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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2
CHAD THERAPEUTICS, INC.

NOTICE OF ANNUAL SHAREHOLDERS MEETING
TO BE HELD SEPTEMBER 15, 1998

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 15,1998, at 10:00 a.m., Los Angeles time (the
"Meeting"), for the following purposes:

1. to elect (4) directors of the Company to the 2000 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, John C. Boyd, Norman Cooper and Earl L. Yager.

2. to ratify the appointment of KPMG Peat Marwick LLP, certified public
accountants, as independent auditors, and

3. to transact such other business as may properly come before the
Meeting and any adjournments thereof

Pursuant to the Bylaws of the Company, the Board of Directors has fixed
July 17, 1998, 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 17, 1998
3

CHAD THERAPEUTICS, INC.

21622 Plummer Street
Chatsworth, California 91311
(818) 882-0883

--------------------------

ANNUAL MEETING OF SHAREHOLDERS

--------------------------

September 15, 1998

--------------------------

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 15,1998, and any adjournments thereof (the "Meeting").

VOTING AND REVOCABILITY OF PROXY

July 17, 1998, 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, 1998, there were 10,012,423 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
20, 1998. The Company's 1998 Annual Report to Shareholders, including financial
statements for the fiscal year ended March 31, 1998, has been enclosed for the
benefit of shareholders entitled to vote at the Meeting.

Proxies may be revoked at any time before they are voted by filing with the
Secretary of the Company a written notice of revocation, or by executing a Proxy
bearing a later date. Proxies may also be revoked by any shareholder present at
the Meeting who expresses a desire to vote his shares in person. Subject to any
such revocation, all shares represented by properly executed Proxies will be
voted in accordance with the specifications on the enclosed Proxy. If no such
specification is made, the shares will be voted as follows: (1) for the election
of each of the nominees named herein as directors (but the person designated as
proxy reserves discretion to cast votes for other persons in the unanticipated
event that any such nominee becomes unavailable to serve), and (2) to ratify the
appointment of KPMG Peat Marwick LLP, certified public accountants, as the
Company's independent auditors for its fiscal year commencing April 1, 1998.

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VOTE REQUIRED FOR APPROVAL

1. Election of Directors

Section 708 of the California Corporations Code provides that a
shareholder may vote for one or more directors by cumulative voting provided
that the name of the candidates for whom the cumulative votes would be cast have
been placed in nomination prior to the voting and that the shareholder has given
notice at the meeting prior to the voting of the shareholder's intention to
cumulate his votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for the election of directors. Cumulative
voting means that each shareholder is entitled to as many votes as equal the
number of shares that he owns multiplied by the number of directors to be
elected. He may cast all of such votes for a single nominee or he may distribute
them among any two or more nominees, as he sees fit. If cumulative voting is not
requested, each shareholder will be entitled to one vote per share for each
director to be elected.

The enclosed Proxy vests in the proxyholder cumulative voting rights.
The person authorized to vote shares represented by executed Proxies in the
enclosed form (if authority to vote for the election of directors is not
withheld) will have full discretion and authority to vote cumulatively and to
allocate votes among any or all of the Board of Directors' nominees as he may
determine or, if authority to vote for a specified candidate or candidates has
been withheld, among those candidates for whom authority to vote has not been
withheld. In any case, the Proxies may be voted for less than the entire number
of nominees if any situation arises which, in the opinion of the proxyholder,
makes such action necessary or desirable. The four (4) nominees who receive the
largest number of votes shall be elected, provided that each of them receives at
least a majority of the quorum.

2. Other Matters

On any matters which may come before the Meeting, shareholders will be
entitled to one vote for each share held of record. Approval of the proposal to
ratify the appointment of KPMG, requires the affirmative vote of a majority of
the Common Shares represented and voting at the Meeting.

The presence in person or proxy of the persons entitled to vote a
majority of the issued and outstanding Common Shares constitutes a quorum for
the transaction of business at the Meeting.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth as of June 30, 1998, 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:

Name and Address Amount Percent Owned

Charles R. Adams (1) (2) ................................ 675,838 6.8%
Thomas E. Jones (1) (2) ................................. 25,000 .3%
Francis R. Fleming (1) (2) .............................. 249,583 2.5%
David L. Cutter (1) (2) ................................. 71,829 .7%
Norman Cooper (1) (2) ................................... 75,331 .8%
John C. Boyd (1) (2) .................................... 142,621 1.4%
Philip Wolfstein (1) (2) ................................ 152,759 1.5%
Earl L. Yager (1) (2) ................................... 177,152 1.8%
All Officers and Directors as a group (11 people) (2) ... 1,731,988 17.3%
Kevin Kimberlin (3) ..................................... 836,560 8.4%

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(1) The address of each director is 21622 Plummer Street, Chatsworth,
CA 91311.

