<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - K/A
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended March 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from __________ to __________
Commission file number 0-11363
Chad Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
California 95-3792700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21622 Plummer Street, Chatsworth, CA 91311
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 882-0883
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.01 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosures of delinquent filers pursuant to
Item 405 of Regulation SK (229.405 of this chapter) is
<PAGE> 2
not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting shares held by non-affiliates
of the Registrant on June 12, 1998 (based on the average over-the-counter bid
and asked prices of such stock on such date) was $60,072,000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 12, 1998:
Common Shares 10,012,000
Portions of the Registrant's definitive Proxy Statement for its
September 15, 1998, Shareholders' meeting ("Proxy Statement") (which Proxy
Statement has not been filed as of the date hereof) are incorporated into Part
III as set forth herein. Portions of the Registrant's Annual Report to
Shareholders for the year ended March 31, 1998 ("Annual Report") are
incorporated into Part II as set forth herein and only such portions of the
Annual Report as are specifically incorporated by reference are thereby made a
part of this Annual Report on Form 10-K.
2
<PAGE> 3
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (3) Exhibits.
This first amendment to the Form 10-K for the year ended
March 31, 1998, is being filed to provide the following
two exhibits:
10.27 Employment Agreement with Thomas E. Jones
10.28 Form of Severance and Change of Control Agreement for
officers
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on the 29th day of June, 1998.
CHAD THERAPEUTICS, INC.
By /S/Thomas E. Jones
----------------------------------------------
Thomas E. Jones, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/Thomas E. Jones Chief Executive June 29, 1998
- ---------------------------- Officer and Director
Thomas E. Jones (Principal Executive
Officer)
/S/Francis R. Fleming President, Chief June 29, 1998
- ---------------------------- Operating Officer and
Francis R. Fleming Director
/S/Earl L. Yager Senior Vice President, June 29, 1998
- ---------------------------- Chief Financial Officer
Earl L. Yager and Secretary and Director
(Principal Financial and
Accounting Officer)
Chairman of the Board June 29, 1998
- ----------------------------
Charles R. Adams
/S/David L. Cutter Director June 29, 1998
- ----------------------------
David L. Cutter
/S/John C. Boyd Director June 29, 1998
- ----------------------------
John C. Boyd
/S/Norman Cooper Director June 29, 1998
- ----------------------------
Norman Cooper
/S/Philip Wolfstein Director June 29, 1998
- ----------------------------
Philip Wolfstein
4
<PAGE> 5
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Index Sequentially
Exhibit No. Document Numbered Page
- ----------- -------- -------------
<S> <C> <C>
10.27 Employment Agreement with Thomas
E. Jones
10.28 Form of Severance and Change in
Control Agreement with Officers
</TABLE>
5
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made by and between Chad
Therapeutics, Inc. (the "Company") and Thomas E. Jones (the "Employee"). This
Agreement becomes effective after execution by both the Employee and the Company
on April 1, 1998 (the "Effective Date").
The Company and the Employee contract with reference to the following
facts:
A. The Employee has special and unique experience, skills, training and
expertise which qualify him to serve as the Company's Chief Executive Officer
and Vice Chairman of the Board of Directors ("CEO"), the Company desires to
employ the Employee in the position of CEO, and the Employee desires to accept
such employment by the Company. The employment of the Employee by the Company
pursuant to this Agreement is hereinafter sometimes referred to as "the
Employment."
B. The Company and the Employee hereby enter into this Agreement which
sets forth each and all of the terms and conditions of the Employment.
NOW, THEREFORE, in consideration of the agreements, representations,
promises, warranties and covenants contained in this Agreement, the Company and
the Employee hereby agree as follow:
1. Employment, Term, Duties and Exclusive Employment
1.1 Duties and Responsibilities. Within the limitations
established by the Company's Bylaws and its Board of Directors ("the Board"),
the Employee shall have each and all of the duties and responsibilities of the
Company's CEO as those duties may from time to time be established, changed,
increased or decreased by the Board. The Employee will primarily serve as the
principal executive officer of the Company and will supervise the other officers
and managers of the Company. He will provide the general direction and strategic
planning for the Company. The Employee may be appointed to sit on the Board
without any additional compensation and/or appointed to act as a special advisor
without any additional compensation. Any such duties undertaken by the Employee
will be at the sole direction of the Board.
1.2 Term of Employment. The Employment shall begin on the
Effective Date, and unless sooner terminated as provided below in Paragraph No.
9, the Employment shall continue thereafter until terminated.
