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, 1996
                                       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)

                            14 Research Way, Box 9052

                       East Setauket, New York 11733-9052
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (516) 689-7000
             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 3, 1997, 12,305,735 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 $334 million.

                       DOCUMENTS INCORPORATED BY REFERENCE

   Portions of Registrant's Proxy Statement for its 1997 Annual Meeting of
Stockholders, which the Registrant intends to file not later than 120 days
following December 31, 1996, are incorporated by reference to Part III of this
Form 10-K Report.
                               
                                       1
<PAGE>

                                     PART I


Item 1  Business  

General

      Curative Health Services,  Inc. is a leading disease management company in
the chronic  wound care market.  Currently,  the Company  manages,  on behalf of
hospital  clients,  a nationwide  network of Wound Care Centers(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  130,000 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 105  outpatient  clinics
located on or near campuses of acute care hospitals in 31 states. The Company is
developing  new service  models for other  health  care  delivery  settings  and
currently  manages ten wound care  programs at subacute and long term acute care
facilities and operates eight 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


                                       2
<PAGE>


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.

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  130,000  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  20% 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 37,000
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 105  outpatient
centers as of the end of 1996, 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 eight freestanding outpatient Wound Care
Centers all of which have opened since October 1995, and ten inpatient programs,
including  seven subacute care nursing  home-based  programs,  one subacute care
hospital-based program and two long term acute care hospital-based programs, 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,


                                       4
<PAGE>


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.

      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  and  long  term  acute  care  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  105
hospital  outpatient  Wound Care Centers in operation in 31 states.  The Company
has entered  into  contracts  or letters of intent with eight  hospitals to open
additional  Wound Care Centers.  The Company's  hospital client base ranges from


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<PAGE>

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 105 current hospital  outpatient Wound Care Centers, 90
are management model centers and 15 are "under arrangement" model centers.

      At December 31, 1996, the Company had  management  contracts with 37 acute
care hospitals  directly or indirectly  owned by  Columbia/HCA.  These hospitals
collectively accounted for approximately 28% of the consolidated revenues of the
Company for the year ended December 31, 1996. The Company and  Columbia/HCA  are
currently 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 ten inpatient  programs  including seven subacute care
nursing home-based  programs,  one subacute care hospital-based  program and two
long  term  acute  care  hospital-based  programs  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 eight freestanding centers in eight states and is planning
to 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
39 facilities in 31 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, 1997, the
contract  terms  of  31 of  the  Company's  management  contracts  will  expire,
including  26 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,  come 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 complementary  diseases such as
cardiac care (venous stasis  management) and diabetes.  The Company expects that
contracts for a carve-out  product will provide at-risk  arrangements  with MCOs
(i.e., fixed case rates or capitation).

      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
Account  Executives and  Professional  Liaisons.  The primary job of the Account
Executives  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, 1996, the sales force  consisted of five Regional Sales
Managers, 11 Account Executives and 44 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 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,  some of such laws are  broadly  written  and subject to
little or no  interpretation  by courts or  administrative  authorities.  Hence,
there can be no  assurance  that a third party or  governmental  agency 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.  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


                                       9
<PAGE>

given regarding  compliance in any particular factual situation,  as there is no
procedure for advisory opinions from government officials.

      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,  there are  efforts to expand the scope of these  referral
restrictions. Federal legislation is being considered to expand current law from
its  application  to  Medicare  and  Medicaid  business  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, 1996,  the Company  operated  eight  freestanding  outpatient
Wound  Care  Centers  which  contributed  approximately  $865,000  or 1% of  the
Company's  revenues for the year ended December 31, 1996.  However,  the Company
anticipates  that the number of, and  amount of  revenues  attributable  to, its
freestanding  centers  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
decisions. 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


                                       10
<PAGE>

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.

      Medicare  regulations limit  reimbursement for health care charges paid to
related parties.  A party is considered  "related" to a provider if it is deemed
to be controlled  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.

      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.

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.  Although numerous  companies,  many of which have resources greater
than the Company,  are  conducting  research in the area of drugs to promote the
healing of chronic wounds, to the Company's  knowledge,  no competitive products
are currently on the market that actively  promote  wound  healing.  The Company
believes  that the cost and  quality of wound  care  services  provided  are the
principal factors that affect competition.

      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. The Company is aware that other companies are developing products
which may be in direct competition with Procuren. There can be no assurance that


                                       11
<PAGE>

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, 1996, the Company employed 567 full-time employees,  of
which 423  employees  were in the wound care  operations,  85 employees  were in
Procuren  production,  22 employees  were in technical  support and 37 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 21,000 square foot
facility under a lease running  through 2002.  Given the current  utilization of
its facilities and its option for additional  space,  the Company  believes that
its  facilities  are adequate and suitable for its  operation.  The Company also
leases two regional offices for its wound care operations  totaling 3,000 square
feet, eight  freestanding  Wound Care Centers totaling 17,700 square feet and 16
production  facilities totaling 30,400 square feet. The Company's  facilities at
the hospital outpatient Wound Care Centers are owned or leased by the hospitals.

Item 3  Legal Proceedings

      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  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 $0.5  million of
which 50% was paid by the Company's insurer.

      The Company is also a party to other  litigation in the ordinary course of
business.  The Company does not believe that such litigation is likely to 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  over the  counter  on the  Nasdaq
National Market System and trades under the symbol "CURE".  As of March 1, 1997,
there were  approximately  275 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 set 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
                                             ----        ---
             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

             1995
             Fourth Quarter..........     $ 16 3/8    $ 12
             Third Quarter...........       17           8 3/8
             Second Quarter..........        9 3/8       5
             First Quarter...........        5 3/8       3 7/16




                                       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,
                                                                  ----------------------
                                                     1992        1993        1994        1995       1996
                                                     ---------------------------------------------------
                                                       (thousands, except per share and operating data)

<S>                                              <C>         <C>         <C>         <C>         <C>   

Statement of Operations Data:
Revenues ......................................   $ 24,572    $ 31,265    $ 40,567    $ 52,442    $67,395
Costs and operating expenses:
   Costs of products sales and services .......     12,365      16,637      20,478      26,189     37,828
                                                                                                   
   Selling, general and administrative ........     10,379      12,050      15,177      18,209     19,208
                                                                                                   
   Research and development ...................      6,667       7,852       6,480       4,143       --
   Restructuring charge .......................       --          --         1,684        --         --
                                                  --------    --------    --------    --------    -------
Total costs and operating expenses ............     29,411      36,539      43,819      48,541     57,036
                                                  --------    --------    --------    --------    -------
Income (loss) from continuing operations
   before interest income and minority
   interest ...................................     (4,839)     (5,274)     (3,252)      3,901     10,359
Interest income ...............................        998         549         306         528      1,344
Minority interest in net loss of
   consolidated subsidiary ....................        166         336         218        --         --
                                                  --------    --------    --------    --------    -------
Income (loss) from continuing operations.......     (3,675)     (4,389)     (2,728)      4,429     11,703
                                                                                                  
Income (loss) from discontinued operations ....         26        (188)     (4,545)       --         --
                                                  --------    --------    -------     --------    -------
                                                                                     