(2) Includes shares subject to options which are currently exercisable
or which become exercisable within sixty (60) days: Charles R.
Adams - 132,097 shares, Thomas E. Jones - 10,000 shares, Francis R.
Fleming 95,990 shares, David L Cutter - 17,382 shares, Norman
Cooper - 17,382 shares, John C. Boyd - 17,382 shares, Philip
Wolfstein - 17,382 shares, Earl L. Yager 37,080 shares, all
Officers and Directors as a group 421,055 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 1998.

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
October, 1997, the Board of Directors fixed the number of directors constituting
the entire Board at eight.

The Bylaws divide the Board into two classes, Class I and Class II. Four
directors have terms of office that expire at the 1998 Annual Meeting, and these
four directors are standing for reelection for a two-year term as Class II
members. These directors are Messrs. Jones, Boyd, Cooper and Yager. The
remaining four Class I members will continue to serve until the 1999 Annual
Meeting.

All nominees for election as Class II members of the Board of Directors
at the 1998 Annual Meeting will be elected for a term of two years and shall
serve until their terms expire at the 2000 Annual Meeting or until their
successors are duly elected and qualified.

It is the intention of the person named in the proxy to vote such
proxies for the election of the four listed nominees, each of whom has consented
to be a nominee and serve as a director if elected. If events not now known or
anticipated make any of the nominees unwilling or unable to serve, the proxies
will be voted in the discretion of the holder of such proxies for other nominees
not named herein in lieu of those unwilling or unable to serve.

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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:

NAME AGE POSITION DIRECTOR SINCE

INCUMBENTS IN CLASS I

Charles R. Adams 70 Chairman of the Board 1982
Francis R. Fleming 60 President, Chief Operating
Officer and Director 1994
David L. Cutter 69 Director 1983
Philip Wolfstein 47 Director 1994

NOMINEES TO CLASS II

Thomas E. Jones 54 Chief Executive Officer and Director 1997
Norman Cooper 67 Director 1986
John C. Boyd 65 Director 1986
Earl L. Yager 52 Senior Vice President, Chief
Financial Officer, Secretary
and Director 1988

Charles R. Adams has been a director of the Company since its formation
in August, 1982. He was Chief Executive Officer of the Company from 1982 until
March 1998, and President of the Company from 1982 until March 1995. From
October, 1980, until August, 1982, he was an independent consultant to numerous
companies in the health care field, including Syntex, DuPont and 3M. Prior to
joining the Company, he was employed for 27 years by Riker Laboratories U.S.A.,
a major manufacturer and distributor of pharmaceuticals. Mr. Adams served for 14
years as either President or Vice President, General Manager of Riker. Mr. Adams
was both a director of the Pharmaceutical Manufacturers Association and Chairman
of the Western Pharmaceutical Group for more than 10 years. He has served on
the State of California Pharmacy Advisory Commission, on the University of
Southern California College of Pharmacy Board of Advisors, on the Northridge
Hospital Foundation Board of Trustees and with numerous other professional and
civic organizations.

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.

Francis R. Fleming has been President and Chief Operating Officer of the
Company since April, 1995 and was Executive Vice President from April 1, 1993 to
March 1, 1995 and Vice President and Marketing Director from April, 1983 to
April, 1993. Prior thereto, he was employed by Riker Laboratories and 3M for 20
years, ultimately as the National Sales Manager for the Personal Care Products
Department for 3M. Prior to this assignment, he was General Manager of Riker,
Canada, and a member of 3M's Canada Management Committee.

David L. Cutter has been a director of the Company since May, 1983, He
is retired Chairman of the Board of Trustees of Alta Bates Medical Center and a
director of Civic Bancorp. He was the President of Herrick Hospital and Health
Center from 1978 to 1984. He is the retired Chairman of the Board of Cutter
Laboratories, Inc. a 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.

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7

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 is the elected
representative of the Packer/Processor And Purveyor/Trader Sector of the U.S.
Red Meat Industry to the Executive Committee of the U.S. Meat Export Federation.