1.3 No Other Employment. During the Employment, the Employee
shall diligently and conscientiously devote all of his energies, interests,
abilities, and productive time
<PAGE> 2
and attention to discharging his duties to the Company and shall not, without
the express prior written consent of the Company, render to any other person,
corporation, partnership, firm, company, joint venture or other entity any
services of any kind for compensation, or engage in any other activity that
would in any manner whatsoever compete with the Company, be adverse to any
interests of the Company and/or in any manner whatsoever interfere with the
performance of the Employee's duties for the Company.
1.4 Place of Employment. During the Employment, the Employee
shall maintain, at the Company's expense, two offices on behalf of the Company,
one in the Kansas City metropolitan area, for the convenience of the Employee
and one at the Company's principal offices in Southern California. The Employee
shall endeavor to be physically present for work at the Southern California
office at least 50% of his working time, subject to business travel requirements
and vacation schedules.
2. Compensation. In full and complete consideration for the Employment,
each and all of the services to be rendered to the Company by the Employee, and
each and all of the warranties, representations, agreements, promises and
covenants undertaken by the Employee pursuant to this Agreement, the Employee
shall receive annual compensation as follows:
2.1 Base Salary. The Employee shall receive from the Company a
base salary beginning on the Effective Date, of Two Hundred Fifty Thousand
Dollars ($250,000.00) per year, payable in equal, semi-monthly installments (the
"Base Salary"). From each salary payment the Company will withhold and pay to
the proper governmental authorities any and all amounts required by law to be
withheld. The Company will also deduct from the Employee's salary payments those
sums authorized by the Employee. The Company will make those payments and
contributions, such as unemployment insurance premiums, workers' compensation
insurance premiums and the employer's portion of federal social security tax,
which are required by law to be made by the Company for the Employee's benefit.
The Employee's salary shall be reviewed by the Board each year
prior to the annual anniversary of the Effective Date, and any change in the
Employee's salary will be made in the Board's sole discretion on the annual
anniversary of the Effective Date; provided that, in no event shall Employee's
Base Salary be less than $250,000.
2.2 Bonus. The Employee shall receive consideration each year for
a discretionary incentive bonus (the "Bonus") by the Board. The amount of the
Bonus will be determined by the Board in its sole discretion, but will not
exceed twenty-five percent (25%) of the Base Salary then in effect; provided
that, Employee shall be entitled to participate in any new bonus plan which the
Company may adopt to the full extent that any of the Company's executive
officers may participate in any such bonus plan. Employee will be entitled to a
Bonus for the fiscal year ending March 31, 1999 which shall not be less than 10%
of his Base Salary.
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2.3 Severance Benefits. Pursuant to the terms and conditions of
the Company's Severance and Change in Control Plan for Senior Executives, the
Employee shall participate in that Plan.
2.4 Vacation. Employee shall be entitled to take paid vacation
during each year of the Employment for such periods as the Chairman of the Board
may determine. In the event that Employee is unable for any reason to take the
total amount of vacation time authorized herein during any year, the Company
will pay the Employee for any accrued, but unused vacation which is not taken.
2.5 Other Benefits. Except as otherwise provided in this
Agreement, if and to the extent that the Company maintains or adopts any stock
option plan or any employee benefit plan, including, without limitation, any
group health insurance or life insurance plan, financial planning, pension,
stock or 401(k) savings or retirement plan, the benefits thereof shall be
extended to the Employee provided that he is eligible for participation therein
in accordance with the terms, standards and regulations of such plan as they are
from time to time maintained by the Company in its sole discretion.
2.6 Benefit Plans. Anything in this Agreement or elsewhere to the
contrary notwithstanding, the Company specifically reserves the unrestricted
right to change or eliminate any or all of the benefits provided to its
employees as a group pursuant to any and all employee benefit plans or programs
maintained by it, including the right to change the administrators and/or
carriers, if any, through which it provides any such benefits.
3 . Expenses. Except as otherwise expressly provided in this Agreement,
the Company will reimburse the Employee for those customary, ordinary and
necessary business expenses incurred by him in the performance of his duties and
activities on behalf of the Company. Such expenses shall include, without
limitation, Employee's reasonable travel expenses incurred in travelling between
Kansas City and Los Angeles for business purposes. Such expenses will be
reimbursed only upon presentation by the Employee of appropriate documentation
to substantiate such expenses pursuant to the policies and procedures of the
Company governing reimbursement of business expenses to its executives.
On or before the Effective Date, the Employee shall make
arrangements for housing accommodations and transportation while he is in
Southern California on Company business. To assist the Employee in a
transitional period of not more than Twenty-Four (24) months, the Company shall
provide the Employee with partial reimbursement for such accommodation and
transportation expenses. The maximum amount the Employee will be reimbursed in
any month for such accommodation and transportation expenses is the actual
amount of such expenses or Two Thousand, Three Hundred Dollars ($2,300.00),
whichever is less. No reimbursement will be made for any such expenses,
including, without limitation, automobile, living or relocation expenses
incurred by the Employee after March 31, 2000 in order to enable Employee to be
present in Southern California for Company business.