Income (loss) before income taxes .............     (3,649)     (4,577)     (7,273)      4,429
                                                                                                   11,703
Income taxes ..................................       --          --          --           219      1,008
                                                  --------    --------    --------    --------    -------
Net income (loss) .............................   $ (3,649)   $ (4,577)   $ (7,273)   $  4,210    $10,695
                                                  ========    ========    ========    ========    =======
Net income (loss) per common and
   common equivalent shares from:
      Continuing operations....................   $  (0.37)   $  (0.44)   $  (0.27)   $   0.39    $  0.90
      Discontinued operations .................       --         (0.02)      (0.46)       --         --
                                                  --------    --------    --------    --------    -------
        Total .................................   $  (0.37)   $  (0.46)   $  (0.73)   $   0.39    $  0.90
                                                  ========    ========    ========    ========    =======
Weighted average common and
   common equivalent shares outstanding .......      9,889       9,904       9,958      10,768     11,909

Operating Data:
Wound care facilities at end of period ........         42          56          63          84        123
Number of new patients ........................     11,508      16,235      22,529      30,023     38,699

Balance Sheet Data:
Working capital ...............................   $ 19,128    $ 11,709    $  7,267    $ 12,575    $45,760
Total assets ..................................     29,074      25,278      18,592      25,030     61,959
Long-term debts
   (including capital lease obligation) .......        202         515       1,254       1,198      1,044
Deficit........................................    (22,285)    (26,862)    (34,135)    (29,925)   (19,230)
Stockholders' equity ..........................     21,439      16,837       9,778      15,611     50,270
</TABLE>

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


                                       14
<PAGE>

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 105  hospital  outpatient  Wound Care  Centers in  operation  as of
December 31, 1996,  90 were  management  model Wound Care  Centers,  and 15 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 2% of the Company's revenues in 1996, 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 Restructuring and Realignment

      During  1994,  the Company  realigned  its  business  strategy to focus on
developing  and expanding its growing  wound care business  while  narrowing the
focus and scope of research and development of new  biopharmaceutical  products.
The primary goal of the Company's  new strategy is to be profitable  and enhance
the   Company's   long  term  growth   potential  by  devoting   financial   and
organizational  resources to expand its national  network of Wound Care Centers.
In order to ensure  that  sufficient  resources  were  available  to pursue this
strategy,   a  restructuring  of  Company   activities  was   implemented.   The
restructuring  included a  significant  reduction  in research  and  development
activities,   including  the  termination  of  15  research  personnel  and  the
termination of outside research contracts related to new drug discovery efforts.
Additionally,  the Company reduced its European development  activities with the
termination  of  four  people  responsible  for  the  development  of  strategic
alliances  for  future   products.   These   changes   enabled  the  Company  to
significantly reduce research and development  expenditures from $7.9 million in
1993 to $4.1  million  in 1995  and $0 in  1996.  The  1994  restructuring  also
included the  discontinuation  of the Company's business of establishing a wound
care  program in a  comprehensive  outpatient  rehabilitation  facility  and the
write-off of receivables related to this business.

      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 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


                                       15
<PAGE>

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.

      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.

      Fiscal Year 1994 vs. Fiscal Year 1995.  The Company's  revenues  increased
from  $40.6  million  in 1994 to $52.4  million  in 1995,  a 29%  increase.  The
increase  in  revenues  in 1995  over  1994  is  primarily  attributable  to the
operation of 84 wound care facilities at the end of 1995 compared with 63 at the
end of 1994 and a 13%  increase in revenues  at existing  wound care  facilities
related to volume  increases.  Total new  patients to the wound care  facilities
increased 33% from 22,529 in 1994  compared to 30,023 in 1995.  The total number
of new patients  receiving  Procuren  therapy  increased  16% from 5,899 in 1994
compared  to  6,854 in 1995;  however,  the  percentage  of  patients  receiving
Procuren  decreased from 26% in 1994 to 23% in 1995.  The Company  believes that


                                       16
<PAGE>

this decrease occurs as the local medical  community  becomes  familiar with the
services  offered by a Wound Care  Center and refers a broader  range of chronic
wound patients to the Wound Care Center for  treatment,  including more patients
with less severe  wounds which are less likely to be treated with  Procuren,  as
well as a lack of available reimbursement for Medicare patients.

      Costs of product sales and services  increased  from $20.5 million in 1994
to $26.2  million in 1995,  a 28%  increase.  Compared to 1994,  the increase is
attributable to additional staffing and operating expenses of approximately $4.8
million associated with the operation of the additional 21 wound care facilities
in 1995 and increased  volume at existing wound care  facilities.  Additionally,
the operation of an additional  five Procuren  production  facilities and volume
increases at existing production  facilities  increased costs approximately $0.6
million.  As a percentage  of revenues,  costs of product sales and services was
50% in 1994 and 1995.

      Selling,  general and administrative expenses increased from $15.2 million
in 1994 to $18.2  million in 1995,  a 20%  increase.  The  increase is primarily
attributable to additional staffing and operating expenses of approximately $2.3
million  associated  with the  growth in the wound  care  business  particularly
related to field support departments.  Additionally,  approximately $0.5 million
of the increase is attributable to provisions  recorded related to the Company's
guarantee  of  the  obligations  of  UltraMed,  Inc.,  See  Note L of  Notes  to
Consolidated  Financial  Statements  of the  Company.  Further,  legal  expenses
increased  $0.4 million  related to legal  proceedings,  increase in contracting
issues and general  corporate  matters.  As a percentage  of revenues,  selling,
general and  administrative  expenses  were 37% in 1994 compared to 35% in 1995.
The decrease  reflects the Company's ability to obtain leverage by spreading the
costs of its overhead structure over a broader revenue base.

      Research and development  expenses  decreased from $6.5 million in 1994 to
$4.1 million in 1995, a 37%  decrease.  The  decrease  was  attributable  to the
corporate  restructuring  of  research  and  development  implemented  in  1994,
including the  discontinuation of new  biopharmaceutical  drug discovery efforts
resulting  in a reduction in staffing and  operating  expenses of  approximately
$1.7  million.  Additionally,  during  1995 the  Company  implemented  a further
realignment  of  its  research  and   development   activities   which  included
discontinuation  of the CT-102  and CT-112  product  development  programs.  The
Company's  product  development  activities  are now  committed to the technical
support of Procuren.

      Income (loss) from continuing operations improved from a $2.7 million loss
in 1994 to net income of $4.4 million in 1995. The $7.1 million  improvement was
attributable  to a reduction  in research and  development  of $2.3  million,  a
restructuring  charge  in 1994  totaling  $1.7  million  and an  improvement  in
operating  margin  associated  with the revenue  growth and  economies  of scale
achieved from market growth.

Liquidity and Capital Resources

      Working  capital was $45.8  million at December 31, 1996 compared to $12.6
million at December  31,  1995.  Total cash,  cash  equivalents  and  marketable
securities  held-to-maturity  as of December 31, 1996 was $43.1  million and was
invested  primarily in highly  liquid money market funds,  commercial  paper and
government  securities.  The  ratio of  current  assets to  current  liabilities
increased  from 2.5:1 at December 31, 1995 to 5.3:1 at December  31,  1996.  The
increase in working  capital and  improvement  in the ratio of current assets to
current  liabilities  was  primarily  attributable  to the net proceeds of $22.6
million from the secondary  public offering of 1,437,500  shares of common stock
and net income for fiscal year 1996.

