<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
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 240.14a-11(c) or 240.14a-12
CHAD THERAPEUTICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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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
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
CHAD THERAPEUTICS, INC.
-------------
NOTICE OF ANNUAL SHAREHOLDERS MEETING
To be held September 9,1997
-------------
The Annual Meeting of Shareholders of Chad Therapeutics, Inc. (the "Company")
will be held at the Marriott Hotel, 21850 Oxnard Street, Woodland Hills, CA
91367 on September 9, 1997 at 10:00 a.m., Los Angeles time (the "Meeting"), for
the following purposes:
1. to elect (4) directors of the Company to the 1999 Class to serve during
the ensuing two years or until their successors have been duly elected and
qualified. The Board of Directors' nominees for election are Charles R. Adams,
Francis R. Fleming, David L. Cutter and Philip Wolfstein.
2. to ratify the appointment of KPMG Peat Marwick LLP, certified public
accountants, as independent auditors; and
3. to transact such other business as may properly come before the Meeting
and any adjournments thereof.
Pursuant to the Bylaws of the Company, the Board of Directors has fixed July
11, 1997, as the record date for the determination of such shareholders entitled
to notice of and to vote at the Meeting, and all adjournments thereof, and only
shareholders of record at the close of business on that date are entitled to
such notice and to vote at the Meeting.
We hope that you will use this opportunity to take an active part in the
affairs of the Company by voting on the business to come before the meeting by
executing and returning the enclosed Proxy. Whether or not you expect to attend
the meeting in person, please date and sign the accompanying Proxy and return it
promptly in the envelope enclosed for that purpose. If a shareholder receives
more than one Proxy because he owns shares registered in different names or
addresses, each Proxy should be completed and returned.
By Order of the Board of Directors
EARL L. YAGER
Secretary
Chatsworth, California
July 11, 1997
- 1 -
<PAGE> 3
CHAD THERAPEUTICS, INC.
21622 Plummer Street
Chatsworth, California 91311
(818) 882-0883
-------------
ANNUAL MEETING OF SHAREHOLDERS
-------------
September 9,1997
-------------
PROXY STATEMENT
-------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors of Chad Therapeutics, Inc. (the "Company") for
use at the Annual Meeting of Shareholders to be held at the Marriott Hotel,
21850 Oxnard Street, Woodland Hills, CA 91367, at 10:00 a.m., Los Angeles Time,
on September 9, 1997, and any adjournments thereof (the "Meeting").
VOTING AND REVOCABILITY OF PROXY
July 11, 1997, has been fixed as the record date for the determination of
shareholders entitled to notice of and to vote at the Meeting and all
adjournments thereof. As of July 11, 1997, there were 9,951,117 of the Company's
Common Shares entitled to a vote at the Meeting. This Proxy Statement and the
accompanying Proxy will first be mailed to shareholders on or about July 14,
1997. The Company's 1997 Annual Report to Shareholders, including financial
statements for the fiscal year ended March 31, 1997, has been enclosed for the
benefit of shareholders entitled to vote at the Meeting.
Proxies may be revoked at any time before they are voted by filing with the
Secretary of the Company a written notice of revocation, or by executing a Proxy
bearing a later date. Proxies may also be revoked by any shareholder present at
the Meeting who expresses a desire to vote his shares in person. Subject to any
such revocation, all shares represented by properly executed Proxies will be
voted in accordance with the specifications on the enclosed Proxy. If no such
specification is made, the shares will be voted as follows: (1) for the election
of each of the nominees named herein as directors (but the person designated as
proxy reserves discretion to cast votes for other persons in the unanticipated
event that any such nominee becomes unavailable to serve), and (2) to ratify the
appointment of KPMG Peat Marwick LLP, certified public accountants, as the
Company's independent auditors for its fiscal year commencing April 1, 1997.