-3-
<PAGE> 4
4. Duties of the Employee After Any Termination Following any
termination of the Employment, the Employee shall provide reasonable
cooperation to the Company in all matters relating to the winding up of the
Employee's work on behalf of the Company and the orderly transfer of all
pending work and of the Employee's duties and responsibilities to such other
person or persons as may be designated by the Company which designations shall
be made in its sole discretion. Upon any termination of the Employment, the
Employee will immediately deliver to the Company any and all of the Company's
property of any kind or nature whatsoever in the Employee's possession, custody
or control, including, without limitation any and all Confidential Information.
5. Disclosure of Confidential Information The Employee recognizes,
acknowledges and agrees that due to and during the Employment he will have
access to and obtain certain Confidential Information, as that term is defined
in Paragraph No. 12 of this Agreement, relating to the Company's business and
not generally known to the public or to the Company's competitors. The Employee
recognizes, acknowledges and agrees that the Confidential Information
constitutes a valuable, special and unique asset to the Company, access to and
knowledge of which is essential to the performance of the Employee's duties.
The Employee specifically agrees that, except as directed by the Board, the
Employee will not at any time during or after the termination of the Employment
use or disclose any Confidential Information to any person whomsoever or allow
any Confidential Information to be disclosed to any person whomsoever for any
purpose other than for the benefit of the Company.
6. Compliance with the Company's Bylaws The Employee agrees to become
thoroughly familiar with, that he shall be fully bound by and employed pursuant
to, each and all of the Company's Bylaws and any directives of the Board of
Directors.
7. Conflicts of Interest The Employee specifically covenants and
represents to the Company that he has the full, complete and entire right and
authority to enter into the Employment and this Agreement, that he has no
agreement, duty, commitment or responsibility of any kind or nature whatsoever
with any other person, corporation, partnership, firm, company, joint venture or
other entity which would conflict in any manner whatsoever with any of his
duties, obligations or responsibilities to the Company pursuant to the
Employment and/or this Agreement. As a condition of the Employment, the
Employee will not, without the Company's express prior written consent, accept
any employment, contractual or other relationship of any kind or nature
whatsoever or engage in any association or dealing of any kind or nature
whatsoever with any person, corporation, partnership, firm, company, joint
venture, or other entity, other than the Company, that poses or could
potentially pose any conflict or potential conflict between the interests of
any such other entity and the interests of the Company.
8. No Predatory Solicitation The Employee agrees that during the
Employment and for one (1) year following any termination of the Employment he
will not, either directly or indirectly, on his own behalf or in the service of
others, disrupt, damage, impair or interfere with the business of the Company
whether by way of interfering with or raiding its officers, employees, agents,
and/or independent contractors or in any manner attempting to persuade any
-4-
<PAGE> 5
such person to discontinue any relationship with the Company, without having
received the Company's prior written permission to do so. The Employee is not,
however, hereby restricted from being employed by or engaged in a competing
business subsequent to any termination of the Employment, which business may
compete with the Company provided that Employee does not provide such competing
business, directly or indirectly, with any Confidential Information, records,
customer lists, employee lists or other data of any kind constituting property
of the Company which is not in the public domain.
9. Termination of Employment
9.1 Termination for Cause. The Company has the unrestricted right
to terminate the Employment at any time for cause, and upon any termination for
cause the Company's sole obligation to the Employee is to pay to the Employee,
through the date of such termination, his accrued salary and accrued but unused
vacation and expenses, if any.
9.1.1 Cause for termination of Employment shall include:
theft of Company property having a value in excess of $100; dishonest or
fraudulent conduct in his dealings with the Company or on behalf of the Company
if such conduct might have a Material Adverse Effect (as defined below) on the
Company; willful destruction of Company property having a value in excess of
$100; performing any illegal act related in any manner to his employment by
and/or duties to the Company if such conduct might have a Material Adverse
Effect on the Company; conviction of any felony or any act involving moral
turpitude; unauthorized disclosure of any Confidential Information; or the
Employee's physical or mental incapacity to perform the essential functions of
his job with reasonable accommodation.
9.1.2 Cause for termination of Employment shall also
include: performing any act adverse to the interests of the Company if such
conduct might have a Material Adverse Effect on the Company, gross
insubordination; willful neglect of duty; the Employee's failure to follow the
instructions of the Board; any breach by the Employee of any of the Company's
rules, policies or procedures if such conduct might have a Material Adverse
Effect on the Company; or any material breach or threatened breach by the
Employee of any term, provision, or covenant of this Agreement.
