<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 14, 2000
------------------
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 14, 2000, at 10:00 a.m., Los Angeles time (the
"Meeting"), for the following purposes:
1. to elect (4) directors of the Company to the 2002 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 Thomas E.
Jones, Norman Cooper, John C. Boyd and Earl L. Yager.
2. to ratify the appointment of KPMG 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 17, 2000, 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 21, 2000
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<PAGE> 3
CHAD THERAPEUTICS, INC.
21622 Plummer Street
Chatsworth, California 91311
(818)882-0883
---------------------------
ANNUAL MEETING OF SHAREHOLDERS
---------------------------
September 14, 2000
---------------------------
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 14, 2000, and any adjournments thereof (the "Meeting").
VOTING AND REVOCABILITY OF PROXY
July 17, 2000, 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 17, 2000, there were 10,037,536 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
22, 2000. The Company's 2000 Annual Report to Shareholders, including financial
statements for the fiscal year ended March 31, 2000, 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 and (2)
to ratify the appointment of KPMG LLP, certified public accountants, as the
Company's independent auditors for its fiscal year commencing April 1, 2000. In
the event that any nominee becomes unavailable to serve, the Proxyholders
presently intend to vote for the election of the remaining nominees named herein
and permit the new Board of Directors to fill any vacancy which may exist on the
Board. However, the Proxyholders reserve the right to vote for other persons if
any nominee named herein becomes unavailable to serve and the Proxyholders deem
it to be in the best interests of the Company to vote for such other persons.
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<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 proxyholders cumulative voting rights.
The persons 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 they 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 proxyholders,
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 15, 2000, 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>
Percent
Name and Address Amount Owned
<S> <C> <C>
Thomas E. Jones (1) (2) ........................................ 125,996 1.3%
David L. Cutter (1) (2) ........................................ 86,192 .9%
Norman Cooper (1) (2) .......................................... 90,020 .9%
John C. Boyd (1) (2) ........................................... 154,207 1.5%
Philip Wolfstein (1) (2) ....................................... 171,092 1.7%
Earl L. Yager (1) (2) .......................................... 223,216 2.2%
All Officers and Directors as a group (9 people) (2) ........... 982,765 9.8%
Charles R. Adams (1) ........................................... 543,741 5.4%
Kevin Kimberlin (3) ............................................ 836,560 8.3%
</TABLE>
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<PAGE> 5
(1) The address of each director and Mr. Adams 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 -
136,542 shares, Thomas E. Jones - 73,979 shares, David L. Cutter -
28,968 shares, Norman Cooper - 28,968 shares, John C. Boyd - 28,968
shares, Philip Wolfstein - 32,058 shares, Earl L. Yager - 77,907 shares,
all Officers and Directors as a group - 306,066 shares.
(3) Mr. Kimberlin's address is c/o Spencer Trask, 535 Madison Avenue, New
York, NY 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 2000.
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 in
June, 1999, 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 2000 Annual Meeting, and these
four directors are standing for reelection for a two-year term as Class II
members. These directors are Messrs. Jones, Cooper, Boyd and Yager. The
remaining two Class I members will continue to serve until the 2001 Annual
Meeting.
All nominees for election as Class II members of the Board of Directors
at the 2000 Annual Meeting will be elected for a term of two years and shall
serve until their terms expire at the 2002 Annual Meeting or until their
successors are duly elected and qualified.
It is the intention of the persons 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. In the event that any
nominee becomes unavailable to serve, the Proxyholders presently intend to vote
for the election of the remaining nominees named herein and permit the new Board
of Directors to fill any vacancy which may exist on the Board. However, the
Proxyholders reserve the right to vote for other persons if any nominee named
herein becomes unavailable to serve and the Proxyholders deem it to be in the
best interests of the Company to vote for such other persons.