Norman Cooper has been a director of the Company since May, 1986. Mr.
Cooper is the retired Chairman of the Board of Kallir, Philips, Ross, Inc., a
major advertising agency specializing in the health care field. He has been with
Kallir, Philips, Ross, Inc. since 1965 and was named Executive Vice President in
1972, Chief Operating Officer in 1981 and President in 1985. Mr. Cooper is a
licensed pharmacist; and is a member of the American Marketing Association, the
Pharmaceutical Manufacturers Association and the Pharmaceutical Advertising
Council.

John C. Boyd has been a director of the Company since May, 1986. Mr.
Boyd was General Manager of Dunaway Equipment Co., Inc. from 1991 to 1994, a
company specializing in the sale and service of equipment in the logging
industry. He was President of Beaty Leasing & Rental, an automobile leasing and
rental firm which he founded, from 1982 to 1991. From 1969 to 1982, Mr. Boyd
served as Personnel Director and Manager of Marketing Administration for Riker
Laboratories, Inc.

Earl L. Yager has been Senior Vice President of the Company since April,
1995, Chief Financial Officer since May, 1983, and Secretary and a director
since July, 1988. From May, 1980, until May, 1983, he was President of Calabasas
Enterprises, Inc., a privately owned real estate investment and development
company. From May, 1975, to February, 1982, he was managing partner in the
accounting firm of Fermrite, Yager and Blank. Mr. Yager has been a certified
public accountant since 1970 and is a member of the American Institute of
Certified Public Accountants.

INFORMATION CONCERNING BOARD OF DIRECTORS AND CERTAIN COMMITTEES

The Board of Directors holds regular meetings and held a total of five
(5) meetings during the fiscal year ended March 31, 1998. 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 31,1998.

Three committees have been created by the Board of Directors - a Finance
and Audit Committee, a Compensation Committee and an Organization Committee. The
members of the Finance and Audit committee are Messrs. Cutter, Cooper and
Wolfstein. Mr. Cutter is the Chairman of the Finance and Audit Committee. The
Finance and Audit Committee met twice during the fiscal year ended March 31,
1998. The members of the Compensation Committee are Messrs. Boyd, Cooper and
Wolfstein. Mr. Boyd is the Chairman of the Compensation Committee. The
Compensation Committee held one formal meeting and held a number of informal
discussions during the fiscal year ended March 31,1998. The members of the
Organization Committee are Messrs. Adams, Boyd, Cooper, Cutter and Wolfstein.
Mr. Cooper is the Chairman of the Organization Committee. The Organization
Committee met in two formal meetings and held a number of informal discussions
during the fiscal year ended March 31, 1998.

The functions of the Finance and Audit Committee include, among other
things, reviewing and making recommendations to the Board of Directors with
respect to (1) the engagement or reengagement of an independent accounting firm
to audit the Company's financial statements, (2) the policies and procedures of
the Company and management with respect to maintaining the Company's books and
records and furnishing necessary information to the independent auditors, and
(3) the adequacy of the Company's internal accounting controls.

The functions of the Compensation Committee include making
recommendations to the Board of Directors regarding compensation for the
principal officers and other key employees of the Company, incentive
compensation to employees and other employee compensation and benefits.

The functions of the Organization Committee include reviewing and making
recommendations for Board committee assignments, screening and making
recommendations regarding candidates for Board of Directors vacancies and
studying and making recommendations regarding succession and replacement of key
executives.

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In addition to the aforementioned committees of the Board of Directors,
the Company also has a Stock Option Committee which administers the Company's
Stock Option Plan. The Stock Option Committee is comprised of Messrs. Boyd,
Cutter and Wolfstein. Mr. Wolfstein is chairman of the Stock Option Committee,
which met three times during the past fiscal year.

Each non-employee director is entitled to receive his expenses and a fee
of $1000 for each Board meeting attended and $100 for each committee meeting
attended unless the committee meeting occurs on the same day as the Board
meeting in which event, each non-employee director received only the fee for
attending a Board meeting. In addition, each non-employee director receives a
quarterly retainer in the amount of $2,500. Directors who are also employees do
not receive separate compensation for services as directors.

EXECUTIVE OFFICERS

The executive officers of the Company are:

NAME AGE POSITION

Charles R. Adams 70 Chairman of the Board
Thomas E. Jones 54 Chief Executive Officer
Francis R. Fleming 60 President and Chief Operating Officer
Earl L. Yager 52 Senior Vice President,
Chief Financial Officer and Secretary
Oscar J. Sanchez 55 Vice President - Engineering and Development
Louie Goryoka 41 Vice President - Quality Assurance
and Regulatory Affairs
Alfonso Del Toro 40 Vice President - Manufacturing

Oscar J. Sanchez has been Vice President of Engineering and Development
since September, 1996, and was Vice President of Manufacturing for the Company
from April, 1993 to August, 1996, and Manufacturing Manager from April, 1983 to
April, 1993. Prior to this assignment, Mr. Sanchez occupied various positions of
responsibility in Engineering and Management both inside and outside the U.S.
The most recent as Director of Manufacturing for Riker Laboratories in Mexico
City. He has been an active member of the Society of Manufacturing Engineers for
20 years where he served two terms as elected Chairman of the Los Angeles
Chapter.