9.1.3 The Company may terminate the Employment for any
of the reasons stated in Sections 9.1.1 and 9.1.2 by giving written notice of
the termination to the Employee specifying the grounds for the termination,
provided that, if the cause for termination arises under Section 9.1.2, then the
Employee shall be afforded a reasonable period of time of not less than 30 days
to advise the Board as to why the act in question does not constitute cause for
termination. The board shall promptly review any information submitted by
Employee in this regard and, within 45 days of receipt thereof, shall advise the
Employee in writing that his proposed termination has been withdrawn or that his
appeal of his proposed termination has been rejected (a "Rejection Notice").
Pending any appeal by Employee of his proposed termination for cause pursuant to
Section 9.1.2, the Board may, in its sole discretion, suspend Employee with pay.
Notice of termination shall be without prejudice to any other remedy to which
the
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<PAGE> 6
Company may be entitled at law, in equity, or under this Agreement. in the case
of termination for cause under Section 9.1.1, the Employment will terminate
immediately upon the Company's delivery of a notice of termination for cause. In
the case of termination for cause under Section 9.1.2, the Employment will
terminate immediately upon delivery to Employee of a Rejection Notice.
9.1.4 For purposes hereof, material Adverse Effect shall
mean the incurrence by the Company Of any liability, the development of any
contingent liability or the diminution in value of any of the Company's assets,
in an amount which is determined in good faith by the Board of Directors to
involve a loss to the Company of $10,000 or more.
9.2 Termination Without Cause. The Company and the Employee
fully understand and agree that the Employment may be terminated by the Company
at any time without cause. Upon any termination of the Employment by the Company
without cause, the Company's sole obligation to the Employee is to provide to
him (i) a severance benefit pursuant to the Company's Severance and Change in
Control Plan (the "Plan"), or (ii) if Employee is not eligible for benefits
under the Plan, to pay Employee a severance benefit equal to two times the sum
of Employee's base salary and incentive bonus, if any, for the last complete
year prior to such termination without cause (the "Severance Benefit"). If the
termination without cause occurs during the first year of Employee's employment,
then the Severance Benefit shall be $550,000. Payment of the Severance Benefit
shall be made in 24 equal monthly installments, commencing on the first day of
the month following Employee's termination without cause. As a condition to
receipt of the Severance Benefit or payment under the Plan, Employee shall
execute and deliver to the Company a full general and special release of any and
all claims (the "Release") which the Employee may then have against the Company.
The Company will deduct from the payments hereunder, and deliver to the proper
governmental authorities, any and all amounts required by law to be withheld
from such severance benefits.
9.3 Other Termination. The Employment shall, in its entirety,
terminate immediately upon the death of the Employee. In such event, Employee's
estate shall be entitled to such benefits, if any, which the Company has agreed
to provide for the estates of its senior officers.
9.4 Termination by Employee. In the event that the Employee
decides to terminate the Employment, he will give the Company advance written
notice of the termination of the Employment of not less than ninety (90) days
prior to the date upon which the Employment will terminate. Upon receipt of such
written notice, continuation of the Employment during the notice period, or at
any time after receipt of the notice, will be in the sole discretion of the
Company. In the event of termination by the Employee, payment of the Employee's
base salary for the notice period shall constitute full and complete
satisfaction of each and every obligation of the Company to the Employee.
10. Arbitration. Any controversy, dispute and/or claim in any manner
arising out of or relating to this Agreement; the Employment; the meaning,
application and/or interpretation
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<PAGE> 7
of this Agreement; any breach or claimed breach of this Agreement; any voluntary
or involuntary termination of this Agreement; any claim of discrimination or
harassment under federal or state anti-discrimination laws; and/or any voluntary
or involuntary termination of the Employment with or without cause shall be
settled solely by arbitration in accordance with the Employment Dispute Rules of
the American Arbitration Association. Judgment on any decision rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The Employee
and the Company shall each pay the fees of his or its own attorneys, the
expenses of his or its witnesses and all other expenses connected with
presenting his or its case in arbitration. All other costs of the arbitration,
including, without limitation, the costs of any record or transcript of the
arbitrator proceedings, administrative fees, the fee of the arbitrator and all
other fees and costs shall be borne equally by the Company and by the Employee.
Unless otherwise agreed by the Company and the Employee, the arbitration will
take place in Los Angeles County, California.