- 2 -
<PAGE> 4
VOTE REQUIRED FOR APPROVAL
1. Election of Directors
Section 708 of the California Corporations Code provides that a shareholder
may vote for one or more directors by cumulative voting provided that the name
of the candidates for whom the cumulative votes would be cast have been placed
in nomination prior to the voting and that the shareholder has given notice at
the meeting prior to the voting of the shareholder's intention to cumulate his
votes. If any one shareholder has given such notice, all shareholders may
cumulate their votes for the election of directors. Cumulative voting means that
each shareholder is entitled to as many votes as equal the number of shares that
he owns multiplied by the number of directors to be elected. He may cast all of
such votes for a single nominee or he may distribute them among any two or more
nominees, as he sees fit. If cumulative voting is not requested, each
shareholder will be entitled to one vote per share for each director to be
elected.
The enclosed Proxy vests in the proxyholder cumulative voting rights. The
person authorized to vote shares represented by executed Proxies in the enclosed
form (if authority to vote for the election of directors is not withheld) will
have full discretion and authority to vote cumulatively and to allocate votes
among any or all of the Board of Directors' nominees as he may determine or, if
authority to vote for a specified candidate or candidates has been withheld,
among those candidates for whom authority to vote has not been withheld. In any
case, the Proxies may be voted for less than the entire number of nominees if
any situation arises which, in the opinion of the proxyholder, makes such action
necessary or desirable. The four (4) nominees who receive the largest number of
votes shall be elected, provided that each of them receives at least a majority
of the quorum.
2. Other Matters
On any matters which may come before the Meeting, shareholders will be
entitled to one vote for each share held of record. Approval of the proposal to
ratify the appointment of KPMG, requires the affirmative vote of a majority of
the Common Shares represented and voting at the Meeting.
The presence in person or proxy of the persons entitled to vote a majority of
the issued and outstanding Common Shares constitutes a quorum for the
transaction of business at the Meeting,
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth as of June 27, 1997, the ownership of the
Common Shares by those persons known by the Company to own beneficially 5% or
more of such shares, by each director who owns any such shares and by all
officers and directors of the Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT PERCENT OWNED
---------------- ------ -------------
<S> <C> <C>
Charles R. Adams(1)(2) .............................. 614,010 6.2%
Francis R. Fleming(1)(2) ............................ 233,023 2.4%
David L. Cutter(1)(2) ............................... 64,479 .7%
Norman Cooper(1)(2) ................................. 86,606 .9%
John C. Boyd(1)(2) .................................. 139,396 1.4%
Philip Wolfstein(1)(2) .............................. 141,944 1.4%
Earl L. Yager(1)(2) ................................. 176,070 1.8%
All Officers and Directors as a group (9 people)(2) . 1,599,142 16.1%
Kevin Kimberlin(3) .................................. 645,204 6.5%
</TABLE>
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<PAGE> 5
(1) The address of each director is 21622 Plummer Street, Chatsworth, CA
91311.
(2) Includes shares subject to options which are currently exercisable or
which become exercisable within sixty (60) days: Charles R. Adams -
143,112 shares, Francis R. Fleming - 80,540 shares, David L. Cutter -
9,657 shares, Norman Cooper - 9,657 shares, John C. Boyd - 9,657 shares,
Philip Wolfstein - 9,657 shares, Earl L. Yager - 30,128 shares, all
Officers and Directors as a group - 352,863 shares.
(3) Mr. Kimberlin's address is c/o Spencer Trask, 535 Madison Avenue, New
York, MY 10022.
SECTION 16 REPORTS
Under the Federal securities laws, the Company's directors, its executive
officers and any persons holding more than ten percent of the Company's common
stock are required to report their ownership of the Company's common stock and
any changes in that ownership to the Securities and Exchange Commission.
Specific due dates for these reports have been established and the Company is
required to report in this Proxy Statement any failure to file by these dates
during the most recent fiscal years or prior fiscal years. In making these
statements, the Company has relied on the written representations of its
directors and executive officers and its ten percent shareholders and copies of
the reports that they have filed with the Securities and Exchange Commission. To
the best of the Company's knowledge, all of the filing requirements were
satisfied by the Company's directors and executive officers and ten percent
shareholders in fiscal 1997.
ELECTION OF DIRECTORS
NOMINEES
The Bylaws of the Company, as amended, provide that the Board of Directors
shall not be less than five and not more than 13 and shall be fixed from time to
time by resolution of the Board of Directors. At its meeting of September 20,
1994, the Board of Directors fixed the number of directors constituting the
entire Board at seven.