Louie Goryoka has been Vice President of Quality Assurance and
Regulatory Affairs for the Company since April, 1996, and was Quality Assurance
and Regulatory Affairs Manager from July, 1995 to March, 1996. From March, 1994,
to June, 1995, he was an independent consultant to various companies in the
health care field specializing in quality assurance, regulatory affairs and as
an ISO 9000 Assessor. From October, 1992, to March, 1994, he was Director of
Quality Assurance and Regulatory Affairs for Trimedyne, Inc. and from October,
1990, to October, 1992, held the same position at Respiratory Support Products.
He has served as the Co-Chairman for the California Orange County Regulatory
Affairs Professional Organization and is currently an active member of the
American Society for Quality Control and the Regulatory Affairs Professional
Society. He is also a Certified Quality Engineer and an ISO 9000 lead Auditor.

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.

For the biographies of Messrs. Adams, Jones, Fleming and Yager, see
"Election of Directors - Nominees".

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SUMMARY COMPENSATION TABLE

LONG TERM COMPENSATION
----------------------
ANNUAL AWARDS
COMPENSATION ------
NAME AND ------------------- SECURITIES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) UNDERLYING OPTIONS COMPENSATION(2)
------------------ ---- ------- -------- ------------------ ---------------
($) ($) (#) ($)

Charles R. Adams(3) 1998 306,000 -- -- 4,750
Chairman of the Board 1997 291,600 29,160 -- 22,697
1996 278,400 55,680 -- 14,877

Francis R. Fleming 1998 182,640 -- 25,000 2,707
President and 1997 174,000 17,400 -- 12,250
Chief Operating Officer 1996 165,600 33,120 -- 12,120

Earl L. Yager 1998 170,160 -- 20,000 4,750
Senior Vice President, 1997 162,000 16,200 -- 12,250
Chief Financial Officer and Secretary 1996 154,800 30,960 -- 12,120

Oscar J. Sanchez 1998 132,240 -- 15,000 4,750
Vice President 1997 126,000 12,600 -- 10,990
Engineering and Development 1996 121,200 9,696 -- 10,821

Louie Goryoka 1998 123,000 -- 10,000 1,500
Vice President, Quality Assurance 1997 120,000 12,000 -- 5,355
1996 63,756 12,751 30,000 --

(1) Annual bonus amounts are earned, accrued and paid during the fiscal years
indicated.

(2) These amounts consist of: (a) payments of premiums on a life insurance
policy on Mr. Adam's life pursuant to an employment contract of $10,447 in
1997 and $2,757 in 1996 and (b) contributions by the Company in 1998, 1997
and 1996 to the Chad Therapeutics, Inc. Employee Savings and Retirement
Plan as follows: Mr. Adams $4,750, $12,250 and $12,120, Mr. Fleming
$2,707, $12,250 and $12,120, Mr. Yager $4,750, $12,250 and $12,120, Mr.
Sanchez $4,750, $10,990, and $10,821 and Mr. Goryoka $1,500 and $5,355 in
1998 and 1997, respectively.

(3) Throughout the fiscal year ended March 31, 1998, Mr. Adams served as
Chief Executive Officer.

OPTION GRANTS FOR THE YEAR ENDED MARCH 31, 1998

POTENTIAL
REALIZED VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM(4)
GRANTED(#) EMPLOYEES EXERCISE PRICE EXPIRATION -------------------
NAME (1,2) DURING 1995 ($)PER SHARE(3) DATE 5% 10%
- ------------------- ---------- ----------- --------------- ---------------- ------- -------

Francis R. Fleming 25,000 10% 9.75 October 28, 2007 153,000 388,000
Earl L. Yager 20,000 8% 9.75 October 28, 2007 123,000 311,000
Oscar J. Sanchez 15,000 6% 9.75 October 28, 2007 92,000 233,000
Louie Goryoka 10,000 4% 9.75 October 28, 2007 61,000 155,000
Alfonso Del Toro 5,000 2% 9.75 October 28, 2007 31,000 78,000

(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, to modify the terms
of outstanding options and to reprice the 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.