In the event of any controversy, dispute and/or claim in any manner
arising out of or relating to this Agreement; the Employment; the meaning,
application and/or interpretation of this Agreement; any breach or claimed
breach of this Agreement; any voluntary or involuntary termination of this
Agreement; any claim of discrimination or harassment under either federal or
state anti-discrimination laws; and/or any voluntary or involuntary termination
of the Employment with or without cause by either party, whether directly or by
or through any of its officers, directors, employees, agents, attorneys, or
shareholders, the parties hereby covenant, warrant and agree that he or it shall
not directly or indirectly sue or bring any legal action against, or attempt to
collect any damages or sums from, or attempt to obtain any injunction or other
legal or equitable remedy against the other party, any shareholder, director,
officer, or employee of a party or of any firm or corporation affiliated with
said corporation. It is expressly understood by the parties that the sole right
of action shall be against the parties to this Agreement through the arbitration
proceedings contained in this Paragraph of this Agreement.
11. Survival of Certain Pensions of this Agreement. Each and all of the
terms, provisions and/or covenants of each of Paragraphs Nos. 4, 5, 8, 10, 12
and 13 of this Agreement shall, for any and all purposes whatsoever, survive any
termination of the Employment.
12. Definitions. As used in this Agreement the following terms have the
meanings stated:
12.1 "Inventions" means and refers to any process, technique,
machine, device, composition of matter, instrument, tool or formula which is new
or which the Employee has a reasonable basis to believe may be new, whether or
not patentable or reduced to practice by the Company or any other person,
corporation, partnership, firm company, joint venture or other entity,
including, without limitation, Trade Secrets, know-how, creations, discoveries,
and software.
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<PAGE> 8
12.2 "Proprietary Information" means and refers to any and all
marketing surveys; customer lists; contact lists; pricing information; sources
of supply; sources of customers; business plans, projections or prospects;
actual and/or projected expenses; actual and/or projected revenues; actual
and/or projected profits; research or experimental work; data; lists; files;
notes; books; records; drawings and any and all other documents, work products
or licensors of a confidential, proprietary or secret nature which is or may be
applicable to or related in any way to: (i) the Company and/or any of its
owners, clients, customers, or suppliers; (ii) the business of the Company
and/or any of its owners, clients, customers, or suppliers; and/or (iii) the
research, plans, projections, intentions, or investigations of the Company
and/or any of its owners, clients, customers, or suppliers; provided that,
Proprietary Information shall not include any information which enters the
public domain through no fault of Employee.
12.3 "Trade Secrets" means and refers to trade secrets as defined
in Section 3426.1(d) of the Civil Code of the State of California.
12.4 "Confidential Information" means and refers, collectively,
to all Inventions, Proprietary Information and Trade Secrets, and each of them,
as those terms are respectively defined in this Paragraph No. 12, provided that,
Confidential Information shall not include any information which enters the
public domain through no fault of Employee.
13. General
13.1 Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of and be binding upon the Company, the Employee and
each and all of their respective heirs, legal representatives, successors and
assigns. The obligations of the Employee under this Agreement shall be personal
and not assignable or delegable by the Employee in any manner whatsoever to any
person, corporation, partnership, firm, company, joint venture or other entity.
The Employee may not assign, transfer, convey, mortgage, pledge or in any other
manner encumber the compensation or other benefits to be received by him or any
rights which he may have pursuant to the terms and provisions of this Agreement,
and the Employee may not delegate any of his duties, responsibilities or
obligations pursuant to this Agreement. The Company retains the unrestricted
right to assign its obligations and rights under this Agreement.
13.2 Waiver. No waiver of any breach of any warranty,
representation, agreement, promise, covenant, paragraph, term and/or provision
of this Agreement shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other warranty, representation, agreement, promise,
covenant, paragraph, term and/or provision of this Agreement. No extension of
the time for the performance of any obligation or other act required or
permitted by this Agreement shall be deemed to be an "tension of the time for
the performance of any other obligation or any other act required or permitted
by this Agreement.
13.3 Sole and Entire Agreement. This Agreement, in conjunction
with the Severance Agreement attached hereto, is the sole, complete and entire
contract, agreement and
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<PAGE> 9
understanding between the Company and the Employee concerning the Employment;
the terms and conditions of the Employment; the duration of the Employment; the
termination of the Employment and the compensation and benefits to be paid and
provided by the Company to the Employee pursuant to the Employment. This
Agreement supersedes any and all prior contracts, agreements, correspondence,
letters of intent, understandings, and/or negotiations, whether oral or written,
concerning the Employment; the terms and conditions of the Employment; the
duration of the Employment; the termination of the Employment and/or the
compensation and benefits to be paid by the Company to the Employee pursuant to
the Employment.
13.4 Applicable Law. Except as to the arbitration provisions of
this Agreement which shall be construed under the Federal Arbitration Act and
those portions of this Agreement governed by the Employee Retirement Income
Security Act, this Agreement shall be construed under the internal laws of the
State of California without regard to any conflicts of laws principles.
