SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
CURATIVE HEALTH SERVICES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
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[CURATIVE LOGO]
April 28, 2005
Dear Fellow Shareholders:
On behalf of the Board of Directors and management, I cordially invite you to
attend the Annual Meeting of Shareholders of Curative Health Services, Inc. to
be held at 10:00 a.m., Eastern Standard Time on Wednesday, June 1, 2005 at the
Sheraton Nashua Hotel, 11 Tara Boulevard, Nashua, New Hampshire.
The notice of meeting and proxy statement accompanying this letter describe the
specific matters to be considered and voted upon at the Annual Meeting.
In addition to the specific matters to be acted upon, there will be a report on
the progress of the Company and an opportunity for questions of general interest
to the shareholders.
Please give this information your careful consideration. It is important that
your shares be represented at the meeting. Whether or not you plan to attend in
person, you are requested to vote, sign, date and promptly return the enclosed
proxy in the envelope provided.
Best regards,
/s/ Paul F. McConnell
-------------------------------------
Paul F. McConnell
President and Chief Executive Officer
CURATIVE HEALTH SERVICES, INC.
CORPORATE HEADQUARTERS
150 MOTOR PARKWAY
HAUPPAUGE, NY 11788
April 28, 2005
To Holders of the Common Stock of
CURATIVE HEALTH SERVICES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The 2005 Annual Meeting of Shareholders of Curative Health Services, Inc.
will be held on Wednesday, June 1, 2005 at 10:00 a.m., Eastern Standard Time, at
the Sheraton Nashua Hotel, 11 Tara Boulevard, Nashua, New Hampshire, for the
following purposes:
(1) To nominate and elect nine (9) directors for terms expiring at the
2006 Annual Meeting of Shareholders and until their successors are
duly elected and qualified;
(2) To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors; and
(3) To transact such other business as may properly come before the
meeting.
It is important that your stock be represented at the meeting regardless
of the number of shares that you hold. Whether or not you plan to attend the
meeting in person, please complete, sign and date the enclosed proxy and return
it promptly in the accompanying postage-paid envelope.
By Order of the Board of Directors
/s/ Nancy F. Lanis
-----------------------------------
Nancy F. Lanis, Esq.
Secretary
CURATIVE HEALTH SERVICES INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Curative Health Services, Inc. (the
"Company"), for use at the Annual Meeting of Shareholders (the "Meeting") to be
held Wednesday, June 1, 2005 at 10:00 a.m., Eastern Standard Time, at the
Sheraton Nashua Hotel, 11 Tara Boulevard, Nashua, New Hampshire 03062, and any
adjournment thereof, for the purposes set forth in the Notice of Meeting. The
shares represented by proxies in the form solicited will be voted in the manner
indicated by the shareholder. In the absence of instructions, the proxies will
be voted for the election of the nominees named in this Proxy Statement and for
the ratification of the appointment of the Company's independent auditors, and
in accordance with the judgment of the persons named in the proxy as to any
other matters that properly come before the Meeting.
The mailing address of the executive office of the Company is 150 Motor
Parkway, Hauppauge, New York 11788. This Proxy Statement and the enclosed proxy
are being furnished to shareholders of the Company on or about April 28, 2005.
Returning your completed proxy will not prevent you from voting in person
at the Meeting should you be present and wish to do so. You may revoke your
proxy any time before it is exercised at the Meeting by written notice to the
Secretary of the Company, by the return of a new proxy to the Company, or by
voting in person at the Meeting. Shares voted as abstentions on any matter (or a
"withhold vote for" as to directors) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum at the
Meeting and as unvoted, although present and entitled to vote, for purposes of
determining the approval of each matter as to which the shareholder has
abstained. If a broker submits a proxy which indicates that the broker does not
have discretionary authority as to certain shares to vote on one or more
matters, those shares will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum at the Meeting, but
will not be considered as present and entitled to vote with respect to such
matters.
Shareholders of record at the close of business on April 8, 2004 are
entitled to notice of and to vote at the Meeting. The issued and outstanding
capital stock of the Company entitled to vote as of April 8, 2005 consisted of
12,984,798 shares of common stock, $.01 par value per share (the "Common
Stock"). Each issued and outstanding share of Common Stock is entitled to one
vote.
A copy of the Company's Annual Report for the year ended December 31, 2004
is being furnished to each shareholder with this Proxy Statement.
PROPOSAL #1
ELECTION OF DIRECTORS
Section 3.02 of the Company's bylaws provides that the number of members
of the Board of Directors shall be six or such other number as shall be
determined from time to time by resolution of the Board of Directors or the
shareholders. The Board of Directors has by resolution set the number of
directors at nine.
The Company's bylaws provide that directors shall be elected at the annual
meeting of shareholders. Nine directors are to be elected at the Meeting, each
to hold office until the next Annual
1
Meeting of Shareholders and until his successor is elected and qualified. In
accordance with a recent change in Minnesota law, the nominees for election as
directors at the Meeting will be elected by a plurality of the votes cast at the
Meeting. This means that since shareholders will be electing nine directors, the
nine nominees receiving the highest number of votes will be elected. Votes
withheld from one or more director nominees will have no effect on the election
of any director from whom votes are withheld. Cumulative voting is not
permitted. The persons named in the accompanying proxy will vote for the
election of the nominees described herein, unless authority to vote is withheld.
The Board of Directors has been informed that each of the nominees has consented
to being named as a nominee and is willing to serve as a director if elected;
however, if any nominee should decline or become unable to serve as a director
for any reason, the proxy may be voted for such other person as the proxies
shall, in their discretion, determine.
The following table lists the persons to be nominated for election as
directors and their offices in the Company, if any:
NAME POSITION
---- --------
Timothy I. Maudlin Chairman of the Board
Paul F. McConnell Director, President and Chief Executive Officer
John C. Prior Director, Chief Operating Officer
Paul S. Auerbach, MD Director
Daniel E. Berce Director
Peter M. DeComo Director
Lawrence P. English Director
Joseph L. Feshbach Director
Gerard Moufflet Director
Set forth below is certain information about each nominee for director of
the Company, including each such person's name, age and principal occupations
for the last five years.
Timothy I. Maudlin, 54, a co-founder of the Company, became Chairman of
our Board of Directors in February, 2005. He has been a director of the Company
since 1984, and served as Secretary of the Company from November 1984 to
December 1990. Mr. Maudlin also served as President of the Company from November
1984 through December 1986. Mr. Maudlin has been the Managing Partner of Medical
Innovation Partners, a venture capital firm, since 1988 and since 1982 he has
been an officer of the affiliated management company of Medical Innovation
Partners. Mr. Maudlin also served as a Principal of Venturi Group LLC, an
incubator and venture capital firm, from 1999 to October 2001, and as Chief
Financial Officer of Venturi Group LLC from October 2001 into 2002. Currently,
Mr. Maudlin also serves as a director of several private companies. Mr. Maudlin
is a certified public accountant and holds a B.A. degree from St. Olaf College
and a Masters of Management degree from the Kellogg School of Management at
Northwestern University.
Paul F. McConnell, 51, has been the President and Chief Executive Officer
of the Company since November 2004, and a director of the Company since April
2004. Mr. McConnell founded Critical Care Systems, Inc. in 1991 and served as
President and Chief Operating Officer of the Company from April 2004 through
November 2004, following the acquisition of Critical Care Systems, Inc. by the
Company. Mr. McConnell has more than 25 years of healthcare experience,
primarily in the home infusion industry. Previously, Mr. McConnell held
management positions with Critical Care America, including Vice President of New
Market Development. Mr. McConnell was also a founder of the national home
infusion therapy company, Chartwell Home Therapies, where he managed sales,
marketing and operations. Prior to this, he held sales management and hospital
sales positions in the pharmaceutical industry. Mr.
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McConnell holds a B.S. degree in Biology from Bates College and a B.S. degree in
Pharmacy from the Massachusetts College of Pharmacy and Health Sciences.
John Prior, 51, has been Chief Operating Officer of the Company since
November 2004, and has been a director of the Company since April 2001. Mr.
Prior served as President of the Company's Wound Management Services business
unit, from March 2001 through November 2004. He also served as Executive Vice
President and General Manager of the Company from September 2000 to March 2001,
and as Interim Chief Executive Officer from March 2001 to September 2001. From
August 1995 until September 2000, Mr. Prior served as Senior Vice President,
Finance and Chief Financial Officer. From February 1991 to August 1995, Mr.
Prior served as Vice President of Finance, and he was Secretary from October
1993 until September 2001. From July 1987 to February 1991 he served as
Controller of the Company. From 1979 to 1987, Mr. Prior held a variety of
positions in the Health Care Auditing/Consulting Group of KPMG Peat Marwick and
was promoted to Senior Manager in 1984. He is a Certified Public Accountant and
a member of the American Institute of Certified Public Accountants.
Paul S. Auerbach, M.D., M.S., 54, has been a director of the Company since
February 2000. Since March 2005, he served as Clinical Professor of Surgery,
Division of Emergency Medicine, Stanford University Medical Center. From August
2003 to May 2004, Dr. Auerbach served as Chief Operating Officer of KAI
Pharmaceuticals, Inc., a private biotechnology company, and from May 2004
through March 2005, he served as an independent consultant to a number of
companies. From October 1999 to 2003, Dr. Auerbach served as a Venture Partner
with Delphi Ventures, a venture capital firm. From 1997 until 1999, Dr. Auerbach
served as Chief Operating Officer of MedAmerica, a private company, and from
1995 to 1996, he served as Chief Operating Officer of Sterling Healthcare Group,
a publicly traded company. Prior to that, Dr. Auerbach was Professor and Chief
of Emergency Medicine at Stanford University Medical Center and, prior to that,
held the same positions at Vanderbilt University Medical Center.
Daniel E. Berce, 51, has been a director of the Company since February
2000. Since April 2003, Mr. Berce has served as President of AmeriCredit Corp.,
a publicly traded finance company, and since 1990 Mr. Berce has served as a
director of AmeriCredit Corp. From November 1996 until April 2003, he served as
Vice Chairman and Chief Financial Officer of AmeriCredit Corp. From November
1994 until November 1996, Mr. Berce served as Executive Vice President, Chief
Financial Officer and Treasurer of AmeriCredit Corp. and from May 1990 until
November 1994, he served as Vice President, Chief Financial Officer and
Treasurer of AmeriCredit Corp.. Prior to joining AmeriCredit, he was a partner
with Coopers & Lybrand for four years and was with such firm for fourteen years.
