20,600 square feet and
24  production   facilities   totaling   46,000  square  feet.  The  Company's
facilities at the hospital  outpatient  Wound Care Centers are owned or leased
by the hospitals.

Item 3  Legal Proceedings

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

Item 4  Submission of Matters to a Vote of Security Holders

      None.

                                       13
<PAGE>

                                   PART II


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

      The  Company's  common  stock is traded on The Nasdaq Stock Market under
the  symbol  "CURE".  As of March  15,  1999,  there  were  approximately  214
holders of record of the  Company's  common  stock.  The  Company has not paid
any cash  dividends  since  its  inception.  The  Company  currently  does not
intend to pay cash dividends in the  foreseeable  future but intends to retain
all earnings, if any, for use in its business operations.

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

                                                 High        Low
                  1998
                  Fourth Quarter..........     $ 35        $ 22 11/16
                  Third Quarter...........       32 1/4      20 1/2
                  Second Quarter..........       35 3/4      25 3/4
                  First Quarter...........       39 1/4      30

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

                                       14
<PAGE>

Item 6  Selected Consolidated Financial Data

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

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                             -----------------------  
                                                                 1994        1995        1996        1997        1998               
                                                                 (In thousands, except per share and operating data)
<S>                                                           <C>         <C>         <C>         <C>         <C>    
Statement of Operations Data:
Revenues ..................................................   $ 40,567    $ 52,442    $ 67,395    $ 87,906    $ 103,987
Costs and operating expenses:
   Costs of products sales and services ...................     20,478      26,189      37,828      48,200       56,035             
   Selling, general and administrative ....................     15,177      18,209      19,208      22,617       23,358             
   Research and development ...............................      6,480       4,143           -           -            -
   Restructuring charge ...................................      1,684           -           -           -            -
                                                               --------    --------    --------    --------     --------
Total costs and operating expenses ........................     43,819      48,541      57,036      70,817       79,393
                                                               --------    --------    --------    --------     --------
                                                                                                                
Income (loss) from continuing operations
   before interest income and minority
   interest ...............................................     (3,252)      3,901      10,359      17,089       24,594            
Interest income ...........................................        306         528       1,344       2,666        2,660
                                                                                                                 
Minority interest in net loss of
   consolidated subsidiary ................................        218           -           -           -            -
                                                              --------    --------    --------    --------     --------
Income (loss) from continuing operations...................     (2,728)      4,429      11,703      19,755       27,254
                                                                                                                
Income (loss) from discontinued operations ................     (4,545)          -           -           -            -
                                                              ---------   --------    --------    --------     --------             
Income (loss) before income taxes .........................     (7,273)      4,429      11,703      19,755       27,254
                                                                                                                
Income taxes ..............................................          -         219       1,008       3,293       10,217
                                                              --------    --------    --------    --------     --------            
Net income (loss) .........................................   $ (7,273)   $  4,210    $ 10,695    $ 16,462    $  17,037
                                                              ========    ========    ========    ========    =========
Net income (loss) per common share, basic
      Continuing operations ...............................   $  (0.27)   $   0.41    $   0.95    $   1.33    $    1.34
                                                                                                                  
      Discontinued operations .............................      (0.46)          -           -           -           -
                                                              --------    --------    --------    --------    --------
        Total .............................................   $  (0.73)   $   0.41    $   0.95    $   1.33    $   1.34
                                                              ========    ========    ========    ========    ========
Denominator for basic earnings per share,
    weighted average common shares ........................      9,943      10,192      11,212      12,404      12,704              

Operating Data:
Wound care centers at end of period .......................         61          79         105         132         154
                                                                                                                   
Number of new patients ....................................     22,529      30,023      38,699      48,722      58,510

Balance Sheet Data:
Working capital ...........................................   $  7,267    $ 12,575    $ 45,760    $ 62,583    $ 76,419
Total assets ..............................................     18,592      25,030      61,959      84,939     109,121
Long-term debts
   (including capital lease obligation) ...................      1,254       1,198       1,044           7           -
Retained earnings (deficit) ...............................    (34,135)    (29,925)    (19,230)     (2,768)     14,269
Stockholders' equity ......................................      9,778      15,611      50,270      72,592      93,396
</TABLE>

                                       15
<PAGE>


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

Overview

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

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

      Of the 154  hospital  outpatient  Wound Care  Centers in operation as of
December 31, 1998, 110 were management  model Wound Care Centers,  and 44 were
"under  arrangement"  model Wound Care Centers.  The Company's  fees under its
management  contracts  with acute  care  hospitals  are paid by the  hospitals
directly.  See "Business-Third Party Reimbursement."

      The Company has seven  freestanding  wound care  centers  that are owned
and  operated  by  the  Company.   Although   these   centers   accounted  for
approximately  3% of the Company's  revenue in 1998, the Company does not have
any immediate  plans to open  additional  freestanding  centers and expects to
develop some existing freestanding into hospital based wound care centers.

Results of Operations

      Fiscal Year 1997 vs. Fiscal Year 1998. The Company's  revenues increased
from $87.9 million in 1997 to $103.9  million in 1998,  an 18%  increase.  The
increased  revenue is  primarily  attributable  to the  operation of 132 wound
care  centers  at the end of 1997  compared  with 154 at the end of 1998 and a
10%  increase in revenues at  existing  wound care  centers  related to higher
patient volume.  The Company's revenue growth declined to 18% in 1998 compared
to 30% in 1997.  The decline is  primarily  attributable  to the closing of 16
Wound Care  Centers and the  modification  of  contractual  terms of six under
arrangement  programs during 1998. At any time during a year, 10 percent to 15
percent of contracts are being  re-negotiated  with the client  hospital for a
variety of  contractual  terms or issues.  Historically,  some  contracts have
expired  without  renewal  and others have been  terminated  by the Company or
the client hospital for various  reasons prior to their scheduled  expiration.
The  termination or non-renewal of a material  number of management  contracts
could  result in a continued  decline in the  Company's  revenue  growth.  The
Company  has a number of  initiatives  to  counter  the  decline  of growth in
revenue,  although  there can be no  assurance  that the  initiatives  will be
successful.  Total new patients to the wound care centers  increased  20% from
48,722 in 1997 to  58,510 in 1998.  The  total  number of  patients  receiving
Procuren  therapy  decreased  5% from  8,583 in 1997 to  8,164  in  1998.  The
percentage of patients  receiving  Procuren  decreased from 18% in 1997 to 14%
in 1998. The Company believes that this decrease is attributable  primarily to
an increase in the  percentage of less severe  chronic wounds being treated at
the Company's  Wound Care  Centers,  for which  physicians  are less likely to
prescribe Procuren, as well as a lack of available  reimbursement for Medicare
patients.  The Company  believes that this shift in the severity of the wounds
treated at a Wound Care Center occurs as the local medical  community  becomes
familiar  with the  services  offered  by the Wound  Care  Center and refers a
broader  range  of  chronic  wound  patients  to the  Wound  Care  Center  for
treatment.  The Company  anticipates that the percentage of patients receiving
Procuren will continue to decline gradually in the future.

                                       16
<PAGE>

      Costs of product  sales and  services  increased  from $48.2  million in
1997 to $56.0  million in 1998, a 16% increase.  The increase is  attributable
to the  additional  staffing  and  operating  expenses of  approximately  $5.3
million  associated with the operation of 22 additional  wound care facilities
at the end of 1998, offset by $2.5 million associated with closed centers,  as
well as  increased  volume at existing  wound care  facilities.  Additionally,
these 22 facilities  include 14 under  arrangement Wound Care Centers at which
the  services  component  of  costs  is  higher  than at the  Company's  other
facilities due to the additional  clinic  staffing that these models  require.
As compared with 1997,  the higher  services  components  at these  facilities
accounted for an additional  $3.8 million of the increase in product sales and
services for 1998.  As a percentage  of revenues,  costs of product  sales and
services  was  54%  in  1998  compared  with  55% in  1997.  The  decrease  is
attributable  to the  ability of the Company to  leverage  the fixed  overhead
components of the cost of product  sales and services  over a broader  revenue
base.

      Selling,  general  and  administrative  expenses  increased  from  $22.6
million in 1997 to $23.4  million in 1998,  a 3%  increase.  The  increase  is
attributable  to the  additional  staffing and operating  expenses  associated
with the growth of the wound care  center  business  related to field  support
departments.   As   a   percentage   of   revenues,   selling,   general   and
administrative  expenses  were  22% in  1998  compared  to 26%  in  1997.  The
decrease is  attributable  to the ability of the Company to obtain leverage by
spreading the costs of its overhead structure over a broader revenue base.

      Interest  income was $2.7 million in 1998 and 1997.  Interest income for 
1998 is flat when compared to 1997 as the result of increased investment in
lower yielding tax free instruments in 1998.

      Net income  increased from $16.5 million or $1.27 (diluted) per share in
1997 to $17.0 million or $1.30  (diluted)  per share in 1998.  The increase in
earnings  of $.5  million  is  primarily  attributable  to an  improvement  in
operating margins associated with the revenue growth  particularly  related to
existing wound care facilities and economies of scale achieved  through market
growth,  offset  by an  increase  in  income  taxes  as a  result  of a higher
effective tax rate in 1998.


      Fiscal Year 1996 vs. Fiscal Year 1997. The Company's  revenues increased
from $67.4  million  in 1996 to $87.9  million in 1997,  a 30%  increase.  The
increased  revenue is  primarily  attributable  to the  operation of 105 wound
care  centers at the end of 1996  compared  with 132 at the end of 1997 and an
11%  increase in revenues at  existing  wound care  centers  related to higher
patient  volume.  Total new patients to the wound care centers  increased  26%
from 38,699 in 1996 to 48,722 in 1997. The total number of patients  receiving
Procuren  therapy  increased  8% from 7,912 in 1996 to 8,583 in 1997;  however
the percentage of patients  receiving  Procuren  decreased from 20% in 1996 to
18%  in  1997.  The  Company  believes  that  this  decrease  is  attributable
primarily  to an increase in the  percentage  of less  severe  chronic  wounds
being treated at the Company's  Wound Care Centers,  for which  physicians are
less  likely  to  prescribe   Procuren,   as  well  as  a  lack  of  available
reimbursement for Medicare  patients.  The Company believes that this shift in
the severity of the wounds  treated at a Wound Care Center occurs as the local
medical  community  becomes  familiar  with the services  offered by the Wound
Care Center and refers a broader range of chronic wound  patients to the Wound
Care Center for  treatment.  The Company  anticipates  that the  percentage of
patients  receiving  Procuren  will  continue  to  decline  gradually  in  the
future.

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

                                       17
<PAGE>

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

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

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

Liquidity and Capital Resources

      Working  capital  was $76.4  million at December  31,  1998  compared to
$62.6  million  at  December  31,  1997.  Total  cash,  cash  equivalents  and
marketable  securities  held-to-maturity  as of  December  31,  1998 was $70.1
million and was  invested  primarily  in highly  liquid  money  market  funds,
commercial  paper and  government  securities.  The ratio of current assets to
current  liabilities  decreased  from 6.1:1 at  December  31, 1997 to 5.9:1 at
December  31,   1998.   The   increase  in  working   capital  was   primarily
attributable  to the net income  for the year ended  December  31,  1998.  The
decrease in the ratio of current assets to current  liabilities  was primarily
attributable  to an increase in  accounts  payable which included an increase
in income taxes payable as the result of a higher effective tax rate in 1998.

      Cash  flows  provided  by  operations  for  1998  totaled  $19.5 million
primarily  attributable  to the net income for the period.  Cash flows used in
investing  activities for 1998 totaled  approximately  $36.9 million primarily
attributable  to the excess of  purchases  of  marketable  securities  held to
maturity  over  sales of $27.0  million and  by  capital  expenditures  for
furniture,  equipment  and  leasehold  improvements  of $6.8  million  and the
investment in Accordant Health  Services,  Inc. of $3.0 million (See Note B of
Notes  to  Consolidated   Financial   Statements).   Cash  flows  provided  by
financing  activities totaled $1.9 million for 1998 primarily  attributable to
net proceeds from the exercise of stock options.

      During 1998,  the Company  experienced  a $5.7  million  increase in net
accounts  receivable  primarily  due to the increase in revenues.  The average
number  of days  receivables  were  outstanding  increased  from 54 days as of
December 31,  1997 to 66 days as of December 31, 1998 primarily  attributed to
financial  and cash flow  constraints  being  experienced  at some  hospitals.
Further,  compared to December 31,  1997, the Company's  accounts  payable and
accrued expenses increased $3.4 million as of December 31, 1998.


      The Company's longer term cash requirements  include working capital for
the further  expansion of its wound care  business.  On February 18, 1999, the
Company  announced a 2 million share buyback plan.  This  repurchase  plan was
completed  by March 8, 1999 and an  additional  buyback  authorization  of 1.5
million  shares was  announced.  Through  March 15,  1999,  total  cash,  cash
equivalent  and  marketable   securities   used  for  such   repurchases   was
approximately  $29.6 million.  Other cash  requirements  are  anticipated  for
capital  expenditures  in the normal course of business.  The Company  expects
that,  based on its current business plan, its existing cash, cash equivalents
and  marketable  securities  will  be  sufficient  to  satisfy  its  currently
anticipated  working capital needs and cost  requirements of its stock buyback
plan.  The effects of inflation  and foreign  currency  translation  risks are
considered immaterial.

                                       18
<PAGE>

Year 2000 Compliance

            Many currently  installed  computer systems and software are coded
to accept  only  two-digit  entries in the date code  fields.  These date code
fields will need to accept  four-digit  entries to  distinguish  21st  century
dates from 20th century  dates.  This problem could result in system  failures
or  miscalculations  causing  disruptions of business  operations  (including,
among  other  things,  a temporary  inability  to process  transactions,  send
invoices or engage in other similar  business  activities.) As a result,  many
companies'  computer systems and software will need to be upgraded or replaced
in order to comply with Year 2000  requirements.  The potential  global impact
of the Year 2000  problem  is not known,  and,  if not  corrected  in a timely
manner, could affect the Company and the U.S. and world economy generally.

      The Company has formed a project  team  (consisting  of  representatives
from its information technology, finance, manufacturing,  sales, marketing and
legal  departments)  to address other  internal and external Year 2000 issues.
The Company's  internal  financial,  manufacturing  and other computer systems
are being reviewed to assess and remediate  Year 2000 problems.  The Company's
assessment of internal systems includes its information  technology  ("IT") as
well  as  non-IT  systems  (which  systems  contain  embedded   technology  in
manufacturing  or process  control  equipment  containing  microprocessors  or
other similar  circuitry).  The Company's 2000 compliance program includes the
following  phases:  identifying  systems that need to be modified or replaced;
carrying out  remediation  work to modify  existing  systems or convert to new
systems;  and conducting  validation  testing of systems and  applications  to
ensure  compliance.  For its  significant IT and non IT systems the Company is
currently in the remediation phase of this program.

      The amount of  remediation  work  required to address Year 2000 problems
is not  expected  to be  extensive.  During  1997  and 1998  the  Company  was
implementing  a  management   information   technology   plan  which  included
developing  and  acquiring  new  software as well as acquiring  and  replacing
hardware.  The  cost  of  this  management  information  technology  plan  was
approximately  $7  million.  Since the  Company  has  replaced  a  significant
portion  of its  financial  and  operational  systems  in the last few  years,
management  believes  that  the  new  equipment  and  software   substantially
addressees Year 2000 issues.  However,  the Company will be required to modify
some of its existing  hardware and software in order for its computer  systems
to function  properly in the Year 2000 and thereafter.  The Company  estimates
that  it  will  complete  its  Year  2000  compliance  program  for all of its
significant  internal  systems no later than the third  quarter of fiscal year
1999.

      In  addition,  the  Company  is  requesting  assurances  from its  major
suppliers  that  they are  addressing  the Year 2000  issue and that  products
purchased by the Company from such  suppliers  will  function  properly in the
year  2000.   Also,   contacts  are  being  made  with  the  Company's   major
customers.  These actions are intended to help mitigate the possible  external
impact of the Year 2000  problem.  However,  it is  impossible to fully assess
the potential  consequences in the event service  interruptions from suppliers
occur or in the event that there are disruptions in such infrastructure  areas
as utilities, communications, transportation, banking and government.

      The Company has no way of assuring  and it is unknown  whether  computer
applications of contract hospital  clients,  Medicare and other payors will be
year 2000  compliant.  The Company has not  determined the extent to which any
disruption  in the billing  practices of its  hospital  clients or the payment
practices of Medicare or other payors to the  hospital  clients  caused by the
year 2000 issues  will  affect the  Company's  operations.  However,  any such
disruption  in the billing or  reimbursement  process  could have  substantial
adverse  impact on  Medicare or Medicaid  payments  to the  hospitals  and, in
turn,  payments  to the  Company.  Any such  disruption  could have a material
adverse effect upon the Company's  business,  financial  condition and results
of operations.

      The  Company  expects  the total  cost  associated  with  resolving  the
Company's internal Year 2000 issues will not be material  including  replacing
non-complaint  internal  systems.  The Company's  estimates of Year 2000 costs
are based on  numerous  assumptions,  and there can be no  assurance  that the
estimates  are correct or that  actual  costs will not be  materially  greater
than anticipated.

                                       19
<PAGE>

      Based on its  assessments  to date,  the  Company  believes  it will not
experience  any  material  disruption  as a result  of Year 2000  problems  in
internal  manufacturing  processes,  information  processing or interface with
major customers,  or with processing orders and billing.  However,  if certain
critical   third-party   providers,   such  as   those   providers   supplying
electricity,  water or telephone service, experience difficulties resulting in
disruption of service to the Company,  a shutdown of the Company's  operations
at individual  facilities could occur for the duration of the disruption.  The
Company has not yet developed a contingency  plan to provide for continuity of
processing in such event of various problem scenarios,  but it will assess the
need to develop  such a plan based on the outcome of its  validation  phase of
its Year 2000  compliance  program  and the  results  of  surveying  its major
suppliers  and  customers.  Assuming  no  major  disruption  in  service  from
utility  companies  or  other  critical  third-party  providers,  the  Company
believes  that it  will be able to  manage  its  total  Year  2000  transition
without  any  material  effect  on the  Company's  results  of  operations  or
financial condition.

      The  Company  has   completed   a  review  of  its   material   computer
applications   and  believes  it  has  identified   and  scheduled   necessary
corrections  for its computer  applications.  Corrections  are currently being
made and are expected to be substantially  implemented by the third quarter of
the fiscal  year 1999.  The  Company  expects  that the total cost  associated
with these  revisions  will not be  material.  These  costs will be  primarily
incurred  during the fiscal  year 1999 and be charged to expense as  incurred.
The  Company  believes  that by  completing  its  planned  corrections  to its
computer  applications,  the Year 2000  issue with  respect  to the  Company's
systems can be mitigated.  However,  if such  corrections  cannot be completed
on a timely basis,  the Year 2000 issue could have a material  adverse  impact
on the Company's  business,  financial  condition  and results of  operations.
Because  of the  many  uncertainties  associated  with  Year  2000  compliance
issues,  and  because  the  Company's   assessment  is  necessarily  based  on
information from third party vendors and suppliers,  there can be no assurance
that the Company's  assessment is correct or as to the  materiality  or effect
of any failure of such assessment to be correct.


Cautionary Statements

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

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk

          None.

                                       20
<PAGE>

Item 8  Consolidated Financial Statements and Supplementary Data

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

      The following table sets forth the financial  results of the Company for
the eight quarters  ended  December 31, 1998 (in  thousands,  except per share
data):
                                                                      Income Per
 Quarter Ended    Revenues    Gross Profit     Net Income   Common Share Diluted
 -------------------------------------------------------------------------------
 1998:
 December 31     $  26,716      $  12,412         $ 4,572             $ .35
 September 30       26,722         12,313           4,392               .34
 June 30            26,036         11,959           4,196               .32
 March 31           24,513         11,268           3,877               .29
 

 1997:
 December 31     $  23,860      $  10,833         $ 4,599             $ .35
 September 30       22,705         10,284           4,286               .33 
 June 30            21,687          9,793           3,912               .30
 March 31           19,654          8,796           3,665               .28

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

        None.

                                       21
<PAGE>

                                    PART III


      This information  required by Part III of this Form 10-K is omitted from
this Report in that the  Registrant  will file a  definitive  proxy  statement
pursuant to Regulation 14(a) for its 1998 Annual Meeting of Stockholders  (the
"Proxy  Statement")  not later than 120 days after the end of the fiscal  year
covered  by  this  Report,  and  certain   information   included  therein  is
incorporated herein by reference.

Item 10  Directors and Executive Officers of the Registrant

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

Item 11  Executive Compensation
 
      The  information  required by this Item is  incorporated by reference to
the Company's Proxy Statement.

Item 12  Security Ownership of Certain Beneficial Owners and Management

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

Item 13  Certain Relationships and Related Transactions

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

                                       22
<PAGE>

                                   PART IV


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

(a)   1.    Index to Financial Statements.

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

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

      Consolidated Balance Sheets at December 31, 1998 and 1997...........   F-2


      Consolidated Statements of Income for each of the years ended
        December 31, 1998, 1997 and 1996..................................   F-3

      Consolidated Statements of Stockholders' Equity for each of the
        years ended December 31, 1998, 1997 and 1996......................   F-4

      Consolidated Statements of Cash Flows for each of the years ended
        December 31, 1998, 1997 and 1996..................................   F-5

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

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

      Schedule                                                              Page

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

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

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

(b)   Reports  on Form 8-K.  No  reports  were filed on Form 8-K filed by
      the Company during the fiscal quarter ended December 31, 1998.

                                       23
<PAGE>


                                  SIGNATURES

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

                                        CURATIVE HEALTH SERVICES, INC.



                                        By: /s/John Vakoutis         
                                            ----------------
                                            John Vakoutis
                                            President, Chief Executive Officer
                                            and Director
                                                   
Dated:  March 30, 1999

                              POWER OF ATTORNEY

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

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

Signature                 Title                                             Date

/s/ John Vakoutis         President, Chief Executive Officer      March 30, 1999
    ------------          (Principal Executive Officer) and Director
    John Vakoutis
        
/s/ John C. Prior         Senior Vice President Finance and       March 30, 1999
    -------------         Chief Financial Officer
    John C. Prior         (Principal Financial and Accounting
                          Officer) and Secretary

/s/ Gerardo Canet         Director                                March 30, 1999
    -------------
    Gerardo Canet

/s/ Daniel A. Gregorie, MD   Director                             March 30, 1999
    ----------------------
    Daniel A. Gregorie, MD

/s/ Lawrence C. Hoff      Director                                March 30, 1999
    ----------------
    Lawrence C. Hoff

/s/ Timothy I. Maudlin    Director                                March 30, 1999
    ------------------
    Timothy I. Maudlin

/s/ Gerard Moufflet       Director                                March 30, 1999
    ---------------
    Gerard Moufflet

/s/ Lawrence J. Stuesser  Chairman of the Board and Director      March 30, 1999
    --------------------
    Lawrence J. Stuesser

                                       24
<PAGE>
                         Report of Independent Auditors

Board of Directors and Stockholders
Curative Health Services, Inc.

        We have audited the accompanying consolidated balance sheets of Curative
Health Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income,  stockholders' equity, and cash flows
for each of the three years in the period ended  December  31, 1998.  Our audits
also  included  the  financial  statement  schedule  listed in the Index at Item
14(a).   These   consolidated   financial   statements   and  schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and schedule based on our
audits.

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

        In our opinion, the consolidated  financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Curative Health  Services,  Inc. and subsidiaries at December 31, 1998 and 1997,
and the  consolidated  results of its  operations and its cash flows for each of
the three years in the period  ended  December  31,  1998,  in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statement  schedule,   when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.

                                                           /s/ Ernst & Young LLP

Melville, New York
February 16, 1999, except for

 Note M as to which the date is March 15, 1999

                                       25
<PAGE>


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

<CAPTION>
                                                                          December 31,
                                                                      1998           1997
                                                                      -------------------
<S>                                                               <C>            <C>
ASSETS 
    Cash and cash equivalents................................     $ 24,222       $ 39,746
    Marketable securities held-to-maturity...................       45,830         18,807
    Accounts receivable (less allowance of $1,679 and $2,492

        at December 31, 1998 and 1997, respectively).........       19,871         14,211
    Deferred tax assets......................................        1,042          1,235
    Prepaid and other current assets.........................        1,179            924
                                                                     -----            ---
        Total current assets.................................       92,144         74,923
    Property and equipment, net..............................       13,366          9,268
    Other assets.............................................        3,611            748
                                                                     -----          -----

        Total assets.........................................     $109,121       $ 84,939
                                                                   =======         ======

LIABILITIES & STOCKHOLDERS' EQUITY

    Accounts payable.........................................     $ 13,497       $  8,846
    Accrued expenses.........................................        2,221          3,454
    Capital lease obligations................................            7             40
                                                                         -             --
        Total current liabilities............................       15,725         12,340
    Capital lease obligations................................            -              7
    Commitments and contingencies  
    Stockholders' equity:

        Preferred stock, $.01 par value per share; 10,000,000
          shares authorized, none issued.....................            -              -           
        Preferred stock, Series A Junior Participating, par value
         $.01 per share, 500,000 shares authorized, none issued          -              -
 

        Common stock, $.01 par value per share; 50,000,000
          shares authorized,12,758,282 shares issued and
          outstanding (12,561,342 shares in 1997)............          127            125
        Additional paid in capital...........................       79,000         75,235
        Returned earnings (deficit)..........................       14,269         (2,768)
                                                                    ------         ------
    Total stockholders' equity...............................       93,396         72,592
                                                                    ------         ------
    Total liabilities and stockholders' equity...............     $109,121       $ 84,939
                                                                   =======         ======
</TABLE>

                 See notes to consolidated financial statements
                                      F - 2

                                       26
<PAGE>


                       CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF INCOME
                        (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                            Year   Ended    December 31,
                                                            ----------------------------
                                                            1998         1997         1996
                                                            ------------------------------
<S>                                                     <C>          <C>         <C>    
Revenues...........................................     $103,987     $ 87,906    $  67,395
Costs and operating expenses:
    Costs of product sales and services............       56,035       48,200       37,828
    Selling, general and administrative............       23,358       22,617       19,208
                                                          ------       ------       ------
        Total costs and operating expenses.........       79,393       70,817       57,036
                                                          ------       ------       ------
Income from operations.............................       24,594       17,089       10,359
Interest income....................................        2,660        2,666        1,344
                                                           -----        -----        -----
Income before income taxes.........................       27,254       19,755       11,703
Income taxes.......................................       10,217        3,293        1,008
                                                          ------        -----        -----
Net income.........................................     $ 17,037     $ 16,462    $  10,695
                                                          ======       ======       ======
Net income per common share, basic.................     $   1.34     $   1.33    $     .95
                                                             ====        ====          ===
Net income per common share, diluted...............     $   1.30     $   1.27    $     .90
                                                             ====        ====          ===
Denominator for basic earnings per share, weighted average

    common shares..................................       12,704       12,404       11,212
                                                          ======       ======       ======
Denominator for diluted earnings per share, weighted
    
    average common shares assuming conversions.....       13,071       12,954       11,909
                                                          ======       ======       ======
</TABLE>
                 See notes to consolidated financial statements
                                      F - 3

                                       27
<PAGE>


                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                          (In thousands, except shares)
<TABLE>
<CAPTION>

                                                                        Additional      Retained                               Total
                                                     Common Stock          Paid in      Earnings      Subscription     Stockholders'
                                                  Shares       Amount      Capital      (Deficit)     Receivable              Equity
                                              --------------------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>          <C>              <C>                 <C>
Balance, December 31, 1995 ................   10,426,769   $      104   $   45,474   $  (29,925)      $      (42)         $   15,611
    Secondary public offering, net
       of expenses of $1,806 ..............    1,437,500           14       22,618                                            22,632
    Exercise of warrants ..................      102,608            1                                                              1
    Exercise of options ...................      248,546            2        1,249                                             1,251
    Tax benefit from stock option
       exercises ..........................                                     80                                                80
    Net income for 1996 ...................                                              10,695                               10,695
                                              --------------------------------------------------------------------------------------
Balance, December 31, 1996 ................   12,215,423          121       69,421      (19,230)             (42)             50,270
    Subscription receivable ...............                                                                   42                  42
    Exercise of options ...................      345,919            4        2,414                                             2,418
    Tax benefit from stock option
       exercises ..........................                                  3,400                                             3,400
    Net income for 1997 ...................                                              16,462                               16,462
                                              --------------------------------------------------------------------------------------
Balance, December 31, 1997 ................   12,561,342          125       75,235       (2,768)               -              72,592
    Exercise of options ...................      196,940            2        1,916                                             1,918
    Tax benefit from stock option
       exercises ..........................                                  1,849                                             1,849
    Net income for 1998 ...................                                              17,037                               17,037
                                              --------------------------------------------------------------------------------------
Balance, December 31, 1998 ................   12,758,282   $      127   $   79,000   $   14,269      $         -         $    93,396
                                              ======================================================================================
</TABLE>

                 See notes to consolidated financial statements
                                      F - 4

                                       28
<PAGE>

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

                                                                       Year Ended December 31,
                                                                    1998         1997        1996
                                                                    -----------------------------
<S>                                                             <C>          <C>         <C>   
OPERATING ACTIVITIES:
Net income...........................................           $ 17,037     $ 16,462    $ 10,695
Adjustments to reconcile net income to net cash provided by
  operating activities:

  Depreciation & amortization........................              2,794        2,014       1,185
  Provision for doubtful accounts....................              1,957        1,648         782
  Equity in operations of invested...................                 85            -           -
  Deferred income taxes..............................                193       (1,235)          -
  Tax benefit from stock option exercises............              1,849        3,400          80
Change in operating assets and liabilities:

  Increase in accounts receivable....................             (7,617)      (3,540)     (5,325)
  Decrease (increase) in prepaid and other current assets           (255)          98        (202)
  Increase in accounts payable and accrued expenses..              3,418        1,795       2,447
                                                                   -----        -----       -----
NET CASH PROVIDED BY OPERATING ACTIVITIES............             19,461       20,642       9,662
INVESTING ACTIVITIES:
Investment in Accordant Health Services, Inc.........             (3,000)           -           -
Purchases of property and equipment..................             (6,840)      (6,476)     (2,505)
Purchases of marketable securities held-to-maturity..            (49,942)     (56,781)    (38,923)
Sales of marketable securities held-to-maturity......             22,919       75,812      10,450
                                                                  ------       ------      ------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES..            (36,863)      12,555      30,978
FINANCING ACTIVITIES:

Proceeds from exercise of stock options, warrants

  and subscription receivable........................              1,918        2,460       1,252
Proceeds from secondary public offering, net of expenses               -            -      22,632
Principal payments on capital lease obligations and revolving
  line of credit.....................................                (40)      (1,137)       (177)
                                                                     ---       ------        ----
NET CASH PROVIDED BY FINANCING ACTIVITIES............              1,878        1,323      23,707
                                                                   -----        -----      ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.....            (15,524)      34,520       2,391
Cash and cash equivalents at beginning of year.......             39,746        5,226       2,835
                                                                  ------        -----       -----
CASH AND CASH EQUIVALENTS AT END OF YEAR.............           $ 24,222     $ 39,746    $  5,226
                                                                  ======       ======       =====
SUPPLEMENTARY CASH FLOW INFORMATION:

  Interest paid......................................           $     31     $     31    $     93
                                                                      ==           ==          ==
  Income taxes paid..................................           $  5,330     $    265    $    197
                                                                   =====          ===         ===
See Notes E and F for Non-Cash Transactions
</TABLE>

                 See notes to consolidated financial statements
                                      F - 5

                                       29
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1998

NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

        Principles  of  Consolidation:  The  consolidated  financial  statements
include  the  accounts  of  the  Company  and  its  wholly-owned   subsidiaries.
Significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

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

        Net Income Per Share:  Basic and  diluted  earnings  per share is  
calculated  in  accordance  with  Financial  Accounting Standards  Board  
("FASB")  Statement  No. 128.  All earnings per share  amounts for all periods  
have been  presented,  and where appropriate, restated to conform to 
FASB No. 128 requirements.

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

        Other Assets:  As of December 31, 1997 and 1998, other assets totalled $
748,000  and  $3,611,000  respectively.  As of December  31,  1997 other  assets
consist of costs of filing patent and trademark  applications of $748,000. As of
December 31, 1998 other assets consist principally of costs of filing patent and
trademarks of $696,000 and the net investment of $2,915,000 in Accordant  Health
Services,  Inc.  (See Note B).  Costs and  expenses  related to a 1992 patent of
$920,000  are  being  amortized  over  the life of the  patent  (17  years)  and
trademarks  of  $75,000  are  being  amortized  over the  estimated  life of the
trademark (20 years) using the straight-line method.

        Long-Lived Assets: The Company  periodically  reviews the carrying value
of its long-lived  assets in determining  the ultimate  recoverability  of their
unamortized values using future undiscounted cash flows analyses.  Such a review
has been  performed by  management  and does not indicate an  impairment of such
assets.

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

        Marketable  Securities  Held-to-Maturity:   Held-to-maturity  marketable
securities  represent highly liquid money market  instruments with maturities of
greater than three months at the time of purchase.  These securities, consisting
principally of securities of U.S.  Government agencies maturing at various dates
through November 1999, are valued at amortized cost which approximates market.

                                      F - 6

                                       30
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1998

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

The  Company's  investment  policy  gives  primary  consideration  to  safety of
principal, liquidity and return. The Company invests its funds with institutions
that have high credit ratings and to date has not  experienced any losses on its
investments.  The Company  classifies  its  investments  in such  securities  as
held-to-maturity  as the  Company  has the  intent  and  ability  to hold  these
securities  to  maturity.  As of  December  31,  1997 and 1998,  the Company had
approximately $20,000 and $71,000 of unrealized gains on marketable  securities,
respectively.

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

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

        Income  Taxes:  Income  taxes have been provided using the liability  
method in accordance with FASB No. 109,  "Accounting for Income Taxes."

        Stock Based  Compensation  Plans: The Company grants options for a fixed
number of shares to employees with an exercise price equal to the fair value of 
the shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No.25,"Accounting for Stock Issued to Employees" and
related  Interpretations  because the Company  believes the alternate fair value
accounting  provided  for  under  FASB No.  123,  "Accounting  for  Stock  Based
Compensation"  requires  the  use of  option  valuation  models  that  were  not
developed for use in valuing  employee stock options.  Under APB 25, because the
exercise  price of the Company's  employee stock options equals the market price
of the  underlying  stock on the  date of  grant,  no  compensation  expense  is
recorded.

NOTE B -- EQUITY INVESTMENT

        On June 4, 1998, the Company  signed an agreement with Accordant  Health
Services, Inc. ("Accordant") in which the Company agreed to invest $4 million in
Accordant  preferred  stock.  This agreement will give the Company an 11 percent
interest in Accordant and is accounted for using the equity method of accounting
as the Company has significant  influence over the operations of Accordant.
As of December 31, 1998 the Company invested $3 million under this agreement and
its share of Accordant's 1998 net loss was approximately  $85,000. 

                                     F - 7
                                       31
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1998

NOTE C -- PROPERTY AND EQUIPMENT

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

                                                               
<TABLE>
<CAPTION>                                                                 
                                                                        December 31,  
                                                                    1998           1997
                                                                    -------------------
                                                                        (In thousands)

               <S>                                             <C>            <C>   
               
               Property and equipment.....................     $  16,392      $  10,295
               Leased equipment capitalized...............         1,371          1,371
               Leasehold improvements.....................         5,193          4,450
                                                                   -----          -----
                                                                  22,956         16,116
               Less accumulated depreciation and amortization      9,590          6,848
                                                                   -----          -----
                                                               $  13,366      $   9,268
                                                                  ======          =====
</TABLE>


NOTE    D -- ACCRUED EXPENSES                   
                                                Accrued expenses are as follows:

                                                            December 31,
                                                        1998           1997  
                                                          (In thousands)
                                                       -------------------- 
               Incentive compensation and benefits.$   2,221      $   3,393     
               Technical service contracts ........        -             61     
                                                          --             --     
                                                   $   2,221      $   3,454     
                                                       =====          =====     
NOTE E -- LEASES

        The Company has entered into several noncancellable operating leases for
the rental of certain  office space  expiring in various years through 2005. The
Company also leases certain equipment under noncancellable capital and operating
leases  expiring in various years through 1999.  The principal  lease for office
space  provides  for  monthly  rental of  approximately  $60,000  per year.  The
following is a schedule of future  minimum  lease  payments,  by year and in the
aggregate, under capital leases and noncancellable operating leases with initial
or remaining  terms of one year or more at December 31, 1998: 


<TABLE>
<CAPTION>
                                                            Capital         Operating
                                                            Leases          Leases
                                                                (In thousands)
                                                            -------------------------
        <S>                                                  <C>            <C>
        1999............................................     $    7         $  1,908
        2000 ...........................................          -            1,676
        2001 ...........................................          -            1,371
        2002............................................          -            1,078
        2003............................................          -              949
        Thereafter......................................          -            1,240
                                                                ---            -----
        Total minimum lease payments....................          7         $  8,222
                                                                               =====
        Less amounts representing interest..............          -
                                                                ---
        Present value of net minimum lease payments....      $    7
                                                                  =
</TABLE>

        Rent  expense for all  operating  leases was  approximately  
$2,113,000,  $2,118,000  and  $1,498,000  for the years ended 
December 31, 1998, 1997 and 1996, respectively.

                                      F - 8


                                       32
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1998

NOTE F -- STOCKHOLDERS' EQUITY

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

        Director Share Purchase Program:  The Company maintains a Director Share
Purchase  Program (the "Program") to encourage  ownership of its common stock by
its directors. Under the Program, each non-employee director can elect to forego
receipt of cash payments for director's annual retainer and meeting fees and, in
lieu thereof,  receive  shares of common stock at market value equal to the cash
payment.  The Program  authorized  the  issuance of up to 120,000  shares of the
Company's  common stock at market value. At December 31, 1998 and 1997,  118,406
shares of common stock were reserved for future issuance under the Program.

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

NOTE G -- STOCK BASED COMPENSATION PLANS

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

        Pro forma  information  regarding net income and net income per share is
required  by FASB  No.  123,  and has  been  determined  as if the  Company  has
accounted for its stock  options under the fair value method of that  Statement.
The fair value for these  options  was  estimated  at the date of grant  using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions at December 31, 1998, 1997 and 1996 respectively: risk-free interest
rate of 4.84%,  5.61% and 6.36%; no dividend  yields;  volatility  factor of the
expected market price of the Company's  common stock of 55.7%,  58.0% and 62.2%;
and a weighted-average expected life of the options of 4.0 years.

                                      F - 9

                                       33
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1998

NOTE G -- STOCK BASED COMPENSATION PLANS - (CONTINUED)

        The  Black-Scholes  option  valuation  model  was  developed  for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  the   Company's   stock   options  have   characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock  options.  The Company's pro forma
information is as follows:

<TABLE>
<CAPTION>

                                                     (In thousands, except per share data)
                                                      ------------------------------------                                          
                                                          1998           1997           1996
                                                     ---------------------------------------
                       <S>                           <C>            <C>            <C>

                       Net Income:     As reported   $  17,037      $  16,462      $  10,695
                                       Pro forma        14,622         14,949         10,088

                       Basic EPS:      As reported     $  1.34        $  1.33         $  .95
                                       Pro forma          1.15           1.21            .90

                       Diluted EPS:    As reported     $  1.30        $  1.27         $  .90
                                       Pro forma          1.12           1.15            .85
</TABLE>

        A summary of the Company's stock option activity and related information
 for the years ended December 31, is as follows:
<TABLE>
<CAPTION>

                                             1998                               1997                                 1996  
                                  -----------------------------------------------------------------------------------------------
                                                 Weighted Avg                       Weighted Avg                    Weighted Avg
                                      Options    Exercise Price           Options   Exercise Price        Options  Exercise Price
                                  -----------------------------------------------------------------------------------------------
<S>                                   <C>        <C>                     <C>          <C>                <C>          <C>
Outstanding at beginning of year      1,353,614  $  22.92                1,177,833    $ 15.04            1,131,611    $      6.37
Granted......................           250,000     28.14                  625,500      28.43              348,100          21.91
Exercised....................          (196,940)     9.74                 (345,919)      6.99             (248,546)          5.11
Cancelled....................           (39,240)    21.59                 (103,800)     19.74              (53,332)         10.98
                                        -------                             -------                         ------
Outstanding at end of year..          1,367,434     25.81                1,353,614      22.92            1,177,833          15.04
                                      =========                          =========                       =========
Exercisable at end of year...           499,413                            338,303                         318,481
                                       ========                            =======                         =======
Weighted average fair value of
   options granted...........                     $ 13.85                             $ 14.86                           $   11.64
                                                    =====                               =====                               =====
</TABLE>

        The  following  table   summarizes   information   about  stock  options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                                                                                Weighted Average
                                               Options               Options    Remaining
                   Exercise Price          Outstanding           Exercisable    Contractual Life (In Years)
                   --------------          -----------           -----------    -------------------------- 
                  <S>                          <C>                    <C>       <C>  
                  $1.55  - $ 4.75              107,186                61,772    4
                   4.875 -   7.00               89,783                59,933    4.4
                   8.50  -  10.125              76,000                58,525    6.5
                  13.25  -  20.00              132,945               114,986    7
                  20.25  -  27.25              274,270               176,780    7.8
                  27.50  -  33.06              687,250                27,417    8.8
                                               -------                ------    ---
                                             1,367,434               499,413    5.9
                                             =========               =======    ===
</TABLE>

At December 31, 1998,  1,214,261 shares of common stock were reserved for future
issuance.

                                     F - 10
                                       34
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1998

NOTE H -- INCOME TAXES

        Significant components of the Company's deferred tax assets as of 
December 31, 1998 and 1997 are as follows:
                                                           1998            1997
                                                           ----            ----
           Accrued expenses, deductible when paid      $    930        $  1,032
           Book over tax depreciation                       112             203
                                                            ---             ---

           Deferred tax assets                         $  1,042        $  1,235
                                                          =====           =====

      The Company reduced its valuation allowance for deferred taxes by 
$6,129,000 during the year ended December 31, 1997.  Significant components of
the provision for income taxes are as follows:       

                                                 1998          1997        1996
                                                 ------------------------------ 
             Current:

                 Federal                      $ 8,434       $ 7,340     $ 4,553
                 State                          1,590         1,050         780
                 Deferred                         193        (1,235)          -
                 Utilization of net operating
                 loss carryforwards                 -        (3,862)     (4,325)
                                                  ---        ------      ------
                  Total income tax provision  $10,217       $ 3,293     $ 1,008
                                               ======         =====       =====

A reconciliation of income tax computed at the U.S. Federal statutory tax rate 
to income tax expense is as follows:
                                                1998         1997         1996
                                                ----         ----         ----
               Federal statutory tax rate       35.0%        35.0%        35.0%
               State income taxes net
                 of Federal tax benefit          3.8%         3.5%         4.0%
               Reduction in valuation allowance    -         (6.2%)          -
               Tax benefit of net operating
                 loss carryforwards                -         (23.0%)     (30.0%)
                  Other                         (1.3%)         7.4%          -
                                                ------        -----       -----
                  Effective tax rate            37.5%         16.7%        9.0%
                                                ======        =====       =====


NOTE I -- LOANS PAYABLE AND LONG TERM DEBT

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

                                     F - 11

                                       35
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1998

NOTE J -- MAJOR CUSTOMERS

        In 1996,  1997 and 1998,  the Company  derived  28%,  29% and 25% of its
consolidated revenues from one customer, respectively.

NOTE K -- LEGAL PROCEEDINGS

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

NOTE L -- EARNINGS PER SHARE

        The following table sets forth the computation of basic and diluted
 earnings per share:
                                                    1998        1997        1996
                                                    -------------------------- 
                                                          (In thousands)

        Denominator:

            Denominator for basic earnings per
            share, weighted average shares          12,704      12,404    11,212

        Effect of dilutive employee stock options      367         550       697
                                                       ---         ---       ---

        Denominator for diluted earnings per share,
            adjusted weighted average shares and
            assumed conversions                     13,071      12,954    11,909
                                                    ======      ======    ======

        The numerator  for basic and diluted  earnings per share for the years 
ended  December 31, 1998,  1997 and 1996 is the net income for the period.

NOTE M -- SUBSEQUENT EVENTS

        On February  18, 1999 the Company  announced a 2 million  share  buyback
plan.  This  repurchase  plan was  completed by March 8, 1999 and an  additional
buyback  authorization  of 1.5 million shares was  announced.  Through March 15,
1999 total  cash,  cash  equivalents  and  marketable  securities  used for such
repurchases was approximately $ 29.6 million.

                                     F - 12

                                       36
<PAGE>



                                                                     Schedule II

                                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                                             VALUATION AND QUALIFYING ACCOUNTS
                                               YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>

 <S>                                   <C>            <C>                                     <C>                <C>    
 COL. A                                COL.B          COL. C                                  COL. D             COL. E
 ------                                -----          ------                                  ------             ------
                                                               ADDITIONS

                                       Balance at     Charged to          Charged to                             Balance at
                                       Beginning      Costs and           Other Account       Deductions         End
 DESCRIPTION                           of Period      Expenses            Describe            Describe           of Period
 ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998:

Allowance for doubtful accounts       $ 2,492,000     $  1,957,000         $   x              $  2,770,000(1)    $  1,679,000
                                        =========        =========           ===                 =========          =========
Year ended December 31, 1997:
Allowance for doubtful accounts       $   941,000     $  1,648,000         $   x              $     97,000(1)    $  2,492,000
                                          =======        =========           ===                    ======          =========
Allowance for deferred tax valuation  $ 6,129,000     $          x         $   x                $6,129,000(2)    $          x
                                        =========        =========           ===                 =========                ===

Year ended December 31, 1996:

Allowance for doubtful accounts       $   514,000     $    782,000         $   x              $  (355,000)(1)     $   941,000
                                          =======          =======           ===                  =======             =======
Allowance for deferred tax valuation  $12,000,000     $          x         $   x              $  5,871,000(2)     $ 6,129,000
                                       ==========          =======           ===                 =========          =========  

(1)   Accounts written off 
(2)   Reduction in allowances

</TABLE>
                                       S-1

                                       37
<PAGE>


                                INDEX TO EXHIBITS

Exhibit No.    Description                                              Page No.

3.1         Articles of Incorporation of the Company                         (1)

3.2         Bylaws of the Company                                            (1)

4.0         Rights Agreement, dated as of October 25, 1995 between
            Curative Technologies, Inc. and Bank Minnesota,
            National Association, as Rights Agent                            (6)

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


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

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

10.3        Form of Wound Care Center(R)Contract                               *

10.4        Lease Agreement dated June 30, 1997, and Amended Lease 
            Agreement dated November 13, 1997, between New York Life
            Insurance Company and the Company                                  *

10.5        Employment Agreement, dated as of September 1, 1997
            between John C. Prior and the Company                         (11)**

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

10.7        Amendment No.4 to the 1991 Stock Option Plan                  (12)**

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

10.8.1      Amendment to Stock Subscription Warrant for Shares
            of Common Stock of Curative Technologies, Inc.                   (8)

10.9        Curative Health Services, Inc., Director Share 
            Purchase Program                                               (2)**

10.10       Employment Agreement, dated as of October 21, 1993,
            between Howard Jones and the Company                           (3)**

10.11       Curative Health Services, Inc. Employee 401(k) Savings
            Plan, as amended and restated                                  (4)**

10.12       Settlement Agreement by and between the University of
            California, David R. Knighton and the Company dated
            September 1, 1993                                                (5)

10.13       Settlement Agreement by and among the United States
            of America and UltraMed, Inc., Robert  Baurys,  
            Susan Hrim, Cy Corgan, Chris Rosenski  and the Company
            dated October 18, 1994 and related agreements                    (5)

10.14       Amendment of Employment Agreement, dated September 1, 1997
            between John Vakoutis and the Company                         (11)**

10.15       Employment Agreement dated as of September 1, 1997, between
            Carol Gleber and the Company                                  (11)**

10.16       Employment Agreement dated as of June 17, 1987, between
            Gary Jensen and the Company                                    (5)**

10.17       Memorandum of Understanding-Settlement of Shareholder Lawsuit    (9)

10.18       Final Judgment and Order of Dismissal with Prejudice
            of Class Action                                                 (10)

10.19       Curative Technologies, Inc. Non-Employee Director
            Stock Option Plan                                                (7)
 
10.19.1     Amendment No. 1 to Curative Technologies, Inc. Non Employee     
            Director Stock Option Plan                          (Ex. 10.19) (12)

10.20       Employment Agreement dated as of October 21, 1998 between 
            Robert Heisler and the Company                                     *

10.21       Amended Employment Agreement dated December 17, 1997 between
            William Tella and the Company                                 (13)**
             
10.22       Development and Licensing Agreement dated May 19, 1998 between
            Accordant Health Services, Inc. and the Company                    *

10.23       Stock  Purchase  Agreement  dated May 19, 1998,  among  Accordant
            Health Services, Inc, the Company and certain investor
            named herein                                                       *

10.24       Subsidiaries of the Registrant                                     *

10.25       Consent of Ernst & Young LLP                                       *

*       Filed herewith
**      Required to be filed pursuant to Item 601(b) (10) (ii) or (iii) (A) of 
        Regulation S-K.
(1)     Incorporated  by reference to the  similarly  numbered  exhibit  (unless
        otherwise indicated) to the Company's Registration Statement on Form S-1
        (No. 33-39880).

(2)     Incorporated by reference to the Company's  Registration  Statement on
        Form S-8 (filed July 7, 1993, No. 33-65710). 

(3)     Incorporated by reference to Exhibit 10.32 to the  Company's  Annual  
        Report on Form 10-K  filed for the year  ended December 31, 1993.

(4)     Incorporated by reference to the Company's Registration Statement on 
        Form S-8 (filed October 13, 1994, No. 33-85188).

(5)     Incorporated  by reference to the similarly  numbered  exhibit to the 
        Company's Annual Report on Form 10-K filed for the year ended 
        December 31, 1994.

(6)     Incorporated by reference to similarly numbered exhibit to the Company's
        Current Report on Form 8-K dated November  6, 1995.

(7)     Incorporated by reference to Exhibit 10.25.2 to the Company's Quarterly 
        Report on Form 10-Q for the quarter ended June 30, 1996.

(8)     Incorporated by reference to Exhibit 25.1 filed with the Company's  
        Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.

(9)     Incorporated by reference to Exhibit 10.42 to the Company's Annual 
        Report on Form 10-K filed for the year ended December 31, 1995.

(10)    Incorporated by reference to Exhibit 10.43 to the Company's  Annual 
        Report on Form 10-K filed for the year ended December 31, 1996.

(11)    Incorporated by reference to the similarly  numbered  exhibit to the 
        Company's Annual Report and Form 10-K filed the year ended
        December 31, 1997.

(12)    Incorporated  by  reference to the  similarly  numbers  exhibit  (unless
        otherwise  indicated) to the Company's Quarterly Report on Form 10-Q for
        the quarter ended June 30, 1998.

(13)    Incorporated by reference to Exhibit 10.45.1 to the Company's  Quartely
        Report on Form 10Q for the quarter ended March 3, 1998.

                                       38
<PAGE>

                                                                    Exhibit 10.3

                          MANAGEMENT SERVICES AGREEMENT


THIS AGREEMENT ("Agreement") is between CURATIVE HEALTH SERVICES,  INC., located
at 150 Motor  Parkway,  Hauppauge,  New York 11788  ("Company"),  and  [FACILITY
NAME],  located  at  [FACILITY  ADDRESS]  ("Facility")  and is  effective  as of
[EFFECTIVE DATE] ("Effective Date").

WHEREAS,  Company is in the business of managing  medical and physician  Centers
and has developed an  innovative,  inter-disciplinary  program for the medically
and cost effective  diagnosis and treatment of chronic,  non-healing wounds (the
"Program");

WHEREAS,  Facility  desires  to engage  Company  to manage  the  Program  for an
outpatient  Wound Care Center at [FACILITY  ADDRESS]  ("Center")  to allow it to
more efficiently and effectively provide medical services,  including wound care
services, to patients of Center;

WHEREAS,  Facility  desires to obtain  access to  Procuren(R),  a growth  factor
therapy,  and the right to use  certain  trademarks,  trade  secrets,  and other
intellectual property of Company; and

WHEREAS, Company desires to manage the Program for Facility and provide Facility
access to  Procuren(R)  and the right to use  certain of its  trademarks,  trade
secrets, and other intellectual property.

NOW,  THEREFORE,  for good and valuable  consideration,  intending to be legally
bound, Company and Facility hereby agree as follows:

 1.    Management Services.  Company shall be the manager for Center and shall 
       do the following in support of Center ("Services"):

       a)   The Center,  The Program,  and  Procuren(R).  Develop and manage the
            Center and the Program on an  outpatient  basis in  accordance  with
            Company's  clinical  pathways  for wound  care  management  and make
            Procuren(R) available as part of the Program;

       b)   Management and Operation of Center. Exercise management oversight of
            the  operation  of  Center  and the  Program,  subject  to  Facility
            requirements and the ultimate authority of Facility;

       c)   Case  Management  Plan.  Provide a Case Management Plan for each new
            patient of Center ("Center Patient");

       d)    Non-Physician Medical, Professional, and Other Support Staff.  In
            cooperation with Facility, supervise non-physician medical,
            professional, and other support staff;

       e)    Program Director.  Employ a Program Director or Manager to oversee,
            coordinate, and manage Services and supervise Center Staff; the
            Program Director or Manager shall report to and be accountable to 
            the Facility and its governing board or body;

                                       1
<PAGE>

       f)   Billing  and   Collection.   Provide   documentation   and  back  up
            information to support billing and collection by Facility;

       g)   Financial and Business  Accounting and Reporting.  Maintain business
            and  financial  information  and  procedures  to  properly  monitor,
            account  for,  and report the  business of Center;  provide  regular
            business reports to Facility;

       h)   Clinical Analysis and Reporting.  Establish systems, procedures, and
            reports  to  assess  and  report  the  clinical  activity  of Center
            including  outcomes for patient treatment and patient  satisfaction;
            provide clinical reports to Facility;

       i)   Third Party  Contracts and Fee  Structures.  Assist  Facility in the
            negotiation  and  administration  of third  party  provider,  payor,
            vendor,  and  supplier  contracts  for  Center;  assist  Facility in
            establishing  fees or charges for all services and supplies  sold or
            provided to or by Center;

       j)   Total  Quality  Management  and  Business  Efficiency.   Assess  the
            practices,  procedures,  and  workflow  of  Center  to  improve  its
            efficiency,  processes, and effectiveness;  develop,  implement, and
            maintain a program of Total Quality  Management  ("TQM Program") for
            Center  to  be  integrated  with  existing  quality   management  or
            assurance  programs  of  Facility;   conduct  periodic  TQM  Program
            reviews;

       k)   Training and  Education.  Provide  training and education for Center
            and Facility staff as mutually agreed upon;

       l)   Community  Relations and Education.  In  cooperation  with Facility,
            develop and implement a community relations and education program to
            effectively  communicate  the wound care  services  of  Center.  The
            community relations and education program shall include at least the
            following:

             i)    Company design and publication of appropriate literature and
                  promotional materials;
             ii)  Company  development  and  presentation of wound care seminars
                  for  physicians,  allied health  professionals,  and community
                  members; and
             iii) Company  and  Facility   development   of  general   community
                  awareness of problems  associated with non-healing  wounds and
                  the methods of prevention  and  treatment of wounds  including
                  the mailing or  distribution  of literature to Center Patients
                  and prospective patients.

       m)   Management  Expenses.  Bear all  costs  and  expenses  necessary  to
            perform Services ("Management Expenses");  Management Expenses shall
            not include room, board, and travel expenses for training and
            education for Facility staff and employees.

                                       2
<PAGE>

 2.   Duties and  Obligations of Facility.  In  furtherance  of this  Agreement,
      Facility shall do the following.

       a)    Facilities and Facilities Support.  Provide, maintain, and bear all
            costs for at least [SQUARE FEET] square feet of appropriate space 
            and furniture, fixtures, and equipment suitable for and exclusively
            dedicated to the operation of a first class outpatient Center to
            include routine maintenance; utilities including water, gas,
            electricity, heat, air conditioning, and telephone; property taxes;
            commercial liability and property insurance; and laundry, linen,
            janitorial, cleaning, and disposal services, including disposal of
            all biological or toxic wastes; staff parking; security; and access
            to patient transportation;

       b)   Department of Facility.  Operate  Center as a department of Facility
            under the administration of Facility and its medical staff;

       c)    Billing and Collection.  Bill and account for revenues due and
            payable for all Facility services and supplies provided or sold to
            Center Patients ("Revenues");

       d)    Payment of Compensation.  Bear the expense for and pay the
            Compensation set forth in Section 3 of this Agreement
            ("Compensation");

       e)   Facility Expenses. In addition to Compensation, bear all expenses of
            the Facility  related to the Center and this Agreement which are not
            Management Expenses borne by Company ("Facility Expenses");

       f)   Non-Disposable  Equipment.  Provide,  maintain,  and  replace,  when
            necessary,  all  non-disposable  equipment  necessary to efficiently
            operate Center;

       g)   Supplies and Disposable Equipment.  Provide,  maintain,  and account
            for all supplies and disposable  equipment  necessary to efficiently
            operate Center;

       h)   Professional   Services.    Exercise   full   authority,    control,
            supervision,   and  direction  over  and   responsibility   for  all
            professional  and other  medical  services  rendered by or under the
            direction  of Facility  and assume  responsibility  for all medical,
            professional,  and ethical  matters  affecting or  applicable to its
            relationship with physicians  providing  services at Center ("Center
            Physicians");

       i)   Program  Support.  Use, and take  measures to ensure that all Center
            Physicians  use,  to  the  extent  it is  medically  reasonable  and
            appropriate to do so, the clinical pathways of the Program;

       j)   Fee Structure and Charges.  Set fee  structures  and charges for all
            services and supplies sold or provided to or by Center;

       k)    Consultation.  Advise Company in the development and refinement of
            the Program;

                                       3
<PAGE>

       l)   Licensure and  Certification.  Assure that Center Physicians and all
            other health professionals  affiliated with Center are duly licensed
            and certified to practice medicine in the state of Center and comply
            with all applicable laws, regulations, and ethical standards;

       m)   Compliance.  Take all steps necessary to properly operate,  license,
            and certify Center in accordance with all applicable federal, state,
            and  local  laws  and  regulations;  maintain  all  information  and
            documents necessary to demonstrate compliance;

       n)    Operations Reports.  Provide Company internal operations reports
            with sufficient detail and frequency to allow Company to monitor and
            assess the performance of Program;

       o)   Community Relations and Education. Cooperate with Company to develop
            the community relations and education program;

       p)   Medical  and  Patient  Records.  Maintain  complete,  accurate,  and
            up-to-date  medical  records in accordance  with  standard  clinical
            protocol and applicable laws and regulations;

       q)    Non-Physician Medical, Professional, and Other Support Staff.
            Employ or provide, non-physician medical, professional, and other
            support staff reasonably necessary for the effective operation of
            Center;

       r)   Medical  Director.  Appoint a Medical  Director for Center and, with
            Company,  enter into a  Physician  Affiliation  Agreement  in a form
            mutually agreed upon between Facility and Company; and

       s)   Center Physicians. Staff Center with Center Physicians sufficient to
            provide  patient  services  for  Center;   assure  that  all  Center
            Physicians  adhere to the terms and conditions of this Agreement and
            enter  into  a  Physician  Affiliation  Agreement  in a  form  to be
            mutually agreed upon between Facility and Company.

 3.   Compensation.  Facility and Company  agree to the business  terms and fee,
      compensation, and payment structure as set forth below:

       a)   Development  Fee.  Facility  will  pay  Company  a  one-time  fee of
            [DEVELOPMENT  FEE]  for  development,  administration,  and  initial
            management  services  provided in establishing the Program,  payable
            [DEVFEE NUMBER OF DAYS] days after the Effective Date.

       b)   Management  Fee.  For the  first  year  after  the  Effective  Date,
            Facility  will pay Company a Management  Fee of [MANFEE  FIRST YEAR]
            per month; for the second full year of the term,  Facility shall pay
            Company a Management Fee of [MANFEE  SECOND YEAR],  in equal monthly
            installments. Thereafter, the Management Fee will be adjusted upward
            by Twenty Thousand Dollars ($20,000.00) annually.

                                       4
<PAGE>

       c)   Case Management Fee. Facility will pay Company a Case Management Fee
            of [CASE  MANAGEMENT FEE] for each Patient  admitted to the Program.
            No fee is payable for a Patient readmitted to the Program (1) within
            thirty (30) days of  discharge,  and (2) for  treatment for the same
            wound previously treated.

       d)   Procuren(R)Solution Charges.  For non-Medicare patients of Center
           receiving Procuren(R), Facility shall pay Company, [PROCUREN FEE] 
           per daily patient dose. For all Medicare patients of Center receiving
           Procuren(R), Facility shall pay Company [PROCUREN FEE MEDICARE] per
           daily patient dose.  A daily patient dose is defined as 10
           milliliters unless the parties otherwise agree.  Should a Center
           Physician prescribe a daily patient dose greater than 10 milliliters
           to a Patient, Company will provide Procuren(R)at the increased dosage
           at no additional charge per dose, subject to an additional blood
           processing fee of [REPROCESSING FEE] should additional blood
           processing be required because of the increased dosage.

       e)   Blood Processing Facility ("BPF") Use Fee. For the operation and use
            of the BPF,  Facility  shall  pay  Company  [BPF USE FEE] per  month
            commencing on the Effective Date.

       f)   Courier Service.  Facility will bear the cost for all shipments by a
            suitable  courier of blood and blood  products to and from Company's
            regional BPF.

       g)   Community  Relations  and  Education  Program.  In  support  of  the
            community relations and education program, Company and Facility will
            each commit to spend at least [MARKETING DOLLARS] ($***) annually.

       h)   Payment Terms.  Company will submit monthly invoices to Facility for
            all fees and charges incurred during the preceding  month.  Facility
            will pay monthly  invoices within thirty (30) days of receipt.  Late
            payments  will be subject to a late  payment fee of one and one half
            percent (1 1/2%) of the invoice amount per month. Monthly bills will
            be in a form and content  sufficient to allow  Facility to reconcile
            its cost reporting and billing of charges.

       i)   Increases in Fees and Charges. Company Fees may be adjusted annually
            to reflect  increases in costs and services,  as mutually  agreed by
            the  parties.  If the  parties  are  unable  to agree on a  proposed
            increase in Fees,  they will be  adjusted by an amount  equal to the
            lesser of the  increase in the  medical  component  of the  consumer
            price index or four percent (4%).

                                       5
<PAGE>

4.    Independent  Contractor.  Neither Facility nor any of Center Physicians is
      or shall be an employee,  agent, or servant of Company;  instead, Facility
      and  Center  Physicians  are  independent  contractors  who are  providing
      Services  on a fee for  service  basis to  Center  Patients.  Furthermore,
      Company is not and shall not be an employee, agent, or servant of Facility
      or Center Physicians;  instead it is an independent  contractor  providing
      management service to Facility on a fee for service basis.

5.    Patient  Care.  Nothing in this  Agreement  shall  dictate how Facility or
      Center  Physicians  shall  practice  medicine,  deliver  patient  care, or
      exercise  medical  judgment.  Facility  and Center  Physicians  shall have
      complete  control over the diagnosis and treatment of all Center  Patients
      and neither  Company nor any employee of Company shall exercise any direct
      supervision  or control  over the  individual  treatment  of  patients  by
      Facility or Center Physicians.

6.     Restrictive Covenant Not To Compete.  During the term of this Agreement
      and for a period of one (1) year following the effective date of its
      termination or non-renewal by Facility, Facility shall not, without the
      prior written consent of Company, (i)establish or operate a facility which
      has as its primary business the treatment of chronic, non-healing wounds 
      in direct or indirect competition with the services provided at Center; 
      (ii) employ, hire, or contract for services with any employees or former
      employees of Company; or (iii)engage or contract with any person or entity
      to provide Facility comprehensive wound care management services of the
      kind contemplated by this Agreement.  These restrictions are not intended
     to prevent Facility or Center Physicians from otherwise operating a medical
      practice or providing professional services, including wound healing
      services.  The parties have agreed that this restriction is reasonable in
      both scope and duration and that Company is entitled to seek injunctive
      relief to enforce it.

7.    Medical Records.  All medical  records,  including  patient  records,  are
      maintained by Facility and will remain the property of Facility;  however,
      Facility will provide Company  reasonable access to inspect and copy them,
      subject to any legal  restrictions or  restrictions  necessary to maintain
      their confidentiality. Company and Facility will not disclose the contents
      of any patient's  medical  record to any third party without the patient's
      prior written consent unless required to do so pursuant to law.

8.    Facility Books and Records.  Upon reasonable request by Company,  Facility
      will make  available  to Company  those  Facility  records  necessary  for
      Company to provide Services pursuant to this Agreement.

9.    Company  Records.  All records and  information  created and maintained by
      Company in providing Services are and will remain the property of Company.
      Company will provide  Facility with reasonable  access to inspect and copy
      them,  subject to any legal  restrictions  or  restrictions  necessary  to
      maintain their confidentiality.

10.    Government Access to Records.  Company agrees, to the extent required by
      law, to make available upon reasonable request to the Secretary of the U.S
      Department of Health and Human Services, and the U.S. Comptroller General
      and their duly authorized representatives this Agreement and all books,
      documents and records relating to Center operations.  If Company carries
      out its responsibilities through a subcontract of Ten Thousand Dollars
      ($10,000.00) or more over a twelve (12) month period with a related
      organization, the subcontract will also contain a government access to
      records clause similar to this clause.

                                       6
<PAGE>

11.    Confidential Information.  In performing Services, Company will provide
      Facility proprietary information, including proformas and this agreement,
      which is confidential to Company about its inventions; research and
      development; wound care management protocols, processes, and algorithms;
      systems; technological improvements; trade secrets; financial information;
      and business strategy or policies ("Confidential Information").
      Confidential Information shall not include public information or
     information legally and properly obtained from other sources without breach
      of any agreement with Company.  Facility or Center Physicians will not use
      Confidential Information for any purpose other than operation of the
      Program or providing Services and will not disclose, publish, or
      disseminate any Confidential Information to any third party without the
      express prior written consent of Company, except as may be required by
      state or federal law. Should applicable law require Facility to disclose
      Confidential Information, Facility will notify Company of the request for
      disclosure within at least fifteen (15) days prior to the deadline for
      disclosure.

12.    Trademarks & Service Marks.  Facility acknowledges that Company is the
      sole and exclusive owner of certain trademarks, including Curative Health
  Services(R), Procuren(R), Wound Care Center(R), and such other marks as may be
      designated by Company from time to time (the "Marks"). Facility is granted
      a non-exclusive, non-transferable, limited right during the term of this
      Agreement to use the Marks solely to identify Company or the Program.
      Facility will adhere to Company's protocols for use of its Marks and will
      submit to Company for approval any written materials not developed by
      Company which use the Marks. Facility will not at any time do or suffer to
      be done any act or thing which will impair the rights of Company in and to
      the Marks.

13.   Copyright.  Company will make available to Facility  copyrighted  material
      owned by  Company  including,  but not  limited  to,  manuals,  commercial
      scripts,  and marketing plans. Company grants to Facility a non-exclusive,
      non-transferable,  limited  right  for the term of this  Agreement  to use
      copyrighted material solely for the communication of the Program.

14.    Assignment of Improvements to Program.  Any new product or process
      improvement to Program ("Improvement") developed solely by Company in
      support of the Program shall vest in and be the exclusive property of
      Company. Company shall also have an exclusive right to license or purchase
      any Improvement developed by Facility solely or in cooperation with
      Company, in which case Facility will provide Company written notice of and
      information about the Improvement and Company shall then have ninety (90)
      days to license or purchase an exclusive right to the Improvement. Company
      and Facility will negotiate the terms and conditions of the license or
      purchase in good faith, whereupon Facility will assign and transfer, and
      shall cooperate to perfect the assignment and transfer, to Company, all
      intellectual property right, title, and interest in and to Facility's
      Improvement or contribution to the Improvement.

                                       7
<PAGE>

15.   Wound Healing Agents and Preparations.  Facility shall recognize Company
     as having sole and exclusive authority to evaluate wound healing agents,
     growth factor preparations, human skin equivalents, and other wound healing
     agents, preparations or products ("Healing Agents") that are now or may
     become available and determine whether and how to incorporate them into the
     clinical pathways of Center.  Facility shall give Company the exclusive
     option to be the distributor or supplier of Healing Agents for use in
     Center, subject to mutually agreed upon terms and conditions.

16.   Program Name.  The name of the Program will be "FACILITY NAME / Wound Care
      Center(R),  Wound Care Center(R) is a Curative Network Member" to optimize
      community identification,  create a strong name relationship,  and achieve
      cost savings through regional  awareness.  The Program name may be used in
      publications and periodicals  about  professional and patient awareness of
      the Program.  The Program name will incorporate  those protocols for font,
      logo, design, and layout specified by Company.

17.   Term. This Agreement  commences on the Effective Date and continues for an
      initial term of five (5) years unless terminated  earlier pursuant to this
      Agreement.  At the end of the  initial  and  each  subsequent  term,  this
      Agreement  will  automatically  renew for an additional  one (1) year term
      unless either party provides  written notice of its intention not to renew
      at least one (1) year prior to the end of the term.

18. Termination. Either party may terminate this Agreement as follows:

       a)    At any time with twelve (12) months prior written notice;

       b)   Immediately,  after ninety (90) days notice of a material  breach of
            any term or condition of this  Agreement,  if the material breach is
            not cured  within the ninety (90) day notice  period.  Notice to the
            breaching party shall set forth  sufficient  detail about the breach
            to permit cure; or

       c)   Immediately,  should  either  party  voluntarily  file a petition in
            bankruptcy,  make an  assignment  for the benefit of  creditors,  or
            otherwise  seek  relief  from  creditors  under any federal or state
            bankruptcy, insolvency, reorganization, or moratorium statute.

       Upon termination,  Company and Facility will cooperate to assure a smooth
      transition;  Facility will return all Confidential Information in whatever
      form or format to Company.

 19.  General.  This Agreement is for the benefit of both parties and may not be
      assigned by either without the written consent of the other.  It will be
      governed by and construed in accordance with the laws of the state of
      Facility without applying the conflicts of law rules of that state.  All
      notices required by this Agreement will be in writing and mailed by first
      class mail to the address first set forth above or to such other address 
      as either party may designate from time to time, or transmitted by hand
      delivery or facsimile.  Notices will be deemed given upon receipt. Should
      any part of this Agreement be found by a court of competent jurisdiction 
      to be invalid or unenforceable, the remainder of this Agreement shall not 
      be affected and each term shall be valid and enforced to the fullest 
      extent permitted by law. This Agreement and its attachments are the entire
      agreement between the parties because all prior written or oral promises 
      or representations are incorporated in this Agreement.  No amendments or
      modifications of this Agreement will be binding upon either party unless 
      in writing and signed by both parties.

IN WITNESS  WHEREOF,  the parties have duly  executed  this  Agreement as of the
dates set forth below.


[FACILITY NAME]                           CURATIVE HEALTH SERVICES, INC.


By:                                       By:
Name: [FACILITY SIGNATORY]                Name: John Vakoutis
Title:[FACILITY SIGNATORY TITLE]          Title:President & Chief
Executive Officer
Date:                                     Date:

<PAGE>
                                                                    Exhibit 10.4




                      NEW YORK LIFE INSURANCE COMPANY

                                              LANCLORD 
                                   TO

                        CURATIVE HEALTH SERVICES, INC.

                                              TENANT

--------------------------------------------------------------------------------

                                     LEASE




                           Dated as of June 30, 1997
<PAGE>

                                                                 

TABLE OF CONTENTS LEASE                                                     Page

 ARTICLE I Premises; Term; Use.................................................2
       1.01 Demise.............................................................2
       
       1.02 Term...............................................................2
       
       1.03 Commencement Date..................................................2
     
       1.04 Tenant Delay.......................................................4
       
       1.05 Use................................................................4
       
       1.06 Storage Space......................................................5
       
       1.07 Offer Space........................................................6
       
       1.08 Expansion Space....................................................8
       
 ARTICLE 2 Rent ...............................................................9
       2.01 Rent...............................................................9
       
       2.02 Fixed Rent.........................................................9
       
       2.03 Additional Rent...................................................10
       
       2.04 Tax Payments......................................................10
       
       2.05 Tax Provision.....................................................12

       2.06 Electricity.......................................................13

       2.07 Manner of Pavment.................................................14

       2.08 Securitv..........................................................15

 ARTICLE 3 Landlord Covenants.................................................17
       3.01 Landlord Services.................................................17
 
 ARTICLE 4 Leasehold improvements; Tenant Covenants...........................19
 
       4.01 Initial improvements..............................................19
       
       4.02 Alterations.......................................................21
       
       4.03 Landlord's and Tenant's Propertv..................................23
       
       4.04 Access and Changes to Building....................................24
       
       4.05 Repairs...........................................................25
       
       4.06 Compliance with Laws..............................................26
       
       4.07 Tenant Advertising................................................26
       
       4.08 Right to Perform Tenant Covenants.................................26
       
 ARTICLE 5 Assignment and Subletting..........................................27
       5.01 Assignment; Etc...................................................27
       
       5.02 Landlord's Right of First Offer...................................28

       5.03 Assignment and Subletting Procedures..............................30

       5.04 General Provisions................................................32
       
       5.05 Partnership Tenant................................................33
       
       5.06 Assignment and Sublease Profts....................................33

 ARTICLE 6 Subordination; Default; indemnity..................................34
       6.01 Subordination.....................................................34
       
       6.02 Estoppel Certiftcate..............................................36

       6.03 Default...........................................................36

       6.04 Re-entry by Landlord..............................................37

       6.05 Damages...........................................................37

       6.06 Other Remedies....................................................38

       6.07 Right to Injunction...............................................38

       6.08 Certain Waivers...................................................39

       6.09 No Waiver.........................................................39

       6.10 Holding Over......................................................39

       6.11 Attornevs' Fees...................................................40
       6.12 Nonliabilitv and Indemnification..................................40
 
 ARTICLE 7 insurance; Casualty; Condemnation..................................41
       7.01 Compliance with insurance Standards...............................41

       7.02 Tenant's insurance................................................41
       
       7.03 Subrogation Waiver................................................42
       
       7.04 Condemnation......................................................42
      
       7.05 Casualtv..........................................................44
       
 ARTICLE 8 Miscellaneous Provisions...........................................45
       8.01 Notice............................................................45
       8.02 Building Rules....................................................46
       8.03 Severability......................................................47
       8.04 Certain Deftnitions...............................................47
       8.05 Quiet Enjoyment...................................................47
       8.06 Limitation of Landlord's Personal Liabilitv.......................47
       8.07 Counterclaims.....................................................47
       8.08 Survival..........................................................48
       8.09 Certain Remedies..................................................48
       8.10 No Offer..........................................................48
       8.11 Captions: Construction............................................48
       8.12 Amendments........................................................49
       8.13 Broker............................................................49
       8.14 Merger............................................................49
       8.15 Successors........................................................49
       8.16 Applicable Law....................................................49
       8.17 Parking ..........................................................49
       8.18 Graphics; Building Directory; Card Key Access.....................50
       8.19 Health Club.......................................................51
       8.20 Media Center......................................................52
 ARTICLE 9 Renewal Right......................................................53
       9.01 Renewal Right.....................................................53
       9.02 Renewal Rent and Other Terms......................................53
 
 EXHIBITS
 A    Description of Land
 B    Floor Plan
 B-l  Storage Space
 B-2  Offer Space
 B-3  Expansion Space
 C    Building Rules and Regulations 
 D    Standard Cleaning Specifications
 D-l  HVAC Specification
 E    Form of Commencement  Letter 
 F    Intentionally  Omitted
 G    Health Club Waiver Form
 
 INDEX OF DEFINED TERMS                 
 Definition                             Where Defined
 AAA ...................................Section 9.02
 Additional Rent........................Section 2.03
 Affiliate .............................Section 5.01
 Adjusted Electric Charge...............Section 2.06
 Alterations............................Section 4.02 
 Architect..............................Section 4.01
 Assignment Consideration...............Section 5.05
 Base Electric Rate.....................Section 2.06 
 Base Amount............................Section 2.05
 Base Year..............................Section 2.05
 Base Tax Amount........................Section 2.04
 Broker.................................Section 8.13
 Building ..............................Recitals 
 Business Days..........................Section 3.01
 Business Hours.........................Section 3.01 
 Casualty...............................Section 7.05
 Change Order...........................Section 4.01
 Change Order Request...................Section 4.01
 Commencement Date......................Section 1.03
 Control ...............................Section 5.01
 Curing Party...........................Section 4.08
 Electric Rate..........................Section 2.06
 Existing Adjusted Electric Charge......Section 2.06
 Expiration Date........................Section 1.02
 Fixed Rent.............................Section 2.02 
 Fixtures ..............................Section 4.03
 GAAP...................................Section 2.05 
 Health Club............................Section 8.19 
 Improvements and Betterments...........Section 4.03 
 Indemnified Party......................Section 6.12
 Initial Improvements...................Section 4.01 
 Interest Rate..........................Section 4.08 
 Land...................................Recitals  
 Landlord...............................Introduction; Section 8.04
 Landlord Services......................Section 3.01
 Landlord's Statement...................Section 2.05
 Landlord's Work........................Section 4.01
 Laws...................................Section 4.06
 Material Alteration....................Section 4.02
 Media Center...........................Section 8.20
 New Tenant.............................Section 6.10
 Other Sublease Consideration............Section 5.05 
 Parking Areas...........................Section 8.17
 Premises................................Section 1.01
 Project.................................Recitals
 Rent....................................Section 2.01
 Rent Commencement Date..................Section 2.02
 Security Deposit........................Section 2.09 
 Space Plan..............................Section 4.01
 Substitution Premises...................Section 8.21 
 Successor Landlord......................Section 6.01
 Superior Lease..........................Section 6.01
 Superior Lessor.........................Section 6.01
 Superior Mortgage.......................Section 6.01
 Superior Mortgagee .....................Section 6.01
 Tax Payment.............................Section 2.04
 Tax Year................................Section 2.04
 Taxes ..................................Section 2.04
 Tenant .................................Introduction
 Tenant's Basic Cost.....................Section 5.05
 Tenant Delay ...........................Section 1.04
 Tenant's Offer Notice...................Section 5.02
 Tenant's Parking Spaces.................Section 8.17 
 Tenant's Property.......................Section 4.03 
 Tenant's Share..........................Section 2.04
 Tenant's Special Work...................Section 1.03(d)
 Term....................................Section 1.02
 Transfer Notice.........................Section 5.03
 Working Drawings........................Section 4.01
                                                                    Exhibit 10-4

             LEASE,  dated as of June, 30 1997,  between NEW YORK LIFE INSURANCE
 COMPANY ("Landlord"),  a New York corporation,  having an address at 51 Madison
 Avenue, New York, New York 10010 and CURATIVE HEALTH SERVICES, INC. ("Tenant"),
 a Minnesota  corporation  having an address at 14 Research Way, East  Setauket,
 New York 11733, prior to the commencement of the Term, and thereafter  Tenant's
 address shall be that of the Building.
                                WITNESSETH
             WHEREAS,  Landlord  is  willing  to lease to Tenant  and  Tenant is
 willing to hire from  Landlord,  on the terms  hereinafter  set forth,  certain
 space on the 4th floor of the office building located at 150 Vanderbilt Motor
 Parkway,  Hauppauge,  New York (the  "Building"  on the land more  particularly
 described in Exhibit A (the "Land.';  the Land and the Building and all plazas,
 sidewalks and curbs adjacent thereto are collectively called the 'Project').

               NOW, THEREFORE, Landlord and Tenant agree as follows:
                                 REFERENCE DATA

 LOCATION/RENTABLE AREA: Portion of the 4th floor; 25,000 rentable square feet.
 RENTABLE AREA OF THE BUILDING                     195,125
 
 COMMENCEMENT DATE:       As set forth in Section 1.03(a).
 RENT COMMENCEMENT DATE:  6 months after the Commencement Date.
 TERM/EXPIRATION DATE:    7 years, 6 months, ending on the last day of the month
                          in which occurs the 7th anniversary of the day 
                          preceding the Rent Commencement Date.
 ANNUAL BASE RENT:        As set forth in Section 2.02.
 MONTHLY BASE RENT:       As set forth in Section 2.02.
 TENANT'S SHARE:          As set forth in Section 2.04.
 BASE TAX YEAR            December I, 1997 - November 30, 1998.
 SECURITY DEPOSIT:        $500,000 letter of credit.
 LANDLORD'S REPRESENTATIVE:   Kevin P. Welsh of C.B. Commercial/Hampshire, L.L.C
 TENANT'S REPRESENTATIVE:David C.Leviton of Cushman& Wakefield ofLong Island,Inc

                                       1
<PAGE>
                                   
 The  foregoing  Reference  Data are  incorporated  into and made a part of this
 Lease.  In the event of any conflict  between any Reference  Data and the other
 provisions of this Lease, the other provisions of this Lease shall control.
                                    ARTICLE I
                               Premises; Term; Use

             1.01 Demise. (a) Landlord hereby leases to Tenant and Tenant hereby
 hires from  Landlord,  subject to the terms and  conditions of this Lease,  the
 space on the 4th floor of the Building (the "Premises")  substantially as shown
 hatched on the plan  annexed as Exhibit B.  Landlord  and Tenant agree that the
 Premises is conclusively deemed to contain 25,000 rentable square feet.
             1.02 Term.  The term of this Lease (the "Term")  shall  commence on
 the  Commencement  Date and  shall  end,  unless  sooner  terminated  as herein
 provided,  on the  last day of the  calendar  month  in  which  occurs  the 7th
 anniversary of the day preceding the Rent  Commencement Date (such date, as the
 same may be extended pursuant to Article 9, is called the 'expiration Date").

             1.03 Commencement Date. (a) "Commencement  Date" means the later of
 (i) January 1, 1998 and (ii) the day on which Landlord's Work is deemed to have
 been  substantially  completed in accordance  with Section  1.03(b).  After the
 occurrence of the Commencement  Date,  Landlord shall advise Tenant thereof and
 Landlord  and Tenant  shall  promptly  confirm  the  Commencement  Date and the
 Expiration  Date by  executing  and  delivering  an  instrument  in the form of
 Exhibit E annexed  hereto;  provided,  that the  failure to execute and deliver
 such instrument shall not affect the  determination of such dates in accordance
 with  this  Article  I  Pending  the  resolution  of  any  dispute  as  to  the
 Commencement Date, Tenant shall pay Rent based upon Landlord's determination.

                   (b)   Landlord's   Work   shall  be   deemed   to  have  been
 substantially  completed  on the earlier of (i) the date upon which  Landlord's
 Work has been completed,  other than (A) minor details or adjustments,  (B) any
 Tenant  Special Work and (C) any part of Landlord's  Work that is not completed
 due to Tenant Delay;  provided,  that in each case Landlord shall  nevertheless
 remain obligated to promptly complete  Landlord's Work and (ii) the date Tenant
 takes  possession of the Premises for the performance of Alterations or for any
 other reason (except as provided in the following sentence). Landlord shall use
 reasonable  efforts to provide  Tenant  access to the Premises 10 days prior to
 the    Commencement    Date   for   the    purpose    of    installing

                                       2
<PAGE>

 special equipment, furniture,  telecommunications equipment, computers, etc. if
 such access shall not  materially  interfere  with the completion of Landlord's
 Work.  If Tenant  shall access the Premises in  accordance  with the  preceding
 sentence,  all of the  provisions  of this Lease  shall be  applicable  thereto
 (including, without limitation, the insurance requirements of Section 7.02 (and
 Tenant shall in all events  provide  Landlord with  evidence of such  insurance
 prior to any such  access),  the  provisions  of  Section  4.02  regarding  the
 performance of Alterations (except for clause (c), clauses d (ii) and (iii) and
 clause (b) of Section 4.02) and Tenant's  indemnity set forth in Section 6.12);
 provided,  that the  Commencement  Date  shall not be  deemed to have  occurred
 solely by reason of such access for the  purposes  permitted  in the  preceding
 sentence.  Landlord shall have no liability to Tenant and the Commencement Date
 shall in no event be  affected if  Landlord  shall be unable to provide  Tenant
 with  such  access to the  Premises.  Any delay  caused  in the  completion  of
 Landlord's Work resulting from Tenant's access shall constitute a Tenant Delay.
                   (c) if for any  reason  Landlord  shall be unable to  deliver
 possession  of the  Premises to Tenant on any date  specified in this Lease for
 such  delivery,  Landlord  shall have no liability  to Tenant  therefor and the
 validity of this Lease shall not be  impaired,  nor shall the Term be extended,
 by reason  thereof  This  Section  1.03  shall be an express  provision  to the
 contrary  for purposes of Section  223-a of the New York Real  Property Law and
 any other law of like import now or  hereafter in effect.  If the  Commencement
 Date does not occur on or before 180 days after the date hereof  (the  "Outside
 Date") as such date may be extended by any delays beyond Landlord's  reasonable
 control  (including,  without  limitation,  any  Tenant  Delay,  but  excluding
 Landlord's failure to satisfy an obligation to pay money), then Tenant may give
 to Landlord not less than 30 days' notice of Tenant's  intent to terminate this
 Lease,  which  notice of  termination  must be given by Tenant on or before the
 date that is 30 days after the  Outside  Date (time being of the  essence).  if
 Tenant timely gives a termination notice pursuant to the preceding sentence and
 the  Commencement  Date  does  not  occur  on or  before  the  date set for the
 termination of this Lease in Tenant's  notice,  then this Lease shall terminate
 on such date  provided  therefor  in  Tenant's  termination  notice and neither
 Tenant nor  Landlord  shall have any further  obligation  or  liability  to the
 other.

                   (d)  "Tenant  Special  Work"  means any work  which  Landlord
 reasonably  anticipates  would delay the projected time schedule for completion
 of Landlord's Work, whether (as examples and not by way of limitation)  because
 of  the  specialized   technical   services  required  therefor  (eg,  computer
 installations  or  special  electronic  security  systems),   or  a  materially
 increased  probability of delay by virtue of the requirements of prefabrication
 of material (eg,  extraordinary  woodworking or carpentry  requirements) or the
 obtaining of unique  commodities (eg,  special woods or stones).  Upon Tenant's
 request,  Landlord  shall advise  Tenant  whether,  based upon the  information
 submitted by Tenant to Landlord,  any item of Landlord's Work shall  constitute
 Tenant Special Work. 

                                       3
<PAGE>

                   (e) On or before June 30, 1997,  Landlord  shall pay $600,000
 to Tenant's prior landlord (In-House Partners) as consideration for the buy-out
 of Tenant's  obligations under its lease with such prior landlord.  If Landlord
 shall not make  such  payment  on or before  June 30,  1997  this  Lease  shall
 automatically terminate and be of no further force or effect and Landlord shall
 refund  to Tenant  the  first  installment  of Fixed  Rent paid by Tenant  upon
 execution and delivery of this Lease and the Tenant Improvement Contribution.
             1.04 Tenant Delay.  "Tenant  Delay" means any delay which  Landlord
 may encounter in the performance of Landlord's  obligations under this Lease by
 reason  of  any  act or  omission  of any  nature  of  Tenant,  its  agents  or
 contractors,  including, without limitation,  delays due to material changes in
 or additions to Landlord's Work requested by Tenant after  submission by Tenant
 of the information  required pursuant to the first sentence of  Section4.01(b),
 changes in or additions to Landlord's  Work  requested by Tenant after approval
 of  the  Working  Drawings  by  Tenant,  delays  by  Tenant  in  submission  of
 information  or  giving  authorizations  or  approvals  or  delays  due  to the
 postponement of any Landlord's Work at the request of Tenant.  Tenant shall pay
 to Landlord any costs or expenses  incurred by Landlord by reason of any Tenant
 Delay.

             1.05 Use.  The  Premises  shall be used and occupied by Tenant (and
 its permitted  subtenants)  solely as general and executive offices  (including
 such ancillary uses in connection  therewith as shall be reasonably required by
 Tenant in the operation of its business);  provided, that in no event shall the
 Premises be used for any of the following:  (a) a banking,  trust  company,  or
 safe deposit business, (b) a savings bank, a savings and loan association, or a
 loan company, (c) the sale of travelers' checks and/or foreign exchange,  (d) a
 stock brokerage office or for stock brokerage purposes,  (e) a restaurant,  bar
 or for the sale of food or beverages,  (f)  photographic  reproductions  and/or
 offset printing, (g) an employment or travel agency, (b) a school or classroom,
 (i) medical or  psychiatric  offices,  (j) conduct of an auction,  (k) gambling
 activities,  (1)  conduct  of  obscene,   pornographic  or  other  disreputable
 activities, (m) offices of an agency, department or bureau of the United States
 Government,  any state or municipality  within the United States or any foreign
 government,  or any political  subdivision  of any of them,  (n) offices of any
 charitable,  religious,  union or  other  not-for-profit  organization,  or (o)
 offices of any tax exempt entity within the meaning of Section 168(h)(2) of the
 Internal  Revenue Code of 1986,  as amended,  or any  successor  or  substitute
 statute, or rule or regulation  applicable  thereto.  The Premises shall not be
 used for any purpose which would tend to lower the first-class character of the
 Building,  create  unreasonable or excessive elevator or floor loads, impair or
 interfere  with any of the  Building  operations  or the normal  and  efficient
 heating,  ventilation,  air-conditioning,  cleaning or other  servicing  of the
 Building,  constitute a public or private  nuisance,  interfere with,  annoy or
 disturb any other tenant or Landlord, or impair the appearance of the Building.

                                       4
<PAGE>

             1.07 Offer Space. (a) As used herein:
             

                   "Available"  means, as to any Offer Space, that such space is
 vacant and free of any  present  or future  possessory  right now or  hereafter
 existing in favor of any third party. Anything to the contrary contained herein
 notwithstanding, Tenant's right of first offer pursuant to this Section 1.07 is
 subordinate to any right of offer,  refusal right,  extension right,  expansion
 right or similar right or option in favor of any third party existing as of the
 date of this Lease.
                   "Offer   Period"   means  the   period   commencing   on  the
 Commencement  Date to and  including  the date that is 36  months  prior to the
 Expiration Date of the initial Term.
                   "Offer  Space" means any  Available  space on the 3rd and 4th
 floors of the Building  substantially  as shown  hatched on the plan annexed as
 Exhibit B-2.

                   (b) Provided  (i) this Lease shall not have been  terminated,
 (ii) Tenant shall not be in monetary  default under this Lease or  non-monetary
 default under this Lease beyond any  applicable  notice and grace  period,  and
 (iii) Tenant and/or a permitted  subtenant  under Section  5.01(c) shall occupy
 the entire Premises,  if at any time during the Offer Period,  either any Offer
 Space  becomes,  or  Landlord  reasonably  anticipates  that within the next 12
 months  (but not later than the last day of the Offer  Period)  any Offer Space
 will become Available, Landlord shall give to Tenant notice (an "Offer Notice")
 thereof, specifying (A) the fixed annual rental ("Offer Rental") which Landlord
 is then  considering  in good faith for the lease of such Offer Space,  (B) the
 date or estimated date that such Offer Space has or shall become Available, (C)
 the number of rentable  square feet  contained in such Offer Space and (D) such
 other matters as Landlord may deem appropriate for such Offer Notice.
                   (c) Provided that on the date that Tenant exercises the Offer
 Space Option with  respect to any Offer Space and on the Offer Space  inclusion
 Date  with  respect  to such  Offer  Space (i) this  Lease  shall not have been
 terminated,  (ii) Tenant shall not be in monetary  default  under this Lease or
 non-monetary  default under this Lease beyond any  applicable  notice and grace
 period,  and (iii) Tenant and/or a pemmitted  subtenant  under Section  5.01(c)
 shall  occupy the entire  Premises,  Tenant  shall have the option  (the "Offer
 Space  Option"),  exercisable  by  notice  (an  "Acceptance  Notice")  given to
 Landlord  on or before  the date  that is 30 days aver the  giving of the Offer
 Notice (time

                                       5
<PAGE>

 being of the  essence) to include  such Offer Space in the  Premises.  Provided
 Tenant shall comply with clauses (i) - (iii) above, and Tenant furnishes notice
 to Landlord within 10 days after Tenant's  receipt of the Offer Notice,  Tenant
 shall be permitted  to inspect  such Offer Space prior to Tenant's  delivery of
 the  Acceptance  Notice at a time scheduled by Landlord with any tenant of such
 Offer Space and  subject to the terms of any such  tenant's  lease,  so long as
 Tenant shall be accompanied by a representative of Landlord.

                   (d) if Tenant  timely  delivers  the  Acceptance  Notice with
 respect to any Offer Space, then, on the date on which Landlord delivers vacant
 possession  of such Offer Space to Tenant (the "Offer Space  Inclusion  Date"),
 such Offer Space shall become part of the  Premises,  upon all of the terms and
 conditions set forth in this Lease,  except (i) Fixed Rent with respect to such
 Offer Space shall be the Offer Rental,  (ii) Tenant's  Share shall be increased
 by a fraction  (expressed as a percentage  rounded to the nearest l/lOth) whose
 numerator is the number of rentable  square feet  contained in such Offer Space
 as  specified  in the Offer  Notice and whose  denominator  is  195,125,  (iii)
 Landlord  shall not be required to perform  Landlord's  Work or any other work,
 pay any  contribution  or any other amount,  or render any services to make the
 Building or such Offer Space ready for  Tenant's use or  occupancy,  and Tenant
 shall  accept  such Offer  Space in its "as is"  condition  on the Offer  Space
 inclusion Date, and (iv) as may be otherwise set forth in the Offer Notice.
                   (e) if Landlord is unable to deliver  possession of any Offer
 Space to  Tenant  for any  reason  on or  before  the  date on  which  Landlord
 indicates  that such Offer Space shall be  Available  as set forth in the Offer
 Notice,  the Offer Space  Inclusion Date shall be the date on which Landlord is
 able to so deliver  possession  and Landlord  shall have no liability to Tenant
 therefor and this Lease shall not in any way be impaired.  This Section 1.07(e)
 constitutes  "an  express  provision  to the  contrary"  within the  meaning of
 Section  223(a)  of the New York  Real  Property  Law and any other law of like
 import now or hereafter in effect.  If on the Offer Space  inclusion  Date with
 respect to any Offer  Space,  there is a holdover  tenancy in such Offer Space,
 Landlord shall use reasonable  efforts  (including the prompt  commencement and
 diligent  prosecution  of summary  dispossess  proceedings)  to terminate  such
 holdover tenancy.

                   (f) if Tenant fails timely to give an Acceptance  Notice with
 respect to any Offer Space, then (i) Landlord may enter into one or more leases
 of the Offer Space with third parties on such terms and  conditions as Landlord
 shall determine, the Offer Space Option and this Section 1.07 shall be null and
 void and of no  further  force and effect  and  Landlord  shall have no further
 obligation  to offer any Offer  Space to Tenant,  and (ii) Tenant  shall,  upon
 demand by Landlord,  execute an instrument  confirming  Tenant's waiver of, and
 extinguishing, the Offer Space Option, but the failure by Tenant to execute any
 such instrument shall not affect the provisions of clause (i) above.
                   (g)  Promptly   after  the  occurrence  of  the  Offer  Space
 inclusion  Date with  respect to any Offer  Space,  Landlord  and Tenant  shall
 confirm the occurrence 

                                       6
<PAGE>

 thereof and the  inclusion  of such Offer Space in the Premises by executing an
 instrument  reasonably  satisfactory  to Landlord  and Tenant;  provided,  that
 failure by Landlord or Tenant to execute such  instrument  shall not affect the
 inclusion of such Offer Space in the Premises in  accordance  with this Section
 1.07.
                   (b) if any  Offer  Space  is  included  in  the  Premises  in
 accordance  with this  Section  1.07,  then (i) the Offer Space Option shall be
 null and void and of no further  force and effect  and  Landlord  shall have no
 further  obligation  to offer any other Offer Space to Tenant,  and (ii) Tenant
 shall,  upon demand by  Landlord,  execute an  instrument  confirming  Tenant's
 waiver of, and extinguishing, the Offer Space Option, but the failure by Tenant
 to execute any such  instrument  shall not affect the  provisions of clause (i)
 above.
                   (i) Anything in this Lease to the  contrary  notwithstanding,
 this  Section  1.07  shall be null and  void and of no force or  effect  if (i)
 Curative  Health  Services,  inc. or any  assignee of this Lease from  Curative
 Health  Services,  Inc. in accordance with Section 5.01(b) or (c) of this Lease
 is no longer the Tenant under this Lease,  (ii) Curative Health Services,  Inc.
 or any  such  assignee,  together  with a  permitted  subtenant  under  Section
 5.01(c),  at any time  fails to occupy the entire  Premises  or (iii)  Curative
 Health  Services,  Inc.  or any such  assignee  shall at any time be in default
 under this Lease beyond any applicable period of grace.

             1.08  Expansion  Space.  (a)  Provided  that  on  the  date  Tenant
 exercises the Expansion  Option and on the  Commencement  Date this Lease shall
 not have been terminated, Tenant shall have the option (the "Expansion Option")
 to lease  all or any  portion  of the  space on the 4th  floor of the  Building
 substantially  as shown  hatched  on the floor  plan  annexed  as  Exhibit  B-3
 (subject  to the further  provisions  hereof,  the space with  respect to which
 Tenant exercises the Expansion  Option is the "Expansion  Space" and the entire
 space shown hatched on the floor plan annexed as Exhibit B-3 is the  "Potential
 Expansion Space").  if Tenant desires to exercise the Expansion Option for less
 than the entire Potential  Expansion  Space,  Tenant shall deliver to Landlord,
 together with the Expansion Notice, a floor plan prepared by Tenant's architect
 showing  the portion of the  Potential  Expansion  Space with  respect to which
 Tenant desires to exercise the Expansion  Option (it being  understood that the
 final  location  of the  demising  walls  for  such  portion  of the  Potential
 Expansion  Space shall be designated by Landlord).  in all events the Expansion
 Space must be contiguous with the initial  Premises.  If the Expansion Space is
 less than all of the Potential  Expansion  Space, the number of rentable square
 feet contained therein shall be measured by the Architect in the same manner as
 the measurement of the Potential  Expansion  Space and such  measurement by the
 Architect  shall be conclusive and binding upon Tenant absent  manifest  error.
 Landlord and Tenant confirm that the Potential  Expansion Space is conclusively
 deemed to contain 10,329  rentable  square feet. The Expansion  Option shall be
 exercisable by Tenant giving Landlord  notice thereof (the "Expansion  Notice")
 on or before the date which is 30 days after the date of this Lease (time being
 of the essence).  if Tenant timely gives the  Expansion  Notice,  the Expansion
 Space   shall    automatically    become   part   of   the   Premises, 

                                       7
<PAGE>
 
 upon all of the terms and conditions set forth in this Lease. Together with the
 Expansion  Notice,  Tenant shall pay to Landlord an amount equal to the product
 of (i)  1/12th  multiplied  by (ii)  $22.98  multiplied  by (iii) the number of
 rentable  square feet contained in the Expansion  Space,  to be applied against
 the first monthly installment of Fixed Rent.
                   (b)  Promptly  after  the  timely  giving  by  Tenant  of the
 Expansion Notice,  Landlord and Tenant shall confirm the occurrence thereof and
 the inclusion of the Expansion Space in the Premises by executing an instrument
 reasonably  satisfactory  to Landlord  and Tenant;  provided,  that  failure by
 Landlord or Tenant to execute such instrument shall not affect the inclusion of
 the Expansion Space in the Premises in accordance with this Section 1.08.

                   (c) Anything in this Lease to the  contrary  notwithstanding,
 this  Section 1.08 shall be null and void and of no force or effect if Curative
 Health  Services,  Inc. is no longer the Tenant  under this Lease or this Lease
 shall be terminated.
                                 ARTICLE 2
                                    Rent
     2.01 Rent. "Rent" shall consist of Fixed Rent and Additional Rent
 2.02 Fixed Rent. (a) The fixed rent ("Fixed Rent") shall be payable as
 follows:
                         (i) for  the  period  from  the  Rent  Commencement
 Date to and including the day before the Ist  anniversary  of the  Commencement
 Date,  at the annual rate of $22.98 per rentable  square foot  contained in the
 Premises;
                         (ii) for the period  from the 1st  anniversary  of
 the  Commencement  Date to and including the day before the 2nd  anniversary of
 the  Commencement  Date, at the annual rate of $23.31 per rentable  square foot
 contained in the Premises;
                         (iii) for the period  from the 2nd  anniversary  of
 the  Commencement  Date to and including the day before the 3rd  anniversary of
 the  Commencement  Date, at the annual rate of $23.64 per rentable  square foot
 contained in the Premises;
                         (iv) for the  period  from the 3rd  anniversary  of
 the  Commencement  Date to and including the day before the 4th  anniversary of
 the  Commencement  Date, at the annual rate of $23.97 per rentable  square foot
 contained in the Premises;
                         (v) for the  period  from  the 4th  anniversary  of
 the  Commencement  Date to and including the day before the 5th anniversary
 of the

                                       8
<PAGE>
 
 Commencement  Date, at the annual rate of $24.31 per rentable  square foot
 contained in the Premises;
                         (vi) for the period  from the 5'h  anniversary  of
 the Commencement  Date to and including the 6'h anniversary of the Commencement
 Date,  at the annual rate of $24.66 per rentable  square foot  contained in the
 Premises;

                         (vii) for the period from the 6'h  anniversary  of
 the Commencement  Date to and including the 7'h anniversary of the Commencement
 Date,  at the annual rate of $25.01 per rentable  square foot  contained in the
 Premises; and

                         (viii) for the period from the 7'h  anniversary of
 the Commencement  Date to and including the Expiration Date, at the annual rate
 of $25.37 per rentable square foot contained in the Premises.

             Fixed  Rent  shall  be  payable  by  Tenant  in  12  equal  monthly
 installments in advance on the Rent  Commencement  Date and on the first day of
 each  calendar  month  thereafter;  provided,  that Tenant shall pay,  upon the
 execution  and  delivery  of this  Lease by  Tenant,  $47,875.00  to be applied
 against the first full monthly installment of Fixed Rent; and Provided further,
 that if the Rent  Commencement Date is not the first day of a month, then Fixed
 Rent for the month in which the Rent Commencement Date occurs shall be prorated
 and paid on the Rent Commencement Date. "Rent Commencement Date" means the date
 occurring  in the 6th  month  after  the  Commencement  Date  which is the same
 numerical  date in the month as the  Commencement  Date  except that if no same
 numerical date shall exist in such 6'h month, the Rent  Commencement Date shall
 be the last day of such 6ih month.
             2.03 Additional Rent.  "Additional Rent" means Tax Payments and all
 other sums of money, other than Fixed Rent, at any time payable by Tenant under
 this Lease, all of which Additional Rent shall be deemed to be rent.
             2.04 Tax  Payments.  (a)  "Base  Tax  Amount"  means the Taxes
 (excluding any amounts described in Section  2.04(b!(ii!) for the Tax Year
 commencing on December 1, 1997.
                   (b) "Taxes" means (i) the real estate taxes,  assessments and
 special  assessments  levied,  assessed or imposed  upon or with respect to the
 Project by any federal,  state,  municipal or other  government or governmental
 body or authority and (ii) any expenses incurred by Landlord in contesting such
 taxes or assessments  and/or the assessed value of the Project,  which expenses
 shall be allocated  to the Tax Year to which such  expenses  relate.  If at any
 time  the  method  of  taxation  shall be  altered  so that in lieu of or as an
 addition to or as a  substitute  for, the whole or any part of such real estate
 taxes,  assessments and special  assessments now imposed on real estate,  there
 shall be levied,  assessed or imposed (x) a tax, assessment,  levy, imposition,
 fee or charge  wholly or  partially as a capital levy or otherwise on the rents
 received therefrom,  or (v) any other additional or substitute tax, assessment,
 levy,     imposition,     fee    or     charge,     including,    

                                       9
<PAGE>
without limitation,  business  improvement  district and transportation  taxes,
 fees and assessments,  then all such taxes, assessments,  levies,  impositions,
 fees or charges or the part  thereof so  measured or based shall be included in
 "Taxes" Except as permitted in this Section 2.04(b),  "Taxes" shall not include
 any franchise, capital stock or transfer tax.
                   (c) "Tax Year" means each period of 12 months,  commencing on
 the first day of December of each such period,  in which occurs any part of the
 Term, or such other period of ] 2 months occurring during the Term as hereafter
 may be adopted as the fiscal year for real  estate tax  purposes of the Town of
 Hauppauge.
                   (d)  "Tenant's  Share"  means  a  fraction  (expressed  as  a
 percentage  rounded to the nearest  (1/lOth)  whose  numerator is the number of
 rentable square feet contained in the Premises and whose denominator is 195,125
                   (e) if  Taxes  for any Tax  Year,  including  the Tax Year in
 which the Commencement  Date occurs,  shall exceed the Base Tax Amount,  Tenant
 shall pay to Landlord  (each,  a "Tax Payment  Tenant's  Share of the amount by
 which  Taxes for such Tax Year are greater  than the Base Tax Amount.  Landlord
 may furnish to Tenant,  prior to the commencement of each Tax Year, a statement
 setting forth  Landlord's  reasonable  estimate of the Tax Payment for such Tax
 Year.  Tenant  shall pay to Landlord on the first day of each month during such
 Tax Year, an amount equal to 1/12th of  Landlord's  estimate of the Tax Payment
 for such Tax Year.  If Landlord  shall not furnish any such  estimate for a Tax
 Year or if Landlord  shall furnish any such estimate for a Tax Year  subsequent
 to the  commencement  thereof,  then  (i)  until  the  first  day of the  month
 following the month in which such estimate is furnished to Tenant, Tenant shall
 pay to Landlord  on the first day of each month an amount  equal to the monthly
 sum payable by Tenant to Landlord under this Section  2.04(e) in respect of the
 last month of the preceding Tax Year;  (ii) after such estimate is furnished to
 Tenant,  Landlord  shall  notify  Tenant  whether the  installments  of the Tax
 Payment  previously  made  for  such Tax Year  were  greater  or less  than the
 installments  of the Tax Payment to be made in accordance  with such  estimate,
 and (x) if there is a deficiency, Tenant shall pay the amount thereof within 10
 days after demand there for or (y) if there is an  overpayment,  Landlord shall
 promptly  refund to Tenant the amount thereof and (iii) on the first day of the
 month  following  the month in which such  estimate is  furnished to Tenant and
 monthly  thereafter  throughout such Tax Year,  Tenant shall pay to Landlord an
 amount equal to 1/12th of the Tax Payment shown on such estimate. Landlord may,
 during  each Tax Year,  furnish  to Tenant a revised  statement  of  Landlord's
 estimate  of the Tax  Payment  for such Tax  Year,  and in such  case,  the Tax
 Payment  for such Tax Year shall be  adjusted  and paid or refunded as the case
 may be, substantially in the same manner as provided in the preceding sentence.
 After the end of each Tax Year Landlord  shall furnish to Tenant a statement of
 Tenant's Tax Payment for such Tax Year (and shall  endeavor to do so within 180
 days  after the end of each Tax Year)  along  with a copy of any  relevant  Tax
 bill. If such statement shall show that the sums paid by Tenant,  if any, under
 Section  2.04(e)  exceeded  the  Tax  Payment  to be  paid  by  Tenant  for the
 applicable Tax Year,  Landlord  shall  promptly  refund to Tenant the amount of
 such excess; and if such statement shall

                                       10
<PAGE>

 show that the sums so paid by Tenant  were less than the Tax Payment to be paid
 by Tenant for such Tax Year,  Tenant  shall pay the  amount of such  deficiency
 within 10 days after  demand  therefor.  If there shall be any  increase in the
 Taxes for any Tax Year,  whether  during  or after  such Tax Year,  or if there
 shall be any  decrease in the Taxes for any Tax Year,  the Tax Payment for such
 Tax Year shall be appropriately  adjusted and paid or refunded, as the case may
 be, in accordance herewith. In no event, however,  shall Taxes be reduced below
 the Base Tax Amount (as the same may be reduced pursuant to clause (g) below).
                   (f) if Landlord  shall  receive a refund of Taxes for any Tax
 Year,  Landlord  shall pay to Tenant  Tenant's  Share of the net refund  (after
 deducting  from such  refund  the costs and  expenses  of  obtaining  the same,
 including,  without  limitation,  appraisal,  accounting and legal fees, to the
 extent that such costs and expenses were not included in the Taxes for such Tax
 Year); provided,  that such payment to Tenant shall in no event exceed Tenant's
 Tax Payment paid for such Tax Year.
                   (g) if the Taxes  comprising  the Base Tax Amount are reduced
 as a result of an appropriate proceeding or otherwise,  the Taxes as so reduced
 shall for all purposes be deemed to be the Base Tax Amount and  Landlord  shall
 notify Tenant of the amount by which the Tax Payments previously made were less
 than the Tax Payments  required to be made under this Section 2.04,  and Tenant
 shall pay the deficiency within 10 days after demand therefor.
             2.05 Tax Provision.
                    (a) in any case  provided in Section 2.04 in which Tenant is
 entitled  to a refund,  Landlord  may, in lieu of making  such  refund,  credit
 against  future  installments  of Rent any  amounts  to which  Tenant  shall be
 entitled.  Nothing in this  Article 2 shall be  construed  so as to result in a
 decrease in the Fixed Rent.  If this Lease shall expire  before any such credit
 shall have been fully applied,  then  (provided  Tenant is not in default under
 this  Lease)  Landlord  shall  refund to Tenant the  unapplied  balance of such
 credit.
                   (b)  Landlord's  failure to render or delay in rendering  any
 statement  with  respect to any Tax Payment or  installment  thereof  shall not
 prejudice Landlord's right to thereafter render such a statement, nor shall the
 rendering of a statement for any Tax Payment or installment  thereof  prejudice
 Landlord's right to thereafter render a corrected statement therefor.

                   (c) Each Tax  Payment in  respect of a Tax Year which  begins
 prior  to the  Commencement  Date or  ends  after  the  expiration  or  earlier
 termination  of this Lease,  and any tax refund  pursuant  to Section  2.04(f),
 shall be  prorated to  correspond  to that  portion of such Tax Year  occurring
 within the Term.

             2.06  Electricity.  (a)  Tenant's  demand for, and  consumption  of
 electricity in the Premises (excluding all electricity necessary to operate the
 unit which provides heating,  ventilation and  air-conditioning to the Premises
 in accordance with

                                       11
<PAGE>

 Section 3.01(a)(i) below) shall be determined by meter or meters installed (or,
 if existing,  retrofitted) by Landlord (as part of Landlord's Work) at Tenant's
 expense.  Tenant shall pay for such electric  consumption  within 15 days after
 rendition of bills  therefor,  which bills shall be rendered by or on behalf of
 Landlord  separately for each meter. In addition,  Tenant shall pay to Landlord
 on the first day of each  month during the Term  $100.00  as an  administrative
 charge.
                   (b) The  amount  payable  by Tenant  per "KW" and  "KWHR" for
 electricity  consumed within the Premises,  whether  determined by meters or as
 otherwise  provided  below,  shall be the amount  ("Landlord's  Rate") at which
 Landlord from time to time purchases  each KW and KWHR of  electricity  for the
 same period from the utility  company  (including all surcharges,  taxes,  fuel
 adjustments, taxes passed on to consumers by the public utility, and other sums
 payable in respect  thereof).  Landlord's Rate shall be determined from time to
 time by dividing the cost charged by said utility  (averaged  separately for KW
 and KWHRs) during each respective billing period by the number of KWs and KWHRs
 consumed by the Building as set forth on the utility  company  invoice for such
 period.
                   (c) if on the Offer Space  inclusion Date with respect to any
 Offer Space, (i) any portion of Tenant's electric  consumption (KW and KWHR) is
 measured on a meter that also  measures  the  electric  consumption  of another
 tenant in the  Building  or (ii) Tenant  occupies  the Offer Space prior to the
 installation of meters,  then in either such case Tenant's  consumption (KW and
 KWHR) of  electricity  shall be  reasonably  estimated by Landlord,  and Tenant
 shall pay Landlord's Rate as applied to such consumption (the "Actual Charge");
 provided, that in no event shall Tenant pay less than $2.25 per rentable square
 foot per annum (the "Minimum Charge").
                   (d) The Actual Charge shall be adjusted by Landlord from time
 to time if  there  is a change  in  Landlord's  Rate,  and may be  adjusted  by
 Landlord from time to time if, in Landlord's reasonable judgment, Tenant is not
 paying  for the  entire  cost of  Tenant's  demand  for,  and  consumption  of,
 electricity,   including,   without  limitation,   by  reason  that  additional
 electrical  equipment is installed in the Premises,  or if Tenant increases its
 hours of operation. If applicable, any adjustment to the Actual Charge shall be
 retroactive  to the date of the relevant  change in Tenant's  consumption or in
 Landlord's Rate.

                   (e)  if  Tenant   disagrees  in  good  faith  with  any  such
 determination  or adjustment made by Landlord in the absence of a meter or with
 respect to a shared meter,  Tenant shall notify Landlord thereof within 60 days
 after  Landlord  gives Tenant notice of such  determination  or adjustment  and
 Landlord,  at Tenant's request made within such 60 day period, shall retain, at
 Tenant's expense, an independent electrical consultant reasonably  satisfactory
 to Tenant who shall survey the demand for, and consumption  of,  electricity by
 Tenant and, if applicable,  each other tenant who shares such submeter, and the
 determination  made by such electrical  consultant shall be binding on Landlord
 and Tenant (provided that in no event shall the charge to Tenant be less than

                                       12
<PAGE>

 the Minimum Charge). if Tenant fails to so disagree with any such determination
 or  adjustment  made  by  Landlord,  or to  request  that  Landlord  obtain  an
 independent   electrical   consultant,   within  such  60  day   period,   such
 determination or adjustment shall be conclusive and binding on Tenant.  Pending
 the  determination  of such  consultant.  Tenant  shall pay the  Actual  Charge
 determined  by  Landlord,  and  upon  such  determination  by  the  consultant,
 appropriate  adjustment  shall be made retroactive to the date of determination
 by the consultant.  Surveys of Tenant's  electrical  consumption shall be based
 upon the use of electricity during Business Hours on Business Days, and on such
 other days and hours when electricity is used in the Premises;  and if cleaning
 services are provided by Landlord,  such survey shall include Landlord's normal
 cleaning  hours of 5 hours per day for  lighting  within the  Premises  and for
 electrical equipment normally used for such cleaning.
                   (f) in no event  shall  the  charge to  Tenant  for  electric
 energy furnished to the Premises be less than the cost to Landlord of obtaining
 and furnishing such electric energy,  in which event such charge shall be equal
 to such cost.
                   (g) if  pursuant to Laws,  the charges to Tenant  pursuant to
 Sections  2.06(b)  and (c) shall be  reduced  below that to which  Landlord  is
 entitled under those sections, the deficiency shall be paid by Tenant within 30
 days after being billed  therefor,  for the use and maintenance of the electric
 distribution  system of the Building.  If any charge or tax is imposed upon the
 sale or resale of electric energy to Tenant,  then, to the extent  permitted by
 law, the amount of such charge or tax shall be paid by Tenant, and Landlord may
 include the amount thereof in its bill(s) to Tenant.
                   (b) At Landlord's option,  Landlord shall furnish and install
 all replacement  lighting,  tubes,  lamps,  bulbs and ballasts  required in the
 Premises,  and Tenant shall pay to Landlord or its designated  contractor  upon
 demand Landlord's then established reasonable charges therefor.
             2.07 Manner of Payment. Tenant shall pay all Rent as the same shall
 become due and payable under this Lease either by wire transfer of  immediately
 available  federal  funds as  directed  by  Landlord  or by check  (subject  to
 collection) drawn on a New York Clearing House Association member bank, in each
 case at the times  provided  herein without notice or demand and without setoff
 or counterclaim. All Rent shall be paid in lawful money of the United States to
 Landlord at its office or such other  place as  Landlord  may from time to time
 designate.  If Tenant fails  timely to pay any Rent,  Tenant shall pay interest
 thereon  from the date  when  such Rent  became  due to the date of  Landlord's
 receipt thereof at the lesser of (a) I'./2O/o per month or (b) the maximum rate
 permitted  by law.  Any  Additional  Rent for which no due date is specified in
 this Lease  shall be due and payable on the 10th day after the date of invoice.
 All bills,  invoices  and  statements  rendered to Tenant with  respect to this
 Lease shall be binding and  conclusive on Tenant  unless,  within 60 days after
 receipt of same, Tenant notifies Landlord that it is disputing same.

                                       13
<PAGE>

             2.08  Security.  (a)  Within 7 days after the date  hereof,  Tenant
 shall  deliver  to  Landlord,  as  security  for the  performance  of  Tenant's
 obligations  under  this  Lease,  a  clean,  irrevocable,  non-documentary  and
 unconditional Letter of Credit issued by and drawable upon any commercial bank,
 trust company,  national  banking  association or savings and loan  association
 with offices for banking purposes in the City of New York (the "Issuing Bank"),
 which has outstanding unsecured,  uninsured and unguaranteed  indebtedness,  or
 shall have issued a letter of credit or other credit facility that  constitutes
 the primary  security  for any  outstanding  indebtedness  (which is  otherwise
 uninsured  and   unguaranteed),   that  is  then  rated,   without   regard  to
 qualification  of  such  rating  by  symbols  such  as "+" or "-" or  numerical
 notation,  "AA" or better by Moody's  investors  Service  and "Aa" or better by
 Standard & Poor's  Ratings  Service,  and has  combined  capital,  surplus  and
 undivided  profits of not less than  $500,000,000.  Such Letter of Credit shall
 (i) name Landlord as beneficiary,  (ii) be in the amount of $500,000  "Securitv
 Deposit",  (iii) have a term of not less than one year,  (iv)  permit  multiple
 drawings,  (v) be fully transferable by Landlord to a successor  landlord,  and
 (vi)  otherwise  be in form and content  reasonably  satisfactory  to Landlord;
 provided,  however,  that  Landlord  shall in no event be obligated to accept a
 Letter of Credit for any amount less than $25,000.  If upon any transfer of the
 Letter of Credit,  any fees or charges  shall be so imposed,  then such fees or
 charges  shall be payable by Tenant and the Letter of Credit  shall so specify.
 The  Letter  of Credit  shall  provide  that it shall be  deemed  automatically
 renewed, without amendment, for consecutive periods of one year each thereafter
 during the Term,  unless the  issuing  Bank  sends a notice  (the  "Non-Renewal
 Notice") to Landlord by certified mail, return receipt requested, not less than
 45 days next  preceding  the then  expiration  date of the  Letter  of  Credit,
 stating  that the  issuing  Bank has elected not to renew the Letter of Credit.
 Landlord shall have the right,  upon receipt of a Non-Renewal  Notice,  to draw
 the full amount of the Letter of Credit,  by sight  draft on the issuing  Bank,
 and shall  thereafter  hold or apply the cash  proceeds of the Letter of Credit
 pursuant to the terms of this Section  2.08.  The issuing Bank shall agree with
 all  drawers,  endorsers  and bona fide  holders that drafts drawn under and in
 compliance  with the terms of the Letter of Credit  will be duly  honored  upon
 presentation to the issuing Bank at an office location in Manhattan. The Letter
 of Credit shall be subject in all respects to the Uniform  Customs and Practice
 for  Documentary  Credits (1993  revision),  international  Chamber of Commerce
 Publication  No.  500.  Landlord  may draw on the  Security  Deposit  to remedy
 defaults by Tenant in the payment or performance of any of Tenant's obligations
 under this Lease.  If Landlord  shall have so drawn upon the Security  Deposit,
 Tenant  shall upon demand  deposit  with  Landlord a sum equal to the amount so
 drawn by Landlord.

                         (i) if  Tenant  fails to  deliver  the  Letter of
 Credit to  Landlord  within 7 days after the date  hereof  such  failure  shall
 constitute an immediate event of default entitling  Landlord to exercise all of
 its rights and remedies under Article 6.

                   (b)  Notwithstanding  anything to the  contrary  contained in
 this Section 2.08,  provided  Tenant shall not be in default in the performance
 of any  obligation  under  this  Lease  and no  default  by Tenant  shall  have
 previously occurred under this

                                       14
<PAGE>

           Lease, Landlord shall consent to
           the Security Deposit being reduced to $40
             I
           the first anniversary of the Rent
           Commencement Date, $300,000.00 on
               anniversary of the Rent Commencement Date, $200,000.00 on the
                         third an
                        the Rent Commencement Date and $100,000.00 on the fourth
                         anniversarv
                                                                               
        Commencement Date (each, a
        "Reduction Date"). At any time following each
           I Date (provided Tenant shall not be in default in the performance of
           any  obligation  I this  Lease and no  default  by Tenant  shall have
           previously occurred under
                   Tenant may deliver to Landlord an amendment to the Letter of
                         Credit (which

           must be reasonably acceptable to
           Landlord in all respects) reducing the

           Letter of Credit accordingly and Landlord shall execute the amendment
           tn.
             I
           documents as are reasonably
           necessary to reduce the amount of the Letter m
                     accordance with the terms hereof Provided that Tenant shall
                         not be in default

           obligation set forth in this Lease
           and no default by Tenant shall have previous
             |
           under this Lease, at any time
           after the fifth anniversary of the Rent Commence
             I
           Tenant may replace the Letter of
           Credit with a certified check payable to L
                         drawn on a New York  Clearinghouse  Association  member
                         bank in an amount  1/12  multiplied  by the  product of
                         $25.37 per rentable square foot multi
            number of rentable square feet contained in the Premises on the Rent
                  Date. The proceeds of such certified check shall be held in an
                         interest-bear
                  and may be applied by Landlord to remedy defaults by Tenant in
                         the
                    performance of any of Tenant's obligations under this Lease.
                         If Landlord
                   such proceeds, Tenant shall upon demand deposit with Landlord
                         a sum
                        amount so applied by Landlord. Provided Tenant is not in
                         default under this
                   Tenant has surrendered the Premises to Landlord in accordance
                         with all of
                      conditions of this Lease, on or before the date that is 30
                         days after the expiration
                  termination of this Lease, (i) Landlord shall return to Tenant
                         the Security E
                         held by Landlord with interest or (ii) if Lo
                         Deposit to remedy defaults by Tenant in
                         obligations under this Lease, Landlord
                         Security Deposit remaining in Land







                                     3.01 Landlord Se
                         occupies the Premises for
                         the condo with the
                         following services

                                       (i)
                         Premises from 8:00 a.m. to 6:00 pm
                         on Saturdays (other than any Saturday
                         "Business Days") for reasonably
                         Tenant's compliance with design              .
                         criteria set forth on Exhibit D-l an

                                       15
<PAGE>
  
 or air  conditioning  services at any other times,  Landlord shall furnish such
 service (A) in the case of a Business Day, upon receiving notice from Tenant by
 3:00  p.m.  of such  Business  Day and (B) in the  case of a day  other  than a
 Business Day, upon receiving notice from Tenant by 1:00 p.m. of the immediately
 preceding Business Day, and Tenant shall pay to Landlord upon demand Landlord's
 then established charges therefor, which are currently $75.00 per hour.
                         (ii) (A) passenger elevator service to each
 floor of the Premises at all times during Business Hours on Business Days, with
 at least one  passenger  elevator  subject  to call at all other  times and (B)
 freight  elevator  service to the Premises on a reserved basis and, if at times
 other than Business Hours on Business Days, upon the payment of Landlord's then
 established  charges  therefor  (except that there shall be no charge to Tenant
 for  use  of  such  freight   elevator  for  the  performance  of  the  initial
 Improvements and for Tenant's  initial move into the Premises);  the use of all
 elevators shall be on a nonexclusive basis;
                         (iii)  reasonable  quantities  of hot  and  cold
 water to the  floor(s)  on which the  Premises  are  located;  if Tenant  shall
 require  quantities  of water in excess of that  customarily  used in an office
 installation, Landlord may install and maintain, at Tenant's expense, meters to
 measure  Tenant's  consumption  of cold water  and/or hot water in which  event
 Tenant shall reimburse  Landlord for the quantities of cold water and hot water
 shown on such meters (including  Landlord's  standard charge for the production
 of such hot water, if produced by Landlord), on demand;
                         (iv) 6 watts per rentable square foot of the
 Premises of electric energy through presently installed electric facilities for
 Tenant's reasonable use of lighting and other electrical  fixtures,  appliances
 and  equipment  based on Tenant's  approved plan for initial  occupancy;  in no
 event shall Tenant's consumption of electricity exceed the capacity of existing
 feeders to the Building or the risers or wiring serving the Premises, nor shall
 Tenant be entitled to any unallocated  power available in the Building  unless,
 in Landlord's  judgment (taking into account the then existing and future needs
 of other then existing and future  tenants,  and other needs of the  Building),
 the same is available and necessary for Tenant's use; and
                         (v)  cleaning   services  in   accordance   with
 Exhibit D attached  hereto.  Tenant shall pay to Landlord upon  rendition of an
 invoice  therefor the costs incurred by Landlord for (A) extra cleaning work in
 the Premises  required  because of (w)  carelessness,  indifference,  misuse or
 neglect on the part of Tenant, its subtenants or their respective  employees or
 visitors,  (x) interior  glass  partitions  or an unusual  quantity of interior
 glass surfaces,  (y) non-building  standard  materials or finishes installed in
 the  Premises  and/or (z) the use of the  Premises  other than during  Business
 Hours on Business Days and/or (B) removal from the Premises and the Building of
 any refuse of Tenant (x) in excess of that  ordinarily  accumulated in business
 office occupancy,  and/or (y) at times other than Landlord's  standard cleaning
 times.  Notwithstanding the foregoing,  Landlord shall not be required to clean
 any portions of the Premises used for kitchens (except for

                                       16
<PAGE>

 so-called Dwyer Units or kitchenettes  where no cooking is performed other than
 by microwave ovens), cafeterias, private lavatories or toilets or other special
 purposes  requiring  greater or more difficult  cleaning work than office areas
 and Tenant shall retain Landlord's cleaning contractor to perform such cleaning
 at  Tenant's  expense;  provided,  that if  Landlord's  contractor  shall be an
 Affiliate of Landlord,  the cost of such cleaning  services shall not exceed an
 amount  charged by  first-class  providers of such  services on an  arms-length
 basis.  Landlord's  cleaning contractor shall have access to the Premises after
 6:00 p.m. and before 8:00 a.m. and shall have the right to use,  without charge
 therefor,  all light,  power and water in the Premises  reasonably  required to
 clean the Premises.
                   (b)  Landlord may stop or  interrupt  any  Landlord  Service,
 electricity, or other service and may stop or interrupt the use of any Building
 facilities and systems at such times as may be necessary and for as long as may
 reasonably  be  required  by reason of  accidents,  strikes,  or the  making of
 repairs, alterations or improvements, or inability to secure a proper supply of
 fuel, gas, steam, water,  electricity,  labor or supplies,  or by reason of any
 other cause beyond the reasonable  control of Landlord.  Landlord shall have no
 liability to Tenant by reason of any stoppage or  interruption  of any Landlord
 Service, electricity or other service or the use of any Building facilities and
 systems for any reason. In case of any stoppage or interruption of any Landlord
 Service where such stoppage or interruption  has occurred due to  circumstances
 or conditions within Landlord's control,  Landlord shall use reasonable efforts
 to minimize any interference with Tenant's use of the Premises for the ordinary
 conduct of Tenant's business and shall comply with Section 4.04(d) with respect
 to any access to the Premises.  Landlord shall use reasonable  diligence (which
 shall not include  incurring  overtime  charges) to make such repairs as may be
 required to machinery or equipment within the Project to provide restoration of
 any Landlord  Service and, where the cessation or interruption of such Landlord
 Service has  occurred due to  circumstances  or  conditions  beyond the Project
 boundaries, to cause the same to be restored by diligent application or request
 to the provider.
                   (c)  Without  limiting  any of  Landlord's  other  rights and
 remedies,  if Tenant shall be in default  beyond any  applicable  grace period,
 Landlord shall not be obligated to furnish to the Premises any service  outside
 of Business  Hours on Business  Days,  and Landlord  shall have no liability to
 Tenant by reason of any  failure to  provide,  or  discontinuance  of, any such
 service.

 (d)  "Business  Hours"  means 8:00 a.m. to 6:00 p.m. and from 8:00 a.m. to 1:00
 p.m. on Saturdays. "Business Days" means all days except Saturday, Sundays, New
 Year's Day, Washington's  Birthday,  Memorial Day, independence Day, Labor Day,
 Thanksgiving,  the day  following  Thanksgiving,  Christmas  and any other days
 which are  observed  by both the  federal  and the state  governments  as legal
 holidays.

                                       17
<PAGE>

                                  ARTICLE 4
                     Leasehold Improvements; Tenant Covenants
                     
            4.01 initial Improvements.  (a) Landlord shall retain and coordinate
 the services of an architect (the "Architect") to prepare working drawings (the
 "Working  Drawings") relating to the construction of Tenant's initial leasehold
 improvements in the Premises (the "Initial Improvements").  Tenant shall review
 the Working Drawings and shall notify Landlord of any required revisions within
 7 Business  Days and any delay by Tenant in doing so shall  constitute a Tenant
 Delay.  Landlord  shall cause all of the initial  Improvements  (other than the
 wiring and  installation of telephones,  computers and of Rice equipment) to be
 constructed  ("Landlord's  Work").  On the  date  hereof,  Tenant  has  paid to
 Landlord an amount equal to $600,000  (the "Tenant  improvement  Contribution")
 which  shall be used and  applied  by  Landlord  to pay for the cost to perform
 Landlord's  Work.  If the cost to perform  Landlord's  Work  exceeds the Tenant
 improvement  Contribution,  then  Landlord  shall bear the next portion of such
 costs up to an amount equal to (i) $22.50 per rentable square foot contained in
 the Premises,  less (ii) the Tenant  Improvement  Contribution.  If the cost to
 perform  Landlord's  Work exceeds $22.50 per rentable  square foot contained in
 the Premises then within 10 days after Tenant's receipt of an invoice therefor,
 Tenant shall pay to Landlord the amount by which the cost to perform Landlord's
 Work exceeds $22.50 per rentable  square foot  contained in the Premises.  Upon
 request,  Landlord shall provide to Tenant reasonable information regarding the
 use and  application of the Tenant  improvement  Contribution  to pay for costs
 incurred by Landlord to perform Landlord's Work. All references in this Section
 4.01(a) to "the cost to perform  Landlord's  Work" shall be  inclusive of a sum
 equal to 3% of the total cost of Landlord's Work for Landlord's indirect costs,
 field  inspection and  coordination  in connection  with  Landlord's  Work. All
 references  in this  Section4.01(a)  to "the cost to perform  Landlord's  Work"
 shall be exclusive of all architectural (including the Architect),  engineering
 and other fees and expenses, which fees and expenses shall be paid by Landlord,
 provided  that in no event  shall  such  fees and  expenses  exceed  $2.15  per
 rentable square foot contained in the Premises. In the event that such fees and
 expenses shall exceed $2.15 per rentable square foot contained in the Premises,
 Tenant shall pay any such excess.

                   (b)  it  is  understood  that  Tenant's  architect  shall  be
 responsible for  programming,  schematic design and design  development.  On or
 before  the date which is 30 days after the date of this  Lease,  Tenant  shall
 deliver to Landlord a space plan (which shall be  submitted on a computer  disk
 which shall conform to the AUTO-CAD  system) showing in appropriate  detail the
 proposed  location of partitions,  doors,  millwork and custom areas,  door and
 hardware types, electrical communication and special lighting plans and generic
 room finish schedule and other relevant information reasonably requested by the
 Architect to prepare the Working  Drawings.  Without  limiting  the  foregoing,
 Tenant  shall (i)  approve  or request  specific  changes  with  respect to any
 drawings,  plans or other  materials  submitted  to Tenant by Landlord and (ii)
 upon request

                                       18
<PAGE>

 by  Landlord,  make a  representative  available  to meet with  Landlord or the
 Architect at the offices of Landlord or the Architect,  in each case as soon as
 reasonably  practicable,  but in all  events  within  3  Business  Days of such
 request.  If  Tenant  fails to  comply in a timely  manner  with  this  Section
 4.01(b), such failure shall constitute a Tenant Delay.
                   (c) (i) if Tenant desires to make changes in Landlord's  Work
 after submission to Landlord of the information described in the first sentence
 of Section 4.01 (b) (other than such changes as are  consistent  with the Space
 Plan and do not constitute  material  changes to such  information  provided to
 Landlord)  or any changes in  Landlord's  Work after  Tenant's  approval of the
 Working  Drawings,  Tenant or the Architect  shall submit a signed change order
 request (a "Change Order Request") accompanied by drawings in sufficient detail
 depicting the change.
                         (ii) Within 7 days after  receipt  from Tenant of
 the Change  Order  Request and  drawings in  sufficient  detail  depicting  the
 change,  Landlord shall submit a change order (a "Change Order"),  including an
 estimate of the cost of such work, to Tenant for approval.
                         (iii)  if  a  Change  Order  is   acceptable   to
 Tenant,  Tenant shall accept the Change Order by executing the Change Order and
 returning  it to  Landlord  within 3 Business  Days after  receiving  same from
 Landlord.  If Tenant does not  execute a Change  Order  within 3 Business  Days
 after  receiving  same from  Landlord,  such Change  Order shall be  considered
 disapproved by Tenant,  and Landlord shall continue with  Landlord's Work as if
 the change were never  requested by Tenant.  All costs incurred by Landlord for
 any delay arising from Tenant's  failure to execute a Change Order shall be for
 Tenant's account.
                         (iv) No change or addition made by or on behalf
 of Tenant in  Landlord's  Work  after  Landlord's  receipt  of the  information
 described  in the first  sentence of  Section4.01(b)  (other than such  changes
 which are consistent with the Space Plan and do not constitute material changes
 to such  information  provided to Landlord) or any changes in  Landlord's  Work
 after  Tenant's  approval  of  the  Working  Drawings  shall  extend  the  Rent
 Commencement Date.
                   (d) Not  later  than 4  Business  Days  prior to  substantial
 completion of Landlord's Work, Landlord, Tenant and the Architect shall perform
 a joint walk-through of the Premises and, in accordance with such walk-through,
 the  Architect  shall prepare and provide to Landlord and Tenant a "punch list"
 which identifies (i) incomplete  construction and (ii)  construction  completed
 which is  inconsistent  with the Working  Drawings.  Landlord shall  thereafter
 complete the work properly shown on said list with reasonable diligence.

                   (e) Landlord shall bid the  performance of Landlord's Work to
 at least 3 general  contractors.  Tenant may recommend I general  contractor to
 participate  in  such  bidding  (subject  to  Landlord's   reasonable  approval
 thereof). Tenant shall have the

                                       19
<PAGE>

right to  review  all  bids,  but  Landlord  shall  have the  right in its sole
 discretion to select the general contractor.
             4.02 Alterations. (a) Tenant shall make no improvements, changes or
 alterations  in or to the Premises  ("Alterations")  without  Landlord's  prior
 approval.  Provided  Tenant is not in  monetary  default  under  this  Lease or
 non-monetary  default Under this Lease beyond any  applicable  notice and grace
 period, Landlord shall not unreasonably withhold its approval to any Alteration
 that is not a Material  Alteration.  "Material  Alteration" means an Alteration
 that (i) is not limited to the  interior of the  Premises or which  affects the
 exterior  (including  the  appearance)  of the Building,  (ii) is structural or
 affects the strength of the  Building,  (iii) affects the usage (more than to a
 de minimis  extent) or the proper  functioning of any of the Building  systems,
 (iv)  has a cost  greater  than  $25,000.00,(v)  requires  the  consent  of any
 Superior  Mortgagee  or  Superior  Lessor  or (vi)  requires  a  change  to the
 Building's certificate of occupancy.
                   (b) Tenant shall not proceed with any  Alteration  unless and
 until Landlord approves Tenant's plans and  specificationS  therefor Any review
 or  approval  by  Landlord  of plans and  specifications  with  respect  to any
 Alteration is solely for Landlord's benefit,  and without any representation or
 warranty to Tenant with  respect to the  adequacy,  correctness  or  efficiency
 thereof, its compliance with Laws or otherwise.
                   (c)  Tenant  shall pay to  Landlord  upon  demand  Landlord's
 reasonable costs and expenses (including,  without limitation,  the fees of any
 architect or engineer  employed by Landlord or any Superior  Lessor or Superior
 Mortgagee  for  such  purpose)  for  reviewing  plans  and  specifications  and
 inspecting Alterations.
                   (d) Before proceeding with any Alteration that will cost more
 than  $25,000.00   (exclusive  of  the  costs  of  decorating  work  and  items
 constituting  Tenant's  Property),  as  estimated  by  a  reputable  contractor
 designated  by Landlord,  Tenant shall furnish to Landlord one of the following
 (as selected by Landlord):  (i) a cash deposit,  (ii) a performance  bond and a
 labor and materials  payment bond (issued by a corporate  surety licensed to do
 business  in  New  York  reasonably  satisfactory  to  Landlord)  or  (iii)  an
 irrevocable,  unconditional,  negotiable letter of credit, issued by a bank and
 in a form reasonably  satisfactory to Landlord; each to be equal to 100% of the
 cost of the Alteration, estimated as set forth above. Any such letter of credit
 shall be for one year and shall be renewed by Tenant  each and every year until
 the  Alteration in question is completed and shall be delivered to Landlord not
 less than 30 days prior to the expiration of the then current letter of credit,
 failing  which  Landlord  may  present  the then  current  letter of credit for
 payment  and  deposit  the  proceeds  into an  interest-bearing  account  to be
 administered  in accordance  with this Section 4.02. Upon (A) the completion of
 the  Alteration in  accordance  with the terms of this Section 4.02 and (B) the
 submission  to  Landlord of (x) proof  evidencing  the payment in full for said
 Alteration,  (y) written  unconditional  lien waivers of  mechanics'  liens and
 other liens on the Project from all contractors  performing said Alteration and
 (z) all sign-offs from governmental agencies having jurisdiction,  the security
 deposited with Landlord (or the balance of the

                                       20
<PAGE>

 proceeds  thereof,  if  Landlord  has drawn on the same)  shall be  returned to
 Tenant.  Upon Tenant's failure properly to perform,  complete and fully pay for
 any Alteration, as determined by Landlord, Landlord may, upon notice to Tenant,
 draw on the  security  deposited  under  this  Section  4.02(d)  to the  extent
 Landlord deems  necessary in connection with said  Alteration,  the restoration
 and or  protection of the Premises or the Project and the payment of any costs,
 damages or expenses resulting therefrom.
                   (e) Tenant shall  obtain (and furnish  copies to Landlord of)
 all necessary  governmental  permits and  certificates for the commencement and
 prosecution of Alterations and for final approval thereof upon completion,  and
 shall  cause  Alterations  to be  performed  in  compliance  therewith,  and in
 compliance  with all Laws and with the plans  and  specifications  approved  by
 Landlord.  Alterations shall be diligently  performed in a good and workmanlike
 manner,  using new  materials and equipment at least equal in quality and class
 to the then  standards for the Building  established  by Landlord.  Alterations
 shall be performed by contractors  first  approved by Landlord,  which approval
 shall not be unreasonably withheld or delayed;  provided,  that any Alterations
 in or  to  the  systems  of  the  Building  shall  be  performed  only  by  the
 contractor(s)  designated by Landlord;  Provided that if such  contractor is an
 Affiliate of Landlord,  the fees of such contractor shall not exceed the amount
 which would be charged by a first-class contractor on an arms-length basis. The
 performance of any Alteration  shall not be done in a manner which would create
 any work stoppage,  picketing,  labor disruption,  disharmony or dispute or any
 interference  with the  business  of  Landlord or any tenant or occupant of the
 Building.  Tenant shall  immediately  stop the performance of any Alteration if
 Landlord  notifies Tenant that continuing such Alteration would create any work
 stoppage,  picketing,  labor disruption,  disharmony or dispute or any material
 interference  with the  business  of  Landlord or any tenant or occupant of the
 Building.
                   (f) Throughout the performance of  Alterations,  Tenant shall
 carry worker's compensation  insurance in statutory limits, "all risk" Builders
 Risk  coverage  and  general  liability  insurance,  with  completed  operation
 endorsement,  for any occurrence in or about the Project,  under which Landlord
 and its agent and any  Superior  Lessor and Superior  Mortgagee  whose name and
 address have been  furnished to Tenant  shall be named as parties  insured,  in
 such  limits as Landlord  may  reasonably  require,  with  insurers  reasonably
 satisfactory to Landlord. Tenant shall furnish Landlord with evidence that such
 insurance is in effect at or before the  commencement  of  Alterations  and, on
 request,  at  reasonable   intervals   thereafter  during  the  continuance  of
 Alterations.
                   (g) Should any mechanics' or other liens be filed against any
 portion of the Project by reason of the acts or  omissions  of, or because of a
 claim against,  Tenant or anyone claiming under or through Tenant, Tenant shall
 cause the same to be  canceled  or  discharged  of record by bond or  otherwise
 within 10 days after  notice from  Landlord.  If Tenant shall fail to cancel or
 discharge said lien or liens within said 10 day period,  Landlord may cancel or
 discharge the same and, upon Landlord's demand, Tenant shall reimburse Landlord
 for all costs  incurred in canceling or discharging  such liens,  together with
 interest thereon at the interest Rate from the date incurred by Landlord to

                                       21
<PAGE>

 the date of payment by Tenant,  such  reimbursement  to be made  within 10 days
 after receipt by Tenant of a written  statement  from Landlord as to the amount
 of such costs.  Tenant shall  indemnify  and hold  Landlord  harmless  from and
 against  all  costs  (including,   without  limitation,   attorneys'  fees  and
 disbursements  and  costs of  suit),  losses,  liabilities  or causes of action
 arising out of or relating to any Alteration,  including,  without  limitation,
 any mechanics' or other liens asserted in connection with such Alteration.
                   (b) Tenant shall  deliver to  Landlord,  within 30 days after
 the completion of an Alteration,  "as-built"  drawings thereof During the Term,
 Tenant shall keep records of Alterations  costing in excess of $5,000 including
 plans and specifications,  copies of contracts,  invoices,  evidence of payment
 and all  other  records  customarily  maintained  in the real  estate  business
 relating to  Alterations  and the cost thereof and shall,  within 30 days after
 demand by Landlord. furnish to Landlord copies of such records.
                   (i) All  Alterations  to and Fixtures  installed by Tenant in
 the Premises shall be fully paid for by Tenant in cash and shall not be subject
 to  conditional  bills of sale,  chattel  mortgages,  or other title  retention
 agreements.
             4.03 Landlord's and Tenant's Property. (a) All fixtures, equipment,
 improvements  and  appurtenances  attached to or built into the Premises  which
 would cause material damage to the Premises or the Building to remove,  whether
 or not at the expense of Tenant (collectively, "Fixtures"), shall be and remain
 a part of the  Premises  and shall  not be  removed  by  Tenant.  All  Fixtures
 constituting  improvements  and  Betterrments  shall be the  property of Tenant
 during the Term and,  upon  expiration  or earlier  termination  of this Lease,
 shall become the property of Landlord. All Fixtures other than improvements and
 Betterments   shall,   upon   installation,   be  the   property  of  Landlord.
 "Improvements and Betterments" means (i) all Fixtures, if any, installed at the
 expense of Tenant,  whether installed by Tenant or by Landlord (i.e., excluding
 any Fixtures paid for by Landlord  directly or by way of an allowance) and (ii)
 all carpeting in the Premises.
                   (b) All  movable  partitions,  business  and trade  fixtures,
 machinery and equipment,  and all furniture,  furnishings and other articles of
 movable  personal  property  owned  by  Tenant  and  located  in  the  Premises
 (collectively,  "Tenant's  Property") shall be and shall remain the property of
 Tenant and may be removed by Tenant at any time during the Term; provided, that
 if any  Tenant's  Property is removed,  Tenant  shall  repair any damage to the
 Premises or to the Building  resulting  from the  installation  and/or  removal
 thereof

                   (c) At or before the Expiration Date, or within 15 days after
 any earlier  termination  of this Lease,  Tenant,  at Tenant's  expense,  shall
 remove  Tenant's  Property  from the  Premises  (except  such items  thereof as
 Landlord  shall have  expressly  permitted  to remain,  which shall  become the
 property of  Landlord),  and Tenant  shall repair any damage to the Premises or
 the Building resulting from any installation and/or

                                       22
<PAGE>

 removal of Tenant's  Property.  Any items of Tenant's  Property which remain in
 the Premises after the  Expiration  Date, or more than 15 days after an earlier
 termination  of this Lease,  may, at the option of Landlord,  be deemed to have
 been abandoned,  and may be retained by Landlord as its property or disposed of
 by Landlord, without accountability, in such manner as Landlord shall determine
 at Tenant's expense.
                   (d) Landlord,  by notice given to Tenant at any time prior to
 the Expiration Date or not later than 30 days after any earlier  termination of
 this Lease, may require Tenant,  notwithstanding Section 4.03(a), to remove all
 or any Fixtures that do not constitute a standard office installation, such as,
 by  way  of  example  only,  kitchens,   vaults,  safes,  raised  flooring  and
 stairwells.  If  Landlord  shall give such  notice,  then  Tenant,  at Tenant's
 expense,  prior  to  the  Expiration  Date,  or,  in  the  case  of an  earlier
 termination  of this  Lease,  within 15 days after the giving of such notice by
 Landlord, shall remove the same from the Premises, shall repair and restore the
 Premises to the  condition  existing  prior to  installation  thereof and shall
 repair any  damage to the  Premises  or to the  Building  due to such  removal.
 Notwithstanding  the  foregoing,  Tenant  may,  together  with  the  plans  and
 specifications  required to be  submitted  pursuant to Section  4.02,  submit a
 notice to  Landlord  inquiring  whether  the  proposed  Alteration  (or any pan
 thereof does not constitute a standard of office installation.
             4.04 Access and Changes to  Building.  (a)  Landlord  reserves  the
 right,  at any time,  to make changes in or to the Project as Landlord may deem
 necessary  or  desirable,  and  Landlord  shall  have no  liability  to  Tenant
 therefor,  provided  any such change  does not deprive  Tenant of access to the
 Premises or the parking to which  Tenant is entitled  pursuant to Section  8.17
 and does not affect the first-class nature of the Project. Landlord may install
 and maintain  pipes,  fans,  ducts,  wires and  conduits  within or through the
 walls,  floors or ceilings  of the  Premises;  provided,  (i) there shall be no
 diminution  to the size of the  Premises  (other than to a de minimis  extent);
 (ii) such installation shall be concealed; and (iii) Landlord shall restore any
 damage to the Premises caused by such  installations.  In exercising its rights
 under this Section 4.04,  Landlord shall use reasonable efforts to minimize any
 interference  with  Tenant's use of the  Premises  for the ordinary  conduct of
 Tenant's  business and shall  comply with  Section  4.04(d) with respect to any
 access to the Premises.
                   (b) Except for the space  within the inside  surfaces  of all
 walls, hung ceilings,  floors,  windows and doors bounding the Premises, all of
 the Building,  including,  without  limitation,  exterior  Building walls, core
 corridor walls and doors and any core corridor entrance,  any terraces or roofs
 adjacent to the Premises, and any space in or adjacent to the Premises used for
 shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities,
 sinks or other  Building  facilities,  and the use  thereof,  as well as access
 thereto through the Premises,  are reserved to Landlord and are not part of the
 Premises.  Landlord  reserves  the right to name the Building and to change the
 name or address of the Building at any time and from time to time.

                                       23
<PAGE>
                 (c)  Landlord  shall have no liability to Tenant if at
 any time any windows of the Premises are either temporarily  darkened or
 obstructed by reason of any repairs,  improvements,  maintenance  and or
 cleaning  in  or  about  the  Building  (or   permanently   darkened  or
 obstructed  if required by Law) or covered by any  translucent  material
 for the purpose of energy conservation,  or if any part of the Building,
 other  than the  Premises,  is  temporarily  or  permanently  closed  or
 inoperable.

                   (d) Landlord and persons  authorized by Landlord shall
 have the right,  upon prior notice to Tenant  (except in an  emergency),
 to enter the Premises  (together  with any  necessary  materials  and/or
 equipment),  to inspect or perform such work as Landlord may  reasonably
 deem necessary or to exhibit the Premises to  prospective  purchasers or
 mortgagees  or,  during  the last 9 months of the Term,  to  prospective
 tenants,  or for any other  purpose as Landlord  may deem  necessary  or
 desirable.  Landlord  shall have no liability to Tenant by reason of any
 such entry.  Landlord shall not be required to make any  improvements or
 repairs  of any kind or  character  to the  Premises  during  the  Term,
 except as otherwise expressly provided herein.

             4.05  Repairs.  Tenant  shall keep the  Premises  (including,
 without   limitation,   all  Fixtures)  in  good   condition   and,  upon
 expiration or earlier  termination of the Term,  shall surrender the same
 to  Landlord in the same  condition  as when first  occupied,  reasonable
 wear  and tear  excepted.  Tenant's  obligation  shall  include,  without
 limitation,  the  obligation to repair all damage  caused by Tenant,  its
 agents,  employees,  invitees and  licensees to the  equipment  and other
 installations  in the Premises or anywhere in the Building;  Tenant shall
 not be responsible  for repairs to the  Building's  systems or structural
 components  of the  Building  unless such repairs  shall be  necessitated
 because  of  the  acts  or  omissions  of  Tenant  or  Tenant's   agents,
 employees,   invitees   or   licensees.   Any   maintenance,   repair  or
 replacement  to the windows  (including,  without  limitation,  any solar
 film attached thereto),  the Building systems, the Building's  structural
 components  or any areas  outside  the  Premises  and  which is  Tenant's
 obligation  to  perform  shall  be  performed  by  Landlord  at  Tenant's
 expense.  Tenant shall not commit or allow to be  committed  any waste or
 damage to any portion of the Premises or the Building.

             4.06  Compliance  with Laws.  Tenant  shall  comply  with all
 laws,  ordinances,   rules,  orders  and  regulations  (present,  future,
 ordinary,  extraordinary.  foreseen or unforeseen)  of any  governmental,
 public  or   quasi-public   authority  and  of  the  New  York  Board  of
 Underwriters,  the New York Fire insurance  Rating  Organization  and any
 other  entity  performing  similar  functions,  at any time duly in force
 (collectively   "Laws"),   attributable   to  any   work,   installation,
 occupancy,  use or manner of use by  Tenant of the  Premises  or any part
 thereof.  Nothing  contained in this Section 4.06 shall require Tenant to
 make any structural  changes unless the same are  necessitated  by reason
 of  Tenant's  manner of use of the  Premises  or the use by Tenant of the
 Premises for purposes  other than normal and  customary  ordinary  office
 purposes.  Tenant  shall  procure and  maintain  all licenses and permits
 required for its business.

                                       24
<PAGE>

             4.07 Tenant Advertising. Tenant shall not Use, and shall cause each
 of its  Affiliates  not to use,  the name or  likeness  of the  Building or the
 Project in any advertising (by whatever medium) without Landlord's consent (not
 to be unreasonably withheld or delayed).
             4.08 Right to Perform Tenant Covenants.  If Tenant fails to perform
 any of its obligations under this Lease,  Landlord,  any Superior Lessor or any
 Superior Mortgagee (each, a "Curing Partv") may perform the same at the expense
 of Tenant (a)  immediately  and without  notice in the case of  emergency or in
 case such failure  interferes  with the Use of space by any other tenant in the
 Building or with the  efficient  operation  of the  Building or may result in a
 violation of any Law or in a cancellation of any insurance policy maintained by
 Landlord  and (b) in any  other  case  if such  failure  continues  beyond  any
 applicable grace period. If a Curing Party performs any of Tenant's obligations
 under this Lease,  Tenant shall pay to Landlord (as Additional  Rent) the costs
 thereof,  together with interest at the interest Rate from the date incurred by
 the Curing Party until paid by Tenant,  within 10 days after  receipt by Tenant
 of a statement  as to the amounts of such costs.  If the Curing  Party  effects
 such cure by bonding any lien which  Tenant is  required  to bond or  otherwise
 discharge,  Tenant  shall obtain and  substitute a bond for the Curing  Party's
 bond and shall  reimburse  the Curing Party for the cost of the Curing  Party's
 bond.  "Interest  Rate" means the lesser of (i) the base rate from time to time
 announced by Citibank,  N.A. (or, if Citibank, ALA. shall not exist, such other
 bank in New York,  New York,  as shall be designated by Landlord in a notice to
 Tenant) to be in effect at its principal  office in New York,  New York plus 2%
 or (ii) the maximum rate permitted by law
                                    ARTICLE 5
                                 Assignment and
                                    Subletting
             5.01  Assignment  Etc.  (a) Subject to Section  5.02,  neither this
 Lease nor the term and  estate  hereby  granted,  nor any pan hereof or thereof
 shall be assigned, mortgaged,  pledged,  encumbered  or  otherwise  transferred
 voluntarily,  involuntarily,  by operation of law or otherwise, and neither the
 Premises,  nor any pan thereof,  shall be  subleased,  be licensed,  be used or
 occupied  by any person or entity  other than  Tenant or be  encumbered  in any
 manner by reason of any act or omission  on the pan of Tenant.  and no rents or
 other sums  receivable  by Tenant  under any  sublease of all or any pan of the
 Premises shall be assigned or otherwise  encumbered,  without the prior consent
 of  Landlord.  The  dissolution  or direct or  indirect  transfer of control of
 Tenant (however accomplished including, by way of example, the admission of new
 partners or members or withdrawal of existing partners or members, or transfers
 of  interests  in  distributions  of profits or losses of Tenant,  issuance  of
 additional stock,  redemption of stock,  stock voting  agreement,  or change in
 classes of stock) shall be deemed an  assignment  of this Lease  regardless  of
 whether  the  transfer is made by one or more  transactions,  or whether one or
 more persons or entities hold the controlling interest prior to the transfer or
 afterwards.   An  agreement  under  which  another  person  or  entity  becomes
 responsible for all or a

                                       25
<PAGE>
portion of Tenant's  obligations under this Lease shall be deemed an assignment
 of this Lease.  No assignment  or other transfer of this Lease and the term and
 estate hereby granted,  and no subletting of all or any portion of the Premises
 shall relieve Tenant of its liability  under this Lease or of the obligation to
 obtain  Landlord's prior consent to any further  assignment,  other transfer or
 subletting.  Any  attempt to assign  this Lease or sublet all or any portion of
 the Premises in violation of this Article 5 shall be null and void.
                   (b) Notwithstanding  Section 5.01 (a), without the consent of
 Landlord,  this  Lease may be  assigned  to (i) an entity  created  by  merger,
 reorganization or recapitalization of or with Tenant or (ii) a purchaser of all
 or substantially all of Tenant's assets;  provided,  in the case of both clause
 (i) and clause  (ii),  that (A) Landlord  shall have  received a notice of such
 assignment  from  Tenant,  (B)  the  assignee  assumes  by  written  instrument
 reasonably  satisfactory  to Landlord  all of Tenant's  obligations  under this
 Lease, (C) such assignment is for a valid business purpose and not to avoid any
 obligations  under this Lease,  and (D) the  assignee is a reputable  entity of
 good  character  and  shall  have,  immediately  after  giving  effect  to such
 assignment,  an aggregate net worth (computed in accordance with GAAP) at least
 equal to the aggregate net worth (as so computed) of Tenant  immediately  prior
 to such assignment or on the date of this Lease, whichever is greater.
                   (c) Notwithstanding  Section 5.01(a),  without the consent of
 Landlord,  Tenant  may  assign  this  Lease  or  sublet  all or any part of the
 Premises to an Affiliate  of Tenant;  provided,  that (i)  Landlord  shall have
 received a notice of such  assignment or sublease from Tenant;  and (ii) in the
 case of any such assignment, (A) the assignment is for a valid business purpose
 and not to avoid any obligations under this Lease, and (B) the assignee assumes
 by written  instrument  reasonably  satisfactory  to  Landlord  all of Tenant's
 obligations under this Lease. "Affiliate" means, as to any designated person or
 entity,  any other person or entity which  controls,  is  controlled  by, or is
 under common control with,  such  designated  person or entity.  "Control" (and
 with  correlative  meaning,  "controlled  by" and "under common  control with")
 means  ownership or voting control,  directly or indirectly,  of 50% or more of
 the voting stock, partnership interests or other beneficial ownership interests
 of the entity in question.
             5.02  Landlord's  Right of First  Offer.  (a) if Tenant  desires to
 assign  this  Lease  or  sublet  ail or part  of the  Premises  (other  than in
 accordance  with  Sections  5.01(b) or 5.01(c)),  Tenant shall give to Landlord
 notice  ("Tenant's  Offer  Notice")  thereof,  specifying  (i) in the case of a
 proposed subletting, the location of the space to be sublet and the term of the
 subletting  of such  space,  (ii)  (A) in the  case of a  proposed  assignment,
 Tenant's good faith offer of the consideration Tenant desires to receive or pay
 for such assignment or (B) in the case of a proposed subletting,  Tenant's good
 faith offer of the fixed annual rent which  Tenant  desires to receive for such
 proposed  subletting  (assuming  that  a  subtenant  will  pay  for  Taxes  and
 electricity  in the same  manner,  and  utilizing  the same  base  year or base
 amount,  as  Tenant  pays for such  amounts  under  this  Lease)  and (iii) the
 proposed assignment or sublease commencement date.

                                       26
<PAGE>

                   (b)  Tenant's  Offer  Notice  shall be deemed  an offer  from
 Tenant to Landlord whereby Landlord (or Landlord's designee) may, at Landlord's
 option,  (i) sublease such space from Tenant (if the proposed  transaction is a
 sublease of all or pan of the Premises), (ii) have this Lease assigned to it or
 terminate  this  Lease  (if the  proposed  transaction  is an  assignment  or a
 sublease of all or substantially all of the Premises or a sublease of a portion
 of the Premises  which,  when  aggregated  with other subleases then in effect,
 covers all or substantially all of the Premises), or (iii) terminate this Lease
 with  respect to the space  covered by the  proposed  sublease (if the proposed
 transaction is a sublease of part of the Premises) Said option may be exercised
 by Landlord by notice to Tenant  within 60 days after a Tenant's  Offer Notice,
 together with all information  required  pursuant to Section 5.02(a),  has been
 given by Tenant to Landlord.  If Landlord  exercises  its right to sublet space
 from Tenant or to have this Lease assigned to Landlord pursuant to this Section
 5.02, Tenant shall remain fully liable for the payment of the any difference in
 the Rent reserved under such assignment or sublease and the Rent reserved under
 this Lease for so long as such  assignment  or sublease is in effect but Tenant
 shall have no further obligations under this Lease.
                   (c)  if  Landlord   exercises   its  option   under   Section
 5.02(b)(ii)  to terminate  this Lease,  then this Lease shall  terminate on the
 proposed  assignment or sublease  commencement date specified in the applicable
 Tenant's Offer Notice and all Rent shall be paid and apportioned to such date
                   (d)  if  Landlord   exercises   its  option   under   Section
 5.02(b)(ii) to have this Lease  assigned to it (or its  designee),  then Tenant
 shall assign this Lease to Landlord (or  Landlord's  designee) by an assignment
 in form and substance  reasonably  satisfactory  to Landlord,  effective on the
 proposed  assignment or sublease  commencement date specified in the applicable
 Tenant's Offer Notice. Tenant shall not be entitled to consideration or payment
 from Landlord (or Landlord's  designee) in connection with any such assignment.
 If the Tenant's Offer Notice provides that Tenant will pay any consideration or
 grant any concessions in connection  with the proposed  assignment or sublease,
 then Tenant shall pay such  consideration  and/or grant any such concessions to
 Landlord  (or  Landlord's  designee)  on the date Tenant  assigns this Lease to
 Landlord (or Landlord's designee).

                   (e) if Landlord exercises its option under Section 5.02(a)(3)
 to  terminate  this  Lease  with  respect  to the space  covered  by a proposed
 sublease,  then (i) this Lease shall terminate with respect to such part of the
 Premises on the effective  date of the proposed  sublease;  (ii) from and after
 such  date the Rent  shall be  adjusted,  based  upon the  proportion  that the
 rentable area of the Premises remaining bears to the total rentable area of the
 Premises  and  (iii)  Tenant  shall pay to  Landlord,  upon  demand,  the costs
 incurred by Landlord in demising  separately  such part of the  Premises and in
 complying with any Laws relating to such demise.

                   (f) if Landlord exercises its option under Section 5.02(b)(i)
 to sublet the space Tenant desires to sublet,  such sublease to Landlord or its
 designee (as

                                       27
<PAGE>

 subtenant) shall be in form and substance  reasonably  satisfactory to Landlord
 at the lower of (i) the rental rate per rentable  square foot of Fixed Rent and
 Additional  Rent then  payable  pursuant  to this  Lease or (ii) the rental set
 forth in the  applicable  Tenant's  Offer  Notice  with  respect to such sublet
 space,  and shall be for the term set forth in the  applicable  Tenant's  Offer
 Notice, and:
                         (A)  shall be  subject  to all of the  terms and
 conditions  of this Lease except such as are  irrelevant or  inapplicable,  and
 except  as  otherwise  expressly  set  forth to the  contrary  in this  Section
 5.02(f);
                         (B) shall be upon the same terms and conditions
 as those contained in the applicable Tenant's Offer Notice and otherwise on the
 terms  and  conditions  of  this  Lease,  except  such  as  are  irrelevant  or
 inapplicable  and except as  otherwise  expressly  set forth to the contrary in
 this Section 5.02(f);
                         (C) shall permit the sublessee, without
 Tenant's consent,  freely to assign such sublease or any interest therein or to
 sublet all or any pan of the space covered by such sublease and to make any and
 all alterations and improvements in the space covered by such sublease;
                         (D) shall provide that any assignee or further
 subtenant  of Landlord or its designee  may, at the election of Landlord,  make
 alterations,  decorations and  installations  in such space or any pan thereof,
 any or all of which may be removed,  in whole or in part,  by such  assignee or
 subtenant,  at its option, prior to or upon the expiration or other termination
 of such  sublease,  provided that such  assignee or subtenant,  at its expense,
 shall repair any damage caused by such removal; and
                         (E) shall provide that (1) the parties to such
 sublease  expressly  negate any  intention  that any estate  created under such
 sublease be merged with any other  estate held by either of said  parties,  (2)
 any assignment or subletting by Landlord or its designee (as the subtenant) may
 be for any  purpose or  purposes  that  Landlord  shall deem  appropriate,  (3)
 Landlord,  at Tenant's expense, may make such alterations as may be required or
 deemed  reasonably  necessary by Landlord to demise  separately  the  subleased
 space and to  comply  with any Laws  relating  to such  demise,  and (4) at the
 expiration of the term of such sublease,  Tenant shall accept the space covered
 by such sublease in its then existing condition,  subject to the obligations of
 the sublessee to make such repairs thereto as may be necessary to preserve such
 space in good order and condition and Tenant shall have no obligation to remove
 any  Alterations  performed in such space by or for the subtenant or to restore
 any damage caused by the subtenant.

                   (g) in the case of a  proposed  sublease,  Tenant  shall  not
 sublet any space to a third party at a rental  which is less (on a per rentable
 square  foot  basis)  than the rental (on a per  rentable  square  foot  basis)
 specified  in  Tenant's  Offer  Notice  with  respect  to such  space,  without
 complying  once  again  with all of the  provisions  of this  Section  5.02 and
 re-offering  such  space to  Landlord  at such lower  rental.  In the case of a
 proposed assignment,  Tenant shall not assign this Lease to a third party where
 Tenant

                                       28
<PAGE>
 
 pays greater  consideration or grants a greater  concession to such third party
 for such  assignment  then the  consideration  offered to be paid or concession
 offered to be granted to Landlord in Tenant's  Offer Notice  without  complying
 once again with all of the  provisions of this Section 5.02 and  re-offering to
 assign  this  Lease to  Landlord  and pay  such  consideration  or  grant  such
 concession to Landlord.
             5.03 Assignment and Subletting  Procedures.  (a) if Tenant delivers
 to Landlord a Tenant's Offer Notice with respect to any proposed  assignment of
 this Lease or  subletting  of all or part of the Premises and Landlord does not
 timely  exercise any of its options under Section 5.02,  and Tenant  thereafter
 desires to assign this Lease or sublet the space  specified  in Tenant's  Offer
 Notice,  Tenant  shall notify  Landlord (a  "Transfer  Notice") of such desire,
 which notice shall be accompanied  by (i) a copy of the proposed  assignment or
 sublease and all related  agreements,  the effective  date of which shall be at
 least 30 days after the giving of the Transfer Notice, (ii) a statement setting
 forth in reasonable  detail the identity of the proposed assignee or subtenant,
 the nature of its business and its proposed use of the Premises,  (iii) current
 financial  information  with  respect to the  proposed  assignee or  subtenant,
 including,  without  limitation,  its most recent financial  statement and (iv)
 such other  information  as Landlord may  reasonably  request,  and  Landlord's
 consent  to the  proposed  assignment  or  sublease  shall not be  unreasonably
 withheld, provided that:
                         (i) such  Transfer  Notice shall be delivered to
 Landlord  within six months  after the  delivery to Landlord of the  applicable
 Tenant's Offer Notice.
                         (ii)  in   Landlord's   judgment   the  proposed
 assignee or subtenant  will use the Premises in a manner that (A) is in keeping
 with the then  standards of the  Building,  (B) is limited to the use expressly
 permitted under this Lease,  and (C) will not violate any negative  covenant as
 to use contained in any other Lease of space in the Building.
                         (iii) The proposed  assignee or subtenant is, in
 Landlord's  reasonable judgment, a reputable person or entity of good character
 and with sufficient financial worth considering the responsibility involved.
                         (iv)   Neither   the   proposed    assignee   or
 sublessee, nor any Affiliate of such assignee or sublessee, is then an occupant
 of any pan of the Building unless,  in the case of any Affiliate of an occupant
 of the Building, Landlord shall have actually negotiated with such Affiliate to
 lease space in the Building and terminated negotiations with such Affiliate.

                         (v) The proposed  assignee or sublessee is not a
 person with whom Landlord is then  negotiating or has within the prior 6 months
 negotiated to lease space in the Building.

                                       29
<PAGE>
                        (vi) The form of the proposed  sublease  shall be
 reasonably  satisfactory  to  Landlord  and shall  comply  with the  applicable
 provisions of this Article 5.
                         (vii) There shall not be more than I subtenant of the

 Premises.
                         (viii)  The  aggregate  rent  to be  paid  by the
 proposed subtenant is not less than the greater of (A) the fair rental value of
 the sublet  space as sublet  space or (B) 90% of the fair  rental  value of the
 sublet space if such space were being leased directly by Landlord (in each case
 as reasonably determined by Landlord).
                         (ix) Tenant shall reimburse Landlord on demand
 for any costs  incurred by  Landlord  in  connection  with said  assignment  or
 sublease,  including, without limitation, the costs of making investigations as
 to the  acceptability  of the proposed  assignee or subtenant,  and  reasonable
 legal costs incurred in connection with the granting of any requested consent.
                   (b) if Landlord consents to a proposed assignment or sublease
 and Tenant  fails to execute and deliver  the  assignment  or sublease to which
 Landlord consented within 45 days after the giving of such consent, then Tenant
 shall  again  comply  with  this  Article  5  before  assigning  this  Lease or
 subletting all or part of the Premises.
             5.04 General Provisions.  (a) if this Lease is assigned, whether or
 not in violation of this Lease, Landlord may collect rent from the assignee. If
 the Premises or any part  thereof are sublet or occupied by anybody  other than
 Tenant,  whether or not in violation of this Lease, Landlord may, after default
 by Tenant,  and expiration of Tenant's time to cure such default,  collect rent
 from the  subtenant or occupant.  In either  event,  Landlord may apply the net
 amount collected against Rent, but no such assignment, subletting, occupancy or
 collection  shall be  deemed  a  waiver  of any of the  provisions  of  Section
 5.01(a), or the acceptance of the assignee, subtenant or occupant as tenant, or
 a release of Tenant from the  performance  of Tenant's  obligations  under this
 Lease.
                   (b) No  assignment or transfer  shall be effective  until the
 assignee  delivers  to  Landlord  (i)  evidence  that the  assignee,  as Tenant
 hereunder,  has complied with the  requirements  of Sections 7.02 and 7.03, and
 (ii) an agreement in form and  substance  reasonably  satisfactory  to Landlord
 whereby the assignee assumes Tenant's obligations under this Lease.

                   (c)  Notwithstanding  any assignment or transfer,  whether or
 not in violation of this Lease, and  notwithstanding the acceptance of any Rent
 by Landlord  from an assignee,  transferee,  or any other  party,  the original
 named  Tenant and each  successor  Tenant  shall  remain  fully  liable for the
 payment of the Rent and the  performance of all of Tenant's  other  obligations
 under this Lease.  The joint and several  liability of Tenant and any immediate
 or remote successor in interest of Tenant shall not be discharged,  released or
 impaired in any respect by any agreement made by Landlord

                                       30
<PAGE>

 extending the time to perform, or otherwise  modifying,  any of the obligations
 of Tenant under this Lease,  or by any waiver or failure of Landlord to enforce
 any of the  obligations  of Tenant under this Lease.  The  foregoing  shall not
 affect the last sentence of Section 5.02(b).
                   (d)  Each  subletting  by  Tenant  shall  be  subject  to the
                   following:
                         (i)   No   subletting   shall   be  for  a  term
 (including any renewal or extension  options  contained in the sublease) ending
 later than one day prior to the Expiration Date.
                         (ii)  No  sublease   shall  be  valid,   and  no
 subtenant  shall take  possession  of the Premises or any part  thereof,  until
 there has been delivered to Landlord,  both (A) an executed counterpart of such
 sub ease, and (B) a certificate of insurance evidencing that (x) Landlord is an
 additional  insured under the insurance  policies  required to be maintained by
 occupants of the Premises  pursuant to Section  7.02,  and (y) there is in full
 force and effect, the insurance otherwise required by Section 7.02.
                         (iii) Each sublease shall provide that it is
 subject and  subordinate to this Lease,  and that in the event of  termination,
 reentry or dispossess by Landlord under this Lease Landlord may, at its option,
 take over all of the right,  title and interest of Tenant, as sublessor,  under
 such  sublease,  and such  subtenant  shall, at  Landlord's  option,  attorn to
 Landlord  pursuant to the then executory  provisions of such  sublease,  except
 that Landlord  shall not be liable for,  subject to or bound by any item of the
 type that a Successor Landlord is not so liable for,  subject to or bound by in
 the case of an attornment by Tenant to a Successor  Landlord under Section 6.01
 (a).
                   (e) Each  sublease  shall  provide that the subtenant may not
 assign its rights  thereunder  or further  sublet the space  demised  under the
 sublease, in whole or in part, without Landlord's consent and without complying
 with all of the terms and  conditions  of this  Article 5,  including,  without
 limitation,  Section 5.04,  which for purposes of this Section 5.04(e) shall be
 deemed to be  appropriately  modified to take into account that the transaction
 in question is an  assignment  of the sublease or a further  subletting  of the
 space demised under the sublease, as the case may be.

                   (f) Tenant shall not publicly  advertise the  availability of
 the Premises or any portion  thereof as sublet space or by way of an assignment
 of this Lease, without first obtaining Landlord's consent,  which consent shall
 not be unreasonably  withheld or delayed provided that Tenant shall in no event
 advertise the rental rate or any description thereof

             5.05 Partnership Tenant. If at any time Tenant is a partnership the
 following  shall apply:  (a) the  liability  of each of the parties  comprising
 Tenant shall be joint and several,  (b) each of the parties  comprising  Tenant
 hereby consents to, and agrees to be bound by, any written instrument which may
 hereafter be executed,  changing  modifying or discharging this Lease, in whole
 or in part, or surrendering all or any part

                                       31
<PAGE>

 of the  Premises to Landlord  or  renewing or  extending  this Lease and by any
 notices,  demands,  requests or other  communications  which may  hereafter  be
 given,  by Tenant or by any of the parties  comprising  Tenant,  (c) any bills,
 statements,  notices,  demands,  requests  or  other  communications  given  or
 rendered to Tenant or to any of the parties  comprising  Tenant shall be deemed
 given or rendered to Tenant and to all such  parties and shall be binding  upon
 Tenant and all such  parties,  (d) if Tenant shall admit new  partners.  all of
 such new  partners  shall,  by their  admission  to  Tenant,  be deemed to have
 assumed performance of all of the terms, covenants and conditions of this Lease
 on Tenant's  part to be observed  and  performed,  (e) Tenant shall give prompt
 notice to Landlord of the admission of any partner or partners, and upon demand
 of  Landlord,  shall cause each such partner to execute and deliver to Landlord
 an agreement in form  satisfactory  to Landlord,  wherein each such new partner
 shall assume performance of all of the terms,  covenants and conditions of this
 Lease on Tenant's pan to be observed  and  performed  (but  neither  Landlord's
 failure to request any such  agreement  nor the failure of any such new partner
 to execute  or  deliver  any such  agreement  to  Landlord  shall  vitiate  the
 provisions  of  this  Section  5.05,  and  (a)  on  each   anniversary  of  the
 Commencement  Date,  Tenant  Hall  deliver to  Landlord a list of all  partners
 together with their current residential addresses.
             5.06 Assignment and Sublease  Profits.  (a) if the aggregate of the
 amounts  payable as fixed rent and as  additional  rent on account of Taxes and
 electricity by a subtenant  under a sublease of any pan of the Premises and the
 amount of any Other Sublease Consideration payable to Tenant by such subtenant,
 whether  received  in a  lumpsum  payment  or  otherwise  shall be in excess of
 Tenant's  Basic Cost therefor at that time then,  promptly after the collection
 thereof,   Tenant  shall  pay  to  Landlord  50%  of  such  excess  in  monthly
 installments as and when collected.  Tenant shall deliver to Landlord within 60
 days  after  the end of each  calendar  year  and  within  60  days  after  the
 expiration or earlier  termination  of this Lease a statement  specifying  each
 sublease in effect  during such  calendar year or partial  calendar  year,  the
 rentable area demised thereby, the term thereof and a computation in reasonable
 detail showing the calculation of the amounts paid and payable by the subtenant
 to Tenant,  and by Tenant to Landlord,  with  respect to such  sublease for the
 period covered by such statement. "Tenant's Basic Cost" for sublet space at any
 time means the sum of (i) the portion of the Fixed Rent and Tax Payments  which
 is attributable to the sublet space,  plus (ii) the amount payable by Tenant on
 account of electricity in respect of the sublet space, plus (iii) the amount of
 any costs  reasonably  incurred  by Tenant in making  changes in the layout and
 finish of the sublet space for the subtenant amortized on a straight-line basis
 over the term of the sublease plus (iv) the amount of any reasonable  brokerage
 commissions  and  reasonable  legal fees paid by Tenant in connection  with the
 sublease  amortized  on a  straight-line  basis over the term of the  sublease.
 "Other  Sublease  Consideration"  means  all sums  paid for the  furnishing  of
 services  by  Tenant  and the sale or rental of  Tenant's  fixtures,  leasehold
 improvements, equipment, furniture or other personal property less, in the case
 of the sale thereof,  the then net  unamortized or  undepreciated  cost thereof
 determined on the basis of Tenant's federal income tax returns.

                                       32
<PAGE>

                   (b) Upon any  assignment  of this Lease,  Tenant shall pay to
 Landlord  50% of the  Assignment  Consideration  received  by  Tenant  for such
 assignment,   after  deducting   therefrom  customary  and  reasonable  closing
 expenses.  "Assignment  Consideration"  means an  amount  equal to all sums and
 other  considerations  paid to Tenant by the  assignee for or by reason of such
 assignment  (including,  without  limitation,  sums paid for the  furnishing of
 services  by  Tenant  and the sale or rental of  Tenant's  fixtures,  leasehold
 improvements,  equipment,  furniture,  furnishings or other personal  property,
 less, in the case of a sale thereof,  the then net unamortized or undepreciated
 cost thereof determined on the basis of Tenant's federal income tax returns).
                                    ARTICLE 6
                        Subordination: Default; Indemnity
                6.01 Subordination. (a) This Lease is subject and
 subordinate to each mortgage (a "Superior Mortgage and each underlying lease (a
 "Superior  Lease") which may now or hereafter  affect all or any portion of the
 Project or any interest therein.  The lessor under a Superior Lease is called a
 "Superior  Lessor"  and the  mortgagee  under a Superior  Mortgage  is called a
 "Superior  Mortgagee".  Tenant  shall  execute,  acknowledge  and  deliver  any
 instrument  reasonably  requested  by Landlord,  a Superior  Lessor or Superior
 Mortgagee  to evidence  such  subordination,  but no such  instrument  shall be
 necessary  to make such  subordination  effective.  Tenant  shall  execute  any
 amendment of this Lease requested by a Superior Mortgagee or a Superior Lessor,
 provided  such  amendment  shall not result in a material  increase in Tenant's
 obligations under this Lease or a material  reduction in the benefits available
 to  Tenant.  In the event of the  enforcement  by a Superior  Mortgagee  of the
 remedies provided for by law or by such Superior  Mortgage,  or in the event of
 the termination or expiration of a Superior Lease, Tenant, upon request of such
 Superior Mortgagee, Superior Lessor or any person succeeding to the interest of
 such mortgagee or lessor (each, a "Successor  Landlord"),  shall  automatically
 become the tenant of such  Successor  Landlord  without  change in the terms or
 provisions of this Lease (it being  understood that Tenant shall, if requested,
 enter into a new lease on terms  identical to those in this  Lease);  provided,
 that any Successor  Landlord  shall not be (i) liable for any act,  omission or
 default of any prior landlord (including,  without limitation,  Landlord); (ii)
 liable  for the  return  of any monies  paid to or on  deposit  with any prior
 landlord (including,  without limitation,  Landlord), except to the extent such
 monies or deposits are delivered to such Successor  Landlord;  (iii) subject to
 any offset, claims or defense that Tenant might have against any prior landlord
 (including, without limitation,  Landlord); (iv) bound by any Rent which Tenant
 might  have  paid  for more  than  the  current  month  to any  prior  landlord
 (including,  without  limitation,  Landlord)  unless actually  received by such
 Successor  Landlord;  (v) bound by any  covenant  to  perform or  complete  any
 construction  in connection with the Project or the Premises or to pay any sums
 to Tenant in connection  therewith;  or (vi) bound by any waiver or forbearance
 under, or any amendment, modification, abridgment, cancellation or surrender of
 this Lease made without the consent of such Successor Landlord. Upon request by
 such Successor Landlord, Tenant shall execute and deliver an instrument or

                                       33
<PAGE>

 instruments,  reasonably  requested by such Successor Landlord,  confirming the
 attornment  provided for herein,  but no such instrument  shall be necessary to
 make such attornment effective.
                   (b) in  case  of any  Superior  Mortgage  or  Superior  Lease
 affecting  the Project  after the date hereof,  Landlord  shall use  reasonable
 efforts to obtain from the Superior  Mortgagee or Superior Lessor in question a
 non-disturbance  agreement  in the  form  customarily  used  by  such  Superior
 Mortgagee or Superior Lessor;  provided, that Landlord shall not be required to
 spend any sums more than de minimus administrative  expenses or incur any costs
 (unless  Tenant  shall pay such sums and costs) to obtain such  non-disturbance
 agreement  and Landlord  shall have no liability to Tenant and this Lease shall
 in all  events be subject  and be  subordinate  to such  Superior  mortgage  or
 Superior Lease if such Superior  Mortgagee or Superior  Lessor does not execute
 such non-disturbance agreement in favor of Tenant.
                   (c)  Tenant  shall  give  each  Superior  Mortgagee  and each
 Superior Lessor a copy of any notice of default served upon Landlord,  provided
 that Tenant has been  notified of the address of such  mortgagee or lessor.  If
 Landlord  fails to cure any  default as to which  Tenant is  obligated  to give
 notice pursuant to the preceding  sentence within the time provided for in this
 Lease,  then each such  mortgagee  or lessor shall have an  additional  30 days
 after  receipt  of such  notice  within  which to cure such  default or if such
 default cannot be cured within that time,  then such  additional time as may be
 necessary if, within such 30 days,  any such  mortgagee or lessor has commenced
 and is  diligently  pursuing  the  remedies  necessary  to  cure  such  default
 (including,  without  limitation,  commencement  of foreclosure  proceedings or
 eviction proceedings, if necessary to effect such cure; provided that such time
 period  shall  not be  extended  by  more  than  60  days  by  reason  of  such
 proceedings),  in which  event this Lease  shall not be  terminated  and Tenant
 shall not exercise  any other rights or remedies  under this Lease or otherwise
 while such remedies are being so diligently  pursued.  Nothing  herein shall be
 deemed to imply that Tenant has any right to terminate  this Lease or any other
 right or remedy,  except as may be  otherwise  expressly  provided  for in this
 Lease.
             6.02 Estoppel  Certificate.  Each party shall, at any time and from
 time to time, within 10 Business Days after request by the other party, execute
 and  deliver  to the  requesting  party  (or to such  person  or  entity as the
 requesting  party may  designate)  a  statement  certifying  that this Lease is
 unmodified  and in full force and effect (or if there have been  modifications,
 that  the  same is in full  force  and  effect  as  modified  and  stating  the
 modifications), certifying the Commencement Date, Expiration Date and the dates
 to which the Fixed Rent and Additional  Rent have been paid and stating whether
 or not,  to the best  knowledge  of such party the other party is in default in
 performance of any of its obligations  under this Lease, and, if so, specifying
 each such default of which such party has knowledge, it being intended that any
 such statement shall be deemed a representation  and warranty to be relied upon
 by the party to whom such statement is addressed.  Tenant also shall include or
 confirm in any such statement such other  information  concerning this Lease as
 Landlord may reasonably request.

                                       34
<PAGE>

             6.03 Default. This Lease and the term and estate hereby granted are
 subject to the limitation that:
                   (a) if Tenant  defaults in the payment of any Rent,  and such
 default  continues  for 5 days after gives to Tenant a notice  specifying  such
 default, or
                   (b)  if  Tenant  defaults  in  the  keeping,   observance  or
 performance of any covenant or agreement (other than a default of the character
 referred to in  Sections  6.03(a),  (c),  (d),  (e) or (f) or (g),  and if such
 default  continues  and is not cured  within 15 days  after  Landlord  gives to
 Tenant a notice  specifying  the same,  or, in the case of a default  which for
 causes beyond  Tenant's  reasonable  control cannot with due diligence be cured
 within such period of 15 days,  if Tenant shall not prior to the  expiration of
 such I  5-day  period,  (i)  advise  Landlord  of  Tenant's  intention  duly to
 institute  all steps  necessary  to cure such  default  or (ii)  institute  and
 thereafter  diligently  prosecute to completion all steps necessary to cure the
 same,
                   (c) if this  Lease or the estate  hereby  granted  would,  by
 operation  of law or  otherwise,  devolve  upon or pass to any person or entity
 other than Tenant, except as expressly permitted by Article 5, or
                   (d) if Tenant shall abandon the Premises, or (e) if a default
                   of the kind set forth in Section
 6.03(a) or (b) shall occur and have been cured,  and if a similar default shall
 occur  more than once  within the next 365 days,  whether  or not such  similar
 defaults are cured within the applicable grace period, or
                   (f) if Tenant  fails to  deliver  to  Landlord  any  Security
 Deposit  within the time period  required  under Section 2.08,  then, in any of
 such cases,  in addition to any other remedies  available to Landlord at law or
 in equity,  Landlord  shall be entitled to give to Tenant a notice of intention
 to end the Term at the expiration of 5 days from the date of the giving of such
 notice,  and,  in the event such  notice is given,  this Lease and the term and
 estate hereby  granted shall  terminate upon the expiration of such 5 days with
 the same  effect as if the last of such 5 days were the  Expiration  Date,  but
 Tenant shall remain liable for damages as provided herein or pursuant to law.

             6.04 Re-entry by Landlord. If Tenant defaults in the payment of any
 Rent and such default  continues for 5 days after notice from  Landlord,  or if
 this Lease shall terminate as in Section 6.03 provided,  Landlord or Landlord's
 agents and servants may immediately or at any time thereafter  re-enter into or
 upon the Premises, or any pan thereof, either by summary dispossess proceedings
 or by any  suitable  action  or  proceeding  at law,  without  being  liable to
 indictment,  prosecution or damages  therefor,  and may repossess the same, and
 may remove any persons therefrom, to the end that

                                       35
<PAGE>

 Landlord  may have,  hold and  enjoy the  Premises.  The words  "re-enter"  and
 "recentering" as used in this Lease are not restricted to their technical legal
 meanings.  Upon such termination or re-entry,  Tenant shall pay to Landlord any
 Rent then due and owing (in  addition  to any  damages  payable  under  Section
 6.05).
             6.05 Damages. If this Lease is terminated under Section 6.03, or if
 Landlord  re-enters  the  Premises  under  Section  6.04,  Tenant  shall pay to
 Landlord as damages, at the election of Landlord, either:
                   (a) a sum which, at the time of such  termination  represents
 the then value of the excess, if any, of ( I ) the aggregate of the Rent which,
 had this Lease not terminated,  would have been payable hereunder by Tenant for
 the period  commencing  on the day following  the date of such  termination  or
 re-entry to and  including  the  Expiration  Date over (2) the  aggregate  fair
 rental  value of the  Premises  for the same period  (for the  purposes of this
 clause  (a) the amount of  Additional  Rent  which  would have been  payable by
 Tenant under Sections 2.04 and 2.05 shall,  for each calendar year ending after
 such termination or re-entry,  be deemed to be an amount equal to the amount of
 such  Additional  Rent  payable by Tenant  for the  calendar  year  immediately
 preceding the calendar year in which such termination or re-entry shall occur),
 or
                   (b) sums equal to the Rent that  would  have been  payable by
 Tenant through and including the Expiration  Date had this Lease not terminated
 or had  Landlord  not  re-entered  the  Premises,  payable  upon the due  dates
 therefor specified in this Lease; provided, that if Landlord shall relet all or
 any part of the  Premises for all or any part of the period  commencing  on the
 day  following  the date of such  termination  or re-entry to and including the
 Expiration  Date,  Landlord  shall credit Tenant with the net rents received by
 Landlord  from  such  reletting,  such  net  rents  to be  determined  by first
 deducting  from the gross  rents as and when  received  by  Landlord  from such
 reletting the expenses  incurred or paid by Landlord in terminating  this Lease
 and of re-entering the Premises and of securing  possession thereof, as well as
 the  expenses  of  reletting,   including,  without  limitation,  altering  and
 preparing  the Premises for new tenants,  brokers'  commissions,  and all other
 expenses properly  chargeable  against the Premises and the rental therefrom in
 connection with such reletting, it being understood that any such reletting may
 be for a period  equal to or  shorter  or longer  than said  period;  provided,
 further, that (i) in no event shall Tenant be entitled to receive any excess of
 such net rents over the sums  payable by Tenant to  Landlord  under this Lease,
 (ii) in no event shall Tenant be entitled,  in any suit for the  collection  of
 damages  pursuant to this  Section  6.05(b),  to a credit in respect of any net
 rents from a reletting  except to the extent  that such net rents are  actually
 received  by  Landlord  prior to the  commencement  of such suit,  (iii) if the
 Premises or any part thereof should be relet in  combination  with other space,
 then proper apportionment on a square foot rentable area basis shall be made of
 the rent received from such reletting and of the expenses of reletting and (iv)
 Landlord  shall have no  obligation  to so relet the Premises and Tenant hereby
 waives any right Tenant may have, at law or in equity,  to require  Landlord to
 so relet the Premises.

                                       36
<PAGE>

             Suit or suits for the recovery of any damages payable  hereunder by
 Tenant,  or any installments  thereof,  may be brought by Landlord from time to
 time at its election,  and nothing  contained  herein shall require Landlord to
 postpone  suit  until the date when the Term would  have  expired  but for such
 termination or re-entry.
             6.06 Other  Remedies.  Nothing  contained  in this  Lease  shall be
 construed as limiting or precluding the recovery by Landlord  against Tenant of
 any sums or damages to which, in addition to the damages particularly  provided
 above,  Landlord may lawfully be entitled by reason of any default hereunder on
 the part of Tenant.  Anything  in this Lease to the  contrary  notwithstanding,
 during the continuation of any default by Tenant,  Tenant shall not be entitled
 to exercise  any rights or options,  or to receive any funds or proceeds  being
 held, under or pursuant to this Lease.
             6.07 Right to  Injunction.  In the event of a breach or  threatened
 breach by Tenant of any of its  obligations  under this Lease,  Landlord  shall
 also have the right of injunction. The specified remedies to which Landlord may
 resort  hereunder  are  cumulative  and are not intended to be exclusive of any
 other  remedies or means of redress to which Landlord may lawfully be entitled,
 and Landlord  may invoke any remedy  allowed at law or in equity as if specific
 remedies were not herein provided for.
             6.08 Certain  Waivers.  Tenant waives and  surrenders all right and
 privilege  that  Tenant  might have under or by reason of any present or future
 law to redeem the Premises or to have a continuance  of this Lease after Tenant
 is  dispossessed  or ejected  therefrom by process of law or under the terms of
 this Lease or after any  termination  of this  Lease.  Tenant  also  waives the
 provisions  of any law relating to notice  and/or delay in levy of execution in
 case  of any  eviction  or  dispossession  for  nonpayment  of  rent,  and  the
 provisions  of any  successor or other law of like import.  Landlord and Tenant
 each waive trial by jury in any action in connection with this Lease.
             6.09 No Waiver.  Failure by either  party to  declare  any  default
 immediately  upon its  occurrence  or delay in taking any action in  connection
 with such  default  shall not waive such  default but such party shall have the
 right to declare any such default at any time  thereafter.  Any amounts paid by
 Tenant to Landlord may be applied by Landlord, in Landlord's discretion, to any
 items then owing by Tenant to Landlord under this Lease. Receipt by Landlord of
 a  partial  payment  shall  not be  deemed  to be an  accord  and  satisfaction
 (notwithstanding  any  endorsement  or  statement  on any  check or any  letter
 accompanying  any check or payment) nor shall such receipt  constitute a waiver
 by Landlord of Tenant's  obligation to make full payment.  No act or thing done
 by Landlord or its agents shall be deemed an  acceptance  of a surrender of the
 Premises,  and no agreement to accept such  surrender  shall be valid unless in
 writing  and  signed by  Landlord  and by each  Superior  Lessor  and  Superior
 Mortgagee  whose lease or mortgage  provides that any such surrender may not be
 accepted without its consent.

             6.10 Holding  Over. If Tenant holds over without the consent
 of Landlord after expiration or termination of this Lease,  Tenant shall
 pay as holdover rental

                                       37
<PAGE>

 for each month of the  holdover  tenancy an amount  equal to the product of (i)
 the  Applicable  Percentage and (ii) the Rent which Tenant was obligated to pay
 for  the  month  immediately  preceding  the  end  of  the  Term.   "Applicable
 Percentage"  means (A) 150% for the 1st 60 days of such  holdover  tenancy and
 (B) 200% thereafter.  Tenant shall also be liable to Landlord for and indemnify
 Landlord  against  (i) any payment or rent  concession  which  Landlord  may be
 required to make to any tenant  obtained by Landlord for all or any part of the
 Premises (a "New  Tenant")  by reason of the late  delivery of space to the New
 Tenant  as a result of  Tenant's  holding  over or in order to induce  such New
 Tenant not to terminate its lease by reason of the holding over by Tenant, (ii)
 the loss of the benefit of the bargain if any New Tenant  shall  terminate  its
 lease by reason of the  holding  over by Tenant and (iii) any claim for damages
 by any New Tenant.  No holding over by Tenant  after the Term shall  operate to
 extend the Term. Notwithstanding the foregoing, the acceptance of any rent paid
 by Tenant  pursuant  to this  Section  6.10 shall not  preclude  Landlord  from
 commencing and prosecuting a holdover or summary eviction proceeding.
             6.11  Attornevs'  Fees. If either party places the  enforcement  of
 this Lease or any part thereof, in the hands of an attorney, or files suit upon
 the  same,  or in  the  event  any  bankruptcy,  insolvency  or  other  similar
 proceeding is commenced  involving the other party and such party is successful
 in  such  enforcement  action,  the  unsuccessful  party  shall,  upon  demand,
 reimburse  the  successful  party  for  its  reasonable   attorneys'  fees  and
 disbursements and court costs.
             6.12 Nonliabilitv and  Indemnifications  (a) Neither Landlord.  any
 Superior Lessor or any Superior Mortgagee, nor any partner, director,  officer,
 shareholder,  principal,  agent, servant or employee of Landlord,  any Superior
 Lessor or any Superior Mortgagee  (whether disclosed or undisclosed),  shall be
 liable to Tenant  for (i) any loss,  injury or damage to Tenant or to any other
 person,  or to its or their property  irrespective of the cause of such injury,
 damage or loss,  nor shall the  aforesaid  parties be liable for any loss of or
 damage to property of Tenant or of others  entrusted  to employees of Landlord;
 provided,  that, except to the extent of the release of liability and waiver of
 subrogation  provided in Section 7.03 hereof, the foregoing shall not be deemed
 to  relieve  Landlord  of  any  liability  to the  extent  resulting  from  the
 negligence of Landlord,  its agents,  servants or employees in the operation or
 maintenance  of the  Premises or the  Building or the  Project,  (ii) any loss,
 injury or damage  described  in clause  (i) above  caused by other  tenants  or
 persons in, upon or about the Building, or caused by operations in construction
 of any  private,  public or  quasi-public  work,  or (iii)  even if  negligent,
 consequential  damages  arising  out of any loss of use of the  Premises or any
 equipment, facilities or other Tenant's Property therein.

                   (b) Tenant shall  indemnify and hold harmless  Landlord,  all
 Superior  Lessors  and all  Superior  Mortgagees  and each of their  respective
 partners, directors, officers,  shareholders,  principals, agents and employees
 (each,  an  "Indemnified  Party"),  from and against any and all claims arising
 from or in connection  with (i) the conduct or management of the Premises or of
 any business therein, or any work or thing

                                       38
<PAGE>

 done,  or any  condition  created in the  Premises,  (ii) any act,  omission or
 negligence of Tenant or any person  claiming  through or under Tenant or any of
 their  respective  partners,   directors,   officers,   agents,   employees  or
 contractors,  (iii) any accident, injury or damage occurring in, at or upon the
 Premises, (iv) any default by Tenant in the performance of Tenant's obligations
 under  this Lease and (v) any  brokerage  commission  or  similar  compensation
 claimed to be due by reason of any proposed  subletting or assignment by Tenant
 (irrespective  of the  exercise  by  Landlord  of any of the options in Section
 5.02(b));  together  with all  costs,  expenses  and  liabilities  incurred  in
 connection  with each  such  claim or action  or  proceeding  brought  thereon,
 including,   without   limitation,   all   reasonable   attorneys'   fees   and
 disbursements;  Provided,  that the foregoing  indemnity shall not apply to the
 extent such claim results from the negligence  (other than  negligence to which
 the release of  liability  and waiver of  subrogation  provided in Section 7.03
 below applies) or willful misconduct of the indemnified Party. If any action or
 proceeding  is  brought  against  any  indemnified  Party by reason of any such
 claim,  Tenant. upon notice from such Indemnified Party shall resist and defend
 such  action  or  proceeding  by  counsel   reasonably   satisfactory  to  such
 indemnified Party.
                                    ARTICLE 7
                        Insurance: Casualty; Condemnation
           7.01 Compliance with insurance Standards. (a) Tenant shalt
 not knowingly violate, or permit the violation of, any condition imposed by any
 insurance  policy  then  issued in respect of the  Project and shall not do, or
 permit  anything to be done, or knowingly keep or permit anything to be kept in
 the Premises, which would subject Landlord, any Superior Lessor or any Superior
 Mortgagee to any liability or  responsibility  for personal  injury or death or
 property  damage,  or which would increase any insurance rate in respect of the
 Project  over the rate which would  otherwise  then be in effect or which would
 result in insurance  companies of good standing  refusing to insure the Project
 in amounts  reasonably  satisfactory to Landlord,  or which would result in the
 cancellation  of, or the assertion of any defense by the insurer in whole or in
 part to claims under, any policy of insurance in respect of the Project.
                   (b) if,  by reason of any  failure  of Tenant to comply  with
 this Lease, the premiums on Landlord's insurance on the Project shall be higher
 than they otherwise would be, Tenant shall reimburse  Landlord,  on demand, for
 that part of such premiums  attributable to such failure on the part of Tenant.
 A schedule or "make up" of rates for the Project or the  Premises,  as the case
 may be,  issued by the New York Fire  Insurance  Rating  Organization  or other
 similar body making rates for insurance for the Project or the Premises, as the
 case may be, shall be conclusive  evidence of the facts  therein  stated and of
 the several  items and charges in the  insurance  rate then  applicable  to the
 Project or the Premises, as the case may be.

             7.02 Tenant's insurance.  Tenant shall maintain at all times during
 the Term (a) "all risk"  property  insurance  covering  all  present and future
 Tenant's Property

                                       39
<PAGE>
and Tenant's  improvements and Betterments to a limit of not less than the full
 replacement  cost thereof,  and (b)  commercial  general  liability  insurance,
 including a contractual  liability  endorsement,  and personal injury liability
 coverage,  in respect of the  Premises and the conduct or operation of business
 therein, with Landlord and its managing agent, if any, and each Superior Lessor
 and  Superior  Mortgagee  whose name and address  shall have been  furnished to
 Tenant,  as additional  insureds,  limits of not less than $5,000,000  combined
 single  limit for  bodily  injury  and  property  damage  liability  in any one
 occurrence  and (c)  boiler  and  machinery  insurance,  if there is a  boiler,
 supplementary  air conditioner or pressure  object or similar  equipment in the
 Premises,  with  Landlord and its  managing  agent,  if any, and each  Superior
 Lessor and Superior  Mortgagee whose name and address shall have been furnished
 to Tenant, as additional insureds,  with limits of not less than $5,000,000 and
 (d) when Alterations are in process, the insurance specified in Section 4.02(f)
 hereof The limits of such  insurance  shall not limit the  liability of Tenant.
 Tenant shall deliver to Landlord and any additional insureds,  at least 10 days
 prior to the Commencement Date, such fully paid-for policies or certificates of
 insurance,  in form reasonably satisfactory to Landlord issued by the insurance
 company or its authorized  agent.  Tenant shall procure and pay for renewals of
 such  insurance  from time to time before the  expiration  thereof,  and Tenant
 shall deliver to Landlord and any additional  insureds such renewal policy or a
 certificate  thereof at least 30 days  before the  expiration  of any  existing
 policy.   All  such  policies  shall  be  issued  by  companies  of  recognized
 responsibility  licensed  to do  business in New York State and rated by Best's
 insurance  Reports or any  successor  publication  of  comparable  standing  as
 A-/VIII or better or the then equivalent of such rating,  and all such policies
 shall contain a provision whereby the same cannot be canceled, allowed to lapse
 or modified unless  Landlord and any additional  insureds are given at least 30
 days' prior written notice of such cancellation, lapse or modification.  Tenant
 shall  cooperate  with  Landlord  in  connection  with  the  collection  of any
 insurance  monies that may be due in the event of loss and Tenant shall execute
 and deliver to Landlord such proofs of loss and other  instruments which may be
 required to recover any such insurance  monies.  Landlord may from time to time
 require that the amount of the  insurance to be maintained by Tenant under this
 Section  7.02 be  increased,  so that the amount  thereof  adequately  protects
 Landlord's interest.
             7.03 Subrogation Waiver.  Landlord and Tenant shall each include in
 each of its insurance policies (insuring the Building in case of Landlord,  and
 insuring  Tenant's  Property and  improvements  and  Betterments in the case of
 Tenant, against loss, damage or destruction by fire or other casualty) a waiver
 of the insurer's  right of subrogation  against the other party during the Term
 or, if such waiver  should be  unobtainable  or  unenforceable,  (a) an express
 agreement  that such policy shall not be  invalidated if the assured waives the
 right of recovery  against any party  responsible for a casualty covered by the
 policy before the casualty or (b) any other form of permission  for the release
 of the other party.  Each party hereby releases the other party with respect to
 any claim  (including a claim for  negligence)  which it might  otherwise  have
 against the other party for loss,  damage or  destruction  with  respect to its
 property occurring during the Term to the extent to which it is, or is required
 to be, insured under a policy or

                                       40
<PAGE>

 policies containing a waiver of subrogation or permission to release liability.
 Nothing  contained in this Section 7.03 shall be deemed to relieve either party
 of any duty imposed elsewhere in this Lease to repair, restore or rebuild or to
 nullify any abatement of rents provided for elsewhere in this Lease.
             7.04  Condemnation.  (a) if there  shall be a total  taking  of the
 Building in condemnation  proceedings or by any right of eminent  domain,  this
 Lease and the term and estate hereby granted shall  terminate as of the date of
 taking of possession by the condemning authority and all Rent shall be prorated
 and  paid as of such  termination  date.  If there  shall  be a  taking  of any
 material  (in  Landlord's  reasonable  judgment)  portion  of the  Land  or the
 Building  (whether  or not the  Premises  are  affected by such  taking),  then
 Landlord may  terminate  this Lease and the term and estate  granted  hereby by
 giving  notice to Tenant  within 60 days after the date of taking of possession
 by the  condemning  authority.  If  there  shall be a  taking  of the  Premises
 (including the parking  spaces to which Tenant is entitled  pursuant to Section
 8. 17) of such scope (but in no event less than 20%  thereof  that the  untaken
 part of the Premises  would in Tenant's  reasonable  judgment be  uneconomic to
 operate,  then Tenant may terminate  this Lease and the term and estate granted
 hereby by giving notice to Landlord  within 60 days after the date of taking of
 possession by the condemning authority. If either Landlord or Tenant shall give
 a  termination  notice as  aforesaid,  then this  Lease and the term and estate
 granted hereby shall terminate as of the date of such notice and all Rent shall
 be prorated and paid as of such  termination  date. In the event of a taking of
 the  Premises  which does not result in the  termination  of this Lease (i) the
 term and estate  hereby  granted with respect to the taken part of the Premises
 shall  terminate  as of the date of  taking  of  possession  by the  condemning
 authority and all Rent shall be  appropriately  abated for the period from such
 date to the Expiration Date and (ii) Landlord shall with  reasonable  diligence
 restore the remaining portion of the Premises  (exclusive of Tenant's Property)
 as nearly as practicable to its condition prior to such taking.
                   (b)  in  the  event  of any  taking  of all or a part  of the
 Building.  Landlord  shall be  entitled  to  receive  the  entire  award in the
 condemnation proceeding,  including, without limitation, any award made for the
 value of the estate vested by this Lease in Tenant or any value attributable to
 the unexpired  portion of the Term,  and Tenant hereby  assigns to Landlord any
 and all right,  title and interest of Tenant now or hereafter  arising in or to
 any such award or any part thereof,  and Tenant shall be entitled to receive no
 part  of  such  award;  provided,  that  nothing  shall  preclude  Tenant  from
 intervening  in any such  condemnation  proceeding to claim or receive from the
 condemning authority any compensation to which Tenant may otherwise lawfully be
 entitled  in such case in  respect of  Tenant's  Property  or moving  expenses,
 provided  the same do not include any value of the estate  vested by this Lease
 in Tenant or of the unexpired  portion of the Term and do not reduce the amount
 available to Landlord or materially delay the payment thereof

                   (c) if all or any part of the  Premises  shall be taken for a
 limited period,  Tenant shall be entitled,  except as hereinafter set forth, to
 that portion of the

                                       41
<PAGE>

 award for such taking which  represents  compensation for the use and occupancy
 of the Premises,  for the taking of Tenant's  Property and for moving expenses,
 and Landlord shall be entitled to that portion which  represents  reimbursement
 for the cost of restoration of the Premises. This Lease shall remain unaffected
 by such  taking and Tenant  shall  continue  to be  responsible  for all of its
 obligations under this Lease to the extent such obligations are not affected by
 such taking and shall  continue to pay in full all Rent when due. If the period
 of temporary use or occupancy  shall extend beyond the  Expiration  Date,  that
 part of the award which  represents  compensation  for the use and occupancy of
 the  Premises  shall be  apportioned  between  Landlord  and  Tenant  as of the
 Expiration  Date. Any award for temporary use and occupancy for a period beyond
 the date to which the Rent has been paid shall be paid to,  held and applied by
 Landlord as a trust fund for payment of the Rent thereafter becoming due.
                   (d) in the  event of any  taking  which  does not  result  in
 termination  of this  Lease,  (i)  Landlord,  whether or not any award shall be
 sufficient  therefor,  shall  proceed with  reasonable  diligence to repair the
 remaining parts of the Project, the Building and the Premises (other than those
 parts of the Premises  which  constitute  Tenant's  Property) to  substantially
 their former condition to the extent that the same may be feasible  (subject to
 reasonable  changes which Landlord  deems  desirable) and so as to constitute a
 complete and rentable Project,  Building and Premises and (ii) Tenant,  whether
 or not any award shall be sufficient  therefor,  shall proceed with  reasonable
 diligence  to repair  the  remaining  parts of the  Premises  which  constitute
 Tenant's Property,  to substantially  their former condition to the extent that
 the same may be feasible,  subject to reasonable  changes which shall be deemed
 Alterations.
             7.05  Casualty  (a) if the  Project,  the  Building or the Premises
 shall be  partially or totally  damaged or destroyed by fire or other  casualty
 (each,  a "Casualty")  and if this Lease is not  terminated as provided  below,
 then (i) Landlord  shall  repair and restore the Project,  the Building and the
 Premises  (other  than  Tenant's  improvements  and  Betterments  and  Tenant's
 Property)  with  reasonable  dispatch  (but  Landlord  shall not be required to
 perform the same on an overtime or premium pay basis) after the  collection  of
 the  insurance  proceeds  attributable  to such  Casualty and (ii) Tenant shall
 repair and restore in  accordance  with Section 4.02 all Tenant's  improvements
 and  Betterments and all Tenant's  Property with reasonable  dispatch after the
 Casualty.

                   (b)  if  all  or  part  of the  Premises  shall  be  rendered
 untenantable  by reason of a Casualty,  the Fixed Rent and the Additional  Rent
 under  Sections  2.04  and 2.05  shall be  abated  in the  proportion  that the
 untenantable area of the Premises bears to the total area of the Premises,  for
 the period  from the date of the  Casualty  to the  earlier of (i) the date the
 Premises is made  tenantable  (provided,  that if the Premises  would have been
 tenantable at an earlier date but for Tenant  having  failed to cooperate  with
 Landlord in effecting repairs or restoration or collecting  insurance proceeds,
 then the Premises shall be deemed to have been made  tenantable on such earlier
 date and the  abatement  shall cease) or (ii) the date Tenant or any  subtenant
 reoccupies  a portion of the  Premises  other  than for  repair or  restoration
 purposes (in which case the Fixed Rent and the Additional

                                       42
<PAGE>

 Rent allocable to such  reoccupied  portion shall be payable by Tenant from the
 date of such occupancy).  Landlord's  determination of the date the Premises is
 tenantable  shall be  controlling  unless  Tenant  disputes  same by  notice to
 Landlord  within 10 days after such  determination  by  Landlord,  and  pending
 resolution of such dispute, Tenant shall pay Rent in accordance with Landlord's
 determination.  Notwithstanding  the  foregoing,  if by  reason  of any  act or
 omission  by  Tenant,  any  subtenant  or any  of  their  respective  partners,
 directors,  officers, servants, employees, agents or contractors which occurred
 after  Tenant  received a copy of a notice  from  Landlord's  insurer  advising
 Tenant of such act or omission,  Landlord,  any Superior Lessor or any Superior
 Mortgagee shall be unable to collect all of the insurance proceeds  (including,
 without limitation,  rent insurance proceeds) applicable to the Casualty, then,
 without  prejudice to any other remedies which may be available against Tenant,
 there shall be no  abatement  of Rent.  Nothing  contained in this Section 7.05
 shall  relieve  Tenant  from any  liability  that may  exist as a result of any
 Casualty.  Landlord shall promptly  deliver to Tenant a copy of any notice from
 Landlord's insurer requesting the performance of any matter by Tenant.
                   (c) if by  reason of a  Casualty  (i) the  Building  shall be
 totally  damaged  or  destroyed,  (ii)  the  Building  shall be so  damaged  or
 destroyed (whether or not the Premises are damaged or destroyed) that repair or
 restoration  shall require more than 270 days or the  expenditure  of more than
 20% percent of the full insurable value of the Building (which, for purposes of
 this Section  7.05(c),  shall mean  replacement cost less the cost of footings,
 foundations  and other  structures  below the  street  and first floor of the
 Building)  immediately  prior to the  Casualty  or (iii)  more  than 30% of the
 Premises  shall be damaged or  destroyed  (as  estimated  in any such case by a
 reputable  contractor,  architect or engineer designated by Landlord ("Landlord
 Consultant")),  then in any such case  Landlord  may  terminate  this  Lease by
 notice  given to Tenant  within  180 days  after the  Casualty.  If a  Casualty
 meeting the  condition  set forth in clause  (iii) above shall occur during the
 last 2 years of the Term and the Landlord  Consultant  shall determine that the
 repair or  restoration  shall  require  more  than 270 days,  then in such case
 Tenant may  terminate  this Lease by giving  notice to Landlord  within 30 days
 after Tenant's receipt of such determination by Landlord's Consultant.
                   (d)  Landlord  shall  not  carry any  insurance  on  Tenant's
 Property or on Tenant's improvements and Betterments and shall not be obligated
 to  repair  or  replace   Tenant's   Property  or  Tenant's   improvements  and
 Betterments.  Tenant  shall look solely to its  insurance  for  recovery of any
 damage  to  or  loss  of  Tenant's   Property  or  Tenant's   improvements  and
 Betterments.  Tenant  shall  notify  Landlord  promptly of any  Casualty in the
 Premises.

                   (e) This  Section  7.05 shall be deemed an express  agreement
 governing any damage or destruction of the Premises by fire or other  casualty,
 and  Section  227 of the New  York  Real  Property  Law  providing  for  such a
 contingency in the absence of an express  agreement,  and any other law of like
 import now or hereafter in force, shall have no application.

                                       43
<PAGE>

                                    ARTICLE 8
                            Miscellaneous Provisions
             8.01 Notice. All notices, demands,  consents,  approvals,  advices,
 waivers or other communications which may or are required to be given by either
 party to the other  under this Lease shall be in writing and shall be deemed to
 have been given one  Business  Day after  deposit in the  United  States  mail,
 certified  or  registered,  postage  prepaid,  return  receipt  requested,  and
 addressed to the party to be notified as follows, or to such other place as the
 party to be notified may from time to time designate by at least 5 days' notice
 to the notifying party:
             If to Landlord:
             New York Life insurance  Company 51 Madison Avenue New York,
             New  York  10010  Attention:  Asset  Manager/150  Vanderbilt
             Motor Parkway. Hauppauge, New York
             with  a  copy to:
            
             C.B.  Commercial/Hampshire,  L.L.C.  400 Frank W. Burr Blvd.
             Atrium at Glenpointe  Teaneck,  New Jersey 07666  Attention:
             Kevin P. Welsh
             If to Tenant:
            
             Curative  Health   Services,   Inc.  14  Research  Way  East
             Setauket, New York 11733 Attention: Allan Keysor, Esq.

 prior to the  commencement of the Term, and thereafter  Tenant's address
 shall be that of the Building.

             Notices from Landlord may be given by Landlord's managing agent, if
 any, or by Landlord's attorney.

             8.02  Building  Rules.  Tenant shall comply with,  and Tenant shall
 cause its  licensees,  employees,  contractors,  agents and  invitees to comply
 with,  the rules of the  Building  set forth in  Exhibit  C, as the same may be
 reasonably  modified  or  supplemented  by  Landlord  from time to time for the
 safety, care and cleanliness of the Premises and the

                                       44
<PAGE>

 Building and for  preservation  of good order  therein.  Landlord  shall not be
 obligated  to enforce  the rules of the  Building  against  Tenant or any other
 tenant of the Building or any other party, and Landlord shall have no liability
 to Tenant by reason of the  violation by any tenant or other party of the rules
 of the Building;  provided,  that  Landlord  shall not enforce the rules of the
 Building in a manner which  discriminates  against  Tenant.  If any rule of the
 Building  shall  conflict with any provision of this Lease,  such  provision of
 this Lease shall govern.
             8.03  Severability.  If any term or provision of this Lease, or the
 application  thereof  to any  person or  circumstances  shall to any  extent be
 invalid or  unenforceable,  the remainder of this Lease,  or the application of
 such provision to persons or  circumstances  other than those as to which it is
 invalid or  unenforceable,  shall not be affected,  and each  provision of this
 Lease shall be valid and shall be enforceable to the extent permitted by law.
             8.04 Certain  Definitions.  (a) "Landlord" means only the owner, at
 the time in question,  of the Building or that portion of the Building of which
 the Premises  are a part,  or of a lease of the Building or that portion of the
 Building of which the Premises are a part, so that in the event of any transfer
 or transfers of title to the Building or of  Landlord's  interest in a lease of
 the  Building or such  portion of the  Building,  the  transferor  shall be and
 hereby is relieved and freed of all  obligations  of Landlord  under this Lease
 accruing  after  such  transfer,  and  it  shall  be  deemed,  without  further
 agreement,  that such transferee has assumed all obligations of Landlord during
 the period it is the holder of Landlord's interest under this Lease.
                   (b) "Landlord  shall have no liability to Tenant" or words of
 similar import mean that Tenant is not entitled to terminate this Lease,  or to
 claim actual or  constructive  eviction,  partial,  or total, or to receive any
 abatement or  diminution of Rent, or to be relieved in any manner or any of its
 other  obligations  under this Lease,  or to be compensated  for loss or injury
 suffered or to enforce any other right or kind of liability  whatsoever against
 Landlord under or with respect to this Lease or with respect to Tenant's use or
 occupancy of the Premises.
             8.05 Ouiet  Enjovment.  Tenant shall and may  peaceably and quietly
 have, hold and enjoy the Premises, subject to the other terms of this Lease and
 to Superior Leases and Superior Mortgages,  provided that Tenant pays the Fixed
 Rent and  Additional  Rent to be paid by Tenant and  performs  all of  Tenant's
 covenants and agreements contained in this Lease.

             8.06 Limitation of Landlord's Personal Liability. Tenant shall look
 solely to  Landlord's  interest in the Project for the recovery of any judgment
 against  Landlord,  and no other  property or assets of Landlord or  Landlord's
 partners, officers, directors,  shareholders or principals, direct or indirect,
 disclosed  or  undisclosed,  shall  be  subject  to  levy,  execution  or other
 enforcement  procedure for the satisfaction of Tenant's  remedies under or with
 respect to this Lease.

                                       45
<PAGE>

             8.07 Counterclaims. If Landlord commences any summary proceeding or
 action for nonpayment of Rent or to recover possession of the Premises,  Tenant
 shall not interpose any  counterclaim  of any nature or description in any such
 proceeding or action, unless Tenant's failure to interpose such counterclaim in
 such proceeding or action would result in the waiver of Tenant's right to bring
 such claim in a separate proceeding under applicable law.
             8.08  Survival.  All  obligations  and  liabilities  of Landlord or
 Tenant to the other which accrued before the expiration or other termination of
 this Lease and all such  obligations and  liabilities  which by their nature or
 under the circumstances can only be, or by the provisions of this Lease may be,
 performed  after  such  expiration  or other  termination,  shall  survive  the
 expiration or other termination of this Lease.  Without limiting the generality
 of the foregoing, the rights and obligations of the parties with respect to any
 indemnity  under this Lease,  and with  respect to Tax  Payments  and any other
 amounts  payable  under this  Lease,  shall  survive  the  expiration  or other
 termination of this Lease.
             8.09 Certain Remedies.  If Tenant requests  Landlord's  consent and
 Landlord fails or refuses to give such consent, Tenant shall not be entitled to
 any damages for any  withholding by Landlord of its consent,  it being intended
 that  Tenant's  sole  remedy  shall be an action for  specific  performance  or
 injunction,  and that such remedy shall be available  only in those cases where
 this Lease provides that Landlord shall not unreasonably  withhold its consent.
 No dispute  relating to this Lease or the  relationship  of Landlord and Tenant
 under this Lease shall be resolved by arbitration  unless this Lease  expressly
 provides for such dispute to be resolved by arbitration.
             8.10 No Offer.  The  submission  by Landlord of this Lease in draft
 form shall be solely for  Tenant's  consideration  and not for  acceptance  and
 execution.  Such  submission  shall have no  binding  force or effect and shall
 confer no rights nor impose any obligations,  including brokerage  obligations,
 on either party unless and until both Landlord and Tenant shall have executed a
 lease  and  duplicate  originals  thereof  shall  have  been  delivered  to the
 respective parties.
             8.11  Captions;  Construction.  The  table of  contents,  captions,
 headings and titles in this Lease are solely for  convenience  of reference and
 shall not  affect its  interpretation  This Lease  shall be  construed  without
 regard to any  presumption  or other rule  requiring  construction  against the
 party causing this Lease to be drafted. Each covenant, agreement, obligation or
 other provision of this Lease on Tenant's part to be performed, shall be deemed
 and construed as a separate and independent  covenant of Tenant,  not dependent
 on any other provision of this Lease.
             8.12 Amendments. This Lease may not be altered, changed or amended,
 except by an instrument in writing signed by the party to be charged.

             8.13 Broker. Each party represents to the other that such party has
 dealt with no broker in connection  with this Lease or the Building  except for
 C.B.

                                       46
<PAGE>

 Commercial/Hampshire,  L.L.C. and Cushman& Wakefield of Long island,  Inc. (the
 "Broker"),  and each party shall indemnify and hold the other harmless from and
 against all loss, cost,  liability and expense (including,  without limitation,
 reasonable  attorneys' fees and  disbursements)  arising out of any claim for a
 commission  or other  compensation  by any broker  other than the  Brokers  who
 alleges that it has dealt with the  indemnifying  party in connection with this
 Lease or the Building.  Landlord shall pay to each of the brokers  constituting
 the  Broker a  commission  in  connection  with this  Lease,  subject to and in
 accordance  with the  terms  and  conditions  of  separate  agreements  between
 Landlord and such brokers.
             8.14 Merger.  Tenant acknowledges that Landlord has not made and is
 not making,  and Tenant, in executing and delivering this Lease, is not relying
 upon, any warranties,  representations,  promises or statements,  except to the
 extent that the same are expressly set forth in this Lease. This Lease embodies
 the entire understanding between the parties with respect to the subject matter
 hereof,  and all  prior  agreements,  understandings  and  statements,  oral or
 written, with respect thereto are merged in this Lease.
             8.15 Successors.  This Lease shall be binding upon and inure to the
 benefit of Landlord,  its successors and assigns, and shall be binding upon and
 inure to the  benefit  of Tenant,  its  successors,  and to the extent  that an
 assignment may be approved by Landlord, Tenant's assigns.
             8.16 Applicable Law. This Lease shall be governed by, and construed
 in accordance with, the laws of the State of New York, without giving effect to
 any principles of conflicts of laws.
             8.17 Parking (a) Landlord  shall provide  within the  boundaries of
 the Land,  such parking areas and  driveways,  and entrances  thereto and exits
 therefrom,  including landscaped and planted areas (collectively,  the "Parking
 Areas"),  as Landlord  shall at any time and from time to time deem  reasonably
 appropriate,  for  parking  of  vehicles  by  Tenant,  subject  to the  further
 provisions  of this  Section  8.17.  Landlord  reserves the right to change the
 area,  location  and  configuration  of the  Parking  Areas.  During  the Term,
 Landlord  shall make  available  to Tenant (i) 7 parking  spaces in the Parking
 Areas on a reserved basis and (ii) 173 parking spaces in the Parking Areas on a
 non-reserved basis. ("Tenant's Parking Spaces

                   (b) Tenant's Parking Spaces shall be used exclusively for the
 parking of standard size (or smaller) passenger cars, belonging to or leased to
 or  operated  by  Tenant,  any of  Tenant's  permitted  subtenants,  and  their
 respective employees and invitees,  and for no other purpose.  Tenant shall not
 allow any parking of any cars of Tenant or Tenant's  permitted  subtenants,  or
 their  employees or invitees in parking  spaces within the Property  designated
 for use by Landlord or other tenants or their respective employees or invitees,
 and Landlord may tow, at Tenant's expense, any cars so parked.

                                       47
<PAGE>

 Landlord may from time to time  relocate any of Tenant's  Parking  Spaces which
 are reserved.
                   (c) Tenant's use of Tenant's  Parking Spaces shall be subject
 to  such  reasonable  rules  and  regulations  as may  from  time  to  time  be
 promulgated  by Landlord in  accordance  with this Lease.  Landlord may require
 Tenant to use reasonable  visible  identification  (e.g.  bumper decal,  window
 sticker,  or pass) to  evidence  authorized  use of  Tenant's  Parking  Spaces.
 Landlord  may  tow,  at  Tenant's   expense,   any  cars  not  exhibiting  such
 identification if required.  Tenant shall from time to time furnish to Landlord
 a list of the persons that Tenant has permitted to use Tenant's Parking Spaces,
 together with such other corresponding  identification  (e.g.,  license plates,
 car models or addresses) as Landlord may require.
                   (d) Use of Tenant's  Parking Spaces shall be at Tenant's risk
 Landlord shall have no obligation to police the Parking  Areas.  Landlord shall
 have no responsibility for loss, theft,  collision,  vandalism or other damage,
 howsoever  caused,  to person or  property  arising out of or  attributable  to
 Tenant's Parking Spaces.

                                       48
<PAGE>

             8.18 Graphics;  Building Directorv;  Card Key Access. (a) No signs,
 numerals,  letters or other graphics shall be used or permitted on the exterior
 of, or which may be visible from  outside,  the  Premises,  unless  approved by
 Landlord in advance of installation.  Landlord shall provide Building  standard
 signage at the entry door of the Premises. Landlord shall also permit Tenant to
 erect and  install a sign (the  "Monument  Sign") on a portion  of the  Project
 facing Motor  Parkway to be  designated  by  Landlord,  which sign will contain
 Tenant's  name.  The foregoing  rights are subject to (i)  compliance by Tenant
 with all applicable laws and  requirements of governmental  authorities  having
 jurisdiction   (including,   without  limitation,   approval  by  the  Town  of
 Smithtown),  (ii) the  approval  by Landlord  of the  contractor  to be used by
 Tenant to perform such sign work,  the specific  location of the Monument Sign,
 as  applicable,  and the  size,  color  and  design of the  Monument  Sign,  as
 applicable  and (iv) the  submission  by Tenant to Landlord for its approval of
 plans and  specifications  for such sign work. The Monument Sign, and any other
 sign installed by Tenant in accordance with this Section 8.18, shall be kept by
 Tenant  in  good  condition  at  all  times,  including,  but  not  limited  to
 repainting, replacing and/or refurbishing the same when necessary and replacing
 any lighting whenever  necessary.  Tenant agrees to indemnify and hold Landlord
 harmless from and against any and all losses, damages, claims, suits or actions
 resulting from Tenant's  failure to comply with all local zoning and other laws
 and  requirements  with respect to the erection and  maintenance of such signs,
 and any  damage or injury to person  or  property  caused by the  erection  and
 maintenance  of such  signs or parts  thereof  and  Tenant  shall  provide  for
 insurance  coverage  for such signs in the public  liability  insurance  policy
 required  under  Article 7 of the Lease.  In the event that Tenant shall not be
 permitted to erect and install the Monument Sign by reason of clause (i) above,
 Landlord shall place  Tenant's name on the entrance  monument in a location and
 manner to be agreed upon by Landlord and Tenant at Tenant's expense.
                         (i)  Landlord  hereby  agrees  that no  tenant of
 the Building  (now or  hereafter)  whose  premises  shall  contain an amount of
 rentable  square  feet which is less than the amount of  rentable  square  feet
 contained  in the  Premises  (including  any Offer  Space) shall be entitled to
 erect any signage on the exterior of the Building.
                   (b) Landlord, at Tenant's request,  shall provide Tenant with
 7 lines on the Building's  directory to list Tenant's name and the names of its
 officers and employees  designated by Tenant. The reasonable charge of Landlord
 for any changes in such listing  requested by Tenant shall be paid by Tenant to
 Landlord on demand.

                   (c) Landlord  shall  maintain a card key access  system which
 shall  restrict  access to the Building at times other than  Business  Hours on
 Business Days. Tenant shall be entitled to an initial allocation of 2 card keys
 per each 1,000  rentable  square feet included in the Premises.  Any additional
 cards  shall be  provided  by Landlord  at  Landlord's  then  standard  charges
 therefor.  Tenant shall  provide to Landlord from time to time, as requested by
 Landlord, a list of the persons to whom card keys have been

                                       49
<PAGE>

 issued  Tenant  shall  comply with such  reasonable  rules and  regulations  as
 Landlord may from time to time promulgate with respect to the use of card keys.
             8.19 Health Club. (a) Landlord hereby grants to Tenant a membership
 in the health club located on the basement  level of the Building  (the "Health
 Club").  Subject to the  provisions  of this  Section  8.19,  such  Health Club
 membership shall entitle Tenant to grant to its full time employees who work at
 the Premises a non-exclusive  right to use the Health Club facilities in common
 with  others to whom such  right may be granted  by  Landlord.  Such use of the
 Health  Club  facilities  shall be  subject to the terms of this Lease and such
 rules, regulations and conditions as may be established or amended from time to
 time by Landlord.
                   (b) Tenant shall pay to Landlord an annual  charge  (which is
 currently  equal to $25) for each  employee of Tenant to whom Tenant grants the
 right to use the Health Club facilities.  Landlord shall have the right, in its
 sole discretion,  to reasonably increase the amount of such charge from year to
 year.  Tenant shall pay the annual charge for each employee (i)  initially,  at
 the time that Tenant  notifies  Landlord  that Tenant has granted such employee
 the right to use the Health Club  facilities  (appropriately  prorated  for any
 part of a year) and (ii)  thereafter,  in advance on January  Ist of each year.
 All sums payable  pursuant to this Section  8.19(b) shall be deemed  Additional
 Rent.
                   (c)  Anything in this Section 8.19 or elsewhere in this Lease
 to the  contrary  notwithstanding,  Tenant  shall not grant to any employee the
 right,  and no employee of Tenant  shall be  permitted,  to use the Health Club
 facilities unless and until Tenant (i) shall have notified Landlord that Tenant
 has  granted  such  right to such  employee  and (ii) shall  have  caused  such
 employee to complete  and execute a waiver of  liability  in the form  attached
 hereto as Exhibit G and delivered  such executed  document to Landlord.  Tenant
 shall prohibit, and shall take all steps necessary to prevent, any employees of
 Tenant who have failed to execute a waiver of  liability  in the form  attached
 hereto as Exhibit G from using the Health Club facilities.
                   (d) Tenant  acknowledges  that all users of the  Health  Club
 facilities do so at their own risk and agrees that it shall be solely  Tenant's
 obligation fully to inform each of Tenant's  employees to whom the right to use
 the Health Club facilities may be granted of such risk. Tenant acknowledges and
 agrees  that  Landlord  shall have no  liability  to Tenant or any  employee of
 Tenant or any person claiming through or under either of the foregoing  arising
 from or in  connection  with the use of the Health  Club  facilities  by any of
 Tenant's  employees or Landlord's  operation  and/or  maintenance of the Health
 Club facilities,  including any such claim arising out of negligence;  together
 with all costs,  expenses and liabilities incurred in connection with each such
 claim or action or proceeding brought thereon,  including,  without limitation,
 all attorneys' fees and disbursements.

                                       50
<PAGE>

                   (e) Landlord reserves the right to discontinue  providing the
 Health Club as an amenity to Tenant and its employees at any time if (i) Tenant
 or  any of  Tenant's  employees  violates  any of  the  rules,  regulations  or
 conditions  governing  the use of the Health  Club  facilities,  (ii)  Landlord
 elects to discontinue  offering the Health Club as an amenity to all tenants in
 the Building,  or (iii) Landlord has any commercial  reason, in Landlord's sole
 and absolute judgment,  to discontinue  providing the Health Club as an amenity
 to Tenant and its employees.
             8.20  Media  Center.  (a) So long as  Landlord  elects  to offer to
 tenants  in the  Building  the use of the  conference  facility  located on the
 basement level of the Building (the "Media Center"), Tenant may reserve the use
 of the Media Center for meeting  purposes,  subject to the payment by Tenant of
 Landlord's  then  established  charges  therefor,  including  any  overtime and
 special charges required to be paid for the use of the Media Center.
                   (b) Use of the Media  Center shall be subject to the terms of
 this Lease and such rules,  regulations and conditions as may be established or
 amended from time to time by Landlord.  Tenant  acknowledges that other tenants
 in the Building shall have the right to reserve the use of the Media Center and
 agrees that use of the Media  Center  shall be on a  "first-come,  first-served
 basis." Landlord  reserves the right to discontinue  providing the Media Center
 as an amenity to Tenant at any time if (i) Tenant or any of Tenant's employees,
 agents  or  invitees  violates  any of the  rules,  regulations  or  conditions
 governing use of the Media Center, (ii) Landlord elects to discontinue offering
 the  Media  Center as an  amenity  to all  tenants  in the  Building,  or (iii)
 Landlord has any commercial  reason, in Landlord's sole and absolute  judgment,
 to discontinue providing the Media Center as an amenity to Tenant.
                                    ARTICLE 9
                                  Renewal Right
             9.01 Renewal Right.  (a) Provided that on the date Tenant exercises
 the Renewal Option and at the  commencement  of the Renewal Term (i) this Lease
 shall not have been  terminated,  (ii) Tenant shall not be in monetary  default
 under this Lease or non-monetary default under this Lease beyond any applicable
 notice and grace  period and (iii)  Tenant  shall  occupy the entire  Premises,
 Tenant shall have a I time option (the "Renewal  Option") to extend the term of
 this Lease for an additional 5 year period (the "Renewal Term"), to commence at
 the expiration of the initial Term.

                   (b) The Renewal Option shall be exercised with respect to the
 entire  Premises  only and  shall be  exercisable  by Tenant  giving  notice to
 Landlord  (the  "Renewal  Notice") at least 9 months before the last day of the
 initial Term.  Time is of the essence with respect to the giving of the Renewal
 Notice.

             9.02  Renewal  Rent and Other  Terms.  (a) The  Renewal  Term
 shall be upon all of the terms and  conditions  set forth in this  Lease,
 except that (i) the Fixed

                                       51
<PAGE>

 Rent shall be as determined  pursuant to the further provisions of this Section
 9.02;  (ii) Tenant shall  accept the  Premises in its "as is"  condition at the
 commencement of the Renewal Term, and Landlord shall not be required to perform
 Landlord's  Work or any other work,  pay any work allowance or any other amount
 or  render  any  services  to make the  Premises  ready  for  Tenant's  use and
 occupancy or provide any  abatement of Fixed Rent or  Additional  Rent, in each
 case with  respect to the Renewal  Term;  (iii)  Tenant shall have no option to
 renew this Lease beyond the  expiration of the Renewal Term;  and (iv) the Base
 Tax Amount  shall be the Taxes for the Tax Year ending  immediately  before the
 commencement of the Renewal Term.
                   (b) The annual  Fixed Rent for the  Premises  for the Renewal
 Term shall be the  greater of (i) 95% of the Fair Market Rent or (ii) an amount
 (the  "Annual  Rent")  equal to the  aggregate of (A) the Fixed Rent payable by
 Tenant for the 12 month  period  ending on the last day of the initial Term and
 (B) the Tax Payment  payable  with  respect to the Tax Year ending  immediately
 before the  commencement  of the Renewal  Term (the greater of Fair Market Rent
 and Annual Rent is called the "Rental  Value").  "Fair  Market  Rent" means the
 fixed annual rent that a willing  lessee  would pay and a willing  lessor would
 accept for the  Premises  during the  Renewal  Term,  taking  into  account all
 relevant factors,  provided,  that for purposes of determining Fair Market Rent
 it shall be assumed  (whether or not such be the case) that (x) Tenant is given
 the benefit of customary rent  concessions and free rent periods then obtaining
 in the Building for leases of a similar  size,  (y) the Premises is to be built
 out by Landlord pursuant to the then Building standard  workletter for space in
 the Building similar to the Premises,  including all Building standard work and
 other work and  concessions  to be  performed  at  Landlord's  expense and that
 Landlord  will pay to Tenant a work  allowance  in the amount then  customarily
 paid by Landlord with respect to leases in the Building of similar size and (z)
 a full brokerage commission shall be payable by Landlord, on then market terms.
                   (c) if Tenant timely  exercises the Renewal Option,  Landlord
 shall notify Tenant (the "Rent Notice") at least 90 days before the last day of
 the  initial  Term  of  Landlord's   determination  of  the  Fair  Market  Rent
 ("Landlord's  Determination").  If Landlord's  Determination exceeds the Annual
 Rent, then Tenant shall notify  Landlord  ("Tenant's  Notice"),  within 20 days
 after Tenant's  receipt of the Rent Notice,  whether Tenant accepts or disputes
 Landlord's  Determination,  and if Tenant  disputes  Landlord's  Determination,
 Tenant's Notice shall set forth Tenant's  determination of the Fair Market Rent
 (which  shall  not be less  than the  Annual  Rent).  if  Tenant  fails to give
 Tenant's  Notice  within  such 20 day  period,  Tenant  shall be deemed to have
 accepted Landlord's Determination.

                   (d) if Tenant timely disputes  Landlord's  Determination  and
 Landlord  and Tenant  fail to agree as to the Fair  Market  Rent within 20 days
 after  the  giving of  Tenant's  Notice,  then the Fair  Market  Rent  shall be
 determined as follows:  Such dispute shall be resolved by arbitration conducted
 in  accordance  with the Real Estate  Valuation  Arbitration  Rules  (Expedited
 Procedures) of the American Arbitration  Association (or any organization which
 is the successor thereto (the "AAA"), except that

                                       52
<PAGE>

 the  provisions of this Section  9.02(d) shall  supersede  any  conflicting  or
 inconsistent  provisions of said rules. The party requesting  arbitration shall
 do so by giving  notice to that effect to the other party,  specifying  in said
 notice the nature of the dispute,  and that said dispute shall be determined in
 the City of New  York,  by a panel of 3  arbitrators  in  accordance  with this
 Section  9.02(d).  Landlord and Tenant shall each appoint their own  arbitrator
 within 7 days after the giving of notice by either party. If either Landlord or
 Tenant shall fail timely to appoint an  arbitrator,  the  appointed  arbitrator
 shall select the second arbitrator, who shall be impartial, within 7 days after
 such  party's  failure to appoint.  Such two  arbitrators  shall have 7 days to
 appoint a third arbitrator who shall be impartial.  If such arbitrators fail to
 do so,  then  either  Landlord  or Tenant  may  request  the AAA to  appoint an
 arbitrator  who  shall be  impartial  within 14 days of such  request  and both
 parties shall be bound by any  appointment  so made within such 1 4-day period.
 If no such third  arbitrator  shall have been  appointed  within  such 14 days,
 either  Landlord or Tenant may apply to any court having  jurisdiction  to make
 such  appointment.  The third  arbitrator  only shall subscribe and swear to an
 oath fairly and impartially to determine such dispute. Within 14 days after the
 third  arbitrator has been appointed,  each of the first two arbitrators  shall
 submit its determination of the Fair Market Rent to the third  arbitrator,  who
 shall  select  one or the  other of such  determinations  (whichever  the third
 arbitrator determines to be closest to the Fair Market Rent), and the selection
 so made shall be final and binding upon the  parties.  The fees and expenses of
 any arbitration  pursuant to this Section 9 02(d) shall be borne by the parties
 equally, but each party shall bear the expense of its own arbitrator, attorneys
 and  experts  and the  additional  expenses  of  presenting  its own  proof The
 arbitrators  shall  not have the power to add to,  modify or change  any of the
 provisions  of this  Lease.  Each  arbitrator  shall  have at least  10  years'
 experience  in  leasing  and  valuation  of  properties  which are  similar  in
 character  to the  Building.  After a  determination  has been made of the Fair
 Market Rent, the parties shall execute and deliver an instrument  setting forth
 the Fair  Market  Rent,  but the  failure to so execute  and  deliver  any such
 instrument shall not effect the determination of Fair Market Rent.
                   (e) if Tenant disputes  Landlord's  Determination  and if the
 final  determination  of Fair  Market  Rent  shall not be made on or before the
 first day of the Renewal Term, then, pending such final  determination.  Tenant
 shall pay, as Fixed Rent for the Renewal  Term,  an amount equal to  Landlord's
 Determination.  If based upon the final  determination of the Fair Market Rent,
 the Fixed Rent  payments  made by Tenant for such  portion of the Renewal  Term
 were (i) less than the Rental Value payable for the Renewal Term,  Tenant shall
 pay to  Landlord  the amount of such  deficiency  within 10 days  after  demand
 therefor or (ii) greater than the Rental  Value  payable for the Renewal  Term,
 Landlord shall credit the amount of such excess against future  installments of
 Fixed Rent and/or Additional Rent payable by Tenant.

                                       53
<PAGE>

             IN WITNESS WHEREOF, Landlord and Tenant have executed this
 Lease as of the day and year first written above.
 Landlord:                       NEW YORK LIFE INSURANCE COMPANY
                                 By: /s/Michael W. Towne
                                 Name:  Michael W. Towne
                                 Title: Real Estate Vice President
 Tenant:                         CURATIVE HEALTH SERVICES, INC.
                                 By: /s/John Vakoutis
                                 Name:  John Vakoutis
                                 Title: President and CEO


                                       54
<PAGE>
 
                           AMENDMENT OF LEASE


         Agreement,  dated  as of  November  13,  1997  between  NEW  YORK  LIFE
INSURANCE COMPANY, A New York corporation having an office at 51 Madison Avenue,
New York, New York 10010  ("Landlord")  and CURATIVE  HEALTH  SERVICES,  INC., a
Minnesota  corporation  having an office at 150 Motor  Parkway,  Hauppauge,  New
York. ("Tenant")

                                   WITNESSETH:

         WHEREAS, Landlord and Tenant entered into a Lease, dated as of June 30,
1997 (the  "Lease"),  pursuant to which Landlord is leasing to Tenant and Tenant
is hiring from Landlord certain space (the "Original Space") on the 4th floor of
the building located at 150 Motor Parkway,  Hauppauge, New York (the "Building")
and;

         WHEREAS,  Landlord  and Tenant  desire to amend the Lease to (a) modify
certain provisions set forth in the Lease and (b) provide that Landlord lease to
Tenant and Tenant hire from Landlord  certain  additional space on the 4th floor
of the Building and certain storage space on the concourse level.

         NOW, THEREFORE, Landlord and Tenant agree as follows:

         1.    Defined Terms.  All capitalized terms used herein but not defined
shall have the meanings ascribed to them in the Lease.

          2.   Lease of Additional Space.  Landlord hereby leases to Tenant and 
Tenanthereby hires from Landlord, upon and subject to the terms, covenants, 
provisions and conditions of this Agreement,  the portion of the 4th floor of 
the Building, substantially as shown on the floor plan attached hereto as 
Exhibit A and made a part  hereof  (the  "Additional  Space"),  for  a  term  
commencing  as  of  the Commencement Date and terminating on the Expiration Date
or on such earlier date upon which the terms of this Lease shall expire or be  
cancelled  or  terminated pursuant to any of the  conditions or covenants of the
Lease or pursuant to law. The  Additional  Space shall be  conclusively  deemed
to contain 5,968  rentable square feet.  Effective as of the date hereof,  the
term "Premises"  shall mean, collectively, the Original Space and the Additional
Space.

          3. Terms  Applicable to Additional  Space. The lease of the Additional
Space by Tenant shall be on all of the terms and conditions of the Lease, except
that:

         (a) Except as expressly provided in Section 4.01 of the Lease, Landlord
shall not be required to perform any work,  install any fixtures or equipment or
render any  services  to make the  Building  or the  Additional  Space  ready or
suitable for Tenant's use or occupancy,  and Tenant shall accept the  Additional
Space in its "as is"  condition on the  Commencement  Date;  provided,  that (i)
Landlord's  obligation,  set forth in  Section  4.01 of the  Lease,  to fund the
Initial  Improvements  in the event the Initial  Improvements  exceed the Tenant
Improvement  Contribution,  shall be increased  from $22.50 per rentable  square
foot to $25 per  rentable  square  foot,  contained  in the  Premises,  (ii) the
Commencement Date shall be modified to be the later of March 1, 1998 and the day
on which Landlord's Work is deemed to be  substantially  completed in accordance
with Section 1.03(b),  accordingly,  Landlord shall use commercially  reasonable
efforts to deliver the Premises  (including the  Additional  Space) on or before
March  1,  1998,  (iii)  with  respect  to  the  bidding  for  Tenant's  Initial
Improvements,  (A) Landlord  shall inform  Tenant of such bidding  process,  (B)
Tenant may be present at the  auction  or  meeting  relating  to such bids.  (C)
Tenant may submit requests for clarification to the contractors  submitting bids
and Landlord shall use reasonable efforts to ask that such contractors  promptly
respond to Tenant's requests. Notwithstanding anything set forth in clause (iii)
above,  Landlord  shall not be obligated to choose the  contractor  requested by
Tenant to perform  Tenant's  initial  Improvements  and, if Landlord matches the
lowest competitive bid submitted with respect to such Initial  Improvements (the
"Low Bid"), Landlord shall, at its option, have the right to perform the Initial
Improvements on the terms and conditions set forth in the Low Bid.

                   (b) In the  event the  Commencement  Date  shall  occur on or
after July 1, 1998,
Landlord shall be liable to Tenant through the Commencement  Date for two-thirds
(2/3) of such  amounts  as  Tenant's  prior  landlord  claims  and is due  under
Tenant's  previous lease as hold-over rent;  provided,  however that in no event
shall  Landlord be liable to Tenant for any amount which  exceeds  $3,337.97 per
diem.  Further,  Landlord  shall have no liability  for any period of time which
delays  the  Commencement  Date as a result  of  either a Tenant  Delay or force
majeure. Except as specifically provided above, Landlord shall have no liability
whatsoever to Tenant for any delay in the Commencement Date. If the Commencement
Date has not  occurred by December 1, 1998 then Tenant  shall have the option to
terminate the Lease, at which time Landlord shall have no further  obligation or
liability to Tenant.

                   (c) In addition to the Fixed Rent payable  under Article 2 of
the Lease, Fixed
Rent with  respect to the  Additional  Space shall be payable from and after the
Rent  Commencement  Date to and including the  Expiration  Date in the following
amounts:

                            (i)      for the period from the Rent Commencement
Date to and including the day before the 1st  anniversary of the  Commencement
Date, at the annual rate of $22.98 per rentable square foot contained in the
Premises;

                            (ii)     for the period from the 1st anniversary of
the Commencement Date to and including  the day before the 2nd  anniversary  of
the  Commencement Date,  at the annual rate of $23.31 per  rentable  square foot
contained in the Premises;

                            (iii) for the period from the 2nd anniversary of the
Commencement Date to and including  the day before the 3rd  anniversary  of the 
Commencement Date,  at the annual rate of $23.64 per  rentable  square foot  
contained in the Premises;

                            (iv)     for the period from the 3rd anniversary of 
the Commencement Date to and including  the day before the 4th  anniversary  of
the  Commencement Date,  at the annual rate of $23.97 per  rentable  square foot
contained in the Premises;

                            (v)      for the period from the 4th anniversary of
the Commencement Date to and including the day before the 5th anniversary of the
Commencement Date, at the annual rate of $24.31 per rentable square foot
contained in the Premises;

                            (vi)     for the period from the 5th anniversary of 
the Commencement Date to and  including  the 6th  anniversary  of the  
Commencement  Date, at the annual rate of $24.66 per rentable square foot 
contained in the Premises;

                            (vii) for the period from the 6th anniversary of the
Commencement Date to and  including  the 7th  anniversary  of the  Commencement 
Date, at the annual rate of $25.01 per rentable square foot contained in the
Premises, and
                            (viii) for the period  from the 7th  anniversary  of
the Commencement date to and  including  the  Expiration  Date,  at the annual 
rate of $25.37 per  rentable  square foot  contained  in the Premises.

                  d) From and after the Rent  Commencement Date to and including
the Expiration  Date,  Tenant shall pay to Landlord Tax Payments with respect to
the  Premises at the times and in the manner set forth in the Lease and the term
"Tenant's Share" (with respect to the Premises) shall mean 16.44%.

                  (e)  Tenant  shall pay for  electric  energy  supplied  to the
Additional  Space  from and after the  Commencement  Date and  otherwise  in the
amounts and at the times set forth in Section 2.06 of the Lease.

                  (f)      Tenant's  termination  option as set forth in Section
1.03 of the Lease shall be null and void and of no further force or effect. 

4.   Storage Space (a) Landlord  hereby leases to Tenant and Tenant hereby hires
     from Landlord, subject to the terms and conditions of this Lease, the space
     on the concourse level of the Building  substantially as shown on Exhibit B
     (the "Storage Space") for the Term.

                           (b) The  leasing of the  Storage  Space  shall be on
the terms and  conditions  of this  Lease, subject to the following;

                                    (i)  the  Storage   Space  shall  be  
delivered  in  its  "as  is"  condition  on  the Commencement  Date and 
Landlord  shall not be  obligated to perform any work or provide any 
contribution or allowance with respect thereto;

                                    (ii) Fixed Rent for the Storage  Space shall
be equal to $9.25 per rentable square foot per  annum  throughout  the Term and
shall  be  payable  in equal  monthly installments from and after Rent 
Commencement Date.

                                    (iv) the  Storage  Space  shall only be used
for storage purposes (which shall include
the shipping and  receiving of items stored in the Storage  Space and  personnel
necessary to oversee such shipping and  receiving)  in connection  with Tenant's
operation of its business in the Premises;

                                    (v) Tenant, at Tenant's expense, shall cause
the Storage Space to be cleaned regularly in a manner reasonably satisfactory to
Landlord and to be exterminated against by vermin,  rodents or roaches and such
cleaning and exterminating shall be  performed  at  Tenant's  expense  by  
Landlord's   employees  or  Landlord's contractor;

                                    (vi) the  Storage  Space  shall be deemed to
contain 1,112 rentable square feet for all purposes of this Lease; and

                                    (vii) except as expressly  provided  herein,
the Storage Space shall be deemed to be part of the Premises for all purposes 
of this Lease.

                  (c) If Landlord  shall be unable to deliver  possession of the
Storage  Space to Tenant  on the  Commencement  Date as a result  of a  tenant's
holdover  in space  which  shall  constitute  a portion  of the  Storage  Space,
provided   Landlord   shall  use  reasonable   efforts   (including  the  prompt
commencement  and diligent  prosecution of summary  dispossess  proceedings)  to
terminate  such  holdover  tenancy.  Landlord  shall have no liability to Tenant
therefor  and the  validity of this Lease shall not be  impaired,  nor shall the
Term be extended, by reason thereof except that, until possession of the Storage
Space  shall be  delivered  to Tenant,  Tenant  shall not be  charged  Rent with
respect to the Storage Space.  This provision  shall be deemed to be "an express
provision to the  contrary"  for purposes of Section  223-a of the New York Real
Property law or any successor Laws.

                  (d) Landlord shall have the right to relocate Storage Space at
any time and from time to time to  comparable  space in the  Building,  upon nor
less than 30 days prior notice to Tenant,  provided that Landlord  shall install
at its expense (or, at its option,  reimburse  Tenant for the  reasonable  costs
incurred by Tenant in installing) in the new Storage Space the fixtures existing
in the prior Storage Space (or reasonable  replacements thereof) and either move
or, at Landlord's  option,  reimburse  Tenant for the reasonable costs of moving
from the prior Storage Space to the new Storage Space,  Tenant's Property stored
therein.

         5. Broker Each party hereto  covenants,  warrants and represents to the
other party that it had no  conversations  or negotiation  with any other broker
other than CB  Commercial  Hampshire,  L.L.C.  and Cushman &  Wakefield  of Long
Island,  Inc.  (collectively,  the  "Broker"),  concerning  the  leasing  of the
Additional  Space. Each party hereto shall indemnify and hold harmless the other
party against and from any claims for any brokerage  commissions  and all costs,
expenses and liabilities in connection therewith, including, without limitation,
attorney's fees and expenses,  arising out of any  conversations or negotiations
had by the indemnifying party with any broker (other than the Broker, in case of
the  indemnity  by  Tenant)  concerning  the  leasing of the  Additional  Space.
Landlord  shall pay any brokerage  commissions  due to the Broker  pursuant to a
separate agreement between Landlord and the Broker.

          6.  No Other Changes Except as expressly set forth in this  Agreement,
              the Lease shall  remain  unmodified  and in full force and effect,
              and the Lease as modified  herein is ratified and  confirmed.  All
              references in the Lease to "this lease" shall  hereafter be deemed
              to refer to the Lease as amended by this Agreement.

         IN  WITNESS  WHEREOF,  Landlord  and  Tenant  have duly  executed  this
Agreement as of the day and year first above written.

                              NEW YORK INSURANCE COMPANY,
                              Landlord

                              By:     /s/Michael W. Towne
                              Name:   Michael W. Towne
                              Title:  Real Estate, Vice President


                              CURATIVE HEALTH SERVICES, Inc.
                              Tenant

                              By:     /s/Allan L. Keysor
                              Name:   Allan L. Keysor
                              Title:  Vice President & General Council
<PAGE>
EMPLOYMENT AGREEMENT                                               Exhibit 10.20


     This  Agreement,  dated as of October  21,  1998  ("Effective  Date"),  is
between Curative Health Services,  Inc., a Minnesota Corporation ("Company") and
Robert Heisler, an individual  residing at 310 West 106th Street,  Apartment 7D,
New York, NY 10025, ("Executive").

                           WITNESSETH

     WHEREAS, Company wishes to retain Executive as a key employee; and

     WHEREAS, Company and Executive want the terms and conditions of Executive's
employment to be governed by this Agreement;

     NOW,  THEREFORE,  in  consideration  of the promises and mutual  covenants
herein  contained,  intending to be legally  bound,  the parties hereto agree as
follows:

      1.    Employment and Duties.

      (a) General.  Executive  has been  serving and shall  continue to serve as
Regional  Vice  President of the  Company.  Executive  shall  perform all of the
duties of the  position as assigned to  Executive  by the Board of  Directors of
Company  ("Board").  Executive  shall  report  to the  Chief  Operating  Officer
("COO").

      (b)  Services.   While  employed  by  Company,   Executive   shall  devote
Executive's  full  business  time  to the  performance  of  Executive's  duties;
faithfully  serve Company;  and comply with the lawful and good faith directions
and  instructions  given to Executive by the COO, CEO, and the Board.  Executive
shall use best efforts to promote and serve the interests of Company.

      2. Term of Employment.  The term of Executive's  employment ("Term") shall
commence on the Effective Date and continue  until the one (1) year  anniversary
of the Effective  Date. On the first  anniversary  of the Effective  Date and on
each subsequent anniversary date thereafter,  the Term shall automatically renew
for an additional  year unless,  within thirty (30) days prior to the applicable
anniversary  date,  either party shall have given the other party written notice
of its intention not to extend the Term or Executive's  employment is terminated
pursuant to the terms and conditions of this Agreement.

      3.  Compensation and Benefits.  Company shall pay or provide the following
compensation or benefits to Executive  during the Term as  compensation  for all
services rendered:

      (a) Base Salary.  Company  shall  initially  pay  Executive an annual base
salary of One Hundred Twenty Six Thousand Dollars ($126,000.00). Salary shall be
paid to Executive in accordance with normal payroll practices of Company for its
other executives as they may be in effect from time to time.  Executive shall be
eligible for a salary  review not less often than  annually in  accordance  with
Company's Compensation Plan as in effect from time to time.

      (b)  Quarterly  and  Annual  Bonus.  During the Term,  Executive  shall be
eligible for each  calendar  year of the Term to  participate  in the  Company's
Incentive  Compensation  Plan established by Company for executives as in effect
from time to time ("Incentive Plan").

      (c) Stock  Options.  Executive  shall be  eligible to  participate  in the
Company's  Stock  Option  Plan  ("Option  Plan") and to receive  grants of stock
options  from time to time under the same  terms and  conditions  applicable  to
other  executives of Company in accordance  with the terms and conditions of the
Option  Plan as in  effect  from  time  to time  and to  such  other  terms  and
conditions  as may be  specified  by Company  in the form of a  standard  option
agreement with Executive.

      (e) Expenses.  Company shall pay or reimburse Executive for all reasonable
expenses  incurred by Executive in  connection  with  Executive's  employment by
Company in accordance with Company's rules and practices  applicable  thereto as
in effect from time to time.  Expenses  shall be  reimbursed  upon the  periodic
submission of expense reports reasonably  promptly after the date of submission.
No expense  payment  shall be "grossed up" or increased to take into account any
tax  liability  incurred  by  Executive  as a  result  of  expense  payments  or
reimbursements.

      (f) Pension,  Welfare,  and Fringe  Benefits.  During the Term,  Executive
shall  be  eligible  to  participate  in  Company's  401(k),  medical,   dental,
disability,  and other  welfare  plans made  available  to other  executives  of
Company  in  accordance  with the rules of the  plans as in effect  from time to
time.

      (g) Vacation.  During the Term, Executive shall be entitled to vacation in
accordance with Company's policies and standard procedures governing vacation as
in effect from time to time.

      4.  Termination of Employment.  Subject to the notice and other provisions
of this  Section  4,  Company  shall  have the  right to  terminate  Executive's
employment  and  Executive  shall  have the  right to resign at any time for any
reason or for no stated reason.

      (a)   Termination for Cause; Resignation.

      (i) If,  prior  to the  expiration  of  Term,  Executive's  employment  is
terminated  by  Company  for  Cause or if  Executive  resigns  from  Executive's
employment,  Executive  shall be entitled to payment of the pro-rata  portion of
Executive's  salary  earned  through and including  the date of  termination  or
resignation as well as any unreimbursed expenses.  Except to the extent required
by the terms of any grant to Executive in accordance with Section 3(c) above, by
the terms of Section  3(f),  or applicable  law,  Executive  shall have no right
under this  Agreement  or  otherwise  to receive  any other  compensation  or to
participate in any other plan, program, or arrangement after such termination or
resignation of employment.

      (ii)  Termination  for  "Cause"  shall  mean  termination  of  Executive's
employment with Company because of (A) Executive's refusal (other than by reason
of  incapacity  because of  physical or mental  illness) to perform  Executive's
duties  hereunder,   (B)  the  commission  by  Executive  of  a  felony  or  the
perpetration  by Executive of a dishonest  act or fraud  against  Company or any
affiliate of Company,  (C) any act or omission by Executive  which is the result
of Executive's  willful  misconduct or gross  negligence and which,  in the good
faith  opinion of Company,  is injurious  in any  material way to the  financial
condition,  business,  or  reputation  of  Company or its  affiliates,  or (D) a
material breach by Executive of this Agreement.

      (iii)   Termination   of   Executive's   employment  for  Cause  shall  be
communicated  by delivery by Company to  Executive of a written  notice  stating
that Executive has been  terminated  for Cause and  specifying  the  particulars
thereof and the effective  date of the  termination.  The date of resignation by
Executive  shall be the date specified in a written  notice of resignation  from
Executive  to Company.  Executive  shall  provide at least sixty (60) days prior
written notice of resignation.

      (b)   Involuntary Termination.

      (i) If  Company  terminates  or does not  extend  the term of  Executive's
employment  for any reason  other  than for  Disability  or Cause  ("Involuntary
Termination"),  Company  shall pay to  Executive  Executive's  salary as well as
unreimbursed expenses which have been earned or incurred up to and including the
date of Involuntary Termination.  In addition, Company shall pay to Executive as
severance  Executive's salary prorated on a monthly basis, at the rate in effect
on the date of Involuntary  Termination  ("Severance Payments") for the nine (9)
month period beginning immediately following the date of Involuntary termination
("Severance  Period").  Severance Payments shall be paid in payroll installments
in  accordance  with the Company's  payroll  practices as in effect from time to
time; provided,  however, that Company, in its sole discretion,  may at any time
during the  Severance  Period pay to  Executive  the then  remaining  portion of
Severance Payments due during the Severance Period in a cash lump sum.

      (ii) In the event of Involuntary Termination,  Executive shall continue to
participate on the same terms and conditions as are in effect  immediately prior
to the  termination  or in Company's  health,  medical,  and dental plans as set
forth in Section 3 until the last day  Company is  obligated  to make  Severance
Payments in accordance with Section 4(b)(i) above.  Upon request from Executive,
Company shall also provide Executive an executive  outplacement  program with an
outplacement  firm mutually  acceptable  to Executive  and Company,  the cost of
which may not exceed ten percent (10%) of Executive's base salary.

      (iii) In the event of Executive's  death prior to the end of the Severance
Period, Severance Payments shall cease.

      (iv) If, following Involuntary Termination,  Executive materially breaches
the provisions of Section 5 of this Agreement,  Executive shall not be eligible,
as of the date of the breach, for the payments and benefits described in Section
4 and any  obligations of Company for such payments and benefits shall thereupon
cease.

      (v) The date of Involuntary Termination shall be the date specified in the
written notice of termination to Executive.

      (c)  Termination  because  of  Disability.  In the  event  of  Executive's
Disability,  Company  shall be entitled  to  terminate  Executive's  employment.
Should Company terminate Executive's employment because of Disability, Executive
shall be entitled to payment of the pro-rata portion of Executive's  salary and,
subject to the terms of the Incentive  Plan,  bonuses earned through the date of
termination  as well as any unpaid  expenses.  Notwithstanding  anything in this
Agreement to the contrary,  if Executive's  employment is terminated  because of
Disability,  Company shall continue to pay Executive  Executive's  annual salary
until the earliest to occur of (i) the end of the six (6) month period following
the date of termination,  (ii) the date of Executive's death, or (iii) the first
day on which  Executive  is  entitled  to  benefits  under  Company's  long term
disability plan. As used in this Section 4(c), the term "Disability"  shall mean
a physical or mental  incapacity  that  substantially  prevents  Executive  from
performing Executive's duties hereunder,  has continued for at least one hundred
eighty (180) days, and can reasonably be expected to continue indefinitely.  Any
dispute about  whether or not  Executive is disabled  within the meaning of this
Section shall be resolved by a physician reasonably  acceptable to Executive and
Company, and the determination of such physician shall be final and binding upon
both Executive and Company.

      (d) Death.  Except as  provided  in  Sections  3(f),  4(b)(iii),  and this
Section  4(d),  no salary or  benefits  shall be payable  under  this  Agreement
following the date of Executive's  death. In the event of Executive's death, any
salary  and,  subject  to the terms of the  Incentive  Plan,  bonuses  earned by
Executive up to the date of death, as well as any unreimbursed expenses shall be
paid to Executive's  beneficiary  within thirty (30) days of death.  Executive's
Beneficiary  shall also be entitled  to any death  benefits  which are  provided
under the terms of any plan, program, or arrangement referred to in Section 3(f)
applicable to Executive at time of death.

      (e) Beneficiary.  For this Agreement,  "Beneficiary" shall mean the person
or persons  designated in writing by Executive to receive benefits under a plan,
program,  or arrangement due in the event of Executive's  death,  or, if no such
person  or  persons  are  designated  by  Executive,   Executive's   estate.  No
Beneficiary  designation shall be effective unless it is in writing and received
by Company prior to the date of Executive's death.

      5.    Protection of Company's Interests.

      (a) No  Competing  Employment.  For so long as  Executive  is  employed by
Company and  continuing  for one (1) year after  termination  of  employment  or
resignation  ("Restricted  Period"),   Executive  shall  not,  unless  Executive
receives  prior  written  consent from Company,  directly or  indirectly  own an
interest in, manage,  operate,  join, control, lend money or render financial or
other  assistance  to, or  participate  in or be  connected  with as an officer,
employee,  partner,   stockholder,   consultant  or  otherwise  any  individual,
partnership,  firm,  corporation or other business  organization  or entity that
competes with Company.

      (b) No Interference.  During the Restricted Period and for a period of one
(1) year thereafter, Executive shall not, whether for Executive's own account or
for the account of any other individual, partnership, firm, corporation or other
business organization (other than Company),  intentionally solicit,  endeavor to
entice away from  Company,  or  otherwise  interfere  with the  relationship  of
Company  with any  person who is  employed  by or  otherwise  engaged to perform
services  for  Company or any  person or entity who is, or was,  within the then
most recent twelve-month period, a customer, client, or supplier of Company.

      (c) Secrecy. Executive recognizes that the services Executive will perform
are special, unique, and extraordinary because as part of Executive's employment
Executive  may acquire  confidential  information  and trade  secrets  about the
operation of Company or its  affiliates,  the use or  disclosure  of which could
cause Company  substantial loss or damage which could not be readily  calculated
and for which no remedy at law would be adequate.  Accordingly,  Executive shall
not at any time, except in performance of Executive's  obligations to Company or
with prior written  consent of Company,  directly or indirectly  disclose to any
person any secret or confidential information.  "Confidential Information" means
any information not previously  disclosed to the public by Company's  management
about  Company's  products,  facilities,   business  practices,  trade  secrets,
intellectual property, systems, procedures, manuals, confidential reports, price
lists, customer lists, financial information,  and business plans, prospects, or
opportunities.

      (d) Exclusive Property.  All Confidential  Information is and shall remain
the exclusive property of Company.  All business records,  papers, and documents
kept or made by Executive  about the business of Company shall be and remain the
property of Company.  Upon  termination of employment or upon request of Company
at any time,  Executive shall promptly deliver to Company and shall not, without
consent of Company,  retain copies of any written  materials not previously made
available  to the public or records and  documents  made by  Executive or coming
into Executive's  possession and relating to the business of Company;  provided,
however,  that subsequent to any  termination,  Company shall provide  Executive
with copies of any documents  which are requested by Executive and necessary for
Executive to comply with any  applicable  law or the terms and conditions of the
Agreement.

      (e) Enforcement. Should the period of time or the scope of the restrictive
covenants  set forth above be adjudged  unreasonable  in a judicial  proceeding,
then the period of time or the scope or both shall be  reduced  accordingly,  so
that the  covenants may be enforced in such scope and during such period of time
as are judged by the court to be reasonable.  Should Executive breach or violate
this Agreement, in addition to all other remedies,  Company shall be entitled to
equitable relief in any court of competent jurisdiction,  including the right to
obtain  injunctive relief for specific  performance,  it being covenanted hereby
that  Company  has no  adequate  remedy at law for the  breach of the  covenants
contained herein.

      6.    General Provisions.

      (a) Other  Severance  Benefits.  Should  Company  adopt a  Severance  Plan
("Severance  Plan") applicable to senior executives of Company,  Executive shall
be eligible for benefits  under the  Severance  Plan but only to the extent that
benefits  thereunder  are  additional to or greater than the severance  benefits
provided  herein.  Should  Executive's  employment be terminated for any reason,
except for the obligations of Company expressly  provided for herein,  Executive
unconditionally  releases Company and its directors,  officers,  employees,  and
stockholders,  or  any of  them,  from  any  and  all  claims,  liabilities,  or
obligations for any other  compensation or severance benefits in connection with
Executive's employment or termination.

      (b)  Tax   Withholding.   Payments  to  Executive  for  all   compensation
contemplated   by  this  Agreement  shall  be  subject  to  all  applicable  tax
withholding.

      (c) Notices.  Notice by either party shall be given in writing by personal
delivery  or  certified  mail,  return  receipt  requested,  or if to Company by
facsimile to the applicable address set forth below:

      (i)   To Company:     Carol Gleber
                            Chief Operating Officer
                            Curative Health Services
                            150 Motor Parkway
                            Hauppauge, NY 11733

      (ii)  To Executive:   Robert Heisler
                            310 West 106th Street
                            Apartment 7D
                            New York, NY 10025

or to such other persons or addresses either party may specify to the other in 
writing.
      (d)  Representation by Executive.  Executive  represents and warrants that
Executive's  entering into and performance  under this Agreement will not breach
the provisions of any agreement to which the Executive is a party or any decree,
judgment,  or  order to which  Executive  is  subject  and that  this  Agreement
constitutes  a  valid  and  binding  obligation  of  Executive.  Breach  of this
representation will render all of the Company's obligations under this Agreement
void ab initio.

      (e) Assignment. This Agreement shall not be assigned by Executive, and any
attempted assignment or delegation in violation of this provision shall be void.
Subject to the  preceding  sentence,  this  Agreement  shall be binding upon the
parties hereto and their respective heirs, successors, and assigns.

      (f) Amendment.  This Agreement may not be amended,  modified,  or canceled
except by written agreement between Executive and Company.

      (g) Severability. If any term or provision of this Agreement is determined
to be invalid or unenforceable in a final court or arbitration  proceeding,  (i)
the remaining terms and provisions  shall be unimpaired and, (ii) the invalid or
unenforceable  term or provision shall be deemed replaced by a term or provision
that is valid and  enforceable  and comes closest to expressing the intention of
the invalid or unenforceable term or provision.

      (h) Governing  Law. This  Agreement  shall be governed by and construed in
accordance  with the laws of the State of New York without  regard to any choice
or conflicts of law provisions.

      (i) Entire  Agreement.  This Agreement sets forth the entire agreement and
understanding  of the parties  with  respect to the matters  covered  hereby and
supersedes all prior agreements and  understandings  of the parties with respect
to the subject matter hereof.

      (j)  Headings.  The headings and captions of this  Agreement  are included
solely  for  convenience  of  reference  and shall not  control  the  meaning or
interpretation of any term or provision of this Agreement.

      (k)  Counterparts.  This  Agreement  may be  executed  by the  parties  in
counterparts,  each of  which  shall  be  deemed  an  original;  but  both  such
counterparts shall together constitute one and the same document.

      IN WITNESS WHEREOF,  the parties have executed this Agreement effective as
of the day and year first written above.


                           CURATIVE HEALTH SERVICES, INC.

                           By:/s/John Vakoutis
                           Name: John Vakoutis
                           Title:President and  Chief Executive Officer
                                         

                           EXECUTIVE

                           By:/s/Robert Heisler
                           Name: Robert Heisler
                           Title:Regional Vice President


<PAGE>
                                                                   Exhibit 10.22




                      DEVELOPMENT AND LICENSE AGREEMENT

                                   between

                        CURATIVE HEALTH SERVICES, INC.

                                     and

                       ACCORDANT HEALTH SERVICES, INC.







                           Dated as of May 19, 1998

                                       1
<PAGE>

  TABLE OF CONTENTS

                                                                            Page
 1.   DEFINITIONS                                                              1
         

 2.   ACTIVITIES RELATING TO DEVELOPMENT OF THE PROGRAM DURING THE
      DEVELOPMENT TERM                                                         4
        
      2.1   Responsibilities of Parties                                        4
               
      2.2   Establishment of Project Committee                                 5
               
      2.3   Elements of the Project Plan                                       6
               

3.    MARKETING RIGHTS AND OBLIGATIONS; PAYMENT TO CHSI                        6
        
      3.1   Grant of Non-Exclusive Marketing Rights                            6
               
      3.2   Marketing Activities                                               6
               
      3.3   Payment to CHSI                                                    7
               
      3.4   Subcontract of Service                                             7
               
      3.5   Access to Accounting Books and Statements                          7
               

4.    REPRESENTATIONS AND WARRANTIES OF ACCORDANT AND CHSI                     8
         
      4.1   Mutual Representations and Warranties                              8
               
      4.2   Additional Representations                                         9
            
      4.3   Additional Representations, Warranties and Covenants of            9
            CHSI
           
      4.4   Continuing Nature of Representations and Warranties                9
              

5.    INSURANCE                                                               10
       
      5.1   Comprehensive General Liability and Other Insurance               10
              
      5.2   Certificates of Insurance                                         10
           
      6.    OWNERSHIP; GRANT OF LICENSE; PROTECTION OF INTELLECTUAL           10
            PROPERTY
       
      6.1   Ownership of Program                                              10
             
      6.2   License to Accordant                                              11
             
      6.3   Protection of Program                                             11
             
      6.4   Enforcement of Intellectual Property Rights                       11
           

7.    CONFIDENTIALITY; NON-COMPETITION COVENANT                               11
        
      7.1   Mutual Obligations of Confidentiality                             11
              
      7.2   Exceptions                                                        12
              
      7.3   Non-Competition Covenant of Accordant                             12
              
      7.4   Non-Competition Covenant of CHSI                                  13
              
      7.5   Non-Solicitation                                                  13
              
      7.6   Enforcement                                                       13
              
8.    TERM AND TERMINATION
        
      8.1   Term                                                              13
              
      8.2   Rights of Termination                                             13
              
      8.3   Termination by Either Party                                       14
              
      8.4   Termination by CHSI                                               15
              
      8.5   Termination by Accordant                                          15
            
      8.6   Adjusted Fair Market Value                                        16
              
      8.7   Survival                                                          17
             

9.    INDEMNIFICATION                                                         17
        
      9.1   Mutual Obligations to Indemnify                                   17
              
      9.2   Claims Procedure                                                  17
              
      9.3   Rights Cumulative                                                 18
              

10.   MISCELLANEOUS                                                           18
       
      10.1  Access to Operations                                              18
             
      10.2  Further Assurances                                                18
              
      10.3  Relationship                                                      18
              
      10.4  Entire Agreement                                                  18
              
      10.5  Assignability; Binding Nature                                     19
              
      10.6  Waiver                                                            19
              
      10.7  Severability                                                      19
              
      10.8  Governing Law                                                     19
              
      10.9  Enforceability                                                    19
              
      10.10 Headings                                                          19
              
      10.11 Notices                                                           19
              
      10.12 Force Majeure                                                     20
              
      10.13 Arbitration                                                       20
              
      10.14 Counterparts                                                      20

                                       2
<PAGE>
 
                      DEVELOPMENT AND LICENSE AGREEMENT

      THIS DEVELOPMENT AND LICENSE AGREEMENT dated as of the 19th. day of May,
1998, between CURATIVE HEALTH SERVICES, INC., a Minnesota corporation
("CHSI"), having offices at 150 Motor Parkway, Hauppauge, New York 11788, and
ACCORDANT HEALTH SERVICES, INC., a Delaware corporation ("Accordant"), having
offices at 5509-A West Friendly Avenue, Suite 101, Greensboro, North Carolina
27410 (the "Agreement").

      WHEREAS, CHSI is engaged in the marketing and sale of an innovative,
interdisciplinary program for the medically and cost effective diagnosis and
treatment of chronic non-healing wounds; and

      WHEREAS, Accordant is engaged in the research, development, marketing
and sale of programs relating to the monitoring, care and stabilization of
the condition of individuals suffering from certain chronic illnesses; and

      WHEREAS, CHSI and Accordant desire to pursue the development of a
comprehensive program for the monitoring, care and stabilization of the
condition of individuals suffering from chronic non-healing wounds; and

      WHEREAS, following the successful development of such program,
Accordant desires to obtain a license from CHSI to market such program for
its own account, and CHSI is willing to grant Accordant a license to do so.

      NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

      1.    DEFINITIONS

            As used in this Agreement, the following terms shall be defined
as set forth below:

            1.1   Accordant Know-How - shall mean all materials, methods or
other technical information, including data, formulas, patterns,
compilations, devices, techniques, processes and procedures, developed, owned
and/or controlled by Accordant prior to the Effective Date and used in
connection with the development of the Program.

            1.2   Adjusted Fair Market Value - shall have the meaning set
forth in Section 8.6 hereof.

                                       3
<PAGE>

            1.3   Affiliate - shall mean a corporation or other entity
controlled by, under common control with, or controlling a party, which
control means either (i)the ownership either directly or indirectly of more
than fifty percent (50%) of the voting power of the entity, or (ii) the right
to elect the majority of directors of the entity, and in either case, where
such control may be exercised without the consent of any third party.

            1.4   Change of Control - shall mean either (i) the merger or
consolidation of Accordant with another entity in which the shareholders of
Accordant immediately prior to such transaction own less than 50% of the
voting power of the entity surviving such transaction, (ii) the sale of all
of, or a controlling interest in, the capital stock of Accordant to a third
party or group acting in concert, or (iii) the sale of a substantial portion
of Accordant's assets to a third party or group acting in concert.

            1.5   CHSI Know-How - shall mean all materials, methods or other
technical information, including data, formulas, patterns, compilations,
devices, techniques, processes and procedures, now or hereafter developed,
owned and/or controlled by CHSI and provided by CHSI to Accordant in
connection with the development of the Program or otherwise obtained by
Accordant in connection with development of the Program (whether or not it is
used for such development), including improvements to the foregoing made by
CHSI during the term of this Agreement.

            1.6   Customers - shall mean health maintenance organizations,
insurance companies, preferred provider organizations and other purchasers of
the goods and services offered by Accordant and other business organizations
providing disease management services to payors of the costs of medical
services.  The term "Customers" shall not include any providers of medical
services which are not also payors of the costs of medical services.

            1.7   Development Cost - shall mean the sum of the (i) Direct
Labor, (ii) Direct Materials and Costs, and (iii) Accordant overhead (which
is deemed to be equal to ten percent (10%) of the sum of (i) and (ii))
incurred by Accordant in the development of the Program during the
Development Term, as certified to CHSI by Accordant.  No element of overhead
shall be included in Direct Labor.

            1.8   Development Term - shall mean the period from the Effective
Date to the date twelve calendar months after adoption of the Project Plan
pursuant to Section 2.2.

            1.9   Direct Labor - shall mean all costs of employment,
including, without limitation, employee benefits and taxes paid by the
employer, for those employees whose services are directly related to the
development and marketing of the Program and/or the performance of the
Program for the benefit of Accordant's Customers or CHSI's customers, as the
context may require.

                                       4
<PAGE>

            1.10  Direct Materials and Costs - shall mean out-of-pocket
expenses for materials and third party services actually incurred by
Accordant or CHSI, as the context may require, which are identifiable and
directly related to the development and marketing of the Program and/or the
performance of the Program for the benefit of CHSI's Customers (and other
third parties) or Accordant's Customers, as the context may require,
including, but not limited to, travel expenses, shipping and postage charges,
mailing inserts and direct medical advisor expenses.

            1.11  Effective Date - shall mean the date of this Agreement.

            1.12  Indemnifying Party - shall mean, for purposes of Article 9
hereof, either CHSI or Accordant, as the context may require.

            1.13  Indemnified Persons - shall have the meaning set forth in
Section 9.1 hereof.

            1.14  Information - shall mean documents, materials, knowledge or
other confidential or proprietary business or technical information,
including, without limitation, information relating to markets, customers,
products, patent rights, inventions, trade secrets, procedures, methods,
designs, strategies, plans, assets, liabilities, costs, revenues, profits,
organization, employees, agents, distributors or business in general.

            1.15  Initial Term - shall mean the initial term of this
Agreement, i.e., the five (5) year period from and after the Effective Date.

            1.16  Losses - shall mean losses, claims, damages, liabilities
and expenses (including reasonable fees and disbursements of counsel)
incurred by Indemnified Persons.

            1.17  Marketing Plan - shall mean the plan for the
implementation, marketing and operation of the Program prepared by Accordant
in accordance with Section 2.1(b)(x).

            1.18  Net Profits - shall mean, for any period, the positive
difference, if any, between (a) Net Sales of the Program, less (b) the sum of
(i) Direct Labor, (ii)Direct Materials and Costs and (iii) Accordant
overhead (which is deemed to be equal to ten percent (10%) of the sum of (i)
and (ii)) incurred by Accordant in connection with such Net Sales.  No
element of overhead shall be included in Direct Labor.

                                       5
<PAGE>

            1.19  Net Sales - shall mean gross receipts from sales by
Accordant for performing the Program for the benefit of its Customers, less
adjustments or credits made by Accordant in the ordinary course of its
business consistent with past practices.

            1.20  Program - shall mean the comprehensive program for case
management of individuals suffering from chronic non-healing wounds, which
will contain, at a minimum, the following elements in accordance with the
Specifications provided by CHSI under Section 2.1(a) of this Agreement:
(a) comprehensive disease profile; (b) normative cost model; (c) intervention
model; (d) impact model; (e) data templates; (f) assessment tools;
(g) intervention and education (payor/provider); (h) care management plan;
(i) outcomes reports; and (j) outcomes management.

            1.21  Program Completion - shall mean the completion of the
development of the Program and its certification as "completed" by the
Project Committee, provided that the Project Committee's certification shall
be deemed provided unless the Project Committee provides a detailed
description of any changes to the Program required for it to conform to the
Specifications within fifteen (15) days of Accordant's submission of the
Program to the Project Committee; and provided further that the Project
Committee will not unreasonably withhold its consent to such certification.

            1.22  Project Committee - shall mean the joint project committee
established by CHSI and Accordant in accordance with Section 2.2 hereof.

            1.23  Project Plan - shall mean the project plan for the
development of the Program prepared by the Project Committee in accordance
with Section 2.2 hereof.

            1.24  Specifications - shall mean the specifications for the
Program which have been provided to Accordant from time-to-time by CHSI, and
accepted by Accordant, such acceptance not to be unreasonably withheld.

                                       6
<PAGE>

      2.    ACTIVITIES RELATING TO DEVELOPMENT OF THE PROGRAM DURING THE 
            DEVELOPMENT TERM

Subject to the terms and conditions set forth herein, the parties shall
have the responsibilities set forth in this Article 2 for developing the
Program.

                  (a)   Responsibilities of CHSI.  CHSI shall be responsible
for:  (i)providing Accordant with Specifications for the Program no later
than the dates determined, from time to time, by the Project Committee;
(ii)providing Accordant with all necessary CHSI Know-How, as reasonably
requested by Accordant, no later than the date(s) as set forth, from time to
time, by the Project Committee; and (iii)selection of a beta site for the
beta testing of the Program.

                  (b)   Responsibilities of Accordant.   Accordant shall
(i)be ultimately responsible for the development of the Program for use in
the United States and elsewhere; (ii)develop the Program materially in
accordance with the Specifications supplied by CHSI, as may be modified from
time-to-time by CHSI after consultation with Accordant and accepted by
Accordant, such acceptance not to be unreasonably withheld; (iii)in
consultation with CHSI, appoint an Accordant employee as project manager who
shall be dedicated to (A) the timely development of the Program and (B)the
marketing of the Program to its Customers following Program Completion;
(iv)present the Project Plan to CHSI no later than one (1) month after
Accordant's acceptance of the Specifications; (v)complete a first draft of
the Program no later than six (6) months after the adoption of the Project
Plan by the Project Committee; (vi) complete development of the Program no
later than the end of the Development Term; (vii)appoint, or cause to be
elected, for the term of this Agreement (including any renewals) John
Vakoutis, or his replacement as directed by CHSI's Board of Directors, as a
Director on the Board of Accordant; (viii)fund the Development Cost of the
Program; (ix) arrange for Beta testing of the Program immediately following
Program Completion; (x)deliver to CHSI, no later than six (6) months
following the Effective Date, a detailed Marketing Plan for the
implementation, marketing and operation of the Program for approval by CHSI;
(xi)in accordance with the Marketing Plan, incorporate the Program into its
offering of services to its Customers no later than nine (9) months after the
adoption of the Project Plan by the Project Committee; (xii)assure that no
later than sixty (60) days after the end of the Development Term at least one
(1) Customer shall have entered a binding contract with Accordant for the
Program; and (xiii) deliver one current copy of the Program and other
materials used by Accordant in the course of its performance under this
Agreement as provided in Section 8.3(d) below.

     2.2  Establish the Project Committee.   

   Promptly following the Effective Date, CHSI and Accordant shall establish
the Project Committee.  The Project Committee will be responsible for the
oversight of all activities related to development of the Program during the
Development Term.  The Project Committee shall use its best efforts to
expedite the development process to ensure that the Program is available to
be performed for the benefit of Customers at the earliest practicable date,
but in no event later than nine (9) months following adoption of the Project
Plan, and shall be responsible for the following:  (i)adopting the Project
Plan for the development of the Program; (ii)assisting Accordant with the
formulation of the Marketing Plan for the implementation, marketing and
operation of the Program; (iii) monitoring Accordant's progress under the
Project Plan and the Marketing Plan; and (iv) modifying and/or otherwise
revising the Project Plan as and when deemed necessary.

                                       7
<PAGE>

     2.3  Elements of the Project Plan and Marketing Plan.

   The Project Plan and Marketing Plan shall each be in
writing and shall include, without limitation, the following elements:

                  (a)   the Specifications;

                  (b)   a statement of the extent to which testing of the
Program will be conducted by CHSI and/or Accordant;

                  (c)   establishment of the various milestones and deadlines
(other than those set forth in this Agreement), as they may be changed from
time to time by the Project Committee, to be achieved; and

                  (d)   such other matters pertaining to the cooperative
efforts of CHSI and Accordant in connection with the development, marketing
and promotion of the Program, and performance of the Program for the benefit
of Customers as the Project Committee shall deem necessary or appropriate.
 
     3.    MARKETING RIGHTS AND OBLIGATIONS; PAYMENT TO CHSI
         
           3.1   Grant of Non-Exclusive Marketing Rights

   Subject to the ownership of the Program by CHSI as provided in Section 6.1
of this Agreement and the terms and conditions set forth in this Article 3,
CHSI hereby grants Accordant, during the term of this Agreement and
thereafter (but only to the extent provided in Sections 3.4 and 8.3), the
non-exclusive right to market and promote the Program and perform the Program
for the benefit of its Customers in the United States and outside.  Accordant
hereby accepts such grant and agrees to market and promote the Program and
perform the Program for the benefit of its Customers on the terms and subject
to the conditions set forth herein.

                                       8
<PAGE>

            3.2   Marketing Activities

                  (a)   Accordant, for the term of this Agreement, shall have
full responsibility and authority for the promotion and marketing of the
Program and the performance of the Program for the benefit of its Customers,
as provided in the Marketing Plan, subject to CHSI's rights as owner of the
Program and the right of CHSI to, from time to time, review and in
consultation with Accordant amend the Marketing Plan.  Accordant shall price
the Program separately from the other case management programs for other
disease states offered by Accordant to its Customers and shall establish the
price for the Program on a non-discriminatory basis consistent with the
prices established for such other programs.  Accordant shall assume all
administrative and other responsibilities necessary to perform the Program
for the benefit of its Customers and shall be solely responsible for all
direct and indirect costs and expenses associated with the marketing,
promotion and performance of the Program to and for the benefit of its
Customers.  Without CHSI's prior written consent (except as provided in the
Marketing Plan), Accordant shall not promote, market or exploit the Program.

                  (b)   CHSI hereby agrees that prior to entering
negotiations with any business organization offering disease management
services to payors of the costs of medical services (a "Prospective
Licensee") for the grant of a license to market and perform the Program for
the benefit of any Customers, CHSI shall negotiate in good faith on an
exclusive basis with Accordant for a period of sixty (60) days as to the
terms and conditions of a possible agreement pursuant to which Accordant
would market and promote the Program to, and perform the Program for the
benefit of, the number and type of Customers to and for whom CHSI reasonably
anticipates the Prospective Licensee would promote, market and perform the
Program.  It is understood and agreed that if no agreement is reached between
CHSI and Accordant during such sixty (60) day period, CHSI shall thereafter
be free to enter negotiations with and grant a license to the Prospective
Licensee to promote, market and perform the Program.

          3.3   Payment to CHSI

   As consideration for the rights granted under this Agreement, Accordant
shall remit to CHSI within thirty (30) days after the end of each calendar
quarter during the Initial Term of this Agreement or any renewal thereof an
amount equal to the thirty percent (30%) of the Net Profits earned in such
calendar quarter, together with a written statement certified by the Chief
Financial Officer of Accordant detailing the calculation of Net Profits in
the preceding calendar quarter and in the year-to-date.

          3.4   Subcontract of Service 

  At the request of CHSI from time to time during the term of this Agreement
and thereafter as contemplated by Section 8.3(b), Accordant, as a
subcontractor to CHSI, shall provide all case management, administrative and
other services necessary to enable CHSI to perform the Program for the
benefit of its Customers, hospital partners and other third parties.  At such
time(s) as CHSI requests Accordant to act as subcontractor to CHSI under this
Section 3.4, CHSI shall allow Accordant such period of time as may be
reasonably necessary under the circumstances to hire additional staff and/or
take such other steps as may be reasonably necessary under the circumstances
to accommodate CHSI's request.  In consideration thereof, CHSI shall pay to
Accordant on a calendar quarterly basis an amount equal to the sum of the (i)
Direct Labor, (ii) Direct Materials and Costs and (iii) Accordant overhead
(which is deemed to be equal to 10% of the sum of (i) and (ii)) incurred by
Accordant in providing such services to or for the benefit of CHSI.  No
element of overhead shall be included in Direct Labor.

                                       9
<PAGE>

          3.5   Access to Accounting Books and Statements.

   All calculations of Net Profits, and any and all other calculations
affecting any amounts due to or from CHSI hereunder, shall be final only upon
the review, verification and approval of such calculations (and the
underlying financials of Accordant) by CHSI, or upon CHSI's failure to notify
Accordant of any objection thereto (other than an objection based on fraud)
within one (1) year after receipt of any report covering such calculations.
For this purpose, CHSI shall have reasonable access to all quarterly and
annual financial reports and any other financial information that CHSI may
reasonably request to review.

          4.    REPRESENTATIONS AND WARRANTIES OF ACCORDANT AND CHSI

          4.1    Mutual Rerpresentations and Warranties.

  Each of CHSI and Accordant represents and warrants to the other that:

                  (a)   it is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation, with
all requisite corporate power and authority to consummate the transactions
contemplated hereunder;

                  (b)   the execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate action;

                  (c)   this Agreement has been duly executed and delivered
and constitutes a valid and legally binding agreement and obligation of such
party, enforceable against it in accordance with the terms hereof;

                  (d)   the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereunder do not and will not
conflict with or violate any provisions of law or the Certificate of
Incorporation or By-laws of such party, and do not and will not conflict with
or result in the breach of any condition or provision of, or constitute a
default under, or result in the creation or imposition of any lien upon any
of the property or assets of either party by reason of the terms of any
contract, mortgage, lien, lease, agreement, indenture, instrument or judgment
to which it is a party, or which is, or purports to be, binding upon it, or
which affects, or purports to affect, any of its properties or assets, and no
action by any governmental department, commission, board, bureau or
instrumentality is necessary to make this Agreement valid and binding upon
either of the parties hereto in accordance with its terms; and

                  (e)   it possesses all permits, licenses and other
governmental approvals necessary to perform its obligations hereunder and
will comply fully with the terms and conditions of all such permits, licenses
and other approvals and with all federal, state and local statutes and
regulations applicable to its facilities and the performance of its
obligations hereunder.

                                       10
<PAGE>

          4.3 Additional Representations, Warranties and Covenants of Accordant.
                         

 Accordant further represents, warrants and covenants to CHSI that:


                  (a)   the Program shall be developed in accordance in all
material respects with the Specifications, as they may change from time to
time (subject to Accordant's acceptance of such changes, such acceptance not
to be unreasonably withheld), and all applicable federal, state and local
laws, codes, ordinances, rules and regulations;

                  (b)   Accordant shall not use any third party in connection
with the development of the Program unless Accordant has entered into a
written agreement with such third party reasonably acceptable to CHSI by
which all of the intellectual property rights, including, without limitation,
all copyrights, patent rights, trademark rights, trade secret rights, and
know-how have been assigned to Accordant;

                  (c)   Accordant shall be the owner of all intellectual
property rights, including, without limitation, all copyrights, patent
rights, trademark rights, trade secret rights, and know-how in any
information, material, know-how, data or other contributions that Accordant
makes to the Program and Accordant has the right to make the assignment and
grant of rights to CHSI pursuant to Article 6 below; and

                  (d)   no royalty or other fees shall be due to any third
parties in order for CHSI to own the Program as provided herein.


          4.3   Additional Representations, Warranties and Covenants of CHSI.  

 CHSI further represents, warrants and covenants to Accordant that:s of CHSI

                  (a)   CHSI has the right to license Accordant to use the
CHSI Know-How in connection with the development and marketing of the Program
as provided herein; and

                  (b)   Accordant's use of the CHSI Know-How will not violate
any copyrights, patent rights, trademark rights, trade secret rights or
know-how of any third party.

          4.4  Continuing Nature of Representations and Warranties.

The representations and warranties contained herein shall be true and
correct as of the Effective Date and at all times during the term of this
Agreement or any extensions or renewals thereof as though continuously made.

                                       11
<PAGE>

    5.    INSURANCE

          5.1 Comprehensive General Liability and Other Insurance.

 Accordant shall maintain, at its own cost and expense, for the entire term
of this Agreement, and for three (3) years thereafter, (i) comprehensive
general liability insurance coverage for property damage, bodily injury or
death arising from the performance of its obligations and activities under
this Agreement and in providing the Program to its Customers, with a single
limit of $1,000,000 per occurrence, and (ii) coverage for errors and
omissions, with a single limit of $5,000,000 per occurence.  Accordant shall
at least annually during the term of this Agreement review the types and
limits of its insurance coverages and obtain such additional or increased
coverages as may be prudent and necessary to protect against liability from
the performance of its obligations and activities under this Agreement.

          5.2   Certificates of Insurance

 The policies of insurance required under this Article 5 shall be valid and
enforceable policies issued by insurers of recognized responsibility.
Accordant shall deliver to CHSI evidence of the insurance required by this
Article 5.

     6.    OWNERSHIP; GRANT OF LICENSE; PROTECTION OF INTELLECTUAL PROPERTY

          6.1   Ownership of Program 

  The Program, at each stage of its development, and upon Program
Completion, including any and all CHSI Know-How, as well as any and all other
technology, know-how, materials, processes or other technical information
that shall be developed by Accordant during the term of this Agreement and
that shall be used in connection with the development of the Program or that
shall be part of the Program ("Accordant Contributions") shall be owned by
CHSI, which shall have all rights pertaining thereto; provided that any and
all Accordant Know-How or Information owned by Accordant and incorporated
into the Program, or developed or used in the development of, or provided by
Accordant as part of, the Program that are not specific to the Program (the
"Accordant Background Technology") shall remain the sole and exclusive
property and confidential information of Accordant; provided further that
CHSI shall have a perpetual, fully paid, transferable, non-exclusive license,
with right to sublicense, to reproduce, distribute, display, perform and
modify, and create derivative works in connection with, the Accordant
Background Technology to the extent that such Accordant Background Technology
is included as part of, or is otherwise necessary to use, the Program, in any
media now or hereafter created; and provided further, that no license shall
be provided by Accordant for any off-the-shelf third party software
applications or tools used in connection with the Program which are readily
available to CHSI, with or without charge, upon termination of this
Agreement.  Accordant hereby acknowledges and agrees that all Accordant
Contributions other than Accordant Background Technology shall be "works made
for hire" within the meaning of the Copyright Act of 1976, as amended, and
shall be the exclusive property of CHSI.  To the extent that any Accordant
Contributions other than Accordant Background Technology do not vest in CHSI
as "works made for hire" or otherwise, Accordant hereby assigns and transfers
in whole to CHSI all right, title and interest in and to such Accordant
Contributions, including all copyrights, patent rights, trademark rights,
trade secret rights, know-how and any other intellectual property rights
therein.

                                       12
<PAGE>

          6.2   License to Accordant

 CHSI shall and does hereby grant to Accordant during the term of this
Agreement (i) the non-exclusive license to reproduce the CHSI Know-How in
connection with the development of the Program, and (ii) the non-exclusive
right to promote and market the Program and perform the Program for the
benefit of its Customers.  Accordant shall have no rights to sublicense the
Program.

          6.3   Protection of Program

 CHSI shall have the sole right (but not the obligation) to apply for and
to register the intellectual property rights in the Program, if any.
Accordant agrees to take all reasonable steps, at no cost to Accordant, to
assist CHSI in connection with such applications and registrations.

          6.4   Enforcement of Intellectual Property Rights

 Each party shall give the other party prompt notice of any infringement or
threatened infringement of the Program or any intellectual property rights
therein that may come to its attention.  CHSI shall have the sole right (but
not the obligation), at its own expense and sole discretion, to bring any
legal action against persons infringing or violating any rights in the
Program, and Accordant shall, at CHSI's request cooperate and join as a party
in any such action; provided, however, CHSI shall have full and complete
control over the filing, prosecution and settlement of such action.  Any
recovery from a proceeding attributable to infringement or violation by a
third party, whether by judgment or settlement, shall be the sole property of
CHSI.

                                       13
<PAGE>

      7.    CONFIDENTIALITY; NON-COMPETITION COVENANT

          7.1   Mutual Obligations of Confidentiality 

  Accordant and CHSI each hereby agrees to keep strictly confidential any
and all Information disclosed to or developed by the other in connection with
the transactions contemplated by this Agreement, including, without
limitation, any and all Information relating to the Program, CHSI Know-How,
Accordant Know-How and all such other information as the provider may
designate as confidential and/or proprietary.  Each of Accordant and CHSI
agrees that all Information shall remain the sole and absolute property of
the party disclosing the same, subject to the provisions in Article 6 of this
Agreement and consistent with CHSI's ownership of the Program and Accordant's
ownership of the Accordant Background Technology.  During the Initial Term,
or
any extensions or renewals thereof, the parties shall not use, disclose,
disseminate, publish, reproduce or otherwise make available any Information
to any person, firm, corporation or other entity, except for the purposes
contemplated hereby.  Following expiration or termination of this Agreement,
neither party shall use, disclose, disseminate, publish, reproduce or
otherwise make available any Information to any person, firm, corporation or
other entity, subject to the provisions in Article 6 of this Agreement and
consistent with CHSI's ownership of the Program and Accordant's ownership of
the Accordant Background Technology.  Upon expiration or termination of this
Agreement, each of Accordant and CHSI shall, subject to the provisions in
Article 6 of this Agreement and consistent with CHSI's ownership of the
Program and Accordant's ownership of the Accordant Background Technology,
return to the other all records and any compositions, articles, devices,
equipment and other items which disclose or embody any Information, including
all copies or specimens thereof, in such party's possession, whether prepared
by such party or by others, except for such records and other items which
CHSI or Accordant, as the case may be, is required to retain in accordance
with applicable law.  CHSI and Accordant each further agrees to cause its
respective Affiliates to comply with these provisions in the same manner as
if each of them were a party hereto.

          7.2   Exceptions

 The covenant of confidentiality set forth in Section 7.1 shall not apply
to:  (i) any Information in the public domain prior to the Effective Date;
(ii) any Information that may fall into the public domain subsequent to the
Effective Date through no fault of the recipient thereof; (iii) any
Information that was in the possession of the recipient prior to the
disclosure by the other party hereto; (iv) any Information that is obtained
from a third person not a party to this Agreement and who has a right to
disclose the same; (v) any Information required by law to be disclosed; or
(vi) any Information the recipient is otherwise permitted to disclose under
the terms of this Agreement.

          7.3   Non-Competition Covenant of Accordant

  Accordant covenants, agrees and warrants that, in consideration of the
agreements set forth herein, except for the extent necessary to perform its
obligations under Section 3.4, for a period beginning on the Effective Date
and expiring on the date which is two (2) years after the date of
termination, expiration or non-renewal of this Agreement, Accordant shall
not, directly or indirectly, in any area where the Program is promoted,
marketed or sold by or on behalf of CHSI or any of its designees (including
Accordant) engage in the promotion, marketing or sale of any product or
program that shall compete directly with the Program.  Further, Accordant
shall not, directly or indirectly, during the term of this Agreement, or for
two (2) years thereafter, develop or assist in the development of any program
of treatment and management of chronic non-healing wounds.  Accordant further
agrees to use its best efforts to cause its Affiliates to comply with these
provisions in the same manner as if each of them were a party hereto.

                                       14
<PAGE>

          7.4   Non-Competition Covenant of CHSI

  CHSI covenants, agrees and warrants that, in consideration of the
agreements set forth herein, for a period beginning on the Effective Date and
expiring on the date which is two (2) years after the date of termination,
expiration or non-renewal of this Agreement, CHSI shall not, directly or
indirectly, offer or sell to Customers any other comprehensive case
management programs for the disease states listed on Schedule 1 attached
hereto.

          7.5   Non-Solicitation

  Each of Accordant and CHSI covenants, agrees and warrants that, in
consideration of the agreements set forth herein, for a period beginning on
the Effective Date and expiring on the date which is two (2) years after the
termination, expiration or non-renewal of this Agreement, except as
contemplated by Section 8.3 hereof, neither party shall, directly or
indirectly, solicit or induce any present or future employee of the other
party to leave the employment of such other party for any reason or hire any
such employee.

          7.6   Enforcement 

  CHSI and Accordant each agrees that the provisions of this Article 7 are
necessary and reasonable to protect the other (or any other entity which
succeeds, in whole or in part, to such other party), in the conduct of its
business.  Each party acknowledges that the damages at law may be an
inadequate remedy for the breach of any of the covenants contained in this
Article 7 and, accordingly, in addition to any other remedies to which such
party would be otherwise entitled, such party shall be entitled to injunctive
relief for breach by the other party of any of the provisions contained
herein.  If any provision of the time period or geographic area of the
non-competition restriction contained herein shall be deemed to exceed the
maximum time period or geographic area which a court of competent
jurisdiction would deem permissible, then the time period or geographic area,
as the case may be, shall for the purposes of this Agreement be deemed to be
the maximum time period or geographic area which a court of competent
jurisdiction would deem valid and enforceable.

    8.    TERM AND TERMINATION

          8.1   Term

  The term of this Agreement shall commence on the Effective Date and shall
continue through the Initial Term.  Thereafter, this Agreement shall be
automatically renewed for additional terms of one (1) year each, unless
either CHSI or Accordant shall notify the other party, not less than six (6)
months prior to the next renewal date of this Agreement, of its intention not
to renew it.


          8.2   Rights of Termination

 This Agreement may not be terminated by either party during the Initial
Term or renewal thereof except as follows:   (a) either party may terminate
the Agreement immediately, at any time during the Initial Term or thereafter,
in the event of a material breach of this Agreement and
such breach shall continue for a period of at least thirty (30) days
following written notice thereof; (b) CHSI may terminate this Agreement
immediately, at any time during the Initial Term or thereafter, in the event
of a Change of Control of Accordant; and (c) CHSI may terminate this
Agreement upon not less than six (6) months prior written notice given at any
time on or after the second anniversary of the Effective Date.

                                       15
<PAGE>

          8.3   Termination by Either Party

 In the event of any termination or non-renewal of this Agreement:

                  (a)   at the request of CHSI, Accordant shall make
available for hire by CHSI all case managers employed by Accordant whose
primary responsibilities are chronic non-healing wound care.  In addition,
for a period of six (6) months after the termination or non-renewal of this
Agreement, at CHSI's request, Accordant shall make available its project
manager for the Program as a leased employee to CHSI in consideration for
which CHSI shall reimburse Accordant for all salary and out-of-pocket benefit
costs for such project manager during such period;

                  (b)   at the request of CHSI, Accordant shall assign to
CHSI, and CHSI shall assume and perform, Accordant's rights and obligations
under its contracts with its Customers for the Program applicable to the
period commencing on the effective date of such termination or non-renewal,
unless Accordant and such Customers have agreed to terminate such contracts;
provided, however, Accordant shall take no action to terminate any such
contracts without first obtaining CHSI's prior written approval which may be
withheld by CHSI in its sole and absolute discretion.  CHSI shall have the
right to subcontract with Accordant pursuant to Section 3.4 for the remaining
term of such Customer contracts.  Accordant shall and does hereby indemnify
and hold harmless CHSI against Losses arising from or relating to Accordant's
performance of such Customer contracts during the period prior to the date of
such termination or non-renewal;

                  (c)   except as otherwise required for Accordant to fulfill
its obligations under Section 3.4, Accordant shall immediately discontinue
all promotion, marketing and performance of the Program and shall return all
CHSI Know-How to CHSI; and

                  (d)   within fifteen (15) days following the termination of
this Agreement, Accordant shall deliver to CHSI one complete copy of the
current Program (including source code, executables and all files necessary
to generate executables from source code) on appropriate computer-readable
media along with any other documentation, reports, databases, tables, and any
other materials included as part of, or as are otherwise necessary for CHSI
to use, the Program without further expense after termination of this
Agreement in the same manner as
Accordant used the Program during the term of this Agreement; provided that
Accordant shall not have an obligation to provide CHSI with off-the-shelf
third party software or tools used in connection with the Program which are
readily available to CHSI, with or without charge, upon termination of this
Agreement.

                                       16
<PAGE>

          8.4   Termination by CHSI

 (a)  In the event of any termination or non-renewal of this Agreement by
CHSI, other than pursuant to Section 8.2(a):

            (i)   CHSI shall pay to Accordant promptly following the
effective date of such termination or non-renewal an amount equal to the sum
of (X) the positive difference, if any, between the Development Cost, less
the aggregate Net Profits earned and retained by Accordant during the term of
this Agreement (i.e., Net Profits less all payments made to CHSI pursuant to
Section 3.3 hereof), plus (Y) an amount equal to the Adjusted Fair Market
Value of the Program determined in accordance with Section 8.6.  For purposes
of calculating Net Profits earned by Accordant under clause (X) of this
Section 8.4(a)(i), no deduction from Net Sales shall be made for all or any
part of the Development Cost; and

            (ii)  at such time as CHSI has the operational capability to
perform the Program for the benefit of its Customers (CHSI being under no
obligation to do so), CHSI and Accordant shall negotiate in good faith the
terms and conditions of a possible agreement pursuant to which (X) Accordant
would be granted the license to market the Program to its Customers, (Y) CHSI
would act as subcontractor for Accordant in performing the Program for the
benefit of such Customers, and (Z) Accordant would pay to CHSI a fair royalty
for the rights contemplated in clause (X) and compensation computed in the
manner described in Section 3.4 for CHSI's services contemplated in clause
(Y).

                  (b)   In the event of any termination of this Agreement by
CHSI pursuant to Section 8.2(a) due to the failure of Accordant to meet the
requirements of clause (xii) of Section 2.1(b), CHSI shall pay to Accordant
promptly following the effective date of such termination an amount equal to
one-half of the Development Cost.  In the event of any termination by CHSI
pursuant to Section 8.2(a) for any other reason, CHSI shall have no further
liability or obligation to Accordant hereunder.

                                       17
<PAGE>

          8.5   Termination by Accordant

 In the event of termination of this Agreement by Accordant pursuant to
Section 8.2(a), CHSI shall pay to Accordant promptly following the effective
date of such termination the amount calculated in the manner specified in
Section 8.4(a)(i).

          8.6   Adjusted Fair Market Value

                  (a)   Adjusted Fair Market Value shall be the fair market
value of the Program determined in accordance with this Section 8.6 as of the
date of either party's notice of termination or non-renewal which triggers a
payment obligation under Section 8.4(a)(i) or Section 8.5.  In connection
with such notice of termination or non-renewal, CHSI shall give notice to
Accordant of the amount which it in good faith believes to be the Adjusted
Fair Market Value of the Program ("Proposed Adjusted Fair Market Value").

                  (b)   Accordant shall have thirty (30) days after receiving
such notice within which to accept or reject such Proposed Adjusted Fair
Market Value as the Adjusted Fair Market Value.  If Accordant shall fail to
give such notice timely, then Accordant shall be deemed to have accepted such
Proposed Adjusted Fair Market Value as conclusively determining the Adjusted
Fair Market Value.

                  (c)   If Accordant shall reject such Proposed Adjusted Fair
Market Value, then such rejection shall be accompanied by a Proposed Adjusted
Fair Market Value proposed by Accordant and by the names of at least three
nationally recognized investment banking firms having substantial expertise
in the health case industry, reasonably acceptable to CHSI, any of which
Accordant is prepared to have determine the Adjusted Fair Market Value of the
Program.  Within thirty (30) days thereafter CHSI shall either accept the
Proposed Adjusted Fair Market Value proposed by Accordant or select one of
the investment banking firms proposed by Accordant (the "Investment Banking
Firm") and shall retain the same to determine the Adjusted Fair Market Value
of the Program.

                  (d)   In determining the Adjusted Fair Market Value, the
Investment Banking Firm shall value the Program as a separate element of
Accordant's business based on the price a willing buyer would pay Accordant
on an arms length basis to acquire from Accordant the rights in the Program
granted to Accordant on the terms and subject to the conditions set forth in
this Agreement, but assuming that Accordant's rights under this Agreement
could not be terminated by CHSI pursuant to Sections 8.1, 8.2(b) or 8.2(c).
In the event the Adjusted Fair Market Value is determined as a result of a
Change of Control of Accordant pursuant to Section 8.2(b), the Investment
Banking Firm shall not take into account any effect that the Change of
Control transaction might have on Adjusted Fair Market Value.  Except for the
foregoing, the Investment Banking Firm may base its determination on any and
all facts and factors which in good faith it deems appropriate.

                                       18
<PAGE>

                  (e)   Accordant shall render all reasonable cooperation to
the Investment Banking Firm upon its request and shall provide it with all
books, records, documents and other information reasonably available and
which it reasonably requests.

                  (f)   The parties will jointly instruct the Investment
Banking Firm to make its determination of Adjusted Fair Market Value within
thirty (30) days following the request.  Such determination or any earlier
determination pursuant to Section 8.6(b) hereof (the earlier of which is the
"Determination") shall be final and binding upon all parties hereto.
                  (g)   The Investment Banking Firm shall not be liable for
any action taken or omitted in connection with such determination except
those taken or omitted in bad faith, recklessly or in a grossly negligent
manner.

                  (h)   If the Investment Banking Firm's Determination shall
be less than, or not more than 110% of, the Proposed Adjusted Fair Market
Value proposed by CHSI, then the fees and expenses of the Investment Banking
Firm in making the Determination shall be paid by Accordant, otherwise they
shall be paid by CHSI.  All amounts needed to be advanced in connection with
and prior to the Determination shall be advanced by CHSI, subject to
reimbursement from Accordant as provided above.

          8.7   Survival 

 In the event of termination, expiration or non-renewal of this Agreement,
all of the terms and conditions set forth in Section 3.4 and Articles 4, 6,
7, 8, 9 and 10 of this Agreement shall survive.

    9.    INDEMNIFICATION

          9.1   Mutual Obligations to Indemnify

  Accordant and CHSI each agrees to indemnify, defend and hold harmless the
other party and its Affiliates, the respective directors, officers, partners,
agents and employees of such other party and its affiliates and each other
person, if any, controlling such other party or any of its affiliates
(collectively, the "Indemnified Persons"), to the full extent lawful, (i)
from and against all Losses which are caused by actions taken or omitted to
be taken (including any untrue statements made or any statements omitted to
be made) by the Indemnifying Party or its agents and employees pursuant to
this Agreement; (ii) a breach of any representations, warranties or covenants
of such party contained in this Agreement; and (iii) any failure of such
party to fulfill its obligations under this Agreement.  The Indemnifying
Party will not be responsible, however, to indemnify for any Losses pursuant
to the preceding sentence which result from the bad faith or negligence of
the person or entity seeking indemnification hereunder.

                                       19
<PAGE>

          9.2   Claims Procedure

 Each person or entity seeking indemnification hereunder shall promptly
notify the Indemnifying Party of any Loss for which the Indemnifying Party
may become liable hereunder and shall
permit the Indemnifying Party a reasonable opportunity to cure any underlying
problem, to mitigate actual or potential damages, and to participate in, or
assume the defense of, any third party claim or action.  In the event that
the Indemnifying Party chooses to assume the defense of any third party claim
or action, the Indemnifying Party shall provide the Indemnified Persons with
notice of the progress of such defense.  The Indemnifying Party further
agrees that it will not, without the prior written consent of the Indemnified
Persons, which consent shall not be unreasonably withheld or delayed, settle
or compromise or consent to the entry of any judgment or award in any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder.

          9.3   Rights Cumulative

 The rights hereunder shall be in addition to any rights that Accordant,
CHSI or any other indemnified person may have at common law or otherwise,
including, but not limited to, any right to contribution.

   10.    MISCELLANEOUS

          10.1  Access to Operations

 CHSI and Accordant each agrees to provide authorized officers, employees,
agents and representatives of the other with reasonable access to information
and records relating to the development and marketing of the Program.
Accordant shall permit CHSI to perform (not more frequently than once per
year, unless otherwise required by law) reasonable reviews and audits of the
development process for the Program, and Accordant shall permit authorized
persons from CHSI to participate in studies and research and development in
respect of the Program as reasonably requested by CHSI.  Nothing herein shall
require either party to disclose information or provide access to its
operations for purposes reasonably deemed by such party to be unrelated to
this Agreement.

          10.2  Further Assurances

 Each of the parties hereto agrees to execute such instruments and take
such further action, if any, as may be reasonably requested by the other
party in order to assure such requesting party of the rights and benefits
intended by this Agreement, it being understood that the expense of any such
action shall be borne by the party requesting the same.

          10.3  Relationship

 The relationship between the parties established by this Agreement is
solely that of independent contractors.  Neither party is in any way the
legal representative, partner or agent of the other, nor is either party
authorized or empowered to create or assume any obligation of any kind,
implied or expressed, on behalf of the other party, without the express prior
written consent of the other.

                                       20
<PAGE>

          10.4  Entire Agreement

 This Agreement constitutes the entire agreement between the parties hereto
relating to the subject matter hereof, there
being no prior written or oral promises or representations not incorporated
herein.  No amendments or modifications of the terms of this Agreement shall
be binding upon either party unless in writing signed by both parties.

          10.5  Assignability; Binding Nature 

 The rights and obligations of each party hereunder may not be assigned
without the written consent of the other party; provided, however, that
either party may assign this Agreement to a parent, wholly-owned subsidiary
or other affiliated company or purchaser of all or substantially all of the
assets or capital stock of such party without the written consent of the
other, subject to CHSI's rights of termination under Section 8.2(b).  In the
event of any permitted assignment hereunder, the assignor shall not be
released from its liabilities and obligations under this Agreement, unless
otherwise agreed by the non-assigning party.  This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

          10.6  Waiver

 Neither the waiver by either party hereto of any breach of or default
under any of the provisions of this Agreement, nor the failure of either of
the parties to enforce any of the provisions of this Agreement or to exercise
any right hereunder, shall be construed as a waiver of any subsequent breach
or defaults or as a waiver of any such rights or provisions hereunder.

          10.7  Severability

 If any part of this Agreement shall be held to be invalid or
unenforceable under applicable law, such part shall be ineffective to the
extent of such invalidity or unenforceable only, without in any way affecting
the remaining parts of this Agreement.

          10.8  Governing Law 

  This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of laws principles.

          10.9  Enforceability

  It is the explicit intent of the parties hereto that no person or entity
other than the parties hereto is or shall be entitled to bring any action to
enforce any provision of this Agreement against either of the parties hereto.

          10.10 Headings

 The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.

                                       21
<PAGE>

          10.11 Notices

  Any notices or other communications required or permitted hereunder will
be deemed given if sent by certified mail, return receipt requested,
facsimile with confirmation by certified mail, return receipt requested,
postage paid, or if personally delivered addressed as follows, or to such
other address as any party shall designate by notice duly given hereunder:

      If to Accordant to:           Accordant Health Services, Inc.
                                    5509-A West Friendly Avenue, Suite 101
                                    Greensboro, North Carolina 27410
                                    Attn:  Steve Schelhammer, President
                                    Facsimile No.:  (336) 852-7413

      With a copy to:               Wyrick Robbins Yates & Ponton LLP
                                    4101 Lake Boone Trail, Suite 300
                                    Raleigh, North Carolina 27609
                                    Attn:  J. Christopher Lynch, Esq.
                                    Facsimile No.:  (919) 781-4865

      If to CHSI to:                Curative Health Services, Inc.
                                    150 Motor Parkway
                                    Hauppauge, New York 11788
                                    Attn: John Vakoutis, President
                                    Facsimile No.: (516) 233-8102

      With a copy to:               Dorsey & Whitney LLP
                                    250 Park Avenue
                                    New York, New York 10177
                                    Attn: Robert J. Dwyer, Jr., Esq.
                                    Facsimile No.:   (212) 953-7201

          10.12 Force Majeure

  Any prevention of or delay in either party's performance hereunder due to
labor disputes, acts of God, governmental restrictions, enemy or hostile
governmental action, fire or other casualty or other causes beyond such
party's control shall excuse such party's performance of its obligations
hereunder for a period equal the duration of any such prevention or delay;
provided, however, that CHSI shall have the absolute right to contract with a
third party for the development of the Program if any such event causes an
interruption in Accordant's ability to perform hereunder for a period in
excess of sixty (60) days.

          10.13 Arbitration

 Any controversy or claim arising out of or relating to this Agreement or
the transactions contemplated hereby, or the breach hereof or thereof, shall
be finally settled by arbitration in Wilmington, Delaware, in accordance with
the Rules of the American Arbitration Association by an arbitrator appointed
in accordance with such Rules.  The arbitrator shall follow the law governing
this Agreement.  Judgment upon the award may be entered in any court having
jurisdiction.

          10.14 Counterparts

 This Agreement may be executed in one or more counterparts, each of which
will be considered one and the same agreement.

      IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.

                                       CURATIVE HEALTH SERVICES, INC.


                                    By:/s/John Vakoutis
                                       -------------------
                                          John Vakoutis
                                    Its:  President & CEO


                                       ACCORDANT HEALTH SERVICES, INC.

                                    By:/s/Steven K. Schelhammer
                                       -------------------------
                                          Steven K. Schelhammer 
                                    Its:  President & CEO


                                       22
<PAGE>

                                Schedule 1
                      Disease States For Which Accordant
                     Provides Disease Management Services


Gauchers Diseases
Cystic Fibrosis
Sickle Cell Anemia
Hemophilia
Parkinson's Disease
ALS
Multiple Sclerosis
Myasthenia Gravis
Systemic Lupus Erythematosus
Systemic Sclerosis
Dermatamyositis
Polymyositis
Rheumatoid Arthritis

<PAGE>
                                                                   Exhibit 10.23
ACCORDANT HEALTH SERVICES, INC.                        


-------------------------------------------


SERIES C PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------



May 19, 1998




ACCORDANT HEALTH SERVICES, INC.
-------------------------------------------


SERIES C PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------


                                       1
<PAGE>


Table of Contents


Page
       1.Authorization and Sale of Series C Preferred Stock.

      1.1   Authorization
      1.2   Sale
      1.3   Additional Sales

   2. Closing; Delivery.

      2.1   Closings
      2.2   Delivery

   3. Representations and Warranties of the Company

      3.1         Organization and Standing
      3.2         Capitalization
      3.3         Subsidiaries
      3.4         Corporate Power; Authorization
      3.5         Validity of the Shares
      3.6         Financial Statements; Business Plan
      3.7         Changes
      3.8         Material Agreements
      3.9         Title to Properties and Assets
      3.10        Insurance
      3.11        Related Party Transactions
      3.12        Employees
      3.13        Compliance with Law and Other Instruments
      3.14        Litigation
      3.15        Patents and Trademarks
      3.16        Taxes
      3.17        Registration Rights
      3.18        Voting Agreements
      3.19        Governmental Consents
      3.20        Offering
      3.21        Finders' Fees
      3.22        Qualified Small Business
      3.23        Minute Books
      3.24        Real Property Holding Corporation
      3.25        Disclosure
      3.26        Licenses: Permits
      3.27        Liabilities

                                       2
<PAGE>

   4. Representations and Warranties of the Purchasers

      4.1         Power and Authority
      4.2         Due Execution
      4.3         Investment Representations
      4.4         No Public Market
      4.5         Government Consents
      4.6         Finders' Fees

   5. Conditions to Purchasers' Obligations at Closing

      5.1         Representations and Warranties
      5.2         Performance
      5.3         Qualifications
      5.4         Certificate
      5.5         Opinion of the Company's Counsel
      5.6         Proceedings and Documents
      5.7         Investor Rights Agreement
      5.8         Board of Directors
      5.9         Compliance Certificate
      5.10        Minimum Purchase
      5.11  Secretary's Certificate
      5.12  Certificate of Good Standing
      5.13  Stock Sale Agreement
      6.    Conditions to the Company's Obligations at Closing
      6.1   Representations and Warranties
      6.2   Performance
      6.3   Qualifications
      6.4   Certificate
      6.5   Investor Rights Agreement
      6.6   Minimum Purchase
      6.7   Stock Sale Agreement
      7     Covenants of the Company.
      7.1   Use of Proceeds.
      7.2   Meetings of Board of Directors.
      7.3   Indemnification.
      8.    Miscellaneous
      8.1   Entire Agreement
      8.2   Governing Law
      8.3   Counterparts
      8.4   Headings
      8.5   Notices.
      8.6   Survival
      8.7   Severability
      8.8   Delays or Omissions
      8.9   California Corporate Securities Laws
      8.10  Amendments and Waivers
      8.11  Expenses

      EXHIBITS:
      A     SCHEDULE OF PURCHASERS
      B     CERTIFICATE OF INCORPORATION
      C     SCHEDULE OF EXCEPTIONS
      D     INVESTOR RIGHTS AGREEMENT
      E     FORM OF OPINION OF COUNSEL FOR THE COMPANY
      F     FORM OF EMPLOYEE NONDISCLOSURE AND DEVELOPMENTS AGREEMENT
      G     FORM OF STOCK SALE AGREEMENT
      H     LIST OF STOCKHOLDERS

                                       3
<PAGE>

ACCORDANT HEALTH SERVICES, INC.
-------------------------------------------

SERIES C PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------


This Series C Preferred  Stock Purchase  Agreement (the  "Agreement") is entered
into as of the 19th  day of May 1998 by and  among  Accordant  Health  Services,
Inc.,  a Delaware  corporation  (the  "Company"),  and each of the  persons  and
entities  listed on the Schedule of Purchasers  attached hereto as Exhibit A and
incorporated herein by reference  (hereinafter  collectively  referred to as the
"Original Purchasers" and each individually as an "Original Purchaser"), and any
additional investor named in any amendment to Exhibit A that becomes a signatory
hereto on or  before  July 31,  1998 (the  "Final  Closing  Date")  (hereinafter
collectively referred to as the "Additional Purchasers" and each individually as
an "Additional  Purchaser").  The Original Purchasers and Additional  Purchasers
are  hereinafter   collectively   referred  to  as  the  "Purchasers"  and  each
individually as a "Purchaser."

NOW,  THEREFORE,  in  consideration  of the  mutual  promises,  representations,
warranties, covenants and conditions set forth in this Agreement, the parties to
this Agreement mutually agree as follows:

   1.        Authorization and Sale of Series C Preferred Stock.


           1.1  Authorization.  The Company has authorized the issuance and sale
      of up to an aggregate of 1,400,000 shares of its Series C Preferred Stock,
      $.001 par value (the "Shares"), having the rights, preferences, privileges
      and  restrictions  set  forth  in  the  Company's   Amended  and  Restated
      Certificate  of  Incorporation,  a copy of which  is  attached  hereto  as
      Exhibit B (the "Certificate").

           1.2 Sale. Subject to the terms and conditions of this Agreement,  the
      Purchasers  agree to purchase from the Company,  and the Company agrees to
      sell and issue to each Purchaser,  the number of Shares specified opposite
      such  Purchaser's name on the Schedule of Purchasers at the purchase price
      of  $5.00  per  Share.  The  sale of the  Shares  to each  Purchaser  will
      constitute a separate sale hereunder.

           1.3 Additional  Sales. At any Subsequent  Closing (as defined below),
      the Company may sell the Shares not sold in previous  Closings (as defined
      below)  to any  Additional  Purchaser,  at a price  of  $5.00  per  Share;
      provided  (i)  that  such  Additional   Purchaser  executes  and  delivers
      signature  pages to this  Agreement,  the  Investor  Rights  Agreement  in
      substantially   the  form  attached  hereto  as  Exhibit  D  (the  "Rights
      Agreement")  and the  Stock  Sale  Agreement  in  substantially  the  form
      attached  hereto as Exhibit G (the "Stock Sale  Agreement") not later than
      the Final  Closing Date and (ii) that the total number of shares of Series
      C  Preferred  Stock  sold at all  Closings  hereunder  shall not exceed an
      aggregate of 1,400,000.

        2.  Closing; Delivery

          2.1 Closings.  The initial  closing of the purchase and sale of Shares
      under this Agreement to the Original  Purchasers  (the "Initial  Closing")
      shall  take  place at 1:00 p.m.  (EDT) on May __,  1998 at the  offices of
      Wyrick  Robbins  Yates & Ponton  LLP,  4101 Lake Boone  Trail,  Suite 300,
      Raleigh,  North  Carolina  27607,  or at such  other time and place as the
      Company and the Original  Purchasers may agree. The closing or closings of
      the  purchase and sale of Shares  under this  Agreement to the  Additional
      Purchasers (the "Subsequent  Closings") shall take place at any time on or
      before the Final Closing Date.  Notwithstanding the foregoing, the Company
      shall reserve a

                                       5
<PAGE>


      total  of  400,000  Shares  not sold in the  Initial  Closing  (the  "CHSI
      Additional  Shares") for sale to Curative Health Services,  Inc.  (CHSI"),
      and CHSI shall  purchase  such CHSI  Additional  Shares,  as follows:  the
      Company shall issue and sell, and CHSI shall purchase from the Company,
      200,000
      Shares on each of November 1, 1998,  and May 1, 1999,  or at such  earlier
      times as the  Company  and CHSI  shall  agree  (each,  a "CHSI  Additional
      Closing").  For purpose of this Agreement, the term "Closing" includes the
      Initial  Closing and the Subsequent  Closing(s),  and the CHSI  Additional
      Closing as appropriate.

      2.2 Delivery. At the Closing,  subject to the terms and conditions hereof,
      the  Company  will  deliver  to  the  Purchasers  certificates,   in  such
      denominations  and  registered in such name or names as the Purchasers may
      designate  by  notice  to  the  Company,  representing  the  Shares  to be
      purchased  by the  Purchasers  from  the  Company,  dated  the date of the
      Closing,  against payment of the purchase price therefor by wire transfer,
      a check  or  checks  made  payable  to the  order of the  Company,  or any
      combination  of the  above or by such  other  means  as shall be  mutually
      agreeable to a majority-in-interest of the Purchasers and the Company.

   3. Representations  and  Warranties of the Company.  Subject to and except as
      disclosed by the Company in the Schedule of Exceptions  attached hereto as
      Exhibit  C  and  incorporated   herein  by  reference  (the  "Schedule  of
      Exceptions"),  the Company  represents  and warrants to each  Purchaser as
      follows.

           3.1  Organization  and Standing.  The Company is a  corporation  duly
      organized,  validly  existing,  and in good standing under the laws of the
      State of Delaware,  has all requisite corporate power and authority to own
      and operate its  properties and assets and to carry on its business as now
      conducted and as currently  proposed to be conducted.  The Company is duly
      qualified  and  authorized  to do business,  and is in good  standing as a
      foreign  corporation,  in the  State of  North  Carolina  and  each  other
      jurisdiction  where the failure to be so  qualified  would have a material
      adverse  effect  on its  business,  properties,  prospects,  or  financial
      condition.

           3.2  Capitalization.  The  authorized  capital  stock of the Company,
      immediately prior to the first Closing, will consist of:

                    (a) Preferred  Stock:  6,650,000  shares of Preferred Stock,
      $.001 par value,  1,818,332 shares of which have been designated  Series A
      Preferred  Stock  (the  "Series A  Stock"),  all of which are  issued  and
      outstanding and owned by the  stockholders set forth on Exhibit H attached
      hereto;  2,170,000 of which have been designated  Series B Preferred Stock
      (the  "Series  B  Stock"),  of  which  1,700,000  shares  are  issued  and
      outstanding  and 470,000 shares are reserved for issuance upon exercise of
      outstanding  warrants;  and 1,650,000 shares of which have been designated
      Series C Preferred Stock (the "Series C Stock"),  none of which are issued
      and  outstanding  and 1,400,000  shares of which are reserved for issuance
      pursuant to this Agreement; and
                    (b) Common Stock:  10,000,000 shares of Common Stock,  $.001
      par value, of which 1,024,854  shares are issued and outstanding and owned
      by the stockholders set forth on Exhibit H attached hereto.

All of the outstanding shares of Common Stock and Preferred Stock have been duly
authorized and validly issued,  are fully paid and nonassessable and were issued
in compliance with all applicable federal and state securities laws. The Company
has duly and validly  reserved (i) 6,650,000 shares of Common Stock for issuance
upon  conversion  of  Preferred  Stock,  (ii) 25,000  shares of Common Stock for
issuance  upon exercise of  outstanding  warrants,  and (iii) 850,000  shares of
Common  Stock for  issuance  under the  Company's  1995 Stock Plan,  under which
89,354  shares have been issued,  options to purchase  473,583  shares of Common
Stock are  outstanding  and 287,063  shares of Common  Stock are  available  for
future  issuance.  Except  for  the  foregoing  rights,  the  conversion  rights
associated  with the Preferred Stock and the rights created under this Agreement
and the Rights Agreement, there are no outstanding rights of first


                                       6
<PAGE>


refusal, preemptive rights or other rights, options, warrants, conversion rights
or  other  agreements,  either  directly  or  indirectly,  for the  purchase  or
acquisition from the Company of any shares of its capital stock.


          3.3  Subsidiaries.  The  Company  does not  currently  own or control,
      directly  or  indirectly,  any other  corporation,  association,  or other
      business entity. The Company is not, directly or indirectly, a participant
      in any joint venture or partnership.

          3.4  Corporate  Power;  Authorization.  The  Company  will have at the
      Closing all  requisite  legal and  corporate  power to execute and deliver
      this Agreement, the Rights Agreement and the Stock Sale Agreement, to sell
      and issue the Shares  hereunder,  to issue the Common Stock  issuable upon
      conversion of the Shares (the "Underlying  Common Stock") and to carry out
      and perform its obligations hereunder and thereunder. All corporate action
      on the part of the Company and its officers,  directors  and  stockholders
      necessary for the authorization, execution and delivery of this Agreement,
      the Rights Agreement and the Stock Sale Agreement,  the performance of all
      the Company's obligations hereunder and thereunder at the Closing, and the
      authorization,   issuance,  sale  and  delivery  of  the  Shares  and  the
      Underlying  Common  Stock  has been  taken  or will be taken  prior to the
      Closing.  This  Agreement,   the  Rights  Agreement  and  the  Stock  Sale
      Agreement,  when  executed  and  delivered  by the Company and the parties
      hereto and thereto, shall constitute valid and legally binding obligations
      of the Company enforceable in accordance with their terms,  subject to (i)
      laws  of  general   application   relating  to   bankruptcy,   insolvency,
      reorganization, moratorium and other laws of general application affecting
      enforcement of credits'  rights  generally,  (ii) rules and laws governing
      specific performance,  injunctive relief and other equitable remedies and,
      (iii) with  respect  to the  indemnification  agreements  set forth in the
      Rights  Agreement,  applicable  state  and  federal  securities  laws  and
      principles of public policy.