13.5 Amendments. This Agreement becomes effective only when
executed and delivered by both the Company and the Employee, and no amendment,
modification, waiver, or consent relating to this Agreement will be effective
unless and until it is embodied in a written document signed by the Company and
by the Employee.
13.6 Construction. The language of this Agreement and of each and
every paragraph, term and/or provision of this Agreement shall, in all cases,
for any and all purposes, and in any and all circumstances whatsoever be
construed as a whole, according to its fair meaning, not strictly for or against
the Employee or the Company, and with no regard whatsoever to the identify or
status of any person or persons who drafted all or any portion of this
Agreement. The Company and the Employee hereto expressly agree and contract that
it is not the intention of any of them to violate any public policy, statutory
or common laws, rules, regulations, treaties or decisions of any government or
agency thereof. Therefore if any provision of this Agreement is held by an
arbitrator or a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall nevertheless continue in full
force without being impaired or invalidated in any way and the arbitrator or
court construing the invalid, void or unenforceable provision shall construe
that provision in a manner, to the extent possible, in favor of the Employer's
rights under this Agreement.
13.7 Duplicate Copies. This Agreement may be executed in
duplicate copies and each duplicate copy shall constitute an original
instrument, but all such separate duplicate copies shall constitute only one and
the same instrument.
13.8 Notices. Any Notices to be given pursuant to this Agreement
by either party to the other party may be effected by personal delivery or by
registered or certified mail, postage prepaid with return receipt requested.
Mailed Notices shall be addressed to the parties at the addresses stated below,
but each party may change its or his address by written notice to the other in
accordance with this paragraph 13.8 of this Agreement. Notices delivered
personally will be deemed received on the date of delivery.
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Mailed Notices to the Employee shall be addressed as follows:
Thomas E. Jones
8206 Maple Lane
Prairie Village, Kansas 66209
Mailed Notices to the Company shall be addressed as follows:
Chad Therapeutics, Inc.
21622 Plummer Street
Chatsworth, California 91311
ATTN: Chairman of the Board
IN WITNESS WHEREOF the Company and the Employee have each duly executed
this Agreement on the dates set forth below opposite their respective
signatures.
CHAD THERAPEUTICS, INC.
Dated: 1-26-98 By: CHARLES R. ADAMS
-------------------------------------
Charles R. Adams
Chairman of the Board
Dated: 1-26-98 Thomas E. Jones
THOMAS E. JONES
----------------------------------------
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<PAGE> 1
CHAD THERAPEUTICS, INC.
SEVERANCE AND CHANGE OF CONTROL AGREEMENT
THIS SEVERANCE AND CHANGE OF CONTROL AGREEMENT dated as of 1/16 , 1998
(this "Agreement") is made and entered into by and between Chad Therapeutics,
Inc., a California corporation (the "Company'), and Thomas E.
Jones (the "Executive").
WHEREAS, Executive is employed by the Company; and
WHEREAS, the Company desires to retain the services of Executive in the
event of a Change of Control or Ownership Change (as hereinafter defined) of the
Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Severance Pay Benefit. If Executive's employment with the Company is
either terminated by the Company or he incurs a Change in Duties at any time
within the period of twenty-four (24) months following a Change of Control or
Ownership Change (as hereinafter defined), and provided that Executive's
termination of employment is not for cause (as hereinafter defined) and
Executive has not been offered employment in a comparable position with the
Company within sixty (60) calendar days of his employment termination date, then
in such case:
(a) Executive will be entitled to receive severance pay in an amount
equal to two hundred percent (200%) of his aggregate compensation (consisting
of base salary and incentive bonus, if any) for the calendar year immediately
preceding the year during which such termination of employment by the Company or
Change in Duties occurred.
(b) For purposes of determining the amount of Executive's severance pay
benefit hereunder, Executive's aggregate compensation shall include any amounts
withheld therefrom pursuant to the Company's Section 401(k) and/or 125 plans.
Any severance pay benefits to which Executive may become entitled to under this
Agreement shall be in lieu of severance pay, if any, that would otherwise become
payable to Executive pursuant to any standard severance pay policy which the
Company may adopt.
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(c) A "Change in Duties", for purposes of this Agreement, means: (i) an
involuntary reduction in the nature or scope of Executive's authority, areas of
responsibility or the duties that Executive performs; (ii) any reduction in
Executive's annual regular salary; (iii) a reduction in Executive's total
compensation (i.e., annual regular salary and annual incentive compensation) to
less than ninety percent (90%) of the amount provided to Executive for the last
full calendar year immediately preceding the occurrence of a Change of Control
or Ownership Change; (iv) a change of more than fifty (50) miles in Executive's
principal place of employment (not including business travel or temporary
assignments); (v) a material change in the percentage of working time Executive
is required to spend in the Company's Southern California office; or (vi) a
determination by the Company that Executive is unable to exercise his authority
or perform his duties as a result of a Change of Control or Ownership Change. If
any of the events set forth above shall occur, Executive shall give prompt
written notice to the Company and shall have sixty (60) days from the date of
such notice or ninety (90) days from the event, whichever is earlier, to
exercise his rights to terminate for a Change in Duties or such right shall be
deemed waived as to such event but not as to any future event.
(d) A comparable position, for purposes of this Agreement, is one that
has job responsibilities and skill requirements that are substantially identical
to Executive's previous position and requires limited training to perform
competently, that is in the same geographic fifty (50) mile radius, and that is
at the same salary grade level and the same aggregate compensation range. In
general, for purposes of determining whether Executive has been offered a
comparable position with the Company, "Company" means Chad Therapeutics, Inc.,
any of its affiliated companies or any successor to the Company's business
and/or assets which become bound by this Agreement either (i) by virtue of its
agreement to assume this Agreement and perform it in the same manner and to the
same extent as the Company would be required to perform it in the absence of a
succession or (ii) by operation of law.
(e) Executive shall also be entitled to severance pay in the event of
his termination by mutual agreement. Termination by mutual agreement means any
termination jointly initiated by the Company and Executive or initiated by the
Company with the agreement of the Executive under circumstances that the
Company, in its sole discretion, believes do not justify a termination for
cause.
(f) Cause for termination of Employment shall include: theft of Company
property having a value in excess of $100; dishonest or fraudulent conduct in
his dealings with the Company or on behalf of the Company if such conduct might
have a Material Adverse Effect (as defined below) on the Company; willful
destruction of Company property having a value in excess of $100; performing any
illegal act
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<PAGE> 3
related in any manner to his employment by and/or duties to the Company if such
conduct might have a Material Adverse Effect on the Company; conviction of any
felony or any act involving moral turpitude; unauthorized disclosure of any
Confidential Information; or the Employee's physical or mental incapacity to
perform the essential functions of his job with reasonable accommodation.
Cause for termination of Employment shall also include:
performing any act adverse to the interests of the Company if such conduct might
have a Material Adverse Effect on the Company; gross insubordination; willful
neglect of duty; the Employee's failure to follow the instructions of the Board;
any breach by the Employee of any of the Company's rules, policies or procedures
if such conduct might have a Material Adverse Effect on the Company; or any
material breach or threatened breach by the Employee of any term, provision, or
covenant of this Agreement.
For purposes hereof, Material Adverse Effect shall mean the
incurrence by the Company of any liability, the development of any contingent
liability or the diminution in value of any of the Company's assets, in an
amount which is determined in good faith by the Board of Directors to involve a
loss to the Company of $10,000 or more.
(g) For purposes of this Agreement, an *Ownership Change" shall be
deemed to have occurred in the event that any of the following occurs with
respect to the Company:
i) the direct or indirect sale or exchange by the shareholders
of the Company of at least twenty percent 20%) of the
outstanding shares of common stock of the Company;
ii) issuance by the Company of shares of its common stock which
results in any person owning 20% or more of the issued and
outstanding shares of the Company's common stock;
iii)a merger or consolidation of the Company in which the
Company is not the surviving corporation, except for a
transaction in which the principal purpose is to change the
state of the Company's incorporation or a transaction in which
the Company's shareholders immediately prior to such merger or
consolidation will hold (by virtue of securities received in
exchange for their shares of common stock of the Company)
securities of the surviving entity representing more than eighty
percent (80%) of the total voting power of such entity
immediately after such transaction;
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<PAGE> 4
iv) the sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or
transfer to one (1) or more subsidiary corporations);
v) a liquidation or dissolution of the Company; or
vi) any other event, including without limitation the
acquisition by any person of less than 20% of the outstanding
shares of the Company, which the Board of Directors, in its sole
discretion, deems an ownership change.
(h) For purposes of this Agreement, a "Change of Control" shall mean a
change in the composition of the Company's Board of Directors as a result of
which at least one-third (1/3) of the members of the Board is replaced during
any twelve (12)-month period by directors whose appointment or election was not
endorsed by a majority of the members of the Board prior to the date of the
appointment or election.
2. Severance Agreement and Release. In order to be eligible for benefits
under this Agreement, Executive must execute a Severance Agreement and Release
which shall release the Company and its affiliates, directors and employees from
any and all legal actions, or other claims of any kind, including those arising
from his employment relationship with or his separation from the Company and/or
any of its affiliated companies.
3. Payment of Benefits. Once Executive's Severance Agreement and Release
becomes effective and enforceable, Executive shall receive his severance pay in
one lump sum cash payment, less applicable withholding taxes.
4. Death. If Executive dies before receiving any severance pay benefit
hereunder to which he became entitled prior to his death, such benefit shall be
distributed in one lump sum payment to Executive's spouse, or if no spouse, to
Executive's estate.
5. Offset. The Company reserves the right to offset Executive's
severance pay benefit by any advance, loan or other monies Executive owes the
Company.
6. Coordination With Plant Closing laws. Any amounts determined to be
payable by the Company to Executive or his dependents under the Worker
Adjustment and Retraining Notification Act of 1988 or under any other law
regarding termination of employment as a result of the elimination of job
positions
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<PAGE> 5
shall offset and reduce any amounts otherwise payable under this Agreement to
Executive or to any third party for the benefit of Executive or his dependents.
7. Section 28OG Parachute Payment. In the event that the provision to
Executive of the severance pay benefit described in this Agreement will be
deemed, whether considered singularly or together with other compensation or
benefits to which Executive is otherwise entitled from the Company, to
constitute an "excess parachute payment" under Section 280G of the Internal
Revenue Code of 1986, as amended, the Company may reduce or eliminate such
payment to the extent necessary to avoid all taxes and penalties under that
Section, and Executive shall not be entitled to receive any additional or
different compensation or benefits as a result of such reduction or elimination.
In the sole discretion of the Company, the foregoing action shall be effected
without regard to whether all or a portion of such excess parachute payment
potentially constitutes reasonable compensation.
8. Employment Status. This Agreement does not constitute a contract of
employment or impose on Executive any obligation to remain as a employee, or
impose on the Company any obligation (i) to retain Executive as an employee,
(ii) to change the status of Executive as an at-will employee, or (iii) to
change the Company's policies regarding termination of employment.
9. Notices. Any notices provided hereunder must be in writing and such
notices or any other written communication shall be deemed effective upon the
earlier of personal delivery (including personal delivery by telex or facsimile)
or the third day after mailing by first class mail, to the Company at its
primary office location and to Executive at his address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at his address as listed in the Company's payroll records.
10. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
11. Waiver. If either party should waive any breach of any provisions of
this Agreement, such party shall not thereby be deemed to have waived any
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<PAGE> 6
preceding or succeeding breach of the same or any other provision of this
Agreement.
12. Complete Agreement. This Agreement, including any other written
agreements expressly referred to in this Agreement, constitutes the entire
agreement between Executive and the Company and it is the complete, final, and
exclusive embodiment of their agreement with regard to this subject matter. It
is entered into without reliance on any promise or representation other than
those expressly contained herein.
13. Amendment or Termination of Agreement. This Agreement may be changed
or terminated only upon the mutual written consent of the Company and
Executive. The written consent of the Company to a change or termination of
this Agreement must be signed by an executive officer of the Company after such
change or termination has been approved by the Company's Board of Directors.
14. Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
15. Headings. The headings of the Articles and Sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
16. Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and the Company, and their
respective successors, assigns, heirs, executors and administrators, except
that Executive may not assign any of his duties hereunder and he may not assign
any of his rights hereunder without the written consent of the Company, which
consent shall not be withheld unreasonably.
17. Arbitration. Any and all disputes or controversies, arising from or
regarding the interpretation, performance, enforcement or termination of this
Agreement shall be resolved by final and binding arbitration in accordance with
the Employment Dispute Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. Executive and the Company shall each pay the
fees of his or its own attorneys, the expenses of his or its witnesses and all
other expenses connected with presenting his or its arbitration. All other
costs of the arbitration, including without limitation, the costs of any record
or transcript of the arbitration proceedings, administrative fees, the fee of
the arbitrator and all other fees and costs shall be borne equally by the
Company and Executive. Such
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<PAGE> 7
arbitration will take place in Los Angeles County, California and shall be heard
by a single neutral arbitrator (to be appointed in accordance with the
procedures of the AAA).
18. Choice of Law. Except as to the arbitration provisions of this
Agreement which shall be construed under the Federal Arbitration Act, all
questions concerning the construction, validity and interpretation of this
Agreement will be governed by the laws of the State of California applicable to
contracts executed and to be performed solely in the State of California.
19. Opportunity for Independent Counsel and Advisors. Executive
acknowledges that he has had an opportunity to retain independent counsel and
tax advisors to review this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year written above.
EXECUTIVE CHAD THERAPEUTICS, INC.
/s/ THOMAS E. JONES By: /s/ CHARLES R. ADAMS
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Thomas E. Jones 1-26-98 Chairman
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