The Bylaws divide the Board into two classes, Class I and Class II. Four
directors have terms of office that expire at the 1997 Annual Meeting, and these
four directors are standing for reelection for a two-year term as Class I
members. These directors are Messrs. Adams, Fleming, Cutter and Wolfstein. The
remaining three Class 11 members will continue to serve until the 1998 Annual
Meeting.
All nominees for election as Class I members of the Board of Directors at the
1997 Annual Meeting will be elected for a term of two years and shall serve
until their terms expire at the 1999 Annual Meeting or until their successors
are duly elected and qualified.
It is the intention of the person named in the proxy to vote such proxies for
the election of the four listed nominees, each of whom has consented to be a
nominee and serve as a director if elected. If events not now known or
anticipated make any of the nominees unwilling or unable to serve, the proxies
will be voted in the discretion of the holder of such proxies for other nominees
not named herein in lieu of those unwilling or unable to serve.
- 4 -
<PAGE> 6
The nominees for election to Class I and the incumbents in Class II have
supplied the following information pertaining to their age and principal
occupation or employment during the past five (5) years:
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<S> <C> <C> <C> <C>
NOMINEES TO CLASS I
-------------------
Charles R. Adams 69 Chief Executive Officer
and Director 1982
Francis R. Fleming 59 President, Chief Operating
Officer and Director 1994
David L. Cutter 68 Director 1983
Philip Wolfstein 46 Director 1994
INCUMBENTS IN CLASS II
----------------------
Norman Cooper 66 Director 1986
John C. Boyd 64 Director 1986
Earl L. Yager 51 Senior Vice President, Chief
Financial Officer, Secretary
and Director 1988
</TABLE>
Charles R. Adams has been Chief Executive Officer and a director of the
Company since its formation in August, 1982. He was President of the Company
from 1982 until March 1995. From October, 1980, until August, 1982, he was an
independent consultant to numerous companies in the health care field, including
Syntex, DuPont and 3M. Prior to joining the Company, he was employed for 27
years by Riker Laboratories U.S.A., a major manufacturer and distributor of
pharmaceuticals. Mr. Adams served for 14 years as either President or Vice
President, General Manager of Riker. Mr. Adams was both a director of the
Pharmaceutical Manufacturers Association and Chairman of the Western
Pharmaceutical Group for more than 10 years. He has served on the State of
California Pharmacy Advisory Commission, on the University of Southern
California College of Pharmacy Board of Advisors, on the Northridge Hospital
Foundation Board of Trustees and with numerous other professional and civic
organizations.
Francis R. Fleming has been President and Chief Operating Officer of the
Company since April, 1995 and was Executive Vice President from April 1, 1993 to
March 1, 1995 and Vice President and Marketing Director from April, 1983 to
April, 1993. Prior thereto, he was employed by Riker Laboratories and 3M for 20
years, ultimately as the National Sales Manager for the Personal Care Products
Department for 3M. Prior to this assignment, he was General Manager of Riker,
Canada, and a member of 3M's Canada Management Committee.
David L. Cutter has been a director of the Company since May, 1983. He is
retired Chairman of the Board of Trustees of Alta Bates Medical Center and a
director of Civic Bancorp. He was the President of Herrick Hospital and Health
Center from 1978 to 1984. He is the retired Chairman of the Board of Cutter
Laboratories, Inc. a whollyowned subsidiary of Bayer A.G. Leverkusen, Germany.
He was a director of the Pharmaceutical Manufacturers Association from 1972-1978
(past chairman of the Medical Devices and Diagnostic Products Section), and a
director of the Medical Surgical Manufacturers' Association from 1971-1973.
Philip Wolfstein has been a director of the Company since October, 1994. He
has been President and a director of Wolfstein International, Inc., an
international trading company, since 1976.
Norman Cooper has been a director of the Company since May, 1986, Mr. Cooper
is the retired Chairman of the Board of Kallir, Philips, Ross, Inc., a major
advertising agency specializing in the health care field. He has been with
Kallir, Philips, Ross, Inc. since 1965 and was named Executive Vice President in
1972, Chief Operating Officer in 1981 and President in 1985. Mr. Cooper is a
licensed pharmacist; and is a member of the American Marketing Association, the
Pharmaceutical Manufacturers Association and the Pharmaceutical Advertising
Council.