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<PAGE> 6
The nominees for election to Class II and the incumbents in Class I 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>
Incumbents In Class I
David L. Cutter 71 Director 1983
Philip Wolfstein 49 Director 1994
Vacant Seat - See Below
Nominees To Class II
Thomas E. Jones 56 Chief Executive
Officer and Director 1997
Norman Cooper 69 Director 1986
John C. Boyd 67 Director 1986
Earl L. Yager 54 Executive Vice President, Chief
Financial Officer, Secretary
and Director 1988
</TABLE>
Thomas E. Jones was elected Chief Executive Officer of the Company
effective April 1, 1998, and has been Vice Chairman and a director since
October, 1997. From 1996 to 1997 he was an independent consultant to numerous
companies in the health care field, including the Company from March, 1997. From
1973 to 1996, he was employed by Nellcor Puritan Bennett Corporation and its
predecessor, Puritan Bennett, Inc., a major manufacturer of respiratory
products, where Mr. Jones served in a number of positions leading up to Senior
Vice President and General Manager of home care business from 1989 to 1996. Mr.
Jones was a director of the Compressed Gas Association for 16 years, including a
one year term as Chairman, and was a director of the International Oxygen
Manufacturers Association for eight years. He is currently a member of the
Engineering Advisory Board at the University of Kansas.
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 wholly-owned 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. Mr. Wolfstein was elected Secretary/
Treasurer of the U.S. Meat Export Federation effective May, 2000, and has been a
director and member of the Executive Committee since November, 1997.
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.
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 Executive Vice President of the Company since
April, 1999, Senior Vice President since April, 1995, Chief Financial Officer
since May, 1983, and Secretary and a director since July, 1988. From May, 1980,
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<PAGE> 7
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.
VACANT SEAT
There is currently a vacancy in one of the Class I director positions
resulting from the physical disability of Mr. Charles Adams who was elected at
the 1999 Annual Meeting. The Board is currently seeking appropriate candidates
to fill this vacancy.
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, 2000. 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, 2000.
Four committees have been created by the Board of Directors - an Audit
Committee, a Compensation Committee, an Organization Committee and a Stock
Option Committee. The members of the Audit committee are Messrs. Cutter, Cooper
and Wolfstein. Mr. Cutter is the Chairman of the Audit Committee. The Audit
Committee met once during the fiscal year ended March 31, 2000. The members of
the Compensation Committee are Messrs. Boyd, Cooper and Wolfstein. Mr. Cooper is
the Chairman of the Compensation Committee. The Compensation Committee held a
number of informal discussions during the fiscal year ended March 31, 2000. The
members of the Organization Committee are Messrs. Boyd, Cooper, Cutter and
Wolfstein. Mr. Cooper is the Chairman of the Organization Committee. The
Organization Committee met once and held a number of informal discussions during
the fiscal year ended March 31, 2000. The Stock Option Committee administers the
Company's Stock Option Plan and is comprised of Messrs. Boyd, Cutter and
Wolfstein. Mr. Wolfstein is chairman of the Stock Option Committee, which met
four times during the past fiscal year.
The functions of the 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 Company has
adopted a charter governing the functions of the Audit Committee in accordance
with SEC guidelines.
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.
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.
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<PAGE> 8
The Company has adopted a plan pursuant to which outside directors may
elect to receive all or a portion of their fees for the year in shares of the
Company's common stock. Any such election must be made no later than March 1 for
the fiscal year commencing on the following April 1. All such elections are
irrevocable for the duration of the fiscal year. The number of shares issuable
to a director who elects to participate in this plan is determined based upon
the closing price of the Company's shares on the last trading day preceding a
Payment Date (as defined in the plan.) The Company has agreed to register for
re-sale any shares issued to directors pursuant to this plan. For the fiscal
year commencing April 1, 2000, one director has elected to receive his entire
director's fees in the form of Company shares and one Director has elected to
receive one half of his director's fees in the form of Company shares.
EXECUTIVE OFFICERS
The executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Thomas E. Jones 56 Chief Executive Officer and President
Earl L. Yager 54 Executive Vice President,
Chief Financial Officer and Secretary
Oscar J. Sanchez 57 Vice President - Engineering and Development
Alfonso Del Toro 42 Vice President - Manufacturing
Kevin McCulloh 39 Vice President - Engineering
</TABLE>
Oscar J. Sanchez has been Vice President of Business Development since
March, 2000, and was Vice President of Engineering and Development from
September, 1996 to February, 2000, 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.