Mr. Berce is a certified public accountant. Mr. Berce is a director of AZZ
Incorporated, a publicly held company that manufactures specialty electronic
equipment and provides galvanizing services to the steel fabrication industry.
Peter M. DeComo, 57, has been a director of the Company since January
2004. Mr. DeComo was a co-founder of Renal Solutions, Inc. in August, 2000 and
currently serves as its Chairman and Chief Executive Officer. From June 1999
until June 2000, Mr. DeComo was the Chief Operating Officer of HemoTherapies
Inc., the license partner to HemoCleanse Inc. for the Liver Dialysis System.
From June 1996 until May 1999, Mr. DeComo was Senior Vice President of the
Infusion Therapy/Biotech Operating Division for Olsten Health Services, now a
part of the specialty pharmacy business of Accredo Health. Mr. DeComo has held
numerous senior level positions in the health care industry specializing in the
provision of specialized products and services to patients in the home setting.
Lawrence P. English, 64, has been a director of the Company since May
2000. Since June 2000, Mr. English has been the Chief Executive Officer and a
director of QuadraMed Corporation, a publicly traded healthcare information
technology company. Since December 2000, Mr. English has been
3
Chairman of the Board of QuadraMed. As of January 5, 2005, QuadraMed
consolidated the executive officer positions of Chief Executive Officer and
Chief Operating Officer, and Mr. English assumed the roles of President and
Chief Operating Officer. Mr. English was the Founder and Chief Executive Officer
of Lawrence P. English, Inc., a private turn-around management firm, from
January 1999 to June 2000. He was the Chairman of the Board and Chief Executive
Officer of Aesthetics Medical Management, Inc., a physician practice management
company for plastic surgeons, from July 1997 to January 1999. Until he resigned
in September 2002, he served as Director of Clarent Hospital Corporation,
formerly Paracelsus Healthcare Corporation, since May 1999 and as the
Non-Executive Chairman of the Board since February 2000. From March 1992 to
August 1996, Mr. English was President of CIGNA HealthCare, one of the nation's
largest health maintenance organizations. Prior to 1992, Mr. English held
numerous senior level positions at CIGNA. Mr. English was a member of the
Jackson Hole Group and a founder of the Allegiance for Managed Care. Mr. English
possesses a Bachelor of Arts degree from Rutgers University and a Masters of
Business Administration from George Washington University, and is a graduate of
Harvard Business School's Advanced Management Program.
Joseph L. Feshbach, 51, has been a director of the Company since February
2000, and served as our Chairman of the Board from November 2000 through
February 2005. From July 2002 through November 2004, Mr. Feshbach also served as
the Company's Chief Executive Officer. In March 2001 Mr. Feshbach was named
Executive Chairman. Mr. Feshbach served as Interim Chief Executive Officer from
March 2002 through July 2002. Since February 2005, Mr. Feshbach has been the
Managing Member of Joseph Feshbach Partners, LLC, an investment company focused
on investing in the securities of North American companies undergoing a
corporate crisis. From December 1998 to March 2002, Mr. Feshbach was a private
investor. From 1983 to 1998, Mr. Feshbach was a co-founder and General Partner
of Feshbach Brothers, a money management and brokerage firm. During his 15 year
career at Feshbach Brothers, Mr. Feshbach was responsible for both research and
capital formation. After retiring from Feshbach Brothers in 1998, Mr. Feshbach
invested his family's capital primarily in publicly traded equities. Mr.
Feshbach is a director of QuadraMed Corporation, a publicly traded healthcare
information technology company and is Chairman of its Strategy Committee.
Gerard Moufflet, 61, has been a director of the Company since November
1989. Mr. Moufflet is the Chief Executive Officer and founder of Acceleration
International Corp., a private equity firm focused on healthcare investments in
Europe and the United States. From 1989 to December 2001, Mr. Moufflet served as
Managing Director of Advent International Corporation, an equity investment firm
with funds under management totaling over $6 billion. Prior to joining Advent,
from 1972 to 1989, Mr. Moufflet worked for Baxter International, where he was in
charge of various European and African operations and served as Head of
Worldwide Strategic Planning for the dialysis product line. When he became
Corporate Vice President and Vice President of Baxter World Trade, Baxter had
grown to $7 billion in sales. Mr. Moufflet is a director of Serologicals
Corporation, a publicly traded company and global provider of biological
products and enabling technologies, and American Dental Partners, Inc., a
publicly traded company. He also serves as a director of several privately held
companies in Europe and the United States. Mr. Moufflet is a graduate of the
EDHEC Business School in France, and holds a Masters in Business Administration
degree from the University of Pittsbugh where he was a Pittsburgh Plate Class
Foundation Scholar. He is a Harvard Business School Advanced Masters Program
graduate and has been honored by the President of France as a "Chevalier de
l'Ordre du Merite National".
CORPORATE GOVERNANCE AND COMMITTEES OF THE BOARD OF DIRECTORS
Corporate governance encompasses the internal policies and practices by
which the Company is operated and controlled on behalf of its shareholders.
Corporate governance at the Company is designed to drive superior performance by
making the most effective use of the collective skills and experience of
4
directors. The Company believes that a good system of corporate governance
enables it to maintain the confidence of investors and is a source of
competitive advantage.
The Board of Directors is responsible for the control and direction of the
Company. The role of the Board of Directors is to effectively govern the affairs
of the Company for the benefit of its shareholders and, to the extent
appropriate under Minnesota law, other constituencies, such as the Company's
employees, customers, suppliers and the communities in which it does business.
The Board strives to ensure success and continuity of the Company's business
through the election of qualified management. It is also responsible for
ensuring that the Company's activities are conducted in a responsible and
ethical manner.
Shareholders who desire to communicate directly with the Board of
Directors should provide their communication to the Board in writing sent to the
Corporate Secretary at the principal executive offices of the Company, currently
at 150 Motor Parkway, Hauppauge, NY 11788. The Corporate Secretary will forward
such communication to the chair of the Governance Committee, or if principally
related to financial or accounting matters or internal controls, to the chair of
the Audit Committee.
The Board of Directors currently consists of nine directors, six of whom
are independent, non-employee directors as independence is defined in Rule
4200(a)(15) of the NASDAQ Marketplace Rules. The Board has determined that
Messrs. Maudlin, Auerbach, Berce, DeComo, English and Moufflet are independent
directors. All of the Company's directors stand for re-election every year. At
each regularly scheduled Board meeting, the non-employee directors meet in
executive session without any members of management present. Director attendance
at the shareholder annual meeting is required, absent extenuating circumstances.
The Board of Directors has five standing committees: an Executive
Committee, an Audit Committee, a Compensation Committee, a Governance Committee
and a Regulatory and Compliance Committee. Each of these committees operates
under a written charter adopted by the Board of Directors. Under their
respective charters, each of the Audit Committee, the Compensation Committee,
the Governance Committee and the Regulatory and Compliance Committee is
authorized to retain and consult with external advisors, consultants and counsel
as needed to fulfill its responsibilities. Each of these committees maintains
written minutes of its meetings and regularly reports to the Board regarding its
determinations and recommendations on matters within the scope of its duties and
responsibilities.
EXECUTIVE COMMITTEE. The members of the Executive Committee are Messrs.
English (as Chairman beginning in August 2002), and Feshbach (as Chairman until
August 2002), Moufflet and Berce. The Executive Committee advises the Board
regarding strategic, operational and legal matters, as appropriate from time to
time. The Executive Committee may also exercise the authority of the Board
between Board meetings when (i) the Chairman of the Board determines that it is
not practical to defer action until a special or regular meeting of the Board,
or (ii) the Board specifically has authorized the action being taken, or (iii)
the matter being acted upon is administrative in nature, is not otherwise the
responsibility of another standing committee of the Board and does not merit
attention by the full Board. In 2004, the Executive Committee did not hold
meetings.
AUDIT COMMITTEE. The members of the Audit Committee are Messrs. Berce (as
Chairman), English and Maudlin, each of whom is an "independent director" as
defined in Rule 4200(a)(15) of the NASDAQ Marketplace Rules. Messrs. Berce and
Maudlin are "financial experts" as the term is defined in the Securities and
Exchange Commission rules. The charter of the Audit Committee, as amended in
April 2004, is available on the Company's website at www.curative.com. The Audit
Committee assists the Board of Directors in the oversight of the integrity of
the Company's financial statements; the Company's compliance with financial
reporting and other legal and regulatory reporting requirements; the
independence, qualifications and performance of the Company's internal and
external auditors; and the
5
adequacy of the Company's internal controls. In performing these functions, the
Audit Committee meets periodically with management and the independent auditors
(including sessions without management present). In addition, as provided in its
charter, the Audit Committee selects and engages the independent auditors for
the Company, and approves in advance any engagement of the independent auditors
to provide audit or non-audit services to the Company. In 2004, the Audit
Committee met six times.
COMPENSATION COMMITTEE. In 2004, the members of the Compensation Committee
(formerly known as the Compensation and Stock Option Committee) consisted of
Messrs. Berce (as Chairman until October 2004), Maudlin (as Chairman from
October 2004) and Auerbach. In March 2005, Mr. English replaced Mr. Maudlin as a
member and as Chairman of the Compensation Committee. All the members of the
Compensation Committee are "outside directors" (as defined with respect to
Section 162(m) of the Internal Revenue Code of 1986, as amended), are
"non-employee directors" (as defined by Rule 16b-3 under the Securities Exchange
Act of 1934, as amended), and are "independent directors" (as defined in Rule
4200(a)(15) of the NASDAQ Marketplace Rules). The Compensation Committee has
oversight responsibility for director and executive compensation, benefits and
perquisites policies and strategies of the Company; reviews and determines all
forms of compensation to be provided to the executive officers of the Company,
including equity compensation, benefits and perquisites; recommends to the Board
of Directors forms of compensation to be provided to the directors of the
Company; reviews and provides general guidance with respect to the bonus and
equity compensation of employees; and makes all determinations regarding the
administration of the Company's equity compensation plans and awards. In 2004,
the Compensation Committee met eight times.