- 5 -
<PAGE> 7
John C. Boyd has been a director of the Company since May, 1986. Mr. Boyd was
General Manager of Dunaway Equipment Co., Inc. from 1991 to 1994, a company
specializing in the sale and service of equipment in the logging industry. He
was President of Beaty Leasing & Rental, an automobile leasing and rental firm
which he founded, from 1982 to 1991. From 1969 to 1982, Mr. Boyd served as
Personnel Director and Manager of Marketing Administration for Riker
Laboratories, Inc.
Earl L. Yager has been Senior Vice President of the Company since April,
1995, Chief Financial Officer since May, 1983, and Secretary and a director
since July, 1988. From May, 1980, until May, 1983, he was President of Calabasas
Enterprises, Inc., a privately owned real estate investment and development
company. From May, 1975, to February, 1982, he was managing partner in the
accounting firm of Femrite, Yager and Blank. Mr. Yager has been a certified
public accountant since 1970 and is a member of the American Institute of
Certified Public Accountants.
INFORMATION CONCERNING BOARD OF DIRECTORS AND CERTAIN COMMITTEES
The Board of Directors holds regular meetings and held a total of five (5)
meetings during the fiscal year ended March 31, 1997. Each director attended
every meeting of the Board and of each committee of which he was a member. In
addition, the Board considered and adopted resolutions by unanimous written
consent during the fiscal year ended March 31, 1997.
Three committees have been created by the Board of Directors - a Finance and
Audit Committee, a Compensation Committee and an Organization Committee. The
members of the Finance and Audit committee are Messrs. Cutter, Cooper and
Wolfstein. Mr. Cutter is the Chairman of the Finance and Audit Committee. The
Finance and Audit Committee met twice during the fiscal year ended March 31,
1997. The members of the Compensation Committee are Messrs. Boyd, Cooper and
Wolfstein. Mr. Boyd is the Chairman of the Compensation Committee. The
Compensation Committee met twice during the fiscal year ended March 31, 1997.
The members of the Organization Committee are Messrs. Adams, Boyd, Cooper and
Cutter. Mr. Cooper is the Chairman of the Organization Committee. The
Organization Committee met once during the fiscal year ended March 31, 1997.
The functions of the Finance and Audit Committee include, among other things,
reviewing and making recommendations to the Board of Directors with respect to
(1) the engagement or reengagement of an independent accounting firm to audit
the Company's financial statements, (2) the policies and procedures of the
Company and management with respect to maintaining the Company's books and
records and furnishing necessary information to the independent auditors, and
(3) the adequacy of the Company's internal accounting controls.
The functions of the Compensation Committee include making recommendations to
the Board of Directors regarding compensation for the principal officers and
other key employees of the Company, incentive compensation to employees and
other employee compensation and benefits.
The functions of the Organization Committee include reviewing and making
recommendations for Board committee assignments, screening and making
recommendations regarding candidates for Board of Directors vacancies and
studying and making recommendations regarding succession and replacement of key
executives,
In addition to the aforementioned committees of the Board of Directors, the
Company also has a Stock Option Committee which administers the Company's Stock
Option Plan. The Stock Option Committee is comprised of Messrs. Boyd, Cutter and
Wolfstein. Mr. Wolfstein is chairman of the Stock Option Committee, which met
once during the past fiscal year.
Each non-employee director is entitled to receive his expenses and a fee of
$1000 for each Board meeting attended and $100 for each committee meeting
attended unless the committee meeting occurs on the same day as the Board
meeting in which event, each non-employee director received only the fee for
attending a Board meeting. In addition, each non-employee director receives a
quarterly retainer in the amount of $2,500. Directors who are also employees do
not receive separate compensation for services as directors.
- 6 -
<PAGE> 8
EXECUTIVE OFFICERS
The executive officers of the Company are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Charles R. Adams 69 Chief Executive Officer
Francis R. Fleming 59 President and Chief Operating Officer
Earl L. Yager 51 Senior Vice President,
Chief Financial Officer and Secretary.
Oscar J. Sanchez 54 Vice President - Engineering and Development
Louie Goryoka 40 Vice President - Quality Assurance
and Regulatory Affairs
</TABLE>
Oscar J. Sanchez has been Vice President of Engineering and Development since
September, 1996, and was Vice President of Manufacturing for the Company from
April, 1993 to August, 1996, and Manufacturing Manager from April, 1983 to
April, 1993. Prior to this assignment, Mr. Sanchez occupied various positions of
responsibility in Engineering and Management both inside and outside the U.S.
The most recent as Director of Manufacturing for Riker Laboratories in Mexico
City. He has been an active member of the Society of Manufacturing Engineers for
20 years where he served two terms as elected Chairman of the Los Angeles
Chapter.
Louie Goryoka has been Vice President of Quality Assurance and Regulatory
Affairs for the Company since April, 1996, and was Quality Assurance and
Regulatory Affairs Manager from July, 1995 to March, 1996. From March, 1994, to
June, 1995, he was an independent consultant to various companies in the health
care field specializing in quality assurance, regulatory affairs and as an ISO
9000 Assessor. From October, 1992, to March, 1994, he was Director of Quality
Assurance and Regulatory Affairs for Trimedyne, Inc. and from October, 1990, to
October, 1992, held the same position at Respiratory Support Products. He has
served as the Co-Chairman for the California Orange County Regulatory Affairs
Professional Organization and is currently an active member of the American
Society for Quality Control and the Regulatory Affairs Professional Society. He
is also a Certified Quality Engineer and an ISO 9000 lead Auditor.
For the biographies of Messrs. Adams, Fleming and Yager, see "Election of
Directors - Nominees".
- 7 -
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Awards
Compensation -----------------------
----------------------------- Securities
Name And Underlying All Other
Principal Position Year Salary($) Bonus(1)($) Options(#) Compensation(2)($)
------------------ ---- --------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Charles R. Adams 1997 291,600 29,160 - 22,697
Chief Executive Officer 1996 278,400 55,680 - 14,877
1995 265,200 53,040 75,000 15,205
Francis R. Fleming 1997 174,000 17,400 - 12,250
President and 1996 165,600 33,120 - 12,120
Chief Operating Officer 1995 150,000 30,000 50,000 12,026
Earl L. Yager 1997 162,000 16,200 - 12,250
Senior Vice President, 1996 154,800 30,960 - 12,120
Chief Financial Officer 1995 140,400 28,080 40,000 11,640
and Secretary
Oscar J. Sanchez 1997 126,000 12,600 - 10,990
Vice President, 1996 121,200 9,696 - 10,821
Engineering and Development 1995 110,400 16,560 25,000 10,140
Louie Goryoka 1997 120,000 12,000 - 5,355
Vice President, Quality
Assurance and Regulatory 1996 63,756 12,751 30,000 -
Affairs
</TABLE>
(1) Annual bonus amounts are earned, accrued and paid during the fiscal years
indicated.
(2) These amounts consist of: (a) payments of premiums on a life insurance
policy on Mr. Adam's life pursuant to an employment contract of $10,447 in
1997 and $2,757 in 1996 and 1995 and (b) contributions by the Company in
1997, 1996 and 1995 to the Chad Therapeutics, Inc. Employee Savings and
Retirement Plan as follows: Mr. Adams $12,250, $12,120, and $12,448, Mr.
Fleming $12,250, $12,120, and $12,026, Mr. Yager $12,250, $12,120, and
$11,640, Mr. Sanchez $10,990, $10,821, and $10,140 and Mr. Goryoka $5,355 in
1997, respectively.
OPTION GRANTS FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
POTENTIAL
REALIZED VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM (4)
GRANTED(#) EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------
NAME (1,2) DURING 1995 $ PER SHARE(3) DATE 5% 10%
---- ----- ----------- ------------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
No Options were granted in 1997.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AT
MARCH 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES MARCH 31,1997 MARCH 31,1997
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE($)
---- ------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C>
Charles R. Adams -0- -0- 143,112/38,625 651,000/231,000
Francis R. Fleming -0- -0- 80,540/46,350 310,000/277,000
Earl L. Yager -0- -0- 30,128/37,080 169,000/222,000
Oscar J. Sanchez -0- -0- 54,725/23,175 175,000/139,000
Louie Goryoka -0- -0- 6,180/24,720 -0-/-0-
</TABLE>
- 8 -
<PAGE> 10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1997, the Company made a loan of $130,000 to Mr. Louie Goryoka to
assist Mr. Goryoka in relocation of his personal residence. The loan was
approved by the Board of Directors and is evidenced by a promissory note bearing
interest at the rate of 7.25%. The outstanding balance on the loan at June 13,
1997, was $129,596.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee are or formerly were
officers or employees of the Company or had any relationship requiring
disclosure under Item 404 of Regulation S-K. Furthermore, none of the executive
officers of the Company served as a member of the Board of Directors,
Compensation Committee or committee performing equivalent functions of any other
company.
REPORTS OF THE COMPENSATION AND STOCK OPTION COMMITTEE
All members of the Compensation Committee are independent, non-employee
directors. The Compensation Committee is responsible for reviewing the Company's
compensation policies and making recommendations to the Board with respect to
executive compensation. In addition, the Company currently has a Stock Option
Committee, comprised entirely of independent non-employee directors, which is
responsible for administering the Company's Stock Option Plan.
The Company's compensation policies are designed to:
o attract and retain well-qualified executives who are willing to
work in a small, growing company;
o create a performance-oriented environment which recognizes both
annual and long-term results;
o strengthen the identification of executive officers with
shareholder interests; and
o reward long-term commitment to the Company.
Compensation of the Company's executive officers is composed primarily of
salary, bonuses and stock options.
1. SALARIES - Salaries for executive officers are established with a view
towards maintaining the Company's competitive ability to retain well-qualified
executive officers. The Committee reviews executive pay statistics compiled by
the Health Industry Manufacturers Association ("HIMA"). It generally seeks to
fix executive salaries at or near the midpoint for positions of comparable
responsibility in companies of comparable size in the HIMA study. Salaries are
reviewed annually by the Compensation Committee which consults with the Chief
Executive Officer on the appropriate salary levels for each of the executive
officers. Salary levels are generally increased as executives assume new or
expanded responsibilities.
2. BONUSES - The Company does not have a formal incentive bonus plan with
fixed performance standards. The Compensation Committee annually reviews
executive performance to determine if bonuses would be appropriate. Payment of
bonuses is entirely discretionary and bonuses have generally not exceeded 20% of
base compensation. Cash bonuses are the Company's primary means for rewarding
superior performance during the immediate past year. The Compensation
Committee's standards for determining bonus amounts are subjective and are not
governed by any specific, quantitative criteria. The Compensation Committee
confers with the Chief Executive Officer regarding the contribution which each
executive officer made to the Company's performance
- 9 -
<PAGE> 11
during the previous year in order to determine if bonuses should be paid and if
so, the appropriate amount of bonus to be paid. Factors considered in the award
of bonuses include (in order of importance) - profitability, growth in profits,
growth in sales, improved gross profit margins and achievement of goals which
enhance the Company's opportunities for future growth. The Compensation
Committee does not accord any specific numerical weight to these factors.
3. STOCK OPTIONS - Stock options are intended to strengthen the
identification of executive officers with the interests of the Company's
shareholders. Stock options are used by the Stock Option Committee as a form of
longterm incentive compensation and not as remuneration for the past year's
services. The Stock Option Committee grants options and fixes their terms
subject to the provisions of the Company's stock option plan adopted on
September 20, 1994. There are no fixed performance criteria which govern the
grant of stock options. The Stock Option Committee's standards for determining
the number of options granted are subjective. The Stock Option Committee confers
with the Chief Executive Officer regarding the contribution which each executive
officer made to the Company's performance during previous years and likely
future contributions in order to determine if stock options should be granted
and if so, the appropriate amount of options to be granted. The Stock Option
Committee generally grants options as a reward for sustained superior
performance reflected in the Company's operating results as well as to reward
long-term commitment to the Company. Stock option grants are generally
structured to provide executives with an incentive to continue with the Company.
In this regard, consideration is given to the number of options held by an
officer, their exercise price and vesting dates. All options granted have an
option price not less than the fair market value of the stock on the date of the
grant, generally vest over a period of five years and only attain a value if the
price of the stock increases.
BASIS FOR COMPENSATION OF THE CEO
During the fiscal year ended March 31, 1997, the annual base salary paid to
Charles R. Adams increased by 5% over 1996 levels. In addition, Mr. Adams
received a bonus equal to 10% of his base salary. In fixing Mr. Adams' salary
and bonus, the Compensation Committee took into account the Company's 29% growth
in sales, record profit of $5,035,000, and the expansion of the Company's staff.
While the Compensation Committee does not accord a specific numeric weight to
such factors, it believes the results for the year fully justify a 5% increase
in base salary. Furthermore, the 5% increase places Mr. Adams at approximately
the mid-point for CEOs of all companies in the HIMA study. The Compensation
Committee also noted that under Mr. Adams' leadership, the Company has
positioned itself to benefit from the improved market conditions for oxygen
conservation devices.
Compensation Committee Stock Option Committee
John Boyd (Chairman) Philip Wolfstein (Chairman)
Philip Wolfstein John Boyd
Norman Cooper David Cutter
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<PAGE> 12
COMPARATIVE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CHAD THERAPEUTICS, MEDIA GENERAL INDEX
AND SIC CODE INDEX
Company 1992 1993 1994 1995 1996 1997
- ------- ---- ---- ---- ---- ---- ----
Chad Therapeutics A 100 330.00 466.88 696.47 1,524.77 1,195.21
Industry Index 100 79.30 64.45 91.83 144.04 146.97
Broad Market 100 114.11 121.15 133.14 174.42 201.76
ASSUMES $100 INVESTED ON
APR. 1, 1992
ASSUMES DIVIDEND
REINVESTED FISCAL YEAR
ENDING
MAR. 31, 1997
The broad market index chosen was Media General Composite. The Industry Index
chosen was SIC Code 3841, Surgical & Medical Instruments & Apparatus. The
current composition of the index is as follows:
<TABLE>
<S> <C> <C>
ADVANCED MEDICAL INC. GENERAL SURGICAL INNOVAT NOVAMETRIX MEDICAL SYST.
AKSYS LTD. GISH BIOMEDICAL INC. OPHTHALMIC IMAGING SYSTS.
ANGEION CORP. GRACE, WR & CO. OPTICAL SENSORS INC.
APPLIED IMAGING CORP GUIDANT CORP ORTHOLOGIC CORP.
ARROW INTERNATIONAL INC. HAEMONETICS CORP. OXBORO MEDICAL INTERNAT.
ARTERIAL VASCULAR ENGINEERING HEARTPORT INC. PARADIGM MEDICAL IND.
AVECOR CARDIOVASCULAR HEARX LTD. PERCLOSE INC.
BALLARD MEDICAL PRODUCTS HEMASURE INC. QUEST MEDICAL INC.
BARD C.R. INC. HUMASCAN INC. RESMED INC.
BAXTER INTERNATIONAL INC. I-FLOW CORP ROCHESTER MED CORP.
BECTON, DICKINSON & CO. ICU MEDICAL INC. SALIVA DIAGNOSTICS
BIO-PLEXUS INC. INTEGRATED SURGICAL SYS. SPECIALIZED HEALTH ?ROD.
BIOJECT MEDICAL TECH. INTELLIGENT MED IMAGING STRATEGIC DIAGNOSTICS
BIOPSYS MEDICAL INC. KENSEY NASH CORP. STRYKER CORP.
BOSTON SCIENTIFIC CORP. KERAVISION INC SWISSRAY INTERNAT INC.
CARDIOMETRICS INC. LIFEQUEST MEDICAL INC. TARGET THERAPEUTICS INC.
CARDIOVASCULAR DYNAMICS MARQUEST MEDICAL PRODS. THERMO CARDIOSYSTEMS INC.
CLOSURE MEDICAL CORP. MED-DESIGN CORP. THORATEC LABS CORP.
CONCEPTUS INC. MEDAMICUS INC. ULTRAFEM INC.
CRYO-CELL INTERN AT INC. MEDI-JECT CORPORATION UNITED STATES SURGICAL
DIASYS CORP. MEDICAL DYNAMICS INC. UROMED CORP
ELECTRO CATHETER CORP. MEDWAVE INC. UTAH MEDICAL PRODUCTS
ENDOVASCULAR TECH INC. MERIDIAN MEDICAL TECH. VENTANA MEDICAL SYSTEMS
EP MEDSYSTEMS INC. MERIT MEDICAL SYSTEMS VIDAMED INC.
FEMRX INC. MICRO THERAPEUTICS INC. VITAL SIGNS INC.
FRESENIUS USA INC. MINNTECH CORP. VIVUS INC.
FUSION MEDICAL TECH. NITINOL MEDICAL TECH. XOMED SURGICAL PRODUCTS
</TABLE>
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<PAGE> 13
INDEPENDENT AUDITORS
The Board of Directors has appointed, subject to ratification by the
shareholders, KPMG Peat Marwick LLP as independent auditors for the fiscal year
commencing April 1, 1997. A representative of KPMG Peat Marwick LLP is expected
to attend the Meeting to make any statements he may desire and respond to
shareholders' questions.
THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION OF THE APPOINTMENT OF KPMG
PEAT MARWICK LLP.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR 1998 ANNUAL MEETING
Any proposal, relating to a proper subject, which a shareholder may intend to
present for action at the Annual Meeting of Shareholders to be held in
September, 1998, and which such shareholders may wish to have included in the
proxy materials for such, in accordance with the provisions of Rule 14a-8
promulgated under the Securities Exchange Act of 1934, must be received in
proper form by the Secretary of the Company at 21622 Plummer Street, Chatsworth,
California 91311, not later than March 15, 1998. It is suggested that any such
proposal be submitted by certified mail, return receipt requested.
OTHER PROPOSED ACTION
The Meeting is called for the purposes set forth in the notice thereof
accompanying this Proxy Statement. Management is not aware of any matters to
come before the Meeting other than those stated in this Proxy Statement.
However, inasmuch as matters of which management is not now aware may come
before the Meeting or any adjournment thereof, the Proxies confer discretionary
authority with respect to acting thereon, and the person named in such Proxies
intends to vote, act and consent in accordance with his best judgment with
respect thereto.
PERSONS MAKING THE SOLICITATION
The accompanying Proxy is solicited by the Board of Directors of the Company.
The Company will pay all expenses of the preparation, printing and mailing to
the shareholders of the enclosed Proxy, accompanying notice and Proxy Statement.
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<PAGE> 14
CHAD THERAPEUTICS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles R. Adams and Francis R. Fleming, and
either of them, as Proxyholders, with the power of substitution, and hereby
authorizes them to represent and vote, as designated on the reverse, all the
shares of voting capital stock of Chad Therapeutics, Inc. held of record by the
undersigned at the close of business on July 11, 1997 (and in the case of item 1
to cumulate and allocate said votes for directors in his discretion), at the
Annual Meeting of Shareholders to be held on September 9, 1997, and at any and
all adjournment(s) thereof.
The shares represented by this Proxy, when properly executed, will be voted
in the manner directed herein by the undersigned shareholder. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR ALL THE NOMINEES FOR DIRECTOR AND FOR
APPROVAL OF PROPOSAL 2.
In their discretion the proxyholder's are authorized to vote upon such other
business as may properly come before the meeting.
(TO BE SIGNED ON REVERSE SIDE) SEE REVERSE
SIDE
<PAGE> 15
PLEASE DATE, SIGN AND MAIL YOUR PROXY
CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
CHAD THERAPEUTICS, INC.
SEPTEMBER 9, 1997
[X] PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED [X]
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD Nominees: Charles R. Adams FOR AGAINST ABSTAIN
1. Election of [ ] [ ] Francis R. Fleming 2. Proposal to ratify the [ ] [ ] [ ]
Directors. David L. Cutter appointment of KPMG
Philip Wolfstein Peat Marwick LLP as
independent Certified
Accountants and Auditors.
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEES(S):
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
- --------------------------------
</TABLE>
SIGNATURE DATE
------------------------------------------ ----------------------
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH
SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