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AGGREGATED OPINION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AT MARCH 31,
1998

NUMBER OF Value of
SECURITIES UNDERLYING Unexercised
UNEXERCISED In-the-Money
OPTIONS AT Options at
SHARES MARCH 31, 1998 March 31, 1998
ACQUIRED VALUE EXERCISABLE/ Exercisable/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE Unexercisable ($)
- -------------------- ------------------- ----------------- ------------------------ -------------------

Charles R. Adams 49,640 210,000 132,097/-0- 758,000/-0-
Francis R. Fleming -0- -0- 95,990/55,900 403,000/185,000
Earl L. Yager 5,408 29,000 37,080/44,720 222,000/148,000
Oscar J. Sanchez -0- -0- 62,000/30,450 221,000/92,000
Louie Goryoka -0- -0- 12,360/28,540 -0-/-0-

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In May 1997, the Company made a loan of $130,000 to Mr. Louie Goryoka to
assist Mr. Goryoka in relocation of his personal residence. The loan was
approved by the Board of Directors and is evidenced by a promissory note
bearing interest at the rate of 7.25%. The outstanding balance on the loan at
June 13, 1998, was $124,990.

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, 1999. 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. 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 termination
without cause during the year ending March 31, 1999, he is entitled to a
severance benefit of $550,000, payable over 24 months. If Mr. Jones is
terminated without cause after March 31, 1999, 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.

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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 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 280G of the Internal Revenue Code, then the Company may reduce such
payment to the extent necessary to avoid all taxes and penalties under Section
280G. Separately, the Company provided for accelerated vesting of all
outstanding options upon 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.

REPORTS OF THE COMPENSATION AND STOCK OPTION COMMITTEE

All members of the Compensation Committee are independent, non-employee
directors. The Compensation Committee is responsible for reviewing the Company's
compensation policies and making recommendations to the Board with respect to
executive compensation, In addition, the Company currently has a Stock Option
Committee, comprised entirely of independent non-employee directors, which is
responsible for administering the Company's Stock Option Plan.

The Company's compensation policies are designed to:

o attract and retain well-qualified executives who are willing to
work in a small, growing company;
o create a performance-oriented environment which recognizes both
annual and long-term results;
o strengthen the identification of executive officers with
shareholder interests; and
o reward long-term commitment to the Company.

Compensation of the Company's executive officers is composed primarily
of salary, bonuses and stock options.

-10-
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, 1998.

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, 1998, Charles R. Adams received
total annual compensation of $306,000 as compared to total annual compensation
of $320,760 for the prior fiscal year. All of Mr. Adams' annual compensation for
fiscal 1998 was in the form of salary; no bonuses were awarded to Mr. Adams in
light of the Company's financial performance during the year. Mr. Adams' salary
for fiscal 1998 reflected a 5% increase over his base salary for the prior
fiscal year. The Compensation Committee established this increase for Mr. Adams
(and

-11-
13

an identical percentage increase for each of the other executive officers) early
in the fiscal year with a view towards maintaining the Company's executive
salaries near the mid point for officers of companies of comparable size in the
HIMA study as well as in recognition of the strong financial performance in
fiscal 1997 when the Company achieved a 29% growth in sales and record profits
of more than $5,000,000. The Compensation Committee also noted the leadership
provided by Mr. Adams during fiscal 1998 in identifying his successor and in
negotiating the arrangement by which Mr. Thomas E. Jones became Chief Executive
Officer of the Company on April 1, 1998. The Stock Option Committee did not
award any stock options to Mr. Adams during fiscal 1998 in view of the number of
options already held by Mr. Adams as well as his imminent retirement as the
Company's CEO.

Compensation Committee Stock Option Committee

John Boyd (Chairman) Philip Wolfstein (Chairman)
Philip Wolfstein John Boyd
Norman Cooper David Cutter

-12-

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CHAD THERAPEUTICS, MEDIA GENERAL INDEX
AND SIC CODE INDEX

[GRAPHIC OMITTED]

- -------------------------------FISCAL YEAR ENDING-------------------------------

COMPANY 1993 1994 1995 1996 1997 1998

CHAD THERAPEUTICS A 100 141.48 211.05 462.05 362.18 253.99
INDUSTRY INDEX 100 81.27 115.80 181.64 185.33 255.68
BROAD MARKET 100 106.17 116.68 152.85 176.81 258.64

ASSUMES $100 INVESTED ON APR. 1, 1993
ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING MAR. 31, 1998

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:

AKSYS LTD. GENERAL SURGICAