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, 1997

                                       or

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

                               [No Fee Required]

                       For the Transition Period From to
                       Commission File Number: 000-19370

                         Curative Health Services, Inc.

             (Exact name of registrant as specified in its charter)

                              MINNESOTA 41-1503914

                (State or other jurisdiction of (I.R.S. Employer
             incorporation or organization) Identification Number)

                               150 Motor Parkway
                           Hauppauge, New York 11788

              (Address of principal executive offices) (Zip Code)

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

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

                                      None

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

                     Common Stock, par value $.01 per share

                                (Title of Class)

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

                                 Yes X No______

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

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

                      DOCUMENTS INCORPORATED BY REFERENCE

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

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

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

Industry

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

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

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

                                       2
<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  multi-disciplinary  team of health care  professionals,  including a
medical   director,    surgeon,   nurse,   case   manager,    nutritionist   and
endocrinologist.

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

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

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

                                       3
<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 132  outpatient
centers as of the end of 1997, the Company  believes the opportunity for further
growth  remains  substantial.  The Company has  identified  over 300  additional
markets in the United  States  which the Company  believes  have the  population
necessary  to support a  dedicated  wound care  program.  The  Company  believes
hospitals  are  continually  seeking low cost,  high quality  solutions to wound
management  such as those  provided by the  Company.  In  addition,  the Company
believes it enables its hospital clients to differentiate  themselves from their
competitors through better wound care treatment  outcomes,  reduced costs due to
decreased   inpatient   lengths  of  stay  and  increased  revenue  through  the
introduction  of new  patients.  As a result,  the Company  believes  there is a
significant  opportunity  for the  Company to  continue to expand its Wound Care
Center operations through affiliation with acute care hospitals.

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

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

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

                                       4
<PAGE>

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

Wound Care Operations

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

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

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

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

                                       5
<PAGE>

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

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

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

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

                                       6
<PAGE>


Contract Terms and Renewals

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

Managed Care Operations

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

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

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

                                       7
<PAGE>


Sales and Marketing

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

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

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

Patents and Proprietary Rights

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

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

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

                                       8
<PAGE>


Government Regulation

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

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

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

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

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

                                       9
<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.  The Company  believes  its
operations  are  structured  to comply  with  these  restrictions  to the extent
applicable. However, periodically there are efforts to expand the scope of these
referral restrictions from its application to government health care programs to
all payors,  and to additional  health services.  Certain states are considering
adopting similar  restrictions or expanding the scope of existing  restrictions.
There can be no assurance  that the federal  government or other states in which
the Company operates will not enact similar or more  restrictive  legislation or
restrictions  that could under certain  circumstances  limit the manner in which
the Company can operate its business and have a negative impact on the Company's
business, financial condition and results of operations.

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

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

Third Party Reimbursement

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

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

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

                                       10
<PAGE>

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

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

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

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

                                       11
<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.  In the market for disease  management  products and  services,  the
Company faces  competition  from other disease  management  facilities,  general
health  care  facilities  and  service  providers,   pharmaceutical   companies,
biopharmaceutical companies and other competitors.  Many of these companies have
substantially  greater  capital  resources  and  marketing  staffs,  and greater
experience  in  commercializing  products and  services,  than the  Company.  In
addition, recently developed technologies, or technologies that may be developed
in the  future,  are or may be the basis for  products  which  compete  with the
Company's  chronic  wound care  products and which may be in direct  competition
with Procuren.  There can be no assurance that the Company will be able to enter
into  co-marketing  arrangements  with  respect to these  products,  or that the
Company  will be able to  compete  effectively  against  such  companies  in the
future.

Employees

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

Item 2  Properties

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

Item 3  Legal Proceedings

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

Item 4  Submission of Matters to a Vote of Security Holders

None.

                                       12
<PAGE>


PART II


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

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

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

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

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


                                       13
<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,
                                                                                    1993      1994      1995      1996      1997
                                                                                 (In thousands, except per share and operating data)
Statement of Operations Data:
<S>                                                                              <C>       <C>       <C>       <C>       <C>
Revenues ....................................................................... $ 31,265  $ 40,567  $ 52,442  $ 67,395  $ 87,906

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>

                                       14
<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 132  hospital  outpatient  Wound Care  Centers in  operation  as of
December 31, 1997,  102 were  management  model Wound Care Centers,  and 30 were
"under  arrangement"  model Wound Care  Centers.  The  Company's  fees under its
management  contracts  with  acute  care  hospitals  are  paid by the  hospitals
directly.  See "Business--Third Party Reimbursement."

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

Business Realignment

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

Results of Operations

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

                                       15
<PAGE>

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

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

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

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

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

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

                                       16
<PAGE>

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

                                       17
<PAGE>

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

Cautionary Statements

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

Item 8  Consolidated Financial Statements and Supplementary Data

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

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

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

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

      Not applicable.


                                       18
<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 1997 Annual Meeting of  Stockholders  (the
"Proxy  Statement")  not later than 120 days  after the end of the  fiscal  year
covered by this Report, and certain information included therein is incorporated
herein by reference.

Item 10  Directors and Executive Offices of the Registrant

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

Item 11  Executive Compensation

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

Item 12  Security Ownership of Certain Beneficial Owners and Management

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

Item 13  Certain Relationships and Related Transactions

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

                                       19
<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, 1997 and 1996....          F-2

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

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

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

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

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

      Schedule                                                              Page

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

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

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

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

                                       20
<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 27, 1998

POWER OF ATTORNEY

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

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

Signature                 Title                                             Date

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

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

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

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

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

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

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

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

                                       21
<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:_______________________________
                                             John Vakoutis
                                             President, Chief Executive Officer
                                             and Director
Dated:  March 27, 1998

POWER OF ATTORNEY

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

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

Signature                 Title                                             Date

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

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

___________________       Director                                March 27, 1998
Gerardo Canet

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

___________________       Director                                March 27, 1998
Lawrence C. Hoff

___________________       Director                                March 27, 1998
Timothy I. Maudlin

___________________       Director                                March 27, 1998
Gerard Moufflet

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


                                       22
<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, 1997 and 1996, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the three years in the period ended  December  31,  1997.  Our
audits also included the  financial  statement  schedule  listed in the Index at
Item  14(a).  These  consolidated  financial  statements  and  schedule  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and schedule based on our
audits.

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

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


                                    /s/ Ernst & Young LLP

Melville, New York
February 9, 1998

                                     F - 1

                                       23
<PAGE>





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


<TABLE>
                                                                                                          December 31,
<CAPTION>
                                                                                                           1997                1996
                                                                                                           -------------------------

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

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

</TABLE>

                 See notes to consolidated financial statements
                                      F - 2

                                       24
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                                    Year Ended December 31,
                                                                                            1997              1996              1995
                                                                                            ----------------------------------------
<S>                                                                                      <C>               <C>               <C>
Revenues .....................................................................           $87,906           $67,395           $52,442
Costs and operating expenses:
   Costs of product sales and services .......................................            48,200            37,828            26,189
   Selling, general and administrative .......................................            22,617            19,208            18,209
   Research and development ..................................................                 -                 -             4,143
                                                                                          ------            ------            ------
      Total costs and operating expenses .....................................            70,817            57,036            48,541

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

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

                 See notes to consolidated financial statements
                                      F - 3

                                       25
<PAGE>






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

<TABLE>
<CAPTION>


                                                                                            Foreign
                                                                     Additional             Currency                           Total
                                                  Common Stock       Paid in                Translation  Subscription  Stockholders'
                                               Shares     Amount     Capital     Deficit    Adjustment   Receivable           Equity
                                               -------------------------------------------------------------------------------------
 <S>                                            <C>         <C>       <C>         <C>        <C>         <C>                 <C>
 Balance, December 31, 1994 ..................  10,024,686  $ 100     $ 44,034    $(34,135)  $ (179)     $  (42)             $ 9,778

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


                       See notes to consolidated financial statements
                                            F - 4

                                       26
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                                   Year Ended December 31,
                                                                                                   -----------------------
                                                                                             1997             1996             1995
                                                                                             --------------------------------------


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

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

                 See notes to consolidated financial statements
                                      F - 5

                                       27
<PAGE>



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


NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

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

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

                                     F - 6

                                       28
<PAGE>


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

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

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

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

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

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

NOTE B -- ACQUISITIONS AND DIVESTITURES

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

                                     F - 7

                                       29
<PAGE>

NOTE C -- PROPERTY AND EQUIPMENT

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

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

NOTE D -- ACCRUED EXPENSES

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

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

NOTE E -- LEASES

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


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

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

                                     F - 8

                                       30
<PAGE>


NOTE F -- STOCKHOLDERS' EQUITY

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

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

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

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

NOTE G -- STOCK BASED COMPENSATION PLANS

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

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

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

                                     F - 9

                                       31
<PAGE>


NOTE G -- STOCK BASED COMPENSATION PLANS (Continued)

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

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

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

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

<TABLE>
<CAPTION>


                                             1997                          1996                         1995
                                      -------------------------------------------------------------------------------------
                                                 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      1,177,833      $ 15.04        1,131,611      $ 6.37        1,333,784       $ 5.21
Granted..............                   625,500        28.43          348,100       21.91          297,700         8.73
Exercised............                  (345,919)        6.99         (248,546)       5.11         (396,280)        4.39
Cancelled............                  (103,800)       19.74          (53,332)      10.98         (103,593)        5.33
                                      ----------      ------        ----------     ------        ----------      ------
Outstanding at end of year            1,353,614        22.92        1,177,833       15.04        1,131,611         6.37
                                      ==========                    =========                    =========
Exercisable at end of year              338,303                       318,481                      315,238
                                        =======                       =======                      =======
Weighted average fair value of
   options granted...                                $ 14.86                       $11.64                        $ 4.66
                                                     =======                       =======                       ======

</TABLE>

                                     F - 10

                                       32
<PAGE>



NOTE G -- STOCK BASED COMPENSATION PLANS (Continued)

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

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

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

NOTE H -- INCOME TAXES

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

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

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

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


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

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

                                       33
<PAGE>


NOTE H -- INCOME TAXES (Continued)

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

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

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

NOTE I -- LOANS PAYABLE AND LONG TERM DEBT

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

NOTE J -- MAJOR CUSTOMERS

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

NOTE K -- LEGAL PROCEEDINGS

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

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

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

                                     F - 12

                                       34
<PAGE>

NOTE K -- LEGAL PROCEEDINGS (Continued)

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

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

NOTE L -- EARNINGS PER SHARE

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

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

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

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

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

                                     F - 13

                                       35
<PAGE>


Schedule II


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


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


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



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



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

</TABLE>

                                             S-1

                                       36
<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                            (7)

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


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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

22.         Subsidiaries of the Registrant                                     *

23.         Consent of Ernst & Young LLP                                       *


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


                                       37
<PAGE>

                                                                      Exhibit 22



SUBSIDIARIES OF THE REGISTRANT


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

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

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


                                       38
<PAGE>



                                                                      Exhibit 23


CONSENT OF INDEPENDENT AUDITORS

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


                                          /s/  Ernst & Young LLP

Melville, New York
March 27, 1998


                                       39
<PAGE>

                                                                   Exhibit 10.14


                          AMENDED AND RESTATED EMPLOYMENT AGREEMENT


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

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

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

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

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

1.    Employment

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

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

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

2.    Employment Term

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

3.     Compensation and Benefits

      3.1   Cash Compensation.

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

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

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

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

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

4.    Termination of Employment

      4.1  Definitions

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

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

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

                (ii) the commission by Executive of a felony;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

      4.5  Compensation Upon Termination.

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


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

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

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

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

5.    Employment Covenants

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

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

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

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

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

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

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

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

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

6.    Miscellaneous

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

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

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

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

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

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

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

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

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

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

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

                                    CURATIVE HEALTH SERVICES, INC.


                                    By:
                                    Its: Chairman



                                         Executive


                                                                   Exhibit 10.15


                          AMENDED AND RESTATED EMPLOYMENT AGREEMENT


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

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

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

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

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

1.    Employment

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

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



2.    Employment Term

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

3.     Compensation and Benefits

      3.1   Cash Compensation.

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

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

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

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

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

4.    Termination of Employment

      4.1  Definitions

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

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

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

                (ii) the commission by Executive of a felony;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

      4.5  Compensation Upon Termination.

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

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

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

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

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

5.    Employment Covenants

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

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

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

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

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

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

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

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

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

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

6.    Miscellaneous

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

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

      Executive:     Carol Gleber
                     3010 Wren Lane
                     Richardson, Texas 75082

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

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

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

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

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

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

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

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

                                    CURATIVE HEALTH SERVICES, INC.


                                    By:
                                    Its: President



                                         Executive


                                                                    Exhibit 10.5


                          AMENDED AND RESTATED EMPLOYMENT AGREEMENT


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

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

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

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

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

1.    Employment

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

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



2.    Employment Term

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

3.     Compensation and Benefits

      3.1   Cash Compensation.

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

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

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

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

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

4.    Termination of Employment

      4.1  Definitions

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

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

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

                (ii) the commission by Executive of a felony;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

      4.5  Compensation Upon Termination.

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

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

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

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

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

5.    Employment Covenants

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

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

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

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

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

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

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

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

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

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

6.    Miscellaneous

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

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

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

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

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

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

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

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

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

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

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

                                    CURATIVE HEALTH SERVICES, INC.


                                    By:
                                    Its: President


                                         Executive