GOVERNANCE COMMITTEE. The members of the Governance Committee are Messrs.
Maudlin (as Chairman), Auerbach and Moufflet. All the members of the Governance
Committee are non-employee directors and are independent, as defined in Rule
4200(a)(15) of the NASDAQ Marketplace Rules. The charter of the Governance
Committee, as amended in February 2004, as well as the Company's Corporate
Governance Guidelines, are available on the Company's website at
www.curative.com. The Governance Committee establishes the evaluation procedure
and minimum qualifications of the members of the Board and its committees;
identifies and recommends nominees for the Board and its committees, oversees
succession planning for the Company's Chief Executive Officer; and develops,
recommends to the Board and oversees corporate governance principles applicable
to the Company. The Governance Committee also monitors compliance with the
Company's corporate governance principles and code(s) of ethics for the chief
executive and senior financial officers, and reviews and addresses conflicts of
interest of directors, the chief executive officer and other Board-appointed
officers.
The Governance Committee, in consultation with the Chairman and CEO,
considers and makes recommendations to the Board concerning the appropriate size
and needs of the Board. The Governance Committee considers candidates to fill
new positions created by expansion and vacancies that occur from resignations or
any other reason. The Governance Committee will consider nominees for director
recommended by a director, chief executive or other officer, third party search
firm or shareholders. Candidates are selected for their character, judgment,
business experience and acumen, and high performance standards. Additional
relevant competencies include health care industry experience, demonstrated
leadership or management experience, public company board experience,
familiarity with national issues affecting the business, financial and
accounting expertise, and compatibility with the Board. Under our Corporate
Governance Guidelines and our Bylaws, shareholders desiring to recommend
nominations to the Board are required to submit such recommendations by written
notice to the Corporate Secretary of the Company. Such notice must be received
at the Company's principal executive offices at least 60 days before the date
that is one year after the prior year's annual shareholder's meeting. Such
notice shall set forth (i) the name and record address of both the shareholder
and of any beneficial owner on whose behalf the nomination is being made
("Beneficial Owner"); (ii) the class and number of shares of the Company owned
by both the shareholder and by any Beneficial Owner;
6
(iii) the name, age, business address, principal occupation or employment and
residence address of each nominee; and (iv) the class and number of shares owned
by each nominee. The Governance Committee shall consider any recommendations
made by the shareholders in the manner prescribed as it considers appropriate,
and evaluate any nominees so recommended in accordance with the standards for
director candidates set forth in the Company's Corporate Governance Guidelines.
The Company engages the services of a third party search firm to assist in the
identification and evaluation of candidates. The Governance Committee is under
no obligation to accept a nominee proposed by a shareholder; however, the
Governance Committee uses the same process for evaluating all nominees,
regardless of the source of the nomination. All nominations ultimately made by
the Governance Committee are in such committee's sole discretion. Final approval
of a candidate is determined by the full Board of Directors. In 2004, the
Governance Committee met three times.
REGULATORY AND COMPLIANCE COMMITTEE. The members of the Regulatory and
Compliance Committee are Dr. Auerbach (as Chairman), Mr. DeComo and Mr.
McConnell (who replaced Mr. Feshbach in May 2004). The Committee reviews and
oversees the compliance by the Company, and its agents and employees, with
applicable legal requirements relating to providers and suppliers of healthcare
services and products, the Company's Code of Business Conduct and compliance
program, and any applicable corporate integrity agreement entered into or
binding on the Company. In 2004, the Regulatory and Compliance Committee met
three times.
During 2004, the Board of Directors met nine times. Each incumbent
director attended at least 75% of all meetings of the Board and applicable
committees held during 2004. The Board and the committees also act from time to
time by written action.
COMPENSATION OF DIRECTORS
In 2004, each non-employee director was paid an annual retainer of
$15,000, $1,500 for each Board meeting attended in person or $1,000 for each
Board meeting participated in by means of conference telephone; $1,500 for each
Audit Committee meeting attended in person (other than an Audit Committee
meeting held on the same date as a Board meeting); $1,000 for each Audit
Committee meeting held on the same date as a Board meeting or participated in by
means of conference telephone; $1,250 for each non-Audit Committee meeting
attended in person (other than a non-Audit Committee meeting held on the same
date as a Board meeting); and $750 for each non-Audit Committee meeting held on
the same date as a Board meeting or participated in by means of conference
telephone. The chairman of the Audit Committee received an additional annual
retainer fee of $4,000 and the chairman of each non-Audit Committee received an
additional annual retainer fee of $3,000.
In 1993, the Company established a Director Share Purchase Program (the
"Program") to encourage ownership of its Common Stock by its directors. Under
the program, each non-employee director can elect to forego receipt of annual
retainer and meeting fees in cash and, in lieu thereof, receive shares of Common
Stock having a market value at the date of issuance equal to the cash payment.
In 1995, the Company established a Non-Employee Director Stock Option Plan
(the "Director Plan"). The purpose of the Director Plan is to promote the
success of the Company by attracting and retaining non-employee directors by
supplementing their cash compensation and providing a means for such directors
to increase their holdings of Common Stock. The Company believes it is important
that the interest of the directors be aligned with those of its shareholders and
that the Director Plan strengthens that link. The Director Plan provides for an
automatic initial grant of options to purchase 15,000 shares of Common Stock, at
market value on date of grant, to a non-employee director upon his or her
initial election as a member of the Board. The Director Plan also provides for
the automatic grant of an option to purchase 15,000 shares of Common Stock, at
market value on the date of grant, each time a non-
7
employee director is re-elected as a member of the Board. Further, the Director
Plan provided for the automatic one time grant of an option to purchase 45,000
shares of Common Stock, at market value on date of grant, upon a non-employee
director's election as a member of the Board at the 2002 Annual Meeting of
Shareholders. Upon their election to the Board in May 2002, the non-employee
members of the Board of Directors were each granted options to purchase 45,000
shares of Common Stock at $13.16 per share, vesting immediately as to one-third
of such shares, vesting after one year as to another third of such shares, and
vesting after two years with respect to the final third of such shares, subject
to certain conditions. The Director Plan also provides that for all directors
who are granted the one time option to purchase 45,000 shares as described
above, there shall be no grants under the Director Plan in connection with the
Company's 2003 and 2004 Annual Meetings of Shareholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 2004 consisted of Messrs.
Auerbach, Berce and Maudlin. In March 2005, Mr. English replaced Mr. Maudlin as
a member and as Chairman of the Compensation Committee. Mr. Maudlin served as
President of the Company from October 1985 through December 1986. In December
2001, the Company loaned Mr. Maudlin $133,683. In January 2002, the Company
loaned Dr. Auerbach $77,495. Each of the loans represented 80% of the aggregate
exercise price payable to the Company by the directors in connection with an
exercise of certain Company stock options. As of March 1, 2005, all of such
loans had been fully repaid. See "Certain Transactions" for more information
about these loans.
EXECUTIVE OFFICERS
Set forth below is certain information about each current executive
officer of the Company who is not a director of the Company, including name, age
and principal occupations during the past five years. All of the executive
officers of the Company are appointed by the Board of Directors to serve until
the next Annual Meeting of the Shareholders or until their successors are
elected and qualified.
Thomas W. Axmacher, 46, has served as our Executive Vice President of
Finance and Chief Financial Officer since March 2003. From April 2002 to March
2003, he served as Senior Vice President of Finance and Chief Financial Officer.
From March 2001 to April 2002, he served as Vice President of Finance and Chief
Financial Officer. From August 1997 to March 2001, Mr. Axmacher served as Vice
President and Controller. From March 1991 to August 1997, he served as
Controller of the Company. Prior to joining the Company, Mr. Axmacher spent six
years at Tempo Instrument Group, an electronics manufacturer, where he served as
Vice President and Controller.
Nancy F. Lanis, 48, has served as our Executive Vice President, General
Counsel and Secretary since March 2003. She served as Senior Vice President and
General Counsel from June 2001 to March 2003, and has served as Corporate
Secretary since September 2001. From March 2000 to June 2001, Ms. Lanis was Of
Counsel at Ruskin, Moscou, Evans & Faltischek, P.C. in the Corporate and Health
Law Practice Groups. From September 1991 to March 2000, Ms. Lanis held a number
of positions with the Health Services Division (subsequently known as Gentiva
Health Services, Inc., and a portion of which has since been acquired by Accredo
Health, Incorporated) of Olsten Corporation, ultimately serving as its Vice
President and General Counsel for Infusion and Biotech at the time of her
departure. Ms. Lanis was Corporate Counsel at W.R. Grace & Co. from 1985 to
September 1991, and was associated with the firm of Cole & Deitz (now known as
Winston & Strawn) from 1983 to 1985. Ms. Lanis has executed a separation
agreement with the Company whereby her employment will terminate as of May 31,
2005, in connection with a consolidation of the Company's corporate headquarters
and corporate functions in Nashua, New Hampshire.
8
Roy McKinley, 46, has served as Senior Vice President, Wound Care
Operations since November 2004. From September 2000 through November 2004, he
served as Senior Vice President, with business development, sales, marketing and
related responsibilities for the Company's wound care management business. From
July 1998 to September 2000, Mr. McKinley held the position of Vice President of
Sales and Marketing, and from January 1996 to 1998, he served as the South West
Region Vice President. Prior to joining the Company, Mr. McKinley was an Area
Vice President for the Mid Atlantic Area for Coram Healthcare, Inc., a
Denver-based alternate-site infusion and ancillary healthcare services company.
From 1985 to 1993, Mr. McKinley held regional and general management positions
with McGaw, Inc. and Medical Care America, Inc., in the medical supply and
alternate-site infusion care industries.
Craig J. Vollmer, 38, has served as Senior Vice President, Sales and
Marketing since April 2004. Previously, he held the following positions for
Critical Care Systems, Inc. (a subsidiary of the Company acquired in April
2004): Vice President of Sales from January 2003 to March 2004; National Sales
Director from February 2002 to December 2003 and Area Sales Director (South)
from July 2000 to January 2002. Prior to working with Critical Care Systems,
Inc. and the Company, Mr. Vollmer held sales and management positions with Coram
Healthcare and Critical Care America.
Andrew C. Walk, 44, has served as Senior Vice President, Operations for
our Specialty Infusion business unit since April 2004. Previously, he served as
Area Vice President of Critical Care Systems, Inc. (a subsidiary of the Company
acquired in April 2004) from June 2000 to April 2004. In this position, he was
responsible for directing the day-to-day management of the Critical Care
Systems, Inc.'s Midwest branches. Mr. Walk has devoted his entire career to the
health care field, bringing a wealth of experience to his role at the Company.
From 1998 to 2000, Mr. Walk was a partner in the St. Louis-based health care
consulting company, Healthcare Strategic Initiatives, where clients included
hospitals, physicians and managed care organizations. Prior to that, Mr. Walk
worked for Coram Healthcare as a Regional Vice President from 1995 to 1998, and
as a General Manager from 1992 to 1995. Mr. Walk started his healthcare career
in 1985 with Travacare which in 1987 became Caremark Inc. and held various
positions, including General Manager. Mr. Walk holds a B.S. degree in pharmacy
from the St. Louis College of Pharmacy.
9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by (i) each person who
served as the Chief Executive Officer of the Company at any time during 2004,
(ii) the four executive officers of the Company (other than its chief executive
officer) most highly compensated in salary and bonus for 2004 who were also
serving as executive officers of the Company on December 31, 2004, and (iii) the
most highly compensated person in salary and bonus for 2004 who served as an
executive officer of the Company during 2004 but was not serving as an executive
officer on December 31, 2004 (the "named executive officers").
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- ----------------------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMP. AWARDS OPTIONS COMP.
(AS OF DECEMBER 31, 2004) YEAR ($) ($)(1) ($)(2) ($)(3) (#) ($)(4)
---------------------------------- ---- -------- ------- ------ ---------- ---------- ------
Joseph Feshbach(5) 2004 353,077 -- -- 487,000 75,000 4,287
Special Advisor 2003 423,942 -- -- -- 75,500 808
2002 313,385 333,333 -- 0 350,000 969
Paul McConnell(6) 2004 270,285 -- -- 2,000,000 -- 2,163
President and Chief Executive
Officer
John Prior 2004 283,846 -- -- -- 35,000 3,461
Chief Operating Officer 2003 270,000 -- -- -- 25,500 519
2002 270,000 122,850 -- 0 0 1,662
William Tella (7) 2004 291,509 100,000 -- -- 40,000 1,749
Advisor 2003 274,656 -- -- 0 50,500 481
2002 235,461 200,000 -- 0 100,000 778
Nancy Lanis 2004 259,695 -- -- -- 30,000 2,332
Executive Vice President, 2003 239,483 52,516 -- -- 25,500 760
General Counsel and 2002 200,000 171,200 -- 0 100,000 2,086
Secretary
Thomas Axmacher 2004 244,069 -- -- 409,800 30,000 5,240
Executive Vice President 2003 210,516 48,500 -- -- 25,500 2,826
and Chief Financial Officer 2002 168,539 130,000 -- 0 25,000 1,279
Anne Bruce(8) 2004 $214,616 -- -- -- 20,000 --
Senior Vice President- Information 2003 $145,846 -- -- -- 60,000 --
Systems and Chief Information
Officer
---------------------
(1) Amounts shown for 2003 and 2004 represent bonuses paid under the Company's
Incentive Compensation Plan. Amounts shown for 2002 represent
discretionary bonuses paid under the Company's Incentive Compensation Plan
and, with respect to bonuses paid in 2002, bonuses
10
awarded with respect to particular achievements during 2002. All such
awards are actually paid in the fiscal year immediately following the year
for which the award is made.
(2) Amounts paid did not exceed the lesser of $50,000 or ten percent (10%) of
salary and bonus for any of the named individuals.
(3) The number of shares of restricted stock awarded were as follows: Mr.
Feshbach 100,000 shares and Mr. Axmacher 60,000 shares in 2004. In
addition, Mr. McConnell was awarded 157,604 restricted stock units in
2004, when he joined the Company in connection with the Company's
acquisition of Critical Care Systems, Inc. The value of such shares is
calculated using the closing price for the Company's Common Stock on the
date of the award, except that Mr. Feshbach's grant was valued at the
closing price on the day prior to the award. ] As of December 31, 2004, an
aggregate of 300,938 shares of restricted stock were held by the named
executive officers with an aggregate value of $2,061,425 based on the
closing price on that date. Eight thousand, three hundred and thirty four
of the shares covered by Mr. Feshbach's award vested on the date of grant
with the balance vesting thereafter on the first day of each month
commencing with December 1, 2004 and ending on October 1, 2005. One third
of the shares covered by Mr. Axmacher's 2004 restricted stock award vest
after one year with the balance of such award vesting thereafter in eight
equal quarterly installments following the initial vesting date, if Mr.
Axmacher remains continuously employed by the Company until each of such
dates; provided, however, that that no such shares shall vest unless prior
to the respective vesting date, Mr. Axmacher shall have moved to the
Company's corporate headquarters in Nashua, New Hampshire. One third of
the shares covered by Mr. McConnell's 2004 restricted stock unit award
vest after one year with the balance of such award vesting thereafter in
eight equal quarterly installments following the initial vesting date. The
recipients of these restricted stock and restricted stock unit awards are
entitled to receive any dividends declared with respect to the restricted
shares or restricted share units.
(4) All amounts represent Company matching contributions to its 401(k) plan.
(5) Mr. Feshbach was hired as Interim Chief Executive Officer of the Company
in March 2002, and served as Chief Executive Officer of the Company from
July 2002 through November 2004. Mr. Feshbach agreed to be paid $1.00 for
his services from October 2004 through October 2005 and the Company
granted Mr. Feshbach 100,000 restricted shares, all pursuant to a
Transition Agreement entered into with the Company in anticipation of his
becoming a Special Advisor in November 2004. From November 2004, Mr.
Feshbach was no longer an executive officer.
(6) Mr. McConnell was hired as an executive officer in April 2004, and as
President and Chief Executive Officer in November 2004.
(7) Mr. Tella ceased to be an executive officer in April 2004.
(8) Ms. Bruce was not an executive officer in 2002, and ceased to be an
executive officer in March, 2005.
11
STOCK OPTION TABLES
The following tables summarize stock option grants and exercises during
2004 to or by the named executive officers, and the value of the options held by
such persons at the end of 2004.
OPTION GRANTS IN FISCAL 2004
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM
-------------------------------------------- --------------------------
NUMBER OF %OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#)(1) YEAR ($/SH) DATE 5% ($) 10% ($)
----------------------------- ---------- ---------- -------- ---------- ------- ---------
Mr. Feshbach 75,000 7.47% 13.62 02/05/2014 643,545 1,624,185
Special Advisor
Mr. McConnell -- -- -- -- -- --
President and Chief
Executive Officer
Mr. Prior 25,000 2.49% 13.62 02/05/2014 214,515 541,395
Chief Operating Officer 10,000 1.0% 13.72 02/12/2014 86,436 218,148
Mr. Tella 40,000 3.99% 13.62 02/05/2014 343,224 866,232
Advisor
Ms. Lanis 30,000 2.99% 13.62 02/05/2014 257,418 649,674
Executive Vice President,
General Counsel and Secretary
Mr. Axmacher 30,000 2.99% 13.62 02/05/2014 257,418 649,674
Executive Vice President
and Chief Financial Officer
Ms. Bruce 20,000 1.99% 13.62 02/05/2014 171,612 433,116
Senior Vice President-
Information Systems and
Chief Information Officer
--------------------------
(1) Except as otherwise noted, the options become exercisable after one year
with respect to one-third of the shares with the balance of the shares
becoming exercisable in equal installments on the last day of each of the
eight successive three-month periods following the initial exercisability
date.
(2) The basis for the grant was annual equity compensation, after considering
outside consultant recommendations in the form of a report, which analyzed
the level of executive compensation for a number of comparable companies.
12
OPTION EXERCISES IN FISCAL 2004
AND
VALUE AT END OF FISCAL 2004
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON VALUE OPTIONS AT IN-THE MONEY OPTIONS AT
EXERCISE REALIZED FISCAL YEAR END (#) FISCAL YEAR END ($)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
------------- -------- -------- -------------------------- -----------------------------
Mr. Feshbach - - 432,556/ 155,440 $108,543/ $-
Mr. McConnell - - -/ - -/ $-
Mr. Prior - - 158,830/ 105,420 $141,941/ $-
Mr. Tella - - 197,303/ 69,200 $ 76,851/ $-
Ms. Lanis 150,062/ 50,439 $ 36,000/ $-
Mr. Axmacher - - 93,618/ 42,508 $ 37,606/ $-
Ms. Bruce - - 33,326/ 46,674 -/ $-
----------------------
(1) Calculation is based on the difference between the closing price of the
Common Stock on December 31, 2004 and the exercise price of the options
for each optionee.
The following table summarizes the Company's equity compensation plans as
of December 31, 2004:
EQUITY COMPENSATION PLAN INFORMATION
Number of Number of securities
securities to be Weighted average remaining available for
issued upon exercise exercise price of future issuance under
of outstanding outstanding equity compensation plans
options, warrants options, warrants (excluding securities
and rights and rights reflected in column (a))
Plan Category (a) (b) (c)
------------------------- -------------------- ----------------- -------------------------
Equity compensation plans
approved by security
holders 2,273,580 $12.73 527,947(i)
Equity compensation plans
not approved by security
holders 1,359,649(ii) $14.06 314,112(iii)
Total 3,633,229 $13.27 842,059
(i) This number includes 447,615 shares under the 2000 Stock Incentive
Plan and 80,332 shares under the 1995 Non-Employee Director Plan.
(ii) This number includes 1,231,649 securities under the 2001 Broad-Based
Stock Incentive Plan (the "2001 Plan") and 128,000 securities under the non-plan
employee option agreements.