      3.5  Validity  of the  Shares.  The sale of the Shares and the  subsequent
      conversion of the Shares into the Underlying Common Stock are not and will
      not be subject to any preemptive rights,  rights of first refusal or other
      preferential  rights  that  have not been  waived,  and the  Shares,  when
      issued, sold and delivered in accordance with the terms of this Agreement,
      and the Underlying Common Stock, when issued upon conversion of the Shares
      in accordance with the Certificate, will be validly issued, fully paid and
      nonassessable  and will be free of any  liens or  encumbrances;  provided,
      however, that the Shares and the Underlying Common Stock may be subject to
      restrictions on transfer under state and/or federal  securities laws or as
      set forth herein or in the Stock Sale Agreement and the Rights Agreement.

       3.6 Financial  Statements;  Business  Plan.  The Company has delivered to
      each Purchaser its audited  financial  statements at December 31, 1997 and
      for the fiscal year then ended and its unaudited  financial  statements at
      and for the  three-month  period ended March 31, 1998  (collectively,  the
      "Financial  Statements").  The Financial Statements are true, complete and
      correct in all material  respects,  subject (in the case of the  unaudited
      statements)  to normal  year-end  adjustments,  and have been  prepared in
      accordance  with generally  accepted  accounting  principles  applied on a
      consistent basis throughout the periods  indicated and are consistent with
      each other.  The Financial  Statements  accurately  set out,  describe and
      fairly  present  the  financial  condition  and  operating  results of the
      Company as of the dates, and for the periods,  indicated therein,  subject
      (in  the  case of the  unaudited  statements)  to  normal  year-end  audit
      adjustments.  Except as set forth in the Financial Statements, the Company
      has no  liabilities,  contingent or otherwise,  other than (i) liabilities
      incurred in the ordinary course of business  subsequent to March 31, 1998,
      and (ii)  obligations  under  contracts  and  commitments  incurred in the
      ordinary  course of business and not  required  under  generally  accepted
      accounting principles to be reflected in the Financial Statements,  which,
      individually  or in the  aggregate,  are  not  material  to the  financial
      condition or operating  results of the Company.  The Company maintains and
      will  continue  to  maintain  a  system  of  accounting   established  and
      administered in accordance with generally accepted accounting principles.


                                       7
<PAGE>

      The Company  has  previously  delivered  to the  Purchasers  a copy of the
      Company's  Business  Plan (the  "Business  Plan").  As of the date hereof,
      except  as  otherwise  set  forth  in  the  Schedule  of  Exceptions,  the
      description  in the  business  Plan  of the  Company's  business  and  its
      business  plan,  taken as a whole,  is true and  correct  in all  material
      respects. All material assumptions and adjustments made in the preparation
      of  the  financial   projections  contained  in  the  Business  Plan  (the
      "Projections")   were   prepared  in  good  faith   based  on   reasonable
      assumptions,  and represent the  Company's  reasonable  estimate of future
      results  of  the  Company's  operations,   taken  as  a  whole,  based  on
      information  available  as of the  date of the  Business  Plan;  it  being
      recognized,  however, that such Projections do not constitute any warranty
      as to the Company's  future  performance  and that actual results may vary
      from projected results. Except as set forth in Schedule of Exceptions, the
      Projections  continue to represent  the Company's  reasonable  estimate of
      future  results of the Company's  operations,  taken as a whole,  based on
      information  currently available.  Except as otherwise set forth herein or
      in the Schedule of Exceptions,  the Company has no reason to believe,  and
      does not  believe on the date  hereof,  that the  assumptions  of fact and
      statements of opinion  contained in the Business  Plan,  taken as a whole,
      are unreasonable,  untrue or false, or omits to state any material fact or
      assumption necessary to make the same not misleading.

          3.7 Changes. To the Company's  knowledge,  since March 31, 1998, there
      has not been:

         (a) any  change in the  assets,  liabilities,  financial  condition  or
         operating  results of the Company from that  reflected in the Financial
         Statements, except changes, including operating losses, in the ordinary
         course of business  that have not been,  in the  aggregate,  materially
         adverse; (b) any damage, destruction or loss, whether or not covered by
         insurance,  materially and adversely affecting the business, properties
         or financial  condition  of the Company (as such  business is presently
         conducted  and as it is  proposed to be  conducted);  (c) any waiver or
         compromise  by the Company of a valuable  right of a material debt owed
         to it;  (d) any  satisfaction  or  discharge  of any  lien,  claim,  or
         encumbrance or payment of any obligation by the Company,  except in the
         ordinary  course of  business  and that  which is not  material  to the
         business,  properties  or  financial  condition of the Company (as such
         business is presently conducted and as it is proposed to be conducted);
         (e) any material change to a material  contract or arrangement by which
         the Company or any of its assets is bound or subject;  (f) any material
         change in any compensation arrangement or agreement with any
            key employee, officer, director or stockholder;
         (g) any sale,  assignment,  or  transfer  of any  patents,  trademarks,
         copyrights, trade secrets, or other material intangible assets; (h) any
         resignation  or  termination  of  employment  of any key officer of the
         Company;
            (i)  receipt of notice  that  there has been a loss of, or  material
         order  cancellation  by, any major  customer  of the  Company;  (j) any
         mortgage,  pledge,  transfer of a security interest in, or lien created
         by, the  Company  with  respect to any of its  material  properties  or
         assets, except liens for taxes not yet due or payable or liens incurred
         in the ordinary course of business; (k) any loans or guarantees made by
         the  Company  to or for the  benefit  of its  employees,  officers,  or
         directors,  or any  members  of their  immediate  families,  other than
         travel  advances and other advances made in the ordinary  course of its
         business;  (l) any  declaration,  setting  aside,  or  payment or other
         distribution  in respect of any of the Company's  capital stock, or any
         direct or indirect redemption, purchase, or other acquisition of any of
         such stock by the Company (other than repurchases of stock of employees
         and consultants  upon the termination of their employment or consulting
         relationship with the Company); or

         (m) to the  Company's  knowledge,  any other event or  condition of any
         character  that has  materially  and  adversely  affected the business,
         properties or financial condition of the Company.

                                       8
<PAGE>

      3.8 Material  Agreements.  The Schedule of Exceptions  contains a complete
      list of all of the following material agreements to which the Company is a
      party:  (a) all  contracts,  agreements  and  instruments  that  involve a
      commitment  by the  Company  in excess of $5,000;  (b) all stock  purchase
      agreements;  (C) all loan,  lease or debt  agreements in excess of $5,000;
      (d) all employment  agreements  with employees  (exclusive of the Employee
      Nondisclosure and Developments  Agreements that have been executed by each
      employee of the Company); and (e) all licenses of any patent, trade secret
      or  other  proprietary  right to or from the  Company  (collectively,  the
      "Material Agreements").  All the Material Agreements are valid and binding
      obligations  of the  Company,  in full  force and  effect in all  material
      respects.  The  Company is not in  material  default  and not aware of any
      material  default by another party,  either  pending or  threatened,  with
      respect to the Material  Agreements.  The Company is not a party to and is
      not bound by any  contract,  agreement,  instrument or  understanding,  or
      subject to any restriction under its Certificate or Bylaws, that adversely
      affects its business as presently conducted or as currently proposed to be
      conducted,  its properties or its financial  condition,  or that otherwise
      limit, restrict or adversely affect the ability of the Company to develop,
      market or sell its proposed products and services.

      3.9 Title to Properties  and Assets.  The Company has good and  marketable
      title to its properties and assets held at the date of Closing (except any
      properties and assets held under capitalized leases) and has good title to
      all its leasehold interests, in each case subject to no mortgage,  pledge,
      lien,  lease,  encumbrance  or charge,  other than (a) the lien of current
      taxes  not  yet  due  and  payable,  and  (b)  possible  minor  liens  and
      encumbrances  that  do not  in any  case,  either  individually  or in the
      aggregate,  materially  detract  from the  value of the  property  subject
      thereto or materially  impair the operations of the Company.  The tangible
      property and assets held under any material  lease by the Company are held
      by it under  leases that remain in force,  and there  exists no default or
      other  occurrence or condition that could result in a material  default or
      termination thereunder.

      3.10  Insurance.  The Company  has in full force and effect the  insurance
      policies  described  in the  Schedule  of  Exceptions,  which the  Company
      believes are sufficient in amount  (subject to reasonable  deductibles) to
      allow  it to  replace  any of its  properties  that  might be  damaged  or
      destroyed through fire, theft or casualty.

       3.11 Related Party Transactions.  Set forth on the Schedule of Exceptions
      is a schedule of (a) all of the material obligations of the Company to all
      officers, directors,  stockholders and employees of the Company, including
      any member of their  immediate  families  (other than normal accrued wages
      and benefits) and (b) all of the  obligations  of the Company's  officers,
      directors,  stockholders  and  employees,  including  any  member of their
      immediate  families  (other than  expense  advances  made in the  ordinary
      course of the  Company's  business)  to the  Company,  which  schedule  is
      complete  and  correct  in all  material  respects  as of the date of this
      Agreement.  To the best knowledge of the Company, none of such persons has
      any direct or indirect  ownership interest in any firm or corporation with
      which the Company is  affiliated  or with which the Company has a business
      relationship,  or any firm or corporation  that competes with the Company,
      except that employees,  officers,  consultants or directors of the Company
      and members of their  immediate  families may own stock in publicly traded
      companies  that may  compete  with the  Company.  Except  as set  forth on
      Exhibit C, no member of the immediate family of any officer or director of
      the Company is directly or indirectly  interested in any material contract
      with the Company.

      3.12 Employees. To the best of the Company's knowledge, no employee of the
      Company is obligated under any contract (including licenses,  covenants or
      commitments of any nature) or other

                                       9
<PAGE>

      agreement,  or  subject to any  judgment,  decree or order of any court or
      administrative  agency that would conflict with such employee's obligation
      to use his or her best efforts to promote the  interests of the Company or
      that  would  conflict  with the  Company's  business  as  conducted  or as
      proposed to be  conducted.  Neither  the  execution  nor  delivery of this
      Agreement,  nor the carrying on of the Company's business by the employees
      of the  Company,  nor the conduct of the  Company's  business as currently
      proposed,  will, to the best of the Company's knowledge,  conflict with or
      result  in a  breach  of  the  terms,  conditions  or  provisions  of,  or
      constitute a default under,
          any contract, covenant or instrument under which any of such employees
      is now obligated.  To the best of the Company's knowledge,  no employee or
      consultant  of the Company is in violation  of any term of any  employment
      contract, proprietary information and inventions agreement, noncompetition
      agreement or any other contract or agreement  relating to the relationship
      of any such  employee  or  consultant  with the  Company  or any  previous
      employer;  provided that the Company has not  undertaken  any  independent
      investigation of any consultants'  relationships with other employers.  To
      the best of the Company's  knowledge,  no officer of the Company,  nor any
      employee  (as  hereinafter   defined),   has  any  present   intention  of
      terminating  his or her  employment  with the Company.  The Company has no
      collective bargaining agreements with any of its employees and to the best
      of the Company's  knowledge  there is no  labor-union-organizing  activity
      pending or  threatened  with respect to the Company.  The Company does not
      have any employment contracts,  deferred compensation agreements or bonus,
      incentive or profit-sharing plans, severance agreements,  retirement plans
      or other employee compensation  arrangements either currently in effect or
      proposed. To the best of the Company's knowledge, the Company has complied
      in all  material  respects  with all  applicable  state and federal  equal
      opportunity  and other laws related to  employment.  Each  employee of the
      Company has executed,  or prior to the Closing will  execute,  an Employee
      Nondisclosure  and  Developments   Agreement  in  substantially  the  form
      attached  hereto as  Exhibit F, and no  exceptions  have been taken by any
      such  employee  to the terms of such  agreement.  Each  consultant  of the
      Company has executed,  or prior to the Closing will execute,  a consulting
      agreement  substantially  in the  form  or  forms  which  have  been  made
      available to the  Purchasers  and/or their legal counsel and which contain
      provisions regarding  confidentiality and assignment of developments,  and
      no exceptions  have been taken by any such consultant to the terms of such
      agreement. The Company, after reasonable investigation,  is not aware that
      any of its  employees or  consultants  are in violation  thereof,  and the
      Company  will use its  commercially  reasonable  efforts to  prevent  such
      violation.

      3.13  Compliance  with Law and  Other  InstrumentsCompliance  with Law and
      Other Instruments.  The Company has complied in all material respects with
      all laws,  rules,  regulations  and  orders  applicable  to its  business,
      operations, properties, assets, products and services, the Company has all
      material permits,  licenses and other  authorizations  required to conduct
      its business as conducted and as presently  proposed to be conducted,  and
      the Company has been  operating  its business  pursuant to and in material
      compliance  with  the  terms  of all  such  permits,  licenses  and  other
      authorizations.  There is no existing law, rule, regulation or order known
      to the  Company,  and the  Company  after due  inquiry is not aware of any
      proposed law, rule, regulation or order, whether federal, state, county or
      local,  that would  prohibit or restrict  the Company  from,  or otherwise
      materially adversely affect the Company in, conducting its business in any
      jurisdiction  in which it is now  conducting  its  business or in which it
      presently  proposes  to  conduct  its  business.  The  Company  is  not in
      violation of any provisions of the  Certificate or its Bylaws in effect on
      and as of the Closing,  or of any provision of any material  instrument or
      contract to which it is a party or any judgment,  decree or order by which
      it is bound or any statute,  rule or regulation applicable to the Company.
      The execution,  delivery and performance of this Agreement, the Stock Sale
      Agreement  and the  Rights  Agreement,  and the  issuance  and sale of the
      Shares  pursuant  hereto and the  Underlying  Common Stock pursuant to the
      Certificate,  will not  result  in any such  violation  or be in  material
      conflict with or constitute,  with or without passage of time or giving of
      notice,  a material  default  under any such  provisions  or result in the
      creation of any material  mortgage,  pledge,  lien,  encumbrance or charge
      upon any of the properties or assets of the Company.

                                       10
<PAGE>

       3.14 Litigation.  There is no action, proceeding or investigation pending
      or, to the best of the Company's knowledge after reasonable investigation,
      currently  threatened  against the Company or any of its properties before
      any  court or  governmental  agency  (or any basis  therefor  known to the
      Company). The foregoing includes, without limiting its generality, actions
      pending  or  threatened  (or any  basis  therefor  known  to the  Company)
      involving  the  prior  employment  of any of the  Company's  employees  or
      existing  or  prior  relationships  of  any  consultant  or  their  use in
      connection  with the Company's  business of any  information or techniques
      allegedly  proprietary to any of their former  employers or under prior or
      existing consulting  agreements.  The Company is not a party to or subject
      to any order, writ, injunction, judgment or decree of any court or
          governmental agency or instrumentality. There is no action, proceeding
      or  investigation  by the  Company  currently  pending or that the Company
      intends to initiate.

       3.15  Patents  and  Trademarks.  The  Company  has  sufficient  title and
      ownership of or is licensed under all patents, trademarks,  service marks,
      trade  names,  copyrights,  and all  registrations  and  applications  for
      registration of any of the foregoing, and all trade secrets,  information,
      inventions,   computer   programs   owned  or  licensed  by  the  Company,
      documentation,    proprietary   rights   and   processes    (collectively,
      "Intellectual  Property")  necessary for its business as now conducted and
      as currently proposed to be conducted without any conflict with or without
      infringement  of the  rights  of  others.  Set  forth on the  Schedule  of
      Exceptions is a true, correct and complete list of all patents and pending
      patent applications, all registered copyrights and copyright applications,
      all  registered  trademarks and trademark  applications,  and all material
      unregistered  copyrights and trademarks held by the Company.  There are no
      outstanding options,  licenses or agreements relating to the foregoing nor
      is the Company bound by or a party to any options,  licenses or agreements
      with  respect to the  patents,  trademarks,  service  marks,  trade names,
      copyrights, trade secrets, licenses,  information,  proprietary rights and
      processes of any other person or entity.  The Company has not received any
      communications  alleging  that the Company has violated or, by  conducting
      its  business as  currently  proposed,  would  violate any of the patents,
      trademarks,  service  marks,  trade names,  copyrights or trade secrets or
      other proprietary  rights of any other person or entity.  The Company does
      not believe it is or will be necessary to utilize any inventions of any of
      its employees (or people it currently intends to hire) made prior to their
      employment by the Company.

       3.16 Taxes.  The Company has  accurately  prepared  and timely  filed all
      United  States  income tax returns and all state and municipal tax returns
      that are required to be filed by it and has paid or made provision for the
      payment of all taxes that have become due  pursuant to such  returns.  The
      Company  believes  such  returns  are true  and  correct  in all  material
      respects. No deficiency assessment or proposed adjustment of the Company's
      United  States  income tax or state or municipal  taxes is pending and the
      Company has no knowledge of any liability or basis for liability as of the
      date hereof for any tax.

       3.17 Registration Rights. Except as provided in the Rights Agreement, the
      Company is not under any  obligation to register (as defined in the Rights
      Agreement)  any  of its  presently  outstanding  securities  or any of its
      securities that may hereafter be issued.

      3.18 Voting  Agreements.  Except as provided  in the  Certificate  and the
      Rights Agreement,  the Company has no agreement,  obligation or commitment
      with respect to the election of any individual or individuals to the Board
      of Directors,  and to the best of the Company's knowledge,  except for the
      Stockholders  Voting  Agreement of even date herewith,  there is no voting
      agreement or other  arrangement among its stockholders with respect to the
      election of any individual or individuals to the Board of Directors or for
      any other purpose.

      3.19   Governmental   Consents.   All  consents,   approvals,   orders  or
      authorization   of,  or   registrations,   qualifications,   designations,
      declarations or filings with, any federal or state governmental  authority
      on the part of the Company required in connection with the valid execution
      and delivery of this  Agreement,  the Stock Sale  Agreement and the Rights
      Agreement, the offer, sale or issuance

                                       12
<PAGE>

      of the Shares and the Underlying  Common Stock, or the consummation of any
      other transaction  contemplated  hereby or thereby have been obtained,  or
      will be obtained prior to the Closing,  except for notices  required to be
      filed with  certain  state and federal  securities  commissions  after the
      Closing, which notices will be filed on a timely basis.

       3.20  Offering.   Assuming  the  accuracy  of  the   representations  and
      warranties  of the  Purchasers  contained in Section 4 hereof,  the offer,
      issuance  and  sale  of the  Shares  are  and  will  be  exempt  from  the
      registration and prospectus delivery requirements of the Securities Act of
      1933, as amended (the "1933 Act"),  and have been  registered or qualified
      (or  are  exempt   from   registration   and   qualification)   under  the
      registration, permit or qualification requirements of all applicable state
      securities laws.

       3.21 Finders'  Fees.  The Company (i) represents and warrants that it has
      retained  no  finder  or  broker  in  connection  with  the   transactions
      contemplated  by this Agreement and (ii) hereby agrees to indemnify and to
      hold each Purchaser  harmless of and from any liability for any commission
      or  compensation  in the nature of a  finder's  fee to any broker or other
      person or firm (and the costs
          and  expenses  of  defending   against  such   liability  or  asserted
      liability)   for  which  the   Company   or  any  of  its   employees   or
      representatives is responsible.

      3.22 Qualified Small Business.  The Company represents and warrants to the
      Purchasers  that, at the Closing,  the Shares qualify as "Qualified  Small
      Business Stock" as defined in Section 1202(C) of the Internal Revenue Code
      of 1986,  as amended (the  "Code").  The Company  will use its  reasonable
      efforts to comply with the reporting  and  recordkeeping  requirements  of
      Section 1202 of the Code and any regulations promulgated  thereunder,  and
      agrees not to repurchase any stock of the Company if such repurchase would
      cause such Shares not to so qualify as "Qualified Small Business Stock."

      3.23 Minute  Books.  The minute books of the Company and its  subsidiaries
      made available to the Purchasers or their attorneys or agents,  upon their
      request,  contain a complete  summary of all  meetings  of  directors  and
      stockholders since the time of their respective incorporations.

      3.24 Real Property Holding Corporation. The Company is not a real property
      holding  corporation  within the meaning of Section  897(C)(2) of the Code
      and the regulations promulgated thereunder.

      3.25  Disclosure.  The Company has provided each Purchaser all information
      which the Company believes is reasonably necessary to enable the Purchaser
      to decide  whether to purchase  the  Shares.  This  Agreement,  the Rights
      Agreement,  the Stock Sale  Agreement,  and , the material  documents  and
      other agreements,  statements, schedules or certificates made or delivered
      in connection herewith or therewith do not, when taken as a whole, contain
      any untrue  statement of a material  fact or omit to state a material fact
      necessary to make the statements  contained herein or therein, in light of
      the  circumstances  in which they were made, not  misleading.  There is no
      fact within the  knowledge of the Company  which is  reasonably  likely to
      affect the  business,  properties  or  financial  condition of the Company
      materially and adversely which has not been disclosed herein or in writing
      to each Purchaser.

      3.26 Licenses; Permits. The Company has obtained all licenses, permits and
      franchises  and any  similar  authority  necessary  for the conduct of its
      business  as now being  conducted  by it  (including  without  limitation,
      licenses from the applicable health care regulatory authorities), the lack
      of which could affect the business,  properties or financial  condition of
      the Company materially and adversely.  The Company believes it can obtain,
      without undue burden or expense,  any similar authority for the conduct of
      its  business  as planned to be  conducted.  The Company is not in default
      under any of such licenses, permits, franchises or other similar authority
      which default could affect the business, properties or financial condition
      of the Company  materially  and  adversely.  All  employees of the Company
      required to be licensed by the applicable health care

                                       13
<PAGE>

      regulatory  authorities  have obtained the required  licenses and all such
      licenses  are in full  force and  effect  and have not been  suspended  or
      revoked.

      3.27 Liabilities. A schedule of liabilities for borrowed money, guaranties
      with respect  thereto and the present  value of all payments due under all
      capitalized  leases as of the  Closing is  included  as part of Exhibit C.
      Except  as set  forth  in  such  schedule,  the  Company  has no  material
      liabilities of any kind, either direct or indirect,  matured or unmatured,
      absolute or contingent, or otherwise, except specifically disclosed in any
      Exhibit  or  otherwise.  For  purposes  of  this  Section  3.27  the  term
      "liabilities" shall include,  without  limitation,  any direct or indirect
      indebtedness, guaranty, endorsement, claim, loss, damage deficiency, cost,
      expense,  obligation  and  responsibility  of the Company,  whether fixed,
      unfixed, secured or unsecured.

   4. Representations   and  Warranties  of  the  Purchasers.   Each  Purchaser,
      severally,  but not jointly, hereby represents and warrants to the Company
      as follows.

          4.1 Power and Authority.  It has the requisite  power and authority to
      enter into this  Agreement,  to purchase the Shares  subject to all of the
      terms of the Certificate  and hereunder,  and to carry out and perform its
      obligations under the terms of this Agreement.

      4.2 Due Execution. This Agreement, the Stock Sale Agreement and the Rights
      Agreement  have been duly  authorized,  executed and delivered by it, and,
      upon due execution and delivery by the Company, this Agreement,  the Stock
      Sale  Agreement  and the  Rights  Agreement  will be a valid  and  binding
      agreement of it,  subject to (i) laws of general  application  relating to
      bankruptcy,
          insolvency,  reorganization,  moratorium  and  other  laws of  general
      application affecting enforcement of credits' rights generally, (ii) rules
      and laws  governing  specific  performance,  injunctive  relief  and other
      equitable  remedies  and,  (iii)  with  respect  to  the   indemnification
      agreements set forth in the Rights Agreement, applicable state and federal
      securities laws and principles of public policy.

          4.3 Investment Representations.

            (a) This  Agreement is made with the  Purchaser in reliance upon the
      Purchaser's  representation to the Company, which by its acceptance hereof
      the Purchaser hereby  confirms,  that the Shares to be received by it will
      be acquired for investment for its own account, not as a nominee or agent,
      and not with a view to the sale or distribution  of any part thereof,  and
      that it has no present intention of selling, granting participation in, or
      otherwise   distributing  the  same,  but  subject   nevertheless  to  any
      requirement of law that the disposition of its property shall at all times
      be within its control. By executing this Agreement,  the Purchaser further
      represents that except as may be provided in the Stock Sale Agreement,  it
      does not have any contract,  undertaking,  agreement,  or arrangement with
      any person to sell, transfer or grant participations to such person, or to
      any third  person,  with  respect to any of the  Shares or any  Underlying
      Common Stock.

                                       14
<PAGE>

                    (b)  The  Purchaser  understands  that  the  Shares  and the
      Underlying Common Stock have not been registered under the 1933 Act on the
      grounds that the sale  provided for in this  Agreement and the issuance of
      securities  hereunder is exempt from registration  under the 1933 Act, and
      that the Company's reliance on such exemption is predicated in part on the
      Purchaser's  representations set forth herein. The Purchaser realizes that
      the basis for the  exemption may not be present if,  notwithstanding  such
      representations, the Purchaser has in mind merely acquiring the Shares for
      a fixed or determined  period in the future,  or for a market rise, or for
      sale if the market  does not rise.  The  Purchaser  does not have any such
      intention.

                      (C) The Purchaser  represents  that it is  experienced  in
      evaluating  emerging growth companies such as the Company, is able to fend
      for itself in the  transactions  contemplated by this Agreement,  has such
      knowledge  and  experience  in  financial  and  business  matters as to be
      capable of evaluating the merits and risks of its investment,  and has the
      ability  to bear the  economic  risks  of its  investment.  The  Purchaser
      further  represents  that it has had  access,  during  the  course  of the
      transactions and prior to its purchase of Shares,  to all such information
      as it deemed  necessary  or  appropriate  and that it has had,  during the
      course  of the  transactions  and prior to its  purchase  of  Shares,  the
      opportunity  to ask  questions of, and receive  answers from,  the Company
      concerning  the  terms  and  conditions  of the  offering  and  to  obtain
      additional information necessary to verify the accuracy of any information
      furnished to it or to which it had access.

            (d) The  Purchaser  understands  that the Shares and the  Underlying
      Common Stock may not be sold, transferred or otherwise disposed of without
      registration under the 1933 Act or an exemption therefrom, and that in the
      absence of an effective registration statement covering the Shares (or the
      Underlying Common Stock) or an available exemption from registration under
      the 1933 Act, the Shares (and the  Underlying  Common  Stock) must be held
      indefinitely.  In particular,  the Purchaser is aware that the Shares (and
      the  Underlying  Common  Stock)  may not be  sold  pursuant  to  Rule  144
      promulgated  under the 1933 Act unless all of the  conditions of that Rule
      are met. Among the conditions for use of Rule 144 is the  availability  of
      current  information to the public about the Company.  Such information is
      not now  available  and the  Company  has no  present  plans to make  such
      information available. The Purchaser represents that, in the absence of an
      effective  registration  statement  covering the Shares (or the Underlying
      Common Stock), it will sell, transfer,  or otherwise dispose of the Shares
      (or the  Underlying  Common  Stock) only in a manner  consistent  with its
      representations  set forth  herein  and then only in  accordance  with the
      provisions  of  Section  4.3(e)  hereof and the  provisions  of the Rights
      Agreement.


            (e) Purchaser  understands  that each  certificate  representing the
      Shares and the  Underlying  Common  Stock will be  endorsed  with a legend
      substantially as follows.

      "THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE HAVE NOT BEEN REGISTERED
      UNDER  THE  SECURITIES  ACT OF  1933,  AS  AMENDED,  OR  APPLICABLE  STATE
      SECURITIES  LAWS.  THESE  SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
      NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED,
      PLEDGED,  HYPOTHECATED  OR  OTHERWISE  TRANSFERRED  WITHOUT  AN  EFFECTIVE
      REGISTRATION  STATEMENT FOR SUCH  SECURITIES  UNDER THE  SECURITIES ACT OF
      1933,  AS  AMENDED,  AND ANY  APPLICABLE  STATE  SECURITIES  LAWS,  OR THE
      AVAILABILITY  OF AN  EXEMPTION  FROM THE  REGISTRATION  PROVISIONS  OF THE
      SECURITIES ACT OF 1933, AS AMENDED,  AND APPLICABLE STATE SECURITIES LAWS.
      COPIES OF THE AGREEMENTS  PROVIDING FOR  RESTRICTIONS ON TRANSFER OF THESE
      SECURITIES MAY BE OBTAINED UPON WRITTEN REQUEST BY THE HOLDER OF RECORD OF
      THIS  CERTIFICATE  TO THE  SECRETARY OF THE  CORPORATION  AT THE PRINCIPAL
      EXECUTIVE OFFICES OF THE CORPORATION."

                    (f) Purchaser represents that it is an "Accredited Investor"
      as such term is defined in Rule 501 of Regulation D promulgated  under the
      1933 Act.

                                       15
<PAGE>

          4.4 No Public Market. The Purchaser  understands that no public market
      now exists for any of the securities  issued by the Company and that there
      is no  assurance  that a public  market will ever exist for the Shares (or
      the Underlying Common Stock).

      4.5  Government  Consents.  No consent,  approval or  authorization  of or
      designation,  declaration  or filing with any state,  federal,  or foreign
      governmental authority on the part of the Purchaser because of any special
      characteristic  of such Purchaser is required in connection with the valid
      execution and delivery of this Agreement,  the Stock Sale Agreement or the
      Rights  Agreement by the Purchaser,  and the consummation by the Purchaser
      of the transactions contemplated hereby and thereby.


       4.6 Finders'  Fees. The Purchaser (i) represents and warrants that it has
      retained  no  finder  or  broker  in  connection  with  the   transactions
      contemplated by this Agreement, and (ii) hereby agrees to indemnify and to
      hold  the  Company  and the  other  Purchasers  harmless  of and  from any
      liability for any commission or  compensation  in the nature of a finder's
      fee to any broker or other  person or firm (and the costs and  expenses of
      defending  against such  liability or asserted  liability)  for which such
      Purchaser or any of its employees or representatives are responsible.

   5. Conditions to Purchasers'  Obligations at Closing.  The obligations of the
      Purchasers  to  purchase  the  Shares at the  Closing  are  subject to the
      fulfillment on or before the Closing of each of the following conditions.

          5.1 Representations and Warranties. For each Closing other than a CHSI
      Additional  Closing,  the  representations  and  warranties of the Company
      contained  in  Section 3 shall be true on and as of the  Closing  with the
      same force and effect as if they had been made at the Closing.

          5.2  Performance.  The Company shall have  performed and complied with
      all agreements and conditions  contained in this Agreement  required to be
      performed or complied with by it on or before the Closing.

          5.3 Qualifications. All authorizations,  approvals or permits, if any,
      of any  governmental  authority or regulatory body of the United States or
      of any state that are required prior to and in connection  with the lawful
      issuance and sale of the Shares pursuant to this Agreement shall have been
      duly obtained and shall be effective on and as of the Closing.



       5.4  Certificate.  The Company shall have duly filed the Certificate with
      the Secretary of State of the State of Delaware,  which  Certificate shall
      be in full force and effect at the Closing.

           5.5  Opinion of the  Company's  Counsel.  The  Purchasers  shall have
      received from counsel to the Company an opinion  letter  substantially  in
      the form attached  hereto as Exhibit E, addressed to them,  dated the date
      of the Closing.

                                       16
<PAGE>

      5.6 Proceedings and Documents.  For each Closing,  all corporate and other
      proceedings  in  connection  with  the  transactions  contemplated  at the
      Closing  hereby  and  all  documents  and  instruments  incident  to  such
      transactions shall be reasonably satisfactory in substance and form to the
      Purchasers  and their  counsel,  and/or the  Purchasers  and their counsel
      shall have received all such  counterpart  originals or certified or other
      copies of such documents as they may reasonably request.

      5.7 Investor Rights Agreement.  The Company shall have executed and 
      delivered a Rights Agreement.

      5.8 Board of Directors.  The Company's Board of Directors shall consist of
      Rick  Barrett,  Don  Lothrop,  Rick  Hassett,   Terrance  McGuire,  Steven
      Schelhammer, James Strand, Bill McIvor and John Vakoutis.

       5.9  Compliance  Certificate.  There  shall  have been  delivered  to the
      Purchasers a certificate, dated as of the Closing, signed by the Company's
      President  certifying that the conditions  specified in Sections 5.1, 5.2,
      5.3 and 5.4  have  been  fulfilled;  provided  that the  Company  need not
      certify that the  conditions  specified in Section 5.1 have been fulfilled
      for any CHSI Additional Closing.

      5.10  Minimum  Purchase.  The Company  shall have sold at least  1,000,000
      Shares at the Initial Closing.

      5.11  Secretary's  Certificate.  There  shall have been  delivered  to the
      Purchasers a certificate, dated as of the Closing, signed by the Company's
      Secretary or an Assistant Secretary and in form and substance satisfactory
      to Purchasers, that shall certify (i) the names of its officers authorized
      to sign this  Agreement,  the  certificates  for purchased  Shares and the
      other documents,  instruments or certificates to be delivered  pursuant to
      this  Agreement by the Company or any of its officers,  together with true
      signatures  of such  officers;  (ii)  that  the  copy  of the  Certificate
      attached thereto is true, correct and complete; (iii) that the copy of the
      Bylaws attached thereto is true,  correct and complete;  and (iv) that the
      copy of Board of Directors'  resolutions  attached thereto  evidencing the
      approval of this Agreement,  the issuance of the purchased  Shares and the
      other  matters  contemplated  hereby was duly adopted and is in full force
      and effect.

      5.12 Certificate of Good Standing.  There shall have been delivered to the
      Purchasers  a  Certificate  of Good  Standing  for the  Company  from  the
      Secretary of State of the State of Delaware and  certificates of authority
      of the  Secretary of State of each state where the Company is qualified to
      do business, dated within 10 days of the Closing.

      5.13 Stock Sale Agreement. The Company, Steve Schelhammer,  the Purchasers
      and the other stockholders named therein shall have executed and delivered
      a Stock  Sale  Agreement  substantially  in the form  attached  hereto  as
      Exhibit G.

   6. Conditions to the Company's  Obligations at Closing..  The  obligations of
      the Company to issue and sell the Shares at the Closing are subject to the
      fulfillment on or before the Closing of each of the following conditions.

          6.1 Representations and Warranties. The representations and warranties
      made by each Purchaser in Section 4 shall be true on and as of the Closing
      with the same force and effect as if they had been made at the Closing.

      6.2 Performance. The Purchasers shall have performed and complied with all
      agreements  and  conditions  contained  in this  Agreement  required to be
      performed or complied with by them on or before the Closing.

      6.3 Qualifications.  All authorizations,  approvals or permits, if any, to
      be obtained  from any  governmental  authority or  regulatory  body of the
      United States or of any state that are required

                                       17
<PAGE>

           prior to and in connection  with the lawful  issuance and sale of the
      Shares  pursuant to this Agreement shall have been duly obtained and shall
      be effective on and as of the Closing.

       6.4  Certificate.  The Secretary of State of the State of Delaware  shall
      have accepted the Certificate for filing,  and the Certificate shall be in
      full force and effect at the Closing.

      6.5 Investor Rights Agreement.  Each of the Purchasers shall have executed
      and delivered a Rights Agreement.

      6.6  Minimum  Purchase.  The  Company  shall have sold at least  1,000,000
      Shares at the Initial Closing.

      6.7 Stock Sale Agreement.  The Company, Steve Schelhammer,  the Purchasers
      and the other stockholders named therein shall have executed and delivered
      a Stock  Sale  Agreement  substantially  in the form  attached  hereto  as
      Exhibit G.

       7. Covenants of the Company.

      7.1 Use of Proceeds.  The Company  shall use the proceeds from the sale of
      the Series C Preferred  Stock for product  development  and other  working
      capital  purposes  consistent  with  financial  budgets  approved  by  the
      Company's Board of Directors from time to time.

      7.2 Meetings of Board of Directors.  The Company shall use its  reasonable
      efforts to ensure  that  meetings of its Board of  Directors  are held not
      less than once every calendar  quarter.  The Company shall  reimburse each
      director for all direct out-of-pocket expenses reasonably incurred by such
      director in attending meeting of the Board of Directors.

      7.3  Indemnification.  The Company  agrees to indemnify  and save harmless
      each Purchaser and each of its officers,  directors,  employees and agents
      from and against any and all actions,  causes of action or suits initiated
      against  such  Purchasers  by  third  parties,   and  reasonable  expenses
      (including,   without   limitation,    reasonable   attorneys   fees   and
      disbursements)  in connection  therewith  (herein called the  "Indemnified
      Liabilities")   incurred  by  such  Purchaser  or  any  of  its  officers,
      directors,  employees  or agents as a result of, or arising  out of any of
      the  transactions   contemplated   hereby,   except  for  any  Indemnified
      Liabilities  arising  on  account  of  the  gross  negligence  or  willful
      misconduct of the Purchaser or any of its officers,  directors,  employees
      or agents, provided that, if and to the extent such agreement to indemnify
      may be  unenforceable  for any reason,  the Company shall make the maximum
      contribution  to the payment and  satisfaction  of each of the Indemnified
      Liabilities which shall be permissible under applicable law.

       8.   Miscellaneous

      8.1 Entire Agreement.  This Agreement and the documents referred to herein
      constitute the entire  agreement among the parties,  and no party shall be
      liable  or  bound to any  other  party in any  manner  by any  warranties,
      representations  or covenants  except as specifically  set forth herein or
      therein.  The terms and  conditions of this  Agreement  shall inure to the
      benefit of and be binding upon the  successors and assigns of the parties.
      Nothing in this Agreement,  express or implied, is intended to confer upon
      any third party any rights, remedies,  obligations or liabilities under or
      by  reason  of  this  Agreement,  except  as  expressly  provided  in this
      Agreement.

                                       18
<PAGE>

          8.2 Governing Law. This  Agreement  shall be governed by and construed
      under the laws of the State of  Delaware  as applied to  agreements  among
      Delaware residents,  made and to be performed entirely within the State of
      Delaware.

          8.3  Counterparts.  This  Agreement  may be  executed  in two or  more
      counterparts,  each of which shall be deemed an original, but all of which
      together shall constitute one and the same instrument.

          8.4  Headings.  The  headings  used in this  Agreement  are  used  for
      convenience   only  and  are  not  to  be   considered  in  construing  or
      interpreting this Agreement.

      8.5 Notices.Any notice required or permitted under this Agreement shall be
      given in  writing  and shall be deemed  effectively  given  upon  personal
      delivery or upon deposit with the United States

      Post Office, by registered or certified mail, postage prepaid,  or sent by
      confirmed telecopy, addressed (a) if to the Company, at:

      Accordant Health Services, Inc.
      509-A W. Friendly Avenue
      Greensboro, NC 27410
      Attention:  President



      With a copy to:

      J. Christopher Lynch, Esquire
      Wyrick Robbins Yates & Ponton LLP
      4101 Lake Boone Trail, Suite 300
      Raleigh, NC 27607

      or at such  other  address as the  Company  shall  have  furnished  to the
      Purchasers  in writing,  and (b) if to a  Purchaser,  at such  Purchaser's
      address as is set forth on  Exhibit  A, or at such  other  address as such
      Purchaser shall have furnished to the Company in writing.

      8.6 Survival.  The representations,  warranties,  covenants and agreements
      made herein shall survive any investigation  made by any Purchaser and the
      Closing. All statements as to factual matters contained in any certificate
      or other  instrument  delivered  by or on behalf of the  Company  pursuant
      hereto or in connection with the transactions contemplated hereby shall be
      deemed to be representations  and warranties made by the Company hereunder
      as of the date of such certificate or instrument.

      8.7  Severability.  Any  invalidity,   illegality  or  limitation  of  the
      enforceability  with  respect to any  Purchaser  of any one or more of the
      provisions  of this  Agreement,  or any part thereof,  whether  arising by
      reason of the law of any such Purchaser's domicile or otherwise,  shall in
      no way affect or impair the validity,  legality or  enforceability of this
      Agreement with respect to other Purchasers.  In case any provision of this
      Agreement  shall be  invalid,  illegal or  unenforceable,  it shall to the
      extent  practicable,  be  modified  so as to  make  it  valid,  legal  and
      enforceable  and to  retain as nearly  as  practicable  the  intent of the
      parties, and the validity,  legality,  and enforceability of the remaining
      provisions shall not in any way be affected or impaired thereby.

      8.8 Delays or Omissions. No delay or omission to exercise any right, power
      or remedy  accruing  to the  Company or any  Purchaser  or any  subsequent
      holder of any Shares  upon any  breach,  default or  noncompliance  of any
      Purchaser,  any subsequent  holder of any Shares or the Company under this
      Agreement or under the Certificate,  shall impair any such right, power or
      remedy,  nor  shall it be  construed  to be a waiver  of any such  breach,
      default or noncompliance,  or any acquiescence  therein, or of any similar
      breach,  default  or  noncompliance  thereafter  occurring.  It is further
      agreed  that  any  waiver,  permit,  consent  or  approval  of any kind or
      character  on the part of the  Company or the  Purchasers  of any  breach,
      default or noncompliance  under this Agreement or under the Certificate or
      any waiver on the Company's or the  Purchasers'  part of any provisions or
      conditions  of this  Agreement  must be in writing and shall be  effective
      only to the extent  specifically  set forth in such  writing  and that all
      remedies,  either  under this  Agreement  or the  Certificate,  by law, or
      otherwise afforded to the Company and the Purchasers,  shall be cumulative
      and not alternative.

      8.9 California Corporate Securities Laws.  THE SALE OF THE SECURITIES 
      WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE 
      COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE
      OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE 
      CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE
      SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 
      OR 25105 OF THE CALIFORNIA CORPORATIONS CODE.  THE RIGHTS OF
      ALL  PARTIES  TO  THIS  AGREEMENT  ARE  EXPRESSLY  CONDITIONED  UPON  SUCH
      QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

                                       19
<PAGE>

      8.10  Amendments  and  Waivers.  Except as  otherwise  expressly  provided
      herein,  any term of this  Agreement may be amended and the  observance of
      any  term  of this  Agreement  may be  waived  (either  generally  or in a
      particular instance,either retroactively or prospectively and either for a
      specified period of time or indefinitely)  with the written consent of the
      Company and Purchasers (or their transferees)  holding at least 66 2-3% of
      Underlying  Common Stock issued or issuable upon  conversion of the Shares
      (excluding  shares  previously  sold to the public),  voting together as a
      single group;  provided,  however,  that no such amendment or waiver shall
      reduce the aforesaid percentage of Underlying Common Stock, the holders of
      which are  required  to consent to any waiver or  supplemental  agreement,
      without the  consent of the  holders of all of such Shares and  Underlying
      Common  Stock.  Any amendment or waiver  effected in accordance  with this
      Section 7.10 shall be binding upon each  Purchaser and each  transferee of
      the Shares and Underlying Common Stock. Upon the effectuation of each such
      amendment  or waiver,  the Company  shall  promptly  give  written  notice
      thereof to the Purchasers (or their  transferees)  who have not previously
      consented  thereto  in  writing.  8.11  Expenses.  The  Company  and  each
      Purchaser shall bear its own expenses  incurred on its behalf with respect
      to this Agreement and the transactions contemplated hereby; provided, that
      the  Company  shall  pay the  reasonable  fees and  expenses  of  Dorsey &
      Whitney,  LLP,  counsel to CHSI. Each Purchaser,  other than CHSI,  hereby
      expressly  acknowledges  and agrees  that  Dorsey & Whitney LLP have acted
      solely as counsel to CHSI and not such Purchaser.

      [The next page is the signature page]



                                       20
<PAGE>

      IN WITNESS  WHEREOF,  the parties have executed  this  Agreement as of the
      date first above written.



      ACCORDANT HEALTH SERVICES, INC.

      /s/ Steven K. Schelhammer
          ---------------------
          Steven K. Schelhammer, President



      PURCHASERS:

      /s/Rick Barrett
         ------------
         Rick Barrett


      CURATIVE HEALTH SERVICES, INC.

      By:/s/ John Vakoutis
             -------------
             John Vakoutis
             Title:President, Chief Executive Officer


      Delphi Ventures III, L.P.

      By:   Delphi Management Partners III, L.L.C.
            General Partner
      By:/s/Don Lothrop

      Delphi BioInvestments III, L.P.

      By:   Delphi Management Partners III, L.L.C.
            General Partner
      By:/s/Don Lothrop


      INSTITUTIONAL VENTURE MANAGEMENT VI

      By:/s/James Strand
      Title:General Partner

      INSTITUTIONAL VENTURE PARTNERS VI
      By Its General Partner,
      Institutional Venture Management VI

      By:/s/James Strand
      Title:General Partner

      IVP Founders Fund I
      By Its General Partner,
      Institutional Venture Management VI

      By:/s/James Strand
      Title:General Partner

      
      INTERSOUTH PARTNERS III, L.P.
      By:   INTERSOUTH ASSOCIATES III,
            General Partner

      By:/s/Mitch Mumma
      Title:General Partner


      POLARIS VENTURE PARTNERS, L.P.
      By:  Polaris Venture Management Co., LLC
           its General Partner

      By:/s/Terry McGuire
      Member

      POLARIS VENTURE PARTNERS FOUNDERS'
      FUND, L.P.
      By:   Polaris Venture Management Co., LLC
            its General Partner

      By:/s/Terry McGuire
      Member

<PAGE>
                                                                   Exhibit 10.24

SUBSIDIARIES OF THE REGISTRANT

The following is a list of all of the subsidiaries of the registrant:
1.   Wound Care Centers(R) of America Incorporated, organized under the laws of 
     Delaware.
2.   CHS Services, Inc., organized under the laws of Delaware.


<PAGE>

                                                                    Exhibit10.25
                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form
S-8  No.  33-54880)  pertaining  to  the  Curative  Health  Services,  Inc.  and
subsidiaries 1991 Stock Option Plan, as amended,  in the Registration  Statement
(Form S-8 No.  33-19370)  pertaining to the Curative Health  Services,  Inc. and
subsidiaries  Director Share Purchase Program and in the Registration  Statement
(Form S-8 No.  33-85188)  pertaining to the Curative Health  Services,  Inc. and
subsidiaries Employee 401(k) Savings Plan of our report dated February 16, 1999,
expcept  for Note M as to which the date is March 15, 1999,  with respect to the
consolidated financial statements and schedule of Curative Health Services, Inc.
and  subsidiaries  included in the Annual  Report (Form 10-K) for the year ended
December 31, 1998.

                                                          /s/  Ernst & Young LLP

Melville, New York
March 30, 1999