      Cash flows provided by operations for 1996 totaled $9.7 million  primarily
attributable  to the net income  for the  period.  Cash flows used in  investing
activities for 1996 totaled approximately $31 million primarily  attributable to
the excess of purchases of marketable  securities held to maturity over sales of
$28.5  million and  capital  expenditures  including  furniture,  equipment  and
leasehold  improvements  of $2.5  million.  Cash  flows  provided  by  financing
activities totaled $23.7 million for 1996 primarily attributable to net proceeds
of $22.6  million from the  secondary  public  offering  and  proceeds  from the
exercise of stock options.

      During  1996,  the  Company  experienced  a $4.5  million  increase in net
accounts  receivable  primarily  due to the increase in revenues and the average
number  of  days  receivables  were  outstanding  increased  from  49 days as of


                                       17
<PAGE>

December  31,  1995 to 59 days as of December  31,  1996.  Further,  compared to
December 31, 1995, the Company's accounts payable and accrued expenses increased
$2.5 million as of December 31, 1996.

      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. Further, the Company remains a guarantor of the
former  subsidiary's  revolving credit facility of 1.4 million dm (approximately
$1 million) and is obligated for any related interest payments.

      At December 31, 1996, the Company had available  approximately $14 million
of net operating loss  carryforwards and research credits for federal income tax
purposes.  Pursuant to the Tax Reform Act of 1986, the Company believes that the
use of these net operating  loss  carryforwards  in any  particular  year may be
limited as a result of changes in ownership which occurred in prior periods. See
Note H of Notes to Consolidated Financial Statements of the Company.

      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.

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:
      
<TABLE>
<CAPTION>
                                                                                         Page
                                                                                        Number
           <S>                                                                           <C>

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

            Consolidated Balance Sheets at December 31, 1996 and 1995 ........           F-2

            Consolidated Statements of Operations for each of the years ended
                    December 31, 1996, 1995 and 1994 ........................            F-3

            Consolidated Statements of Stockholders' Equity for each of the
                    years ended December 31, 1996, 1995 and 1994 ............            F-4

            Consolidated Statements of Cash Flows for each of the years ended
                    December 31, 1996, 1995 and 1994 ........................            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
</TABLE>

        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, 1996.




                                       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, 1997

                                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, 1997
-----------------         (Principal Executive Officer) and 
    John Vakoutis         Director    

/s/ John C. Prior        Senior Vice President Finance and        March 27, 1997
-----------------         Chief Financial Officer
    John C. Prior        (Principal Financial and Accounting
                           Officer) and Secretary

         
/s/ Gerardo Canet           Director                              March 27, 1997
----------------- 
    Gerardo Canet

/s/ Daniel Gregorie, MD     Director                              March 27, 1997
-----------------------
    Daniel Gregorie, MD

/s/ Lawrence C. Hoff        Director                              March 27, 1997
--------------------
    Lawrence C. Hoff

/s/ Timothy I. Maudlin      Director                              March 27, 1997
----------------------
    Timothy I. Maudlin

/s/ Gerard Moufflet         Director                              March 27, 1997
-------------------
    Gerard Moufflet

/s/ Lawrence J. Stuesser    Chairman of the Board and Director    March 27, 1997
------------------------ 
   Lawrence J. Stuesser


                                       
<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, 1997

                                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, 1997
    John Vakoutis          (Principal Executive Officer) and
                           Director

____________________      Senior Vice President Finance and       March 27, 1997
    John C. Prior          Chief Financial Officer
                           (Principal Financial and Accounting
                            Officer) and Secretary

____________________        Director                              March 27, 1997
    Gerardo Canet

________________________    Director                              March 27, 1997
    Daniel Gregorie, MD

________________________    Director                              March 27, 1997
    Lawrence C. Hoff

________________________    Director                              March 27, 1997
    Timothy I. Maudlin

________________________    Director                              March 27, 1997
    Gerard Moufflet

________________________    Chairman of the Board and Director    March 27, 1997
    Lawrence J. Stuesser


                                      
<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 (formerly Curative  Technologies,  Inc.
and subsidiaries) as of December 31, 1996 and 1995, and the related consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
three years in the period ended  December 31, 1996. Our audits also included the
financial   statement  schedule  listed  in  the  Index  as  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 presents fairly,
in all material respects, the consolidated financial position of Curative Health
Services,  Inc. and subsidiaries at December 1996 and 1995, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1996,  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
January 31, 1997

                                     F - 1
                                             
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                      
                                                                     December 31,  
                                                                  1996        1995   
                                                                 -------------------       
<S>                                                             <C>         <C>  
ASSETS                                                                  
   Cash and cash equivalents ................................   $  5,226    $  2,835
   Marketable securities held-to-maturity ...................     37,838       9,365
   Accounts receivable (less allowance of $941 and $514
      at December 31, 1996 and 1995, respectively)  .........     12,319       7,776
   Prepaid and other current assets .........................      1,022         820
                                                                --------    --------
      Total current assets ..................................     56,405      20,796
   Property and equipment, net ..............................      4,754       3,383
   Other assets .............................................        800         851
                                                                --------    --------  
      Total assets ..........................................   $ 61,959    $ 25,030
                                                                =========   ========   
LIABILITIES & STOCKHOLDERS' EQUITY
   Accounts payable .........................................   $  7,368    $  5,066
   Accrued expenses .........................................      3,137       2,992
   Capital lease obligations ................................        140         163
                                                                --------    --------
      Total current liabilities .............................     10,645       8,221    
   Long term debt                                                  1,000       1,000    
   Capital lease obligations                                          44         198
                                                                                                                              
   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,12,215,423 shares issued and
        outstanding (10,426,769 shares in 1995) .............        121         104
      Additional paid in capital ............................     69,421      45,474
      Deficit ...............................................    (19,230)    (29,925)
                                                                 --------    --------  
                                                                  50,312      15,653
      Subscription receivable ...............................        (42)        (42)   
                                                                 --------    --------                      
      Total stockholders' equity ............................     50,270      15,611    
                                                                 --------    --------                        
Total liabilities and stockholders' equity ..................   $ 61,959    $ 25,030
                                                                =========   =========                        

</TABLE>


                 See notes to consolidated financial statements
                                      F - 2

<PAGE>


                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,               
                                                                                      1996      1995       1994                 
                                               
                                                        
<S>                                                                                <C>        <C>         <C> 
                                                  
Revenues .......................................................................   $ 67,395   $ 52,442    $ 40,567
Costs and operating expenses:
   Costs of product sales and services .........................................     37,828     26,189      20,478
   Selling, general and administrative .........................................     19,208     18,209      15,177
   Research and development ....................................................       --        4,143       6,480
   Restructuring charge ........................................................       --         --         1,684
                                                                                     ------     ------      ------
      Total costs and operating expenses .......................................     57,036     48,541      43,819
Income (loss) from continuing operations before interest
   income and minority interest ................................................     10,359      3,901      (3,252)
Interest income ................................................................      1,344        528         306
Minority interest in net loss of consolidated subsidiary .......................       --         --           218
                                                                                     ------     ------      ------
Income (loss) from continuing operations .......................................     11,703      4,429      (2,728)
Loss from discontinued operations ..............................................       --         --        (4,545)
                                                                                     ------     ------      ------
Income (loss) before income taxes ..............................................     11,703      4,429      (7,273)
Income taxes ...................................................................      1,008        219        --
                                                                                     ------     ------      ------
Net income (loss) ..............................................................   $ 10,695   $  4,210    $ (7,273)
                                                                                     ======     ======      ======
Net income (loss) per common and common equivalent shares from:
   Continuing operations........................................................   $    .90   $    .39    $   (.27)
   Discontinued operations......................................................         --         --        (.46)
                                                                                      ------     ------      ------          
                                                                                   $    .90    $   .39    $   (.73)
                                                                                      ======     ======      ======          
Net income (loss) per common and common equivalent share assuming full dilution
   from:
   Continuing operations .......................................................   $    .89    $   .38    $   (.27)
   Discontinued operations .....................................................         --          --       (.46)
                                                                                      ------     ------      ------        
                                                                                   $    .89    $   .38    $   (.73)
                                                                                      ======     ======      ======         
Weighted average common and common equivalent shares
   outstanding .................................................................     11,909     10,768       9,958
                                                                                     ======     ======      ======          
Weighted average common and common equivalent shares
   assuming full dilution ......................................................     12,018     11,112       9,958
                                                                                     ======     ======      ======         
</TABLE>


                 See notes to consolidated financial statements
                                     F - 3
<PAGE>


               
                                                  
                              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, 1993  ......     9,909,094    $ 99     $ 43,757    $ (26,862)    $ (115)        $ (42)           $ 16,837
   Foreign currency
     translation adjustment ......                                                        (64)                              (64)
   Exercise of options ...........        98,250       1          196                                                       197
   Director share purchase program           342                    1                                                         1
   Shares issued for patent rights        17,000                   80                                                        80
   Net loss for 1994 .............                                          (7,273)                                      (7,273)
                                      ----------------------------------------------------------------------------------------------
                                                                                                              
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
                                      ==============================================================================================
</TABLE>

                 See notes to consolidated financial statements
                                     F - 4
<PAGE>


                               
                                                   
                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                    1996       1995      1994       
                                                                   ---------------------------
                    
<S>                                                            <C>         <C>         <C>
                     
OPERATING ACTIVITIES:
Net income (loss) ..........................................   $ 10,695    $  4,210    $ (7,273)
Adjustments to reconcile net income (loss) to net
  cash provided by (used in) continuing activities:
  Discontinued operations ..................................       --          --         4,545
  Depreciation & amortization ..............................      1,185         998       1,032
  Provision for doubtful accounts, net .....................        427         150         388
  Write-off of abandoned patent applications ...............       --           382        --      
  Minority interest in net loss of consolidated subsidiary..       --          --          (218)
  Non-cash restructuring charges ...........................       --          --           752
  Loss on sale of CTGmbH ...................................       --           111        --
Change in operating assets and liabilities:
  Increase in accounts receivable ..........................     (4,970)     (1,524)       (901)
  (Increase) decrease in prepaid and other current assets ..       (202)        324         (60)
  Increase in accounts payable and accrued expenses ........      2,527       1,297         225
                                                                 --------   --------        ---
NET CASH PROVIDED BY (USED IN) CONTINUING ACTIVITIES........      9,662       5,948      (1,510)
NET CASH USED IN DISCONTINUED ACTIVITIES ...................       --          --          (404)
                                                                 --------   --------        ---
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ........      9,662       5,948      (1,914)
INVESTING ACTIVITIES:
Deferred patent costs ......................................       --          --          (165)
Sale of CT GmbH ............................................       --          (286)        --
Purchases of property and equipment ........................     (2,505)     (2,001)       (612)
Purchases of marketable securities held-to-maturity ........    (38,923)    (12,418)     (3,820)
Sales of marketable securities held-to-maturity ............     10,450       5,861       5,909
                                                                --------   --------        ---
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ........    (30,978)     (8,844)      1,312
FINANCING ACTIVITIES:
Proceeds from loans and revolving line of credit ...........       --          --           403
Proceeds from exercise of stock options and warrants .......      1,252       1,401         198
Proceeds from secondary public offering, net of expenses ...     22,632        --           --
Principal payments on capital lease obligations ............       (177)       (143)       (139)
                                                                --------   --------         ---
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................     23,707       1,258         462
Effect of exchange rate changes on cash and cash equivalents       --            14         (51)
                                                                --------   --------         ---
                                                                                                                         
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...........      2,391      (1,624)       (191)
Cash and cash equivalents at beginning of year .............      2,835       4,459       4,650
                                                                --------   --------         ---
CASH AND CASH EQUIVALENTS AT END OF YEAR ...................   $  5,226    $  2,835    $  4,459
                                                                ========   ========       =====
SUPPLEMENTARY CASH FLOW INFORMATION:
  Interest paid ............................................   $     93    $    119    $    143
                                                                ========   ========       =====
See Notes E and F for Non-Cash Transactions
</TABLE>

                 See notes to consolidated financial statements
                                      F - 5


<PAGE>

                                              



                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996


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.  In August  1993,  the  Company  acquired  the
remaining  interest in another foreign  affiliate which was previously 50% owned
(See Note B).  The joint  venture  was  previously  accounted  for on the equity
method and effective with the acquisition,  the accounts were  consolidated.  As
part  of the  restructuring  of the  Company  in  1994  the  operations  of this
subsidiary were terminated.  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  (Loss)  per Common  Share:  Net income  (loss) per common and
common equivalent share is based on the weighted average number of common shares
outstanding  for  1995  and  1996  plus  dilutive   common  share   equivalents.
Outstanding warrants and options have not been included in the 1994 computations
as the effect of such would be antidilutive.

      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, 1995 and 1996,  other assets  consist of
costs associated with filing patent and trademark applications which totalled
$851,000 and $800,000, 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.




                                      F-6
<PAGE>





                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996
                                                

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

      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 1997, are valued at amortized cost which  approximates  market.
The  Company's  investment  policy  gives  primary  consideration  to  safety of
principal, liquidity and return. The Company invests its funds with institutions
that have high credit ratings and to date has not  experienced any losses on its
investments.   The  Company  follows  the  provisions  of  Financial  Accounting
Standards Board (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, 1995 and 1996, the Company had
approximately  $5,000 and $53,000 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).

      Reclassifications:  The  Company  has  reclassified  the  presentation  of
certain  information in the 1994 and 1995  financial  statements to conform with
the 1996 presentation format. This included the reclassification of $790,000 and
$936,000 in 1994 and 1995, respectively,  to cost of product sales and services,
those costs  associated  with the  Company's  laboratory  operations  previously
presented as selling, general and administrative expenses.

      Additionally,  the Company has classified costs of $1.9 million related to
technical services dedicated to the support of its platelet releasate technology
in cost of product  sales and services in 1996.  These costs were  classified as
research and  development in previous years since such costs were related to new
product  development and drug discovery.  In the Company's  continuing effort to
focus on its wound care  service  business,  during the second  half of 1995 the
Company  instituted a realignment of its business  activities which included the
discontinuance of further product research and development.


                                      F-7
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996



NOTE B -- ACQUISITIONS AND DIVESTITURES

      In August 1993, the Company  acquired the remaining 50 percent interest in
its foreign  affiliated  joint venture,  Curative  Technologies  S.A. (CTSA) for
$135,000  cash.  This joint venture was  previously  accounted for on the equity
method. Effective with this acquisition,  the accounts of CTSA were consolidated
and were immaterial to the Company's  results of operations.  As a result of the
acquisition,  $209,000  of  deferred  revenue,  related  to  the  1991  sale  of
co-marketing rights to its foreign affiliate, was realized in the 1993 statement
of operations.  This amount was net of previously  unrecognized equity in CTSA's
losses.  The proforma  results of  operations of CTSA for 1993 are not presented
due to the insignificant  impact on reported  results.  As part of the Company's
restructuring in 1994, the operations of this subsidiary were terminated and the
assets liquidated (See Note M).

      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 of approximately 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.

NOTE C -- PROPERTY AND EQUIPMENT

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

                                                          December 31,
                                                        1996        1995
                                                         (In thousands)
                                                         --------------

    Property and equipment ...........................   $5,616   $3,729
    Leased equipment capitalized .....................    1,371    1,511
    Leasehold improvements ...........................    2,653    1,895
                                                         ------   ------
                                                          9,640    7,135
    Less accumulated depreciation and amortization ...    4,886    3,752
                                                         ------   ------
                                                         $4,754   $3,383
                                                         ======   ======

NOTE D -- ACCRUED EXPENSES

    Accrued expenses are as follows:
                                                          December 31,
                                                        1996        1995
                                                         (In thousands)
                                                         --------------

    Incentive compensation and benefits.               $3,016     $2,445
    Research and technical service contracts              121        547
                                                          ---        ---
                                                       $3,137     $2,992
                                                        =====      =====


                                      F-8
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996


NOTE E -- LEASES

      The Company has entered into several  noncancellable  operating leases for
the rental of certain  office space  expiring in various years through 2002. 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 $28,442  escalating to $40,482 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, 1996:

                                                 Capital    Operating
                                                  Leases       Leases
                                                  ------       ------
                                                     (In thousands)
      1997.....................................    $ 150       $1,203
      1998.....................................       43        1,054
      1999 ....................................        7          993
      2000 ....................................        -          830
      2001.....................................        -          701
      Thereafter...............................        -          244
                                                      ---         ---
      Total minimum lease payments.............      200       $5,025
                                                                =====
      Less amounts representing interest.......      (16)
      Present value of net minimum lease payments
        ($140 current portion).................    $ 184
                                                     ===

      Equipment acquired under capital leases amounted to $0, $140,000 and $0 in
1996,  1995, and 1994,  respectively.  Rent expense for all operating leases was
$1,498,000,  $897,000 and $738,000 for the years ended  December 31, 1996,  1995
and 1994 respectively.

NOTE F -- STOCKHOLDERS' EQUITY

      Common Stock:  In March 1994,  the Company  issued 17,000 shares of common
stock in consideration  of patent rights related to its core platelet  releasate
technology.

      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. In 1994, 1995 and
1996, the Company  issued 342, 0, and 0 shares under the Program,  respectively.
At December 31, 1995 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.


                                      F-9
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996


NOTE F -- STOCKHOLDERS' EQUITY (Continued)

      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 a stock  option plan which  provides  for the  granting of
non-qualified  or incentive  options to employees,  directors,  consultants  and
advisors.  The  plan  authorized  granting  of up to  2,456,695  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 Financial
Accounting   Standard  No.  123,   "Accounting  for  Stock-Based   Compensation"
("Statement  123"),  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:  risk-free  interest rate of 6.36%; no dividend yields;  volatility
factor of the expected market price of the Company's  common stock of 62.2%; and
a  weighted-average  expected  life of the options of 4.0 years at December  31,
1996 and 1995.

      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:

                                            1996        1995
     Net Income:          As Reported        $10,695     $4,210
                          Pro Forma           10,088      4,126
     Primary EPS:         As Reported        $   .90     $  .39
                          Pro Forma              .85        .38
     Fully Diluted EPS:   As Reported        $   .89     $  .38
                          Pro Forma              .84        .37


                                      F-10
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996


NOTE G -- STOCK BASED COMPENSATION PLANS (Continued)

      As required by statement 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, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
                                           1996                              1995                              1994
                                    -----------------------------------------------------------------------------------------------
                                                 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    1,131,611    $ 6.37             1,333,784       $ 5.21            1,280,918      $ 5.19
Granted ........................      348,100     21.91               297,700         8.73              476,000        3.78
Exercised ......................     (248,546)     5.11              (396,280)        4.39              (98,250)       2.07
Cancelled ......................      (53,332)    10.98              (103,593)        5.33             (324,884)       5.20
                                  -------------                     ----------                       -----------
Outstanding at end of year .....    1,177,833     15.04             1,131,611         6.37            1,333,784        5.21
                                  =============                     ===========                      ===========
Exercisable at end of year .....      318,481                         315,238                           432,540
                                  =============                     ===========                      ===========
Weighted average fair value of
   options granted .............                 $11.64                             $ 4.66
                                                 ======                             ======
</TABLE>

      The following table summarizes information about stock options outstanding
at December 31, 1996:
                                                     Weighted Average
                     Options        Options          Remaining
    Exercise Price   Outstanding    Exercisable      Contractual Life (In Years)
    1.55 - 4.75      332,158        126,887             6.4
    4.875 - 7.00     354,042        122,092             6.9
    8.50 - 10.125    103,800        50,375              8.3
   13.25 - 20.00     186,233        19,127              9.2
   20.25 - 27.25     201,600          0                 9.5
                     -------        ------              ---
                   1,177,833       318,481              7.7
                   =========       =======              ===

      At December 31, 1996,  1,112,042  shares of common stock were reserved for
future issuance.

NOTE H -- INCOME TAXES

      The Company has available approximately $12 million and $26 million of net
operating loss carryforwards  (N.O.L.'s) and research credits as of December 31,
1996 and  1995,  respectively,  which may be used to  reduce  taxable  income in
future years. The aforementioned  net operating loss  carryforwards  include the
tax benefit of disqualifying  dispositions related to stock options, the benefit
of which will be  realized  through an equity  adjustment  by the Company in the
period in which the carryforwards  are fully utilized.  The utilization of these
losses to reduce future income taxes will depend on the generation of sufficient
taxable  income prior to the  expiration of the net operating  loss and research
credit carryforwards.  The carryforwards begin to expire in fiscal year 1999 and
will  continue  to expire  through  fiscal  year  2009.  Additionally,  based on
ownership  changes  which  occurred in prior  periods,  it is expected  that the
annual  utilization  of the otherwise  available net operating loss and research


                                      F-11
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996


credit  carryforwards  will be limited by the provisions of Sections 382 and 383
of the Internal Revenue Code, as amended. As such, the Company may be restricted
as to the utilization of its net operating loss and

NOTE H -- INCOME TAXES (Continued)

research credit  carryforwards  incurred prior to July 1991. There was no income
tax provision  for 1994.  The provision for income taxes for 1996 and 1995 is as
follows (in thousands):

                                                  1996       1995
                                                  ----       ----

       Federal                                $  4,553     $  1,161
       State                                       780          137
       Utilization of N.O.L.'s                  (4,325)      (1,079)
                                                ------      --------
       Total income tax provision             $  1,008     $    219
                                                 =====          ===

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

                                                  1996       1995
                                                  ----       ----

           Federal statutory tax rate             35.0%      34.0%
           State income taxes net
           of federal benefit                      4.0        2.0
           Tax benefits of N.O.L.'s              (30.0)     (31.0)
                                                 -----      -----
           Effective tax rate                      9.0%       5.0%
                                                   ===        ===

      The Company has recorded a net deferred  tax asset of  approximately  $5.6
and $12.0  million at December 31, 1996 and 1995,  respectively,  related to the
aforementioned net operating loss carryforwards and research credits.  Valuation
allowances at December 31, 1996 and 1995 of equal value have been recorded which
has the effect of reducing the carrying value of the deferred tax asset to zero.
The valuation  allowances at December 31, 1996 and 1995 are of equal value since
it is more likely than not that none of the net operating  loss will be utilized
due to the Company's  history of operating  losses and the uncertainty of future
profits. The valuation allowance decreased $6.4 million in 1996.

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 is a guarantor of this long-term
facility for up to 1.4 million dm  (approximately  $1.0 million  outstanding  at
December 31, 1996 and 1995).  In May 1995,  the Company sold its 62% interest in
its German  subsidiary.  As part of the sale agreement the Company  continues to
guarantee  the long term loan and has assumed  responsibility  for the  interest
payments on that loan (See Note B).

NOTE J -- MAJOR CUSTOMERS

      In 1994,  1995 and 1996, the Company  derived 17%, 24% and 28% of its
consolidated  revenues from one customer, respectively.

NOTE K -- DISCONTINUED OPERATIONS

      On February 22, 1994 (effective  January 1, 1994),  the Company divested a
wholly-owned subsidiary,  UltraMed, Inc. (UltraMed), through the sale of all the
issued and outstanding capital stock of UltraMed.  Prior to the sale, UltraMed's
principal  operations  consisted  of the sale  and  distribution  of wound  care
supplies and medical 


                                      F-12
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996


NOTE K -- DISCONTINUED OPERATIONS (Continued)

equipment  which  represented  the Company's  only  business in durable  medical
supplies  and  equipment.  The  purchase  price for the stock was $4.6  million,
representing the net book value of UltraMed plus advances owed the Company.  The
purchase price was payable pursuant to a promissory note, bearing interest at an
annual rate of 4%, payable in monthly installments associated with the cash flow
of the business but to be paid not later than December 31, 1996.

      The note was secured by a stock  pledge  executed by the buyer in favor of
the  Company,  and a  guarantee  and  security  agreement  executed  by UltraMed
covering the assets of the business.  In addition,  the Company has provided the
buyer with certain indemnifications.

      As a result of the divestiture,  the consolidated  financial statements as
of and for the year ended December 31, 1994, reflected the results of operations
for UltraMed as discontinued. Due to changes in Medicare reimbursement including
fee schedule reductions and changes in product coverage  requirements and a U.S.
Department of Justice legal action and settlement  (See Note L), the business of
UltraMed was adversely affected. In view of those events, the Company recorded a
charge of $4.5 million during the second quarter of 1994 principally  related to
the impairment of the note receivable.

NOTE L -- 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 (See Note K).

      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  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 M -- RESTRUCTURING CHARGE

      The Company  recorded a  corporate  restructuring  charge of $1.7  million
during the second quarter of 1994. The restructuring plan included a significant
reduction  in  research  and  development  activities,   reduction  in  European
development  activities,  as well as a general reorganization of resources which
was approved by management in June 1994 and  substantially  completed by the end
of 1994.


                                      F-13
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996


NOTE M -- RESTRUCTURING CHARGE (Continued)

      The  restructuring  included the termination of 15 research  personnel and
the  termination  of outside  research  contracts  related to new drug discovery
efforts.  Additionally,  the Company reduced its European development activities
with the  termination of 4 people  responsible  for the development of strategic
alliances  for  future  products.   Further,  the  restructuring   included  the
discontinuance of the Company's business of establishing a wound care program in
a comprehensive outpatient rehabilitation facility.

      The  restructuring  charge  included  approximately  $500,000 for employee
severance  and  related  costs,  $363,000  related  to  property  and  equipment
write-offs,  $348,000  related to research  contract  terminations,  $113,000 in
provisions for leases and other facility  obligations and $120,000 for legal and
other professional fees associated with the restructuring and reorganization for
the  Company's  operations.  Also  included  is a  charge  of  $240,000  for  an
uncollectible advance associated with the Company's efforts to establish a wound
care program in a comprehensive outpatient rehabilitation facility. The employee
severance  costs  principally  covered a reduction  of personnel in research and
development and European administration. The amount of benefits paid in 1994 was
$100,000 covering 19 terminated  employees.  The amount of benefits paid in 1995
was $370,000.  The  restructuring  charges included  $932,000 of costs requiring
cash  expenditures  and  the  remaining   $752,000  includes  costs  related  to
write-offs and provisions which did not have cash requirements.



                                      F-14
<PAGE>


                                                                     Schedule II

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                          YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>


       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

<S>                                    <C>                <C>              <C>            <C>                <C>   

Year ended December 31, 1996
Allowance for doubtful accounts .....  $  514,000         $   782,000      $ -            $(355,000)(3)      $   941,000
                                       ============       =============    ====           =============      ===========   
Allowance for deferred tax valuation   $12,000,000        $(6,400,000)     $ -            $    -             $ 5,600,000
                                       ============       =============    ====           =============      ===========
                                                                                                                          

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)(2)$ -            $  --              $12,000,000
                                       ===========        ================ ====           =========          ===========
                                                                                                                         

Year ended December 31, 1994
Allowance for doubtful accounts .....  $   --             $     388,000    $ -            $ (24,000)(1)      $   364,000
                                       ============       =============    ====         ===============       ==========
Allowance for deferred tax valuation$   9,600,000$             2,900,000(2)$ -            $    --            $12,500,000 
                                       ============       ================ ====         ===============      ===========
                                                                                                                                 

(1)  Accounts written off during 1994
(2)  Offset by (decrease) increase in net deferred tax assets
(3)  Accounts written off during 1996

</TABLE>



                                      
<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                               (10)

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

 4.2    Form of Amendment and Waiver of Stock Purchase Agreement,
        Shareholders' Agreement and Shareholder Control Agreement,
        dated April 8, 1991, among the Company               
        and certain shareholders                                   (1) (Ex. 4.5)

10.1    Master Lease, dated as of December 30, 1988, between Equitec
        Leasing Company and the Company                           (1) (Ex. 10.1)

10.2    Warrant, dated as of December 31, 1990, from the Company to
        Pacificorp Credit, Inc. dba Pacific Venture Finance, Inc. (1) (Ex. 10.4)

10.3    Development and Manufacturing Agreement, dated as of
        November 30, 1990, between the Company and New York
        Blood Center, Inc.                                        (1) (Ex. 10.5)

10.4    License Agreement, dated as of November 30, 1990, between the
        Company and New York Blood Center, Inc.                   (1) (Ex. 10.6)

10.5    Shareholders Agreement, dated September 21, 1990, among the
        Company, Dilpi. Befriebswirt Wilhelm Bayatrz, Prof. Dr. Hans
        Winkelmann and Curative Technologies GmbH                 (1) (Ex. 10.7)

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

10.7    Support Agreement dated as of September 21, 1990, between
        Curative Technologies GmbH and the Company                (1) (Ex. 10.9)

10.8    Shareholders Agreement, dated November 16, 1990, between
        the Company and Espace Diversifications S.A.             (1) (Ex. 10.10)

10.9    Technology Transfer Agreement, dated February 5, 1991, between
        the Company and Curative Technologies S.A.               (1) (Ex. 10.11)

10.10   Trademark License Agreement, dated February 5, 1991, between
        the Company and Curative Technologies S.A.               (1) (Ex. 10.12)

10.11   Development and Manufacturing Agreement, dated November
        16, 1990, between the Company and Foundation Nationale
        de Transfusion Sanguine (FNTS)                           (1) (Ex. 10.13)
<PAGE>

10.12   Manufacturing Agreement, dated January 22, 1991, among the
        Company, Curative Technologies S.A. and FNTS             (1) (Ex. 10.14)

10.13   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)

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

10.15   Consulting Agreement, dated March 29, 1991, between David R.
        Knighton and the Company                                 (1) (Ex. 10.20)

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

10.17   Employment Agreement, dated as of October 1, 1990, between
        Russell B. Whitman and the Company and related forms of
        stock options                                          (1) (Ex. 10.22)**

10.17.1 Transition and Consulting Agreement, dated as of June 15, 1995,
        between Russell B. Whitman and the Company                          (13)

10.18   Employment Agreement, dated as of March 6, 1989, between
        Gerardo Canet and the Company and related forms of     
        stock options                                          (1) (Ex. 10.23)**
 
10.19   Employment Agreement, dated as of August 20, 1987, between
        Ronald G. Duff and the Company                         (1) (Ex. 10.24)**

10.20   Employment Agreement, dated as of July 6, 1987, between
        John C. Prior and the Company                          (1) (Ex. 10.25)**

10.21   Employment Agreement, dated as of April 17, 1989, between
        Kathleen Kelleher and the Company                      (1) (Ex. 10.26)**

10.22   Employment Agreement, dated as of November 21, 1991, between
        Kerstin B. Menander and the Company                                (5)**

10.23   1991 Stock Option Plan                                 (1) (Ex. 10.27)**

10.24   Amendment No. 1 to the 1991 Stock Option Plan,                     (2)**
        Amendment No. 2 to the 1991 Stock Option Plan and
        Amendment No. 3 to the 1991 Stock Option Plan

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

10.25.1  Amendment to Stock Subscription Warrant for Shares of Common
         Stock of Curative Technologies, Inc.                               (12)

10.26   Letter Agreement, dated November 29, 1990, between the Company
        and FNTS                                                 (1) (Ex. 10.29)

10.27   Agreement between the Company and Knighton Clinic of
        Reparative Medicine, P.A.                                            (5)
<PAGE>

10.28   Consulting Agreement dated as of November 1, 1992, by and
        between Embro Corporation, David R. Knighton and the Company         (5)

10.29   Research Agreement dated January 1, 1993, by and between the
        Company and Embro Corporation                                        (5)

10.29.1 Termination Letter Agreement dated October 14, 1994, by and among
        Embro Corporation, David R. Knighton and the Company                 (9)

10.30   Asset Purchase Agreement, dated June 24, 1992, among the Company,
        UniqMed, Inc., Robert S. Baurys II, and UltraMed, Inc.               (3)

10.31   Stock Purchase Agreement by and among UM Acquisition Corporation
        and Curative Health Services, Inc., dated February 22, 1994 and
        related agreements                                                   (4)

10.32   Employment Agreement, dated as of October 21, 1993, between
        Howard Jones and the Company                                       (7)**

10.33   Purchase Agreement among the Company, Curative Technologies S.A.
        and FNTS                                                             (7)

10.34   Curative Health Services, Inc., Director Share Purchase Program    (6)**

10.35   Curative Health Services, Inc. Employee 401(k) Savings Plan, as amended
        and restated                                                       (8)**

10.36   Settlement Agreement by and between the University of California,
        David R. Knighton and the Company dated September 1, 1993            (9)

10.37     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                                                         (9)

10.38   Employment Agreement dated as of October 26, 1994, between
        John Vakoutis and the Company                                      (9)**

10.38.1 Amendment of Employment Agreement, dated July 25, 1995
        between John Vakoutis and the Company                             (13)**

10.39   Employment Agreement dated as of  June 11, 1987, between
        Judith Connell and the Company                                     (9)**

10.40   Employment Agreement dated as of August 1, 1989, between
        Carol Gleber and the Company                                       (9)**

10.41   Employment Agreement dated as of June 17, 1987, between
        Gary Jensen and the Company                                        (9)**

10.42    Memorandum of Understanding - Settlement of Shareholder Lawsuit    (13)

10.43    Final Judgment and Order of Dismissal with Prejudice of Class Action  *
<PAGE>

10.44    Curative Technologies, Inc. Non-Employee Stock Option Plan         (11)

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 quarters ended June 30, 1992,  June 30, 1993
      and June 30, 1996.
(3)   Incorporated by reference to Exhibit  7(C)(2) to the Company's  Current 
      Report on Form 8-K dated June 24, 1992.
(4)   Incorporated  by reference  to Exhibit  7(C)(1) to the  Company's  Current
      Report on Form 8-K dated February 22, 1994.
(5)   Incorporated  by  reference  to the  similarly  numbered  exhibit  (unless
      otherwise indicated) to the Company's Annual Report on Form 10-K filed for
      the year ended December 31, 1992.
(6)   Incorporated  by reference to the Company's Registration Statement on Form
      S-8 (filed July 7, 1993, No. 33-65710).
(7)   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,
      1993.
(8)   Incorporated  by reference to the Company's  Registration Statement on 
      Form S-8 (filed  October 13, 1994, No. 33-85188).
(9)   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.
(10)  Incorporated by reference to similarly  numbered  exhibit to the Company's
      Current Report on Form 8-K dated November 6, 1995.
(11)  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.
(12)  Incorporated by reference to the similarly numbered Exhibit filed with the
      Company's  Quarterly  Report on Form 10-Q for the quarter  ended March 31,
      1996.
(13)  Incorporated  by reference  similarly  numbered  Exhibit to the  Company's
      Annual Report on Form 10-K filed for the year ended December 31, 1995.

<PAGE>

                                                                   Exhibit 10.43

                         IN THE UNITED STATES DISTRICT COURT
                          EASTERN DISTRICT OF NEW YORK
---------------------------------------------------------X

HARRY H. JACOBS,

                            Plaintiff,                   Master File No.
                                                         94-CV-2923 (TCP)
            - against -

CURATIVE TECHNOLOGIES, INC.,
RUSSELL B. WHITMAN and JOHN C. PRIOR,

                            Defendants.

-----------------------------------------------------------X

                      FINAL JUDGMENT AND ORDER OF DISMISSAL
                         WITH PREJUDICE OF CLASS ACTION

            A. The  above-captioned  class action  litigation is pending in this
            Court on behalf of: All  purchasers  of the common stock of Curative
            between  March 31,  1993 and June 20,  1994,  inclusive  (the "Class
            Period"),  excluding Curative, its subsidiaries and affiliates,  the
            other  Defendants and members of their immediate  families,  and the
            heirs,  successors-in-interest or assigns of any such Defendant (the
            "Class").

            B. The parties  have  proposed to settle  their  differences  as set
forth in the Stipulation and Agreement of Compromise and Settlement, dated as of
July 24, 1996 (the "Settlement Agreement") and attached exhibits.
            C.  Plaintiff's  Counsel  have  caused a Notice of Pendency of Class
Action,  Class  Action  Determination,  Proposed  Settlement  of  Class  Action,
Settlement  Hearing and Right to Appeal (the "Notice") to be sent to all persons
who may be the Settlement. On September 27, 1996, Plaintiffs published a Summary
Notice of Hearing on Proposed  Settlement of Class Action (the "Summary Notice")
in  the  national  edition  of  The  Wall  Street  Journal.   Affidavits  and/or
<PAGE>

declaration  of mailing of the Notice and  publishing of the Summary Notice were
filed with the Court on November 26, 1996.
            This Court has  considered  the arguments of counsel,  the documents
described above, all other  pleadings,  papers and files herein,  and has held a
hearing to permit  persons  opposed to the Settlement to make their views known.
Good cause appearing therefor, IT IS HEREBY ORDERED AS FOLLOWS:
            1. The Court finds that: (a) the members of the Settlement Class are
so numerous that joinder of all Class  Members in this action is  impracticable;
(b) there are  questions  of law and fact  common  to the  Class  Members  which
predominate over any individual  issues; (c) the claims or defenses of the Class
Plaintiff  is  typical  of the claims or  defenses  of the Class;  (d) the Class
Plaintiff and his counsel have fairly and adequately  protected the interests of
the Class;  (e) the prosecution of separate  actions by individual Class Members
would create a risk of  inconsistent  or varying  adjudications  with respect to
individual Class Members; (f) the prosecution of separate actions would create a
risk of  adjudications  with respect to individual Class Members that would as a
practical  matter be dispositive of the interests of the other members;  and (g)
the Defendants have acted or refused to act on grounds  generally  applicable to
the Class.
            2. The  Settlement  Class,  as defined  above and in the  Settlement
Agreement, is hereby certified as all purchasers of the common stock of Curative
between March 31, 1993 and June 20, 1994,  inclusive,  excluding  Curative,  its
subsidiaries and affiliates, the other Defendants and members of their immediate
families,  and  the  heirs,   successors-in-interest  or  assigns  of  any  such
Defendant.
            3. The Notice  provided to potential  Class Members  constitutes the
best notice  practicable under the circumstances and includes  individual notice
<PAGE>

to all  Class  Members  who  could  be  identified  by  reasonable  effort.  The
affidavits or  declarations  of mailing and publishing  filed with this Court on
November 26,  1996,  demonstrate  that this  Court's  orders with respect to the
Notice  have been  complied  with and further  that the best notice  practicable
under  the  circumstances  was in fact  given  and  constituted  valid,  due and
sufficient  notice to the Class  Members,  complying  fully with due process and
Rule 23 of the Federal Rules of Civil Procedure.
            4.    For purposes of this Final Judgment, the Court adopts and 
incorporates the definitions in the Settlement Agreement.
            5.  This  Court  has  jurisdiction  of the  subject  matter  of this
litigation, of all actions within this litigation,  and over all parties to this
litigation, including all Class Members.
            6.    The proposed Settlement is hereby approved as fair, reasonable
and adequate.
            7.    The Court hereby decrees that neither the Settlement, nor this
Final Judgment, nor the fact of Settlement constitute an admission or concession
by any Defendant of any liability or wrongdoing whatsoever.  The Final Judgment 
is not a finding of the validity or invalidity of any claim asserted in the
Action, or of any wrongdoing by any  Defendant.  Neither the  Settlement,  nor 
this Final  Judgment,  nor the Settlement  negotiations,  nor  the  Settlement 
proceedings,  nor  the  fact of Settlement,  nor  any  documents  related  to 
the  Settlement  shall  be used or construed as an admission of any fault,
liability or wrongdoing by any person or entity, or shall be offered or received
in evidence as an admission, concession, presumption  or inference  against any 
party in any  proceeding  other than such proceedings as may be necessary to 
consummate or enforce the Settlement.
            8. The names and  addresses  of all persons and  entities who made a
timely  request to be excluded from the Class,  and are therefore not members of
the Class are set forth in Exhibit A.
<PAGE>

            9. This Action is hereby  dismissed in accordance  with the terms of
the  Settlement  Agreement,  without costs (except as provided in the Settlement
Agreement)  and  upon  the  merits  and with  prejudice  and in full  and  final
discharge of any and all claims of Class Plaintiff and Class Members.
            10. The  Released  Parties  are hereby  released  from the  Released
Claims,  as defined in the  Settlement  Agreement.  "Released  Claims" means and
includes  any and all claims,  whether  known or unknown and whether  based upon
federal or state law,  statute or common law,  against the  Defendants or any of
them, or any of their present or former officers, directors, managing directors,
employees,  agents,  attorneys,  financial  advisors,  insurers,   underwriters,
selling  group  members,   investment  bankers,   representatives,   affiliates,
associates,   parents,   subsidiaries,   general   and  limited   partners   and
partnerships,  heirs,  executors,  administrators,  successors  and assigns (the
"Released Parties"), and whether bought directly, individually, representatively
or in any other capacity,  in connection with, or that arise out of or relate to
(a) the purchase of the common  stock of Curative by a Class  member  during the
Class Period,  or (b) any act, or failure to act,  omission,  misrepresentation,
fact,  event,  transaction,  occurrence,  or other  matter set  forth,  alleged,
embraced,  underlying  or  otherwise  referred  to,  or which  could  have  been
asserted, alleged, embraced or complained of, in the Amended Complaint.
            11. It is expressly determined,  within the meaning of Rule 54(b) of
the Federal Rules of Civil  Procedure that there is no just reason for delay and
the entry of this judgment is hereby expressly directed.
            12. Plaintiff's  Counsel in the action are hereby awarded attorneys=
fees in the amount of $150,000.00 to be paid in accordance with the terms of the
Settlement Agreement.
<PAGE>

            13.   Plaintiff's  Counsel in  the action  are  hereby awarded
reimbursement  of expenses in the amount of  $10,000.00 to be paid in accordance
with the terms of the Settlement Agreement.
Dated:        December 6, 1996
                                                   /s/  Thomas C. Platt
                                                                 U.S.D.J.
<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.

<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 January 31, 1997,
with respect to the consolidated financial statements and schedule of Curative
Health Services, Inc. and subsidiaries (formerly Curative Technologies, Inc.)
included in the Annual Report (Form 10-K) for the year ended December 31, 1996.


                                          /s/ Ernst & Young LLP

Melville, New York
March 27, 1997