Alfonso Del Toro was appointed Vice President, Manufacturing of the
Company in January, 1998, and was Manufacturing Manager from January, 1997, to
December, 1997. From 1993 to 1996 he was Manufacturing Manager for VIA Medical
Corp. From 1986 to 1993, he was employed by Nellcor, Inc., a major manufacturer
of respiratory products where Mr. Del Toro served in several positions leading
up to Senior Principal Manufacturing Engineer.
Kevin McCulloh was appointed Vice President of Engineering of the
Company in March, 2000. He was Engineering Manager from March, 1999, to
February, 2000, and was Manufacturing Engineer from July, 1998, when he joined
the Company, to March, 1999. From 1982 to 1998 he was employed at Litton Life
Support where he had broad based experience in product design and development
leading up to the position of Senior Design Engineer.
For the biographies of Messrs. Jones and Yager, see "Election of
Directors - Nominees".
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<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
----------------------- -------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND SALARY BONUS (1) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#) (2) ($)
------------------ ------- ------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Thomas E. Jones (3) 2000 200,000 -- 50,000 5,000
Chief Executive Officer and President 1999 233,000 -- 27,779 --
Earl L. Yager (3) 2000 145,920 -- 30,000 --
Executive Vice President, Chief 1999 170,240 -- 8,107 --
Financial Officer and Secretary 1998 170,160 -- 20,000 4,750
Oscar J. Sanchez 2000 132,240 -- -- 5,000
Vice President, 1999 132,240 -- -- 5,000
Business Development 1998 132,240 -- 15,000 4,750
Alfonso Del Toro 2000 120,000 -- 25,000 5,000
Vice President, Manufacturing 1999 120,000 -- -- 5,000
1998 115,980 -- -- --
Kevin McCulloh 2000 100,032 -- 15,000 2,501
Vice President, Engineering 1999 75,024 -- 10,000 --
</TABLE>
(1) Annual bonus amounts are earned, accrued and paid during the fiscal years
indicated.
(2) These amounts consist of contributions by the Company in 2000, 1999 and 1998
to the Chad Therapeutics, Inc. Employee Savings and Retirement Plan.
(3) Voluntarily agreed to reduce base salary by 20% on December 1, 1998.
OPTION GRANTS FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
POTENTIAL
REALIZED VALUE AT
% OF TOTAL ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES PRICE OPTION TERN (4)
GRANTED (#) DURING ($) PER EXPIRATION --------------------
NAME (1,2) 2000 SHARE (3) DATE 5% 10%
---------------- ----------- ----------- --------- ------------------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Jones 50,000 8% 1.00 September 13, 2009 31,000 80,000
Earl L. Yager 30,000 2% 1.00 September 13, 2009 19,000 48,000
Alfonso Del Toro 25,000 2% 88 January 10, 2010 14,000 35,000
Kevin McCulloh 15,000 1% 1.33 March 21, 2010 13,000 32,000
</TABLE>
(1) These options vest in annual cumulative 20% installments, with the first
installment vesting on the first anniversary of the date of the grant.
(2) Under the terms of the Company's stock option plan, the Stock Option
Committee retains discretion, subject to plan limits and to modify the terms
of outstanding options.
(3) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares, subject to certain conditions.
(4) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the common stock, overall stock conditions, as well as the
optionholder's continued employment through the vesting period. The amounts
reflected in this table may not necessarily be achieved.
-8-
<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AT
MARCH 31, 2000
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES MARCH 31, 2000 MARCH 31, 2000
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE ($)
---------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Thomas E. Jones -0- -0- 73,779/104,000 42,000/50,000
Earl L. Yager -0- -0- 77,907/42,000 12,000/30,000
Oscar J. Sanchez -0- -0- 33,418/-0- -0-/-0
Alfonso Del Toro -0- -0- -0-/25,000 -0-/21,875
Kevin McCulloh -0- -0- 2,000/23,000 3,500/24,000
</TABLE>
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.
EMPLOYMENT AGREEMENT
Effective April 1, 1998, the Company and Thomas E. Jones entered into an
employment agreement pursuant to which the Company employs Mr. Jones as Chief
Executive Officer and Vice Chairman of the Board of Directors (the "Employment
Agreement"). The Employment Agreement provides for a base salary of $250,000 per
year, which amount is subject to annual review by the Board of Directors. In
addition, Mr. Jones is eligible to receive a bonus in an amount to be determined
by the Board of Directors, provided that such bonus shall not be less than 10%
of his base salary for the year ending March 31, 2000. In order to assist Mr.