13
THE 2001 PLAN. Under the 2001 Broad-Based Stock Incentive Plan (the
"Plan"), the Company can grant options, stock appreciation rights ("SAR"),
restricted stock, restricted stock units, performance awards, other stock grants
or other stock-based awards. The total number of shares of common stock
authorized to be granted pursuant to Awards (as defined in the Plan, not
incentive stock options) granted under the Plan is 2,000,000. As of December 31,
2004, options to purchase an aggregate of 1,231,649 shares of the Company's
common stock were outstanding under the Plan. Any employee, officer, consultant,
independent contractor and non-employee directors providing services to the
Company or any of its affiliates is eligible to receive awards under the Plan.
The Plan is administered by the Compensation Committee of the Board of Directors
(the "Committee"). The Committee shall not have the authority to grant Awards to
officers and directors in an aggregate amount that equals or exceeds fifty
percent (50%) of the common stock authorized to be granted pursuant to Awards
granted under the Plan. No awards may be granted under the Plan after July 30,
2011. The exercise price per share under any stock option, the grant price of
any SAR, and the purchase price of any security which may be purchased under any
other stock-based award shall not be less than 100% of the fair market value of
the Company's common stock on the date of grant of such option, SAR or award.
The Plan provides that the Committee may grant reload options, separately or
together with another option, and may establish the terms and conditions of such
reload options. Pursuant to a reload option, the optionee would be granted a new
option to purchase the number of shares not exceeding the sum of (i) the number
of shares of common stock tendered as payment upon the exercise of the option to
which such reload option relates, and (ii) the number of shares of the Company's
common stock tendered as payment of the amount to be withheld under income tax
laws in connection with the exercise of the option to which such reload option
relates. Reload options may be granted with respect to options granted under any
stock option plan of the Company.
The holder of restricted stock may have all of the rights of a shareholder of
the Company, including the right to vote the shares subject to the restricted
stock award and to receive any dividends with respect thereto, or such rights
may be restricted as the Committee imposes. Restricted stock may not be
transferred by the holder until any restrictions established by the Committee
have lapsed. Upon termination of the holder's employment during the restriction
period, restricted stock and restricted stock units are forfeited, unless the
Committee determines otherwise.
If any dividend or other distribution, recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares of common stock or other
securities of the Company or other similar corporate transaction or events
affects the shares of common stock such that an adjustment is appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or under an award, the Committee
may, in such manner as it deems equitable or appropriate in order to prevent
such dilution or enlargement of any such benefits or potential benefits, adjust
any or all of (a) the number and type of shares (or other securities or
property) which thereafter may be made the subject of awards, (b) the number and
type of shares (or other securities or property) subject to outstanding awards,
and (c) the purchase or exercise price with respect to any award.
The Board of Directors may amend, alter, suspend, discontinue or terminate the
Plan at any time, provided that no such amendment, alteration, suspension,
discontinuation or termination shall be made that would violate the rules or
regulations of the NASDAQ National Market or of any securities exchange
applicable to the Company.
THE NON-PLAN OPTION AGREEMENTS. Free-standing options granted include
options issued as an inducement for new hires and/or in connection with new
hires associated with acquisitions by the
14
Company. These options are issued pursuant to Non-Qualified Stock Option
Agreements. These options terminate 10 years after the effective date of the
grant, unless earlier terminated upon termination of employment, death or
disability. Upon termination or employment, death or disability, the employee
will, in certain circumstances, get an additional period of months following
such event to exercise the options to the extent of the full number of shares
the employee was entitled to purchase on the date of such event. The options
generally become exercisable after one year with respect to one-third of the
shares with the balance of the shares becoming exercisable in equal installments
on the last day of each of the eight successive three-month periods following
the initial exercisability date, and are not transferable or assignable by the
employees that receive the grant. The exercise price per share varies and is
specified in the individual Non-Qualified Stock Option Agreements.
In some cases, the non-plan Non-Qualified Stock Option Agreements and
agreements under the 2001 Plan may contain provisions that restrict the
activities of the employee once the term of employment is over. These
restrictions include restrictions on the former employee's ability to compete
with the Company for up to one year with respect to certain activities and
restrictions on the former employee's ability to hire or contract for services
with any employees for former employees of the Company.
(iii) This number reflects 314,112 shares under the 2001 Plan.
EMPLOYMENT AND OTHER AGREEMENTS
Each of Messrs. Feshbach, McConnell, Prior, Axmacher, Tella and Mses.
Lanis and Bruce (each an "Officer" and together, the "Officers") has or has had
an employment agreement with the Company (an "Employment Agreement"). Except as
noted, the Employment Agreements are on substantially identical terms. Under the
Employment Agreements, each Officer receives an annual base salary and is
entitled to participate in any incentive compensation program in effect from
time to time for executives of the Company. The annual base salary of each of
the Officers under his or her Employment Agreement as of December 31, 2004 was
Mr. McConnell ($400,000), Mr. Prior ($280,000), Mr. Axmacher ($265,000), Ms.
Lanis ($250,000), and Ms. Bruce ($220,000) and $425,000 for Mr. Feshbach
immediately prior to the execution of his Transition Agreement under which he
transitioned from his role as Chief Executive Officer, and $280,000 for Mr.
Tella in April 2004 when he ceased to be an executive officer of the Company.
The salary under each Employment Agreement is subject to annual review and
increase by the Compensation Committee. Ms. Lanis received a one-time signing
bonus of $15,000 under the terms of her Employment Agreement. Except for Mr.
McConnell's and Ms. Bruce's Employment Agreements, each Employment Agreement has
an initial term of one year and renews automatically for additional one-year
periods unless notice of termination is given at least three months prior to
renewal. Mr. McConnell's Employment Agreement has an initial term of three years
and renews automatically for additional one year periods unless notice of
termination is given at least 30 days prior to renewal. Ms. Bruce's Employment
Agreement has an initial term of one year and renews automatically for one
additional one year period unless notice has been given prior to the first
anniversary of the agreement. Mr. McConnell's agreement provides for a $400,000
(100%) bonus guaranteed for the first year of his employment.
The Company may terminate any of the Employment Agreements at any time
with or without cause upon 30 days' prior written notice to the Officer, and the
Officer may terminate the Employment Agreement at any time upon 30 days' prior
written notice to the Company. Except for Ms. Bruce's Employment Agreement and
as noted, in the event the Company terminates the Employment Agreement without
cause prior to a change of control or elects not to renew, the Officer will be
entitled to receive a lump sum severance payment equal to the Officer's then
current base salary plus the arithmetic average of payments made to the Officer
pursuant to the Company's Executive Bonus Compensation Program with respect to
the three years immediately preceding the fiscal year in which the date of
termination occurs. Ms. Bruce's Employment Agreement provides that under such
circumstances, she would be entitled to
15
receive a lump sum severance payment equal to six months of her then current
base salary plus a pro-rated bonus based on her performance in the fiscal year
in which termination occurs. Mr. McConnell's agreement provides that if
termination of his employment occurs after April 23, 2005 but prior to April 23,
2007, his severance payment shall equal his then current base salary plus the
arithmetic average of payments made to him with respect to the years in which he
was employed by the Company. In addition, to the extent not otherwise required
under the Company's stock option plan, any unvested stock option awards that
would have vested during the twelve-month period following the date of
termination shall vest and become immediately exercisable in full. Except for
Ms. Bruce, if the Employment Agreement is terminated (or not renewed) by the
Company without cause or by the Officer for good reason during the twelve-month
period immediately following a change in control (or is terminated or not
renewed prior to a change in control at the request or insistence of any person
in connection with a change in control), the Officer shall be entitled to a lump
sum severance payment equal to the product of two times the sum of the then
current annual base salary plus the arithmetic average of payments made to the
Officer pursuant to the Company's Executive Bonus Compensation Program with
respect to the three fiscal years immediately preceding the fiscal year in which
the date of termination occurs. Ms. Bruce's Employment Agreement provides that
under such circumstances, she would be entitled to receive a lump sum severance
payment equal to her then current base salary plus a pro-rated bonus based on
her performance in the fiscal year in which termination occurs. In addition, to
the extent not otherwise required under the Company's stock option plan any
unvested stock option awards received by the Officer shall vest and become
immediately exercisable in full. The Employment Agreement also restricts the
Officer from competing with the Company under certain circumstances during the
Officer's employment with the Company and for a period of two years thereafter.
ADDITIONAL TERMS OF MR. MCCONNELL'S EMPLOYMENT AGREEMENT
In addition, Mr. McConnell received $3.5 million in cash and stock stay
bonuses, subject to certain conditions. $1.5 million of this stay bonus shall be
paid in cash on April 23, 2007, subject to his remaining continuously employed
by the Company until such date. However, such payment shall be accelerated if
prior to such date, a person or entity which is not then controlling, controlled
by or under common control with the Company acquires (i) all or substantially
all of the assets of the Company, or (ii) common stock of the Company (other
than from the Company), with the effect that after such acquisition of stock,
such person or entity holds an aggregate amount of common stock of the Company
greater than 50% of the then outstanding Company common stock (a "Bonus
Acceleration Event"). If either of these events occur, such cash stay bonus
shall become due and payable within 5 business days of such event.
Notwithstanding the above, Mr. McConnell's stay bonus shall not be
accelerated in the event that Mr. McConnell is terminated for cause, and payment
of such stay bonus shall not be accelerated in connection with any issuance of
any security by the Company. However, if prior to April 23, 2007, a Bonus
Acceleration Event occurs and during the twelve month period immediately
following the Bonus Acceleration Event, Mr. McConnell's employment with the
Company is terminated (or not renewed) by the Company without cause, or by Mr.
McConnell because he was assigned duties inconsistent with his position or his
base salary was decreased, then such stay bonus shall become due and payable
within 5 business days of such termination of employment.
The remaining $2.0 million of stay bonus is an award of 157,604 restricted
stock units, one third of which will vest on April 23, 2005, with the balance
vesting in equal quarterly installments on the last date of each of the eight
successive three-month periods following April 23, 2005. In addition, pursuant
to his employment agreement, Mr. McConnell purchased certain shares of the
Company's Common Stock in the open market. These shares are subject to lockup
restrictions and can only be transferred under limited circumstances during the
lockup period. Half of such shares shall be subject to this lockup restriction
until 30 days after April 23, 2005, and the other half shall be subject to this
lockup restriction
16
until 30 days after April 23, 2006. In addition to the other exceptions provided
in his employment agreement for transferring such shares during this lockup
period, Mr. McConnell may sell or otherwise transfer such shares during the
lockup period if his employment with the Company is terminated for any reason,
other than for cause.
TRANSITION AGREEMENT - JOSEPH FESHBACH
On November 10, 2004, Mr. Feshbach executed a Transition Agreement, dated
as of October 2, 2004 with the Company, which superseded and replaced his
Employment Agreement. Under this Transition Agreement, Mr. Feshbach will
continue as an employee of the Company, but would transition from his role as
Chief Executive Officer to a role as Special Advisor, reporting directly to the
Board of Directors in advising the Company on long-term strategy and capital
formation, investor relations, public relations, legislative affairs, mergers
and acquisitions and other duties as the Board may assign. While serving as the
Special Advisor, Mr. Feshbach agreed to serve as a director of the Company and
the Chairman of the Board, subject to Board and shareholder approval. In
February 2005, with the approval of the Board, Mr. Feshbach relinquished his
position as Chairman of the Board. The term of the Transition Agreement will
terminate on October 1, 2007. As a condition for the Company entering into the
Transition Agreement, Mr. Feshbach agreed to resign from his positions as an
officer and director of the Company and its subsidiaries and execute a general
release, releasing the Company from all claims, obligations and liabilities,
except for liabilities contemplated by the Transition Agreement. Under the
Transition Agreement, Mr. Feshbach will be paid $1.00 for his services from
October 2, 2004 to October 1, 2005; at least $50,000 for his services from
October 2, 2005 to October 1, 2006; and at least $50,000 for his services from
October 2, 2006 to October 1, 2007. The Company also granted Mr. Feshbach
100,000 restricted shares of the Company's common stock, which vest in twelve
equal monthly installments over a twelve-month period, with the first
installment vesting on the date of the grant and thereafter on the first day of
each month commencing with December 2004 and ending on October 1, 2005. Mr.
Feshbach will also be eligible to receive the number of stock options granted to
non-employee directors re-elected to the Board at the 2006 shareholder meeting,
beginning with the annual shareholder meeting during the second calendar quarter
of 2006. Mr. Feshbach was to be paid his accrued but unused vacation at the rate
of pay earned by him as of September 30, 2004, on November 15, 2004. Under the
Transition Agreement, Mr. Feshbach is entitled to participate in any employee
benefit plans or programs of the Company that he is eligible for. In the event
Mr. Feshbach is not eligible to participate in any medical or dental plan of the
Company during the term of the Transition Agreement, and he elects COBRA
coverage, the Company shall reimburse him for COBRA premiums for the shorter of
six months or until he becomes eligible for medical and dental benefits through
another employer. The Company will also provide Mr. Feshbach the use of a leased
automobile during the term of the Transition Agreement, pay for up to $15,000 of
his legal expenses for negotiating the Transition Agreement, and supply him with
an office and a secretary in California until February 28, 2005. The Transition
Agreement also contains customary confidentiality, assignment of invention and
non-solicitation covenants. Furthermore, Mr. Feshbach has covenanted that he
will not render service anywhere in the world to any competing business in
connection with certain products during the term of the Transition Agreement and
2 years after that, subject to certain exceptions regarding accepting employment
with non-competing divisions of large diversified competing businesses.
In the event that the Company terminates Mr. Feshbach's employment without
cause during the term of the Transition Agreement, he will continue to receive
his then current base salary until October 1, 2007 and all unvested stock
options or restricted stock grants shall immediately vest and become exercisable
in full. If the Transition Agreement is not terminated prior to September 1,
2007, Mr. Feshbach shall not be required to perform any services under the
Transition Agreement following that date, but the Company will continue to pay
Mr. Feshbach for the period September 2, 2007 to October 1, 2007 at his then
current base salary subject to his delivering to the Company a general release.
Upon a
17
change of control of the Company, any unvested stock option awards or restricted
stock grants held by Mr. Feshbach shall vest and/or become immediately
exercisable in full.
SEVERANCE AGREEMENT - WILLIAM TELLA
Mr. Tella ceased to be an executive officer upon the closing of the
acquisition of Critical Care Systems, Inc. in April 2004. Mr. Tella will
continue as an employee until May 2005, and has received a severance package
valued at approximately $450,000, which has been paid out in monthly
installments from May 2004 continuing through May 2005. Mr. Tella has agreed to
waive payment of his salary after the closing of the acquisition of Critical
Care Systems, Inc. through May 2005, and the Company agreed to provide to him
welfare benefits and automobile allowance payments through May 2005, subject to
certain conditions. The severance agreement he entered into with the Company
also contains customary confidentiality, assignment of invention and
non-solicitation covenants, and Mr. Tella has covenanted that he will not render
service anywhere in the world to any competing business in connection with
certain products during the term of his employment and 2 years after the end of
such employment, subject to certain exceptions regarding accepting employment
with non-competing divisions of large diversified competing businesses.
SEPARATION AGREEMENT - NANCY LANIS
On February 23, 2005, the Company entered into a Separation Agreement with
Ms. Lanis in anticipation of the termination of her employment with the Company
in connection with its consolidation of its headquarters and corporate functions
in Nashua, New Hampshire. Ms. Lanis has elected not to relocate to New Hampshire
and therefore has resigned effective May 31, 2005, and entered into the
Separation Agreement and a general release with the Company.
Under the Separation Agreement, Ms. Lanis has agreed that her last day of
employment shall be May 31, 2005 and she will resign from any officer positions
she currently holds at the Company on that date. The Company granted Ms. Lanis a
restricted stock award of 10,000 shares of the Company's common stock as a
retention bonus. These restricted shares shall become vested on May 31, 2005,
subject to fulfillment of certain conditions. Subject to the execution of the
Separation Agreement and general releases (and provided that Ms. Lanis does not
revoke and or rescind the releases), the Company has agreed to pay Ms. Lanis, no
later than the 16th day following May 31, 2005, a lump sum payment in the gross
amount of $250,076.00, subject to applicable payroll withholding. The Company
has also agreed to pay Ms. Lanis a lump sum payment in the gross amount of
$74,572.00, subject to applicable payroll withholding, no later than June 30,
2005. The Company has also agreed to provide Ms. Lanis, for a twelve-month
period beginning June 2005, with welfare benefits (including life and health
insurance benefits) of substantially similar design and cost to Ms. Lanis as the
benefits available to her prior to May 31, 2005. Furthermore, any unvested stock
option awards held by Ms. Lanis which would otherwise vest and become
exercisable during the 12 month period after May 31, 2005 shall vest and become
exercisable on May 31, 2005. Subject to this accelerated vesting, all other
unvested options held by Ms. Lanis shall expire on May 31, 2005. Ms. Lanis has
covenanted not to compete with the Company for a period of two years after May
31, 2005, subject to certain exceptions. She will also disclose this non-compete
covenant to prospective employers prior to her accepting such employment.
Furthermore, for one year after May 31, 2005, she shall not directly or
indirectly solicit or hire, or assist any other person in soliciting or hiring,
any employee or recruits of the Company who are employees or recruits as of May
31, 2005. Ms. Lanis has also agreed to provide reasonable cooperation with
respect to any claims, charges or lawsuits relating to events which transpired
during her employment at the Company and to cases which she managed in her
capacity as General Counsel of the Company.
18
CERTAIN TRANSACTIONS
In December 2001 and January 2002, in order to encourage the executive
officers of the Company to increase their equity stake in the Company, the Board
of Directors offered to accelerate the exercisability of certain options held by
executive officers (provided that the underlying shares could not be sold until
such time, if any, as the option would have become exercisable under its
original terms) and to provide the directors and officers with loans to cover
80% of the aggregate exercise price of any options they elected to exercise.
Under this program, in December 2001 Mr. Maudlin borrowed $133,683. In 2002, Dr.
Auerbach borrowed $77,495, Mr. Prior borrowed $600,870, Mr. Tella borrowed
$489,958, Ms. Lanis borrowed $78,200 and Mr. Axmacher borrowed $103,795 to fund
80% of the exercise price of certain options. All of these loans bore interest
at an annual rate of 2.46% and matured three years from the date of origination,
provided that, to the extent that any of the shares acquired pursuant to the
exercise of the related option were sold, the proceeds of that sale must be used
to repay the principal and interest due on the loan. As of March 1, 2005, all of
such loans had been repaid in full.
In connection with the acquisition by the Company of all of the
outstanding stock of Critical Care Systems, Inc. in April 2004 (the
"Acquisition"), the Company made certain purchase price payments to the
stockholders of Critical Care Systems, Inc., and also paid a portion of the
purchase price into an escrow account, to be released to the such stockholders,
subject to certain net working capital purchase price adjustment and
indemnification obligations of such stockholders, all pursuant to the Stock
Purchase Agreement entered into among the Company, Critical Care Systems, Inc.
and such stockholders. Mr. McConnell and Mr. Vollmer were stockholders of
Critical Care Systems, Inc. and Mr. Walk held an interest in Inland Solutions
LLC, which was also a stockholder of Critical Care Systems, Inc. In connection
with the closing of the Acquisition, in April 2004 Mr. McConnell received
$6,524,964.00, Mr. Vollmer received $284,323.00, and Mr. Walk received
$698,554.00 as purchase price payments. In connection with the release of the
net working capital purchase price adjustment escrow, in or about August 2004
Mr. McConnell received $223,483.02, Mr. Walk received $32,459.54 and Mr. Vollmer
received $13,211.56. In addition, Mr. McConnell will be entitled to receive
approximately an additional $688,063.50, Mr. Vollmer will be entitled to receive
approximately an additional $40,676.00, and Mr. Walk will be entitled to receive
approximately an additional $99,937.00, in each case with related interest
thereon, in or about October, 2005, representing their respective portions of
the purchase price payments put into escrow, subject to certain indemnification
obligations.
In connection with the Transition Agreement entered into with Mr.
Feshbach, the Company agreed to allow him to use the Company's offices located
in Woodside, California through February, 2005. Effective March 2005, the
Company entered into a Sublease Agreement with Mr. Feshbach covering
approximately 1,010 square feet at such premises for a month to month term,
terminating upon the earlier of 30 days written notice by either party or July
31, 2007. The monthly rental payments under the Sublease Agreement are
$4,072.70, and management believes that such amount is at fair market value.
19
PERFORMANCE GRAPH
The graph below compares the cumulative total return on the Company's
Common Stock during the five year period ended December 31, 2004 with the
cumulative total return of the Nasdaq Composite Index and the Nasdaq Health
Services Index (assuming the investment of $100 in each vehicle on January 1,
2000 and reinvestment of all dividends).
COMPARISON OF CUMULATIVE TOTAL RETURN
NASDAQ US STOCKS, CURATIVE COMMON & NASDAQ HEALTH SERVICES INDICES
[PERFORMANCE GRAPH]
Nasdaq Nasdaq
Curative US Health
-------- ------ -------
1999 100 100 100
2000 83.233 62.609 133.826
2001 202.096 49.662 144.685
2002 258.233 34.335 124.667
2003 206.587 51.335 190.643
2004 102.545 55.866 240.266
20
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for reviewing the performance of the Company's executive officers
and establishing their compensation, including base salary, bonus incentive
compensation and other benefits and perquisites, if any, as well as grants to
executive officers and other employees of long-term compensation incentives in
the form of stock options or other equity interests pursuant to the Company's
stock incentive plans. The Committee also makes recommendations as to
compensation policies for the overall Company. The Committee is composed of
three independent, non-employee directors. The key objectives of the Committee
in administering executive compensation are the following:
- Aligning the economic interests of executive officers with both
the short- and long-term interests of shareholders.
- Motivating executive officers to undertake strategic business
initiatives and rewarding them for the successful development and
implementation of those initiatives.
- Attracting and retaining key executive officers who will
contribute to the long-term success of the Company.
At present, there are three main components of compensation for executive
officers: base salary, short-term incentive compensation in the form of annual
bonuses and long-term incentive compensation in the form of stock options,
restricted stock or restricted stock units. The committee's philosophy is to
provide a compensation package that attracts and retains executive talent and
delivers higher rewards for superior performance and consequences for
underperformance.
BASE SALARY
The Committee sets base salaries for executive officers (including the
Chief Executive Officer) with reference to the specific responsibilities of the
executive officer, his or her qualifications and experience in the industry, his
or her performance, and other competitive factors. The Committee reviews each
executive officer's base salary annually and makes appropriate adjustments
depending upon industry trends in executive salaries, Company financial and
operating performance, and such individual's performance and contribution to the
Company's growth and success. The base salaries of the Company's executive
officers who continued in their positions from December 31, 2003 to December 31,
2004 generally increased by an average of approximately 7.9% percent over their
base salaries for the prior year. However, one of such executives received no
increase in 2004 from her base 2003 salary.
The Committee engaged an independent consulting firm in 2004 to conduct an
analysis of executive officer compensation. In performing its analysis, the
consulting firm conducted a review of the Company's compensation policies and
practices with respect to its executive officers and a review of executive
officer compensation of companies competing in the same industry as the Company,
and comparable in growth, revenue, market value, and earnings to the Company.
BONUS INCENTIVE COMPENSATION
The executive officers of the Company (including the Chief Executive
Officer) participate in the Company's Annual Bonus Compensation Program,
pursuant to which each executive officer is eligible to earn a cash bonus for
each fiscal year of the Company equal to a predetermined percentage of such
officer's base salary, based on achievement of Company operating earnings goals,
business unit performance and individual performance milestones.
21
After the acquisition of Critical Care Systems, Inc. in April 2004, the
Committee approved pre-determined percentages of the executive officers' base
salary that would be paid in the form of a cash bonus if the Company achieved
certain targeted earnings goals as approved by the Committee. In addition, at
the beginning of the 2004 fiscal year, the Committee established certain
individual milestones for each officer, and after the acquisition of Critical
Care Systems, Inc., it established certain individual operational milestones of
the Company related to profit margin measurements. The Committee also
established specified percentages of the executive officers' base salaries that
will be paid in relation to the achievement of these individual milestones. The
earnings goals and the special milestones established by the Committee would
permit the executive officers, except the Chief Executive Officer, to earn
between sixty and eighty percent of their base salary, depending on an officer's
position, in the form of a cash bonus. The Chief Executive Officer was permitted
to earn up to 100% of his salary in the form of a cash bonus for meeting such
earnings goals and special milestones. The executive officers' actual bonuses
are awarded and paid in the following fiscal year once the Company's financial
results and milestone achievements for the prior fiscal year have been finally
determined.
None of the executive officers were awarded any bonuses for 2004.
STOCK OPTIONS AND RESTRICTED STOCK AWARDS
The Committee made grants of options to the executive officers during 2004
as follows: Mr. Feshbach (75,000), Mr. Tella (40,000), Mr. Prior (35,000), Mr.
Axmacher (30,000) and Ms. Lanis (30,000). In addition, in 2004, the Committee
awarded 157,604 restricted stock units to Mr. McConnell in connection with his
appointment as President and Chief Operating Officer in April 2004; awarded Mr.
Feshbach 100,000 shares of restricted stock in connection with reduction of base
salary, his foregoing any severance payments upon his transition out of the role
of Chief Executive Officer, and his foregoing any cash bonus relating to the
Company's 2004 performance; and awarded Mr. Axmacher 60,000 shares of restricted
stock as a relocation incentive in connection with the Company's consolidation
of corporate headquarters and corporate functions in Nashua, New Hampshire.
In 2003, the Committee engaged an independent outside consulting firm to
examine the Company's annual stock option grant process, in light of industry
and market practices, and the Committee considered the report of this consultant
in connection with its stock option grant decisions for 2004.
CHIEF EXECUTIVE OFFICER COMPENSATION
In establishing Mr. Feshbach's compensation as Chief Executive Officer for
2004, we applied the principles outlined above in the same manner as they were
applied to the other executives. We considered an independent market study
regarding compensation, and compared Company performance with that of peer group
companies, as well as individual performance. We did not assign relative weights
to specific performance factors, but rather made a subjective determination
after considering the data collectively. When Mr. McConnell replaced Mr.
Feshbach as Chief Executive Officer, Mr. Feshbach waived certain rights he may
have had to base salary, cash bonus and severance under his employment
agreement. In determining Mr. Feshbach's compensation in connection with his
transition from Chief Executive Officer to Special Advisor, we considered such
waiver of rights, and the continuing value of his experience and insights for
the Company.
In April 2004, when the Company acquired Critical Care Systems, Inc., it
agreed that within eighteen months of such acquisition, Mr. McConnell would be
appointed as its Chief Executive Officer, subject to Board approval. In
November, 2004 Mr. McConnell was appointed Chief Executive Officer of the
Company. Under his employment agreement, Mr. McConnell's salary was initially
and has continued to be $400,000. In determining Mr. McConnell's base salary
compensation, the Committee also
22
considered Mr. McConnell's experience and prior performance at Critical Care
Systems, Inc., and industry benchmarks of peer group companies. In addition, the
Company desired that Mr. McConnell's interests would be aligned with those of
the stockholders of the Company, and that Mr. McConnell would demonstrate his
commitment to the Company, by investing a significant portion of the proceeds he
received in connection with such acquisition in stock of the Company.
Accordingly, Mr. McConnell was required to purchase $2,000,000 of Company stock
on the open market, and the Company matched such purchase with a restricted
stock unit grant of approximately equal market value. The Committee believes
that Mr. McConnell's total remuneration is consistent with the overall
compensation and benefits philosophy of the Company, is appropriately positioned
with respect to his peers, and reflects the Committee's subjective assessment of
his performance as Chief Executive Officer.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, sets a
$1.0 million limit on the amount of deductible compensation that can be paid in
any year to an executive officer of the Company. "Qualified performance-based
compensation" (as defined under Section 162(m)) is excluded from the calculation
of this $1.0 million limit. Although the Committee does not believe that the
annual compensation for 162(m) purposes for any of the Company's executive
officers will exceed $1.0 million in 2004, the Company has taken the necessary
steps to allow stock options granted under the 2000 Stock Incentive Plan to
qualify as "qualified performance-based compensation" and so be excluded from
this calculation.
MEMBERS OF THE COMPENSATION COMMITTEE:
Lawrence P. English, Chairman
Paul S. Auerbach, M.D., Member
Daniel E. Berce, Member
23
AUDIT COMMITTEE REPORT
The Audit Committee oversees the Company's internal controls and financial
reporting process on behalf of the Board of Directors. All of the members of the
Audit Committee are independent for purposes of the Nasdaq listing requirements.
Messrs. Berce and Maudlin are "financial experts" as the term is defined in the
Securities and Exchange Commission rules. The Audit Committee operates under a
written charter adopted by the Board of Directors. The charter of the Audit
Committee, as amended in April 2004, is available on the Company's website at
www.curative.com. The Audit Committee recommends to the Board of Directors the
appointment of the Company's independent auditors.
Management is responsible for the Company's internal controls and the
financial reporting process. The Company's independent accountants are
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted auditing standards
and to issue a report on the Company's financial statements. The Audit
Committee's responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has met and held discussions with
management, the Company's internal auditor and the independent accountants.
Management represented to the Audit Committee that the Company's consolidated
financial statements were prepared in accordance with generally accepted
accounting principles, and the Audit Committee has reviewed and discussed the
consolidated financial statements with management, the independent accountants
and the Company's internal auditor. The Audit Committee discussed with the
independent accountants matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees). The Audit
Committee also held regular executive sessions without management present.
The Company's independent accountants also provided to the Audit Committee
the written disclosure required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with the independent accountants the accounting firm's independence.
The Committee also considered whether non-audit services provided by the
independent accountants during the last fiscal year were compatible with
maintaining the independent accountants' independence.
Based upon the Audit Committee's discussion with management and the
independent accountants and the Audit Committee's review of the representations
of management and the report of the independent accountants to the Audit
Committee, the Audit Committee recommended to the Board of Directors that the
audited consolidated financial statements be included in the Company's Annual
report on Form 10-K for the fiscal year ended December 31, 2004 for filing with
the Securities and Exchange Commission.
MEMBERS OF THE AUDIT COMMITTEE:
Daniel E. Berce, Chairman
Lawrence P. English, Member
Timothy I. Maudlin, Member
24
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 31, 2005 with respect to (1) each person who owned of
record or was known by the Company to own beneficially more than five percent of
the issued and outstanding shares of Common Stock, (2) each director or director
nominee, (3) each named executive officer, and (4) all directors and current
executive officers as a group.
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL COMMON STOCK
NAME AND ADDRESS OWNERSHIP OUTSTANDING
----------------------------------------------------- ----------------- -------------
Kennedy Capital Management, Inc. (1)................. 1,404,325 10.86%
10829 Olive Boulevard
St. Louis, MO 63141
Joseph L. Feshbach................................... 875,028(3). 6.50%
Paul S. Auerbach, M.D................................ 98,265(2).(3). *
Daniel E. Berce...................................... 133,100(3). 1.02%
Peter M. DeComo...................................... 6,251(3). *
Lawrence P. English.................................. 149,100(3). 1.14%
Timothy I. Maudlin................................... 231,095(3)(4).. 1.77%
Paul F.
McConnell.......................................... 420,000(3). 3.24%
Gerard Moufflet...................................... 192,540(3). 1.48%
John C. Prior........................................ 394,837(3). 3.0%
William C. Tella..................................... 317,348(3). 2.41%
Nancy F. Lanis....................................... 187,162(3). 1.42%
Thomas W. Axmacher................................... 209,682(3). 1.6%
All directors and current executive officers as 3,217,122(3).
a group (14 persons).................................
----------------------
* Ownership does not exceed 1%
(1) Disclosure is made in reliance upon a statement on Schedule 13G filed with
the Securities and Exchange Commission on February 15, 2005.
(2) Includes 15,000 shares held in trust.
(3) The number of shares shown in the table with respect to the following
persons and group, includes the indicated number of shares which are
issuable upon exercise of options exercisable,
25
or restricted stock which would vest, within 60 days of March 31, 2005
("currently exercisable options"): Mr. Feshbach, 490,369 shares; Dr.
Auerbach, 83,265 shares; Mr. Berce, 117,100 shares; Mr. English, 119,100
shares; Mr. Maudlin, 93,776 shares; Mr. Moufflet, 73,517 shares; Mr.
DeComo 6,251; Mr. Prior, 172,578 shares; Mr. Tella, 223,160 shares; Ms.
Lanis, 172,162 shares; Mr. Axmacher, 107,787 shares; and all directors and
current executive officers as a group, 3,217,122 shares.
(4) Includes 36,700 shares owned by Mr. Maudlin's spouse. Mr. Maudlin
disclaims beneficial ownership of the shares owned by his spouse.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers and all persons who beneficially own
more than ten percent of the outstanding shares of the Company's Common Stock to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of such Common Stock. Directors, executive
officers and ten percent or more beneficial owners are also required to furnish
the Company with copies of all Section 16(a) reports filed. Based solely on a
review of the copies of such forms and certain representations, the Company
believes that all Section 16(a) filing requirements applicable to its executive
officers, directors and ten percent shareholders were in compliance.
26
PROPOSAL #2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP, an independent
registered public accounting firm, as independent auditors for the Company for
the fiscal year ending December 31, 2005. A proposal to ratify that appointment
will be presented at the Meeting. Ernst & Young LLP has served as the Company's
independent auditors since September 1986. Representatives of Ernst & Young LLP
are expected to be present at the Meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions from shareholders.
2004 2003
FEES FEES
---- ----
AUDIT FEES (1)
Aggregate Audit Fees $ 873,000 $522,000
AUDIT-RELATED FEES (2)
Total Audit-Related Fees $ 179,500 $ 28,000
TAX FEES (3)
Aggregate Tax Fees $ 7,000 $266,000
OTHER FEES (4)
Aggregate Other Fees $ -- $ 82,000
---------- --------
TOTAL FEES $1,059,500 $898,000
========== ========
(1) Included fees and expenses related to the fiscal year audit of the
Company's annual financial statements, reviews of the Company's
financial statements included in its quarterly reports on Form 10-Q and
other services provided in connection with other SEC filings, including
comfort letters, consents and comment letters. In 2004, audit services
also included the audit of the Company's internal control over
financial reporting as required under Section 404 of the Sarbanes-Oxley
Act.
(2) Included fees billed for assurance and related services that are
reasonably related to the performance of the audit or reviews of the
Company's financial statements and are not reported under "Audit Fees".
These services included employee benefit plan audits and due diligence
and accounting consultations in connection with acquisitions..
(3) Included fees incurred for professional services for tax compliance,
tax advice and tax planning. In 2003, tax services also included
$206,000 in fees incurred in connection with the Company's
reorganization into a holding company structure.
(4) Included fees for products and services other than the services
reported above. In 2003, the $82,000 related to independent review
organization work with respect to the Company's Corporate Integrity
Agreement.
PRE-APPROVAL POLICIES
All services provided by our independent auditor, Ernst & Young LLP, are
subject to pre-approval by our Audit Committee. The Audit Committee may
authorize the Chair of the Committee or any of the Committee's individual
members to approve services by Ernst & Young LLP to ensure prompt handling of
pre-approval matters. The Chair then reports action taken at the next Audit
Committee
27
meeting. In seeking pre-approval from the Audit Committee, the Chief Financial
Officer and the independent auditor must jointly submit to the Audit Committee
for its review and approval, in advance of the performance of the services to be
provided by the independent auditor, a schedule of audit, audit-related, tax and
all other non-audit services proposed to be provided by the independent auditor.
Such schedule must list the services to be provided and the amount of fees
proposed to be approved relating to such services. The Audit Committee considers
the overall relationship of fees for audit and non-audit services in determining
whether to approve such services. One-hundred percent (100%) of the non-audit
services performed in 2004 were approved by the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS. If the
appointment of Ernst & Young LLP is not ratified by the shareholders, the Board
of Directors is not obligated to appoint other auditors, but the Board of
Directors will give consideration to such unfavorable vote.
OTHER ACTION
The Board of Directors of the Company is not aware at this time of any
other matters which will be presented for action at the Meeting. However, if any
matters other than those referred to above properly come before the meeting, it
is the intention of the persons named in the enclosed proxy to vote such proxy
in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2006 Annual
Meeting of the Shareholders of the Company and included in the Proxy Statement
and form of Proxy relating to that meeting must be received by the Company no
later than December 29, 2005 in order to qualify for such inclusion. If the
Company does not receive notice before April 1, 2006 of any other shareholder
proposal intended to be presented at the 2006 Annual Meeting but not included in
the Proxy Statement and form of Proxy relating to that meeting, then the persons
named in the Proxy solicited by the Board for that meeting will be allowed to
exercise discretionary voting power to vote on that proposal.
NO INCORPORATION BY REFERENCE
The information under the headings "Performance Graph," "Compensation
Committee Report on Executive Compensation" and "Audit Committee Report" shall
not be deemed incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filing under the Securities Act of
1933, as amended, or under the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically incorporates the information
by reference, and shall not otherwise be deemed filed under such Acts.
28
SOLICITATION STATEMENT
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made primarily by mail, but regular employees of the
Company may solicit proxies personally, by telephone or telegram. Brokers,
nominees, custodians and fiduciaries have been requested to forward solicitation
materials to obtain voting instructions from beneficial owners of stock
registered in their names, and the Company will reimburse such parties for their
reasonable charges and expenses in connection therewith.
Hauppauge, New York By Order of the Board of Directors
April 28, 2005
/s/ Nancy F. Lanis
----------------------------------
Nancy F. Lanis
Secretary
29
[CURATIVE LOGO]
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, JUNE 1, 2005
10:00 A.M.
CURATIVE HEALTH SERVICES, INC.
SHERATON NASHUA HOTEL
11 TARA BLVD.
NASHUA, NH 03062
CURATIVE HEALTH SERVICES, INC.
[CURATIVE LOGO] CORPORATE HEADQUARTERS
150 MOTOR PARKWAY
HAUPPAUGE, NY 11788 PROXY
--------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS -- JUNE 1, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Nancy F. Lanis and Thomas Axmacher, and either
of them, proxies of the undersigned, with full power of substitution, to vote
all the shares of Common Stock of Curative Health Services, Inc. (the
"Company"), held of record by the undersigned on April 8, 2005 at the Annual
Meeting of the Stockholders to be held June 1, 2005, and at any adjournment
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BY THE
UNDERSIGNED STOCKHOLDER. IF NO CHOICE IS SPECIFIED BY THE STOCKHOLDER, THIS
PROXY WILL BE VOTED `FOR' ALL PORTIONS OF ITEMS (1) AND (2) AND IN THE PROXIES'
DISCRETION ON ANY OTHER MATTERS COMING BEFORE THE MEETING.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all that
said proxies, their substitutions or any of them may lawfully do by vir tue
hereof.
PLEASE PROMPTLY MARK, DATE, SIGN, AND MAIL
THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
NO POSTAGE REQUIRED
See reverse for voting instructions.
Please detach here
The Board of Directors Recommends a Vote FOR Items 1 and 2.
1. Nomination and Election of Directors:
01 Paul S. Auerbach, MD
02 Daniel E. Berce
03 Lawrence P. English
04 Joseph L. Feshbach
05 Timothy I. Maudlin
06 Gerard Moufflet
07 John C. Prior
08 Peter M. DeComo
09 Paul F. McConnell
[ ] Vote FOR all nominees (except as marked)
[ ] Vote WITHHELD from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE
THE NUMBER(s) OF THE NOMINEE(s) IN THE BOX PROVIDED TO THE RIGHT.) [ ]
2. To ratify the appointment of Ernst & Young as the Company's Independent
Auditors.
[ ] For [ ] Against [ ] Abstain
3. In their discretion the Proxies are authorized to vote upon such other
matters as may come before the meeting or any adjournment thereof.
ALL AS MORE PARTICULARLY DESCRIBED IN THE COMPANY'S PROXY STATEMENT, DATED APRIL
28, 2005, RELATING TO SUCH MEETING, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED.
Address Change? Mark Box [ ] Indicate changes below:
Date _____________________________________________
[________________________________________________]
Signature(s) in Box
Please date this Proxy Card and sign your name
exactly as it appears hereon. Where there is more
than one owner, each should sign. When signing as
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