Jones with his relocation to Southern California, the Company has agreed to
reimburse Mr. Jones for certain expenses not to exceed $2,300 a month during the
first 24 months of Mr. Jones' employment. Beginning April 1, 2000, the time
frame was extended and the reimbursement was reduced to $1,800 per month. Mr.
Jones is also entitled to participate in all stock option, severance and benefit
plans adopted by the Company.
The Employment Agreement does not have a specific term. The Employment
Agreement may be terminated at any time by the Company, with or without cause,
and may be terminated by Mr. Jones upon 90 days notice. If Mr. Jones resigns or
is terminated for cause (as defined in the Employment Agreement), he is entitled
to receive only his base salary and accrued vacation through the effective date
of his resignation or termination. If Mr. Jones is terminated without cause
after March 31, 2000, he is entitled to receive a severance benefit in
accordance with the Company's Severance and Change of Control Plan ( the "Plan")
or, if such Plan is not applicable, a severance benefit equal to 200% of his
salary and incentive bonus for the prior fiscal year. A description of the Plan
is set forth below.
In connection with his employment, Mr. Jones was granted options to acquire
90,000 shares at $9.75 per share. The options vest over 5 years; however, all
outstanding options will accelerate and become immediately exercisable upon a
Change of Control or Ownership Change as defined in the Plan.
SEVERANCE AND CHANGE OF CONTROL PLAN
The Company has adopted a Severance and Change of Control Plan pursuant to
which 12 of the Company's officers, including each of the named executive
officers, have entered into Severance and Change of Control
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<PAGE> 11
Agreements with the Company (the "Severance Agreements"). The Severance
Agreements provide that each named executive officer is entitled to a lump sum
severance benefit equal to 200% of his aggregate compensation for the prior
calendar year (the amounts vary for other officers) if the officer is terminated
without cause (as defined in the Severance Agreements) and not offered a
comparable position within 60 days or if the executive suffers a change in
duties, in either case, within 24 months of a Change of Control or Ownership
Change of the Company (as defined in the Severance Agreements). If any payment
due a named executive officer pursuant to the Severance Agreements would be
deemed an excess parachute payment under Section 2806 of the Internal Revenue
Code, then the Company may reduce such payment to the extent necessary to avoid
all taxes and penalties under Section 2806. Separately, the Company provided for
accelerated vesting of all outstanding options upon a Change of Control or
Ownership Change of the Company.
A change in duties is defined in the Severance Agreements to include,
among other things, an involuntary reduction in authority, any reduction in
annual salary, a reduction of 10% or more in aggregate compensation or
re-location to a site more than 50 miles from the executive officer's principal
place of employment.
A Change of Control or Ownership Change shall be deemed to have occurred
if (i) as a result of a tender offer or sale of stock any person acquires 20% or
more of the Company's Common Stock, (ii) the Company merges into another
corporation or, as a result of a merger, shareholders of the Company own less
than 70% of the voting stock of the surviving entity, (iii) more than one third
of the Company's directors are replaced during any 12 month period by directors
who were not endorsed by a majority of the Board, (iv) the Company is dissolved
or sells substantially all of its assets, or (v) any other event occurs which
the Board of Directors deems to constitute an Ownership Change.
RETIREMENT AGREEMENT
On March 22, 1999, the Compensation Committee approved the payment of a
retirement benefit of $75,000 per year for the next four years to Charles R.
Adams, the Company's founder and former Chairman and Chief Executive Officer.
REPORTS OF THE COMPENSATION AND STOCK OPTION COMMITTEES
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:
- attract and retain well-qualified executives who are willing to work
in a small, growing company;
- create a performance-oriented environment which recognizes both
annual and long-term results;
- strengthen the identification of executive officers with shareholder
interests; and
- reward long-term commitment to the Company.
Compensation of the Company's executive officers is composed primarily
of salary, bonuses and stock options.
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<PAGE> 12
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 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. No bonuses were paid for
the year ended March 31, 2000.
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
long-term incentive compensation and not as reenumeration 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 ending March 31, 2000, Thomas E. Jones received
total annual compensation of $200,000 as compared to total annual compensation
of $233,000 for the prior fiscal year. All of Mr. Jones' annual compensation for
fiscal 2000 was in the form of salary in accordance with the terms of his
employment contract; no discretionary bonuses were awarded to Mr. Jones in light
of the Company's financial performance during the
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<PAGE> 13
year. Mr. Jones' base salary is $250,000 as provided by his employment
agreement. However, on December 1, 1998, Mr. Jones and one other executive
officer voluntarily reduced their base salaries by 20% and Mr. Jones waived the
10% bonus required by his contract.
Compensation Committee Stock Option Committee
John Boyd (Chairman) Philip Wolfstein (Chairman)
Philip Wolfstein John Boyd
Norman Cooper David Cutter
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<PAGE> 14
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CHAD THERAPEUTICS, MEDIA GENERAL INDEX
AND SIC CODE INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
-------------------------- FISCAL YEAR ENDING --------------------------
COMPANY/INDEX/MARKET 3/31/1995 3/29/1996 3/31/1997 3/31/1998 3/31/1999 3/31/2000
<S> <C> <C> <C> <C> <C> <C>
Chad Therapeutics 100.00 218.97 176.75 123.93 36.57 28.44
Surgical & Medical Instruments 100.00 156.85 160.04 220.79 261.73 240.58
Media General Index 100.00 131.00 151.53 221.67 245.42 303.76
</TABLE>
ASSUMES $100 INVESTED ON APR. 1, 1995
ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING MAR. 31, 2000
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 NEUROMO SYSTEMS GENZYME SURGICAL PROD DIV. OXBORO MEDICAL INTERNAT
AKSYS LTD. GISH BIOMEDICAL, INC. PARADIGM MEDICAL IND.
ALARIS MEDICAL INC. GUIDANT CORP. RADIANCE MEDICAL SYSTEMS
ANGEION CORP. HAEMONETICS CORP. RESMED, INC.
APPLIED IMAGING CORP. HEARTPORT, INC. ROCHESTER MEDICAL CORP.
ARROW INTERNATIONAL, INC. HEARN LTD SOMNUS MEDICAL TECHS, INC.
ATRION CORPORATION HYPERTENSION DIAGNOSTICS SONOSITE, INC.
BAXTER INTERNATIONAL, INC. I-FLOW CORP. STRATEGIC DIAGNOSTICS
BECTON, DICKINSON & CO. ICU MEDICAL, INC. STRYKER CORP.
BIO-PLEXUS, INC. IMPLANT SCIENCES CORP. THERMO CARDIOSYSTEMS, INC.
BIOJECT MEDICAL TECH. INTEGRATED SURGICAL SYS. THORATEC LABS CORP.
BIONX IMPLANTS, INC. KENSEY HASH CORP. UROMED CORP.
BOSTON SCIENTIFIC CORP. MED-DESIGN CORP. UTAH MEDICAL PRODUCTS
C.R. BARD, INC. MEDAMICUS, INC. VASOGEN, INC.
CARESIDE, INC. MEDI-JECT CORPORATION VENTANA MEDICAL SYSTEMS
CLOSURE MEDICAL CORP. MEDICAL DYNAMICS, INC. VIDAMED, INC.
COHESION TECHNOLOGIES MEDWAVE, INC. VITAL SIGNS, INC.
CONCEPTUS, INC. MERIDIAN MEDICAL TECH. VIVUS, INC.
CRYO-CELL INTERNAT, INC. MERIT MEDICAL SYSTEMS W.R. GRACE & CO.
DIASYS CORP. MICRO THERAPEUTICS, INC.
EP MEDSYSTEMS, INC. MINNTECH CORP.
FOCAL, INC. NMT MEDICAL INCORPORATED
FRESENIUS, MED CARE AG NOVAMETRIX MEDICAL SYST
FUSION MEDICAL TECH. OPTICAL SENSORS, INC.
GENETRONICS BIOMEDICAL ORTHOLOGIC CORP.
</TABLE>
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<PAGE> 15
INDEPENDENT AUDITORS
The Board of Directors has appointed, subject to ratification by the
shareholders, KPMG LLP as independent auditors for the fiscal year commencing
April 1, 2000. A representative of KPMG 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 LLP.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR 2001 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, 2001, 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, 2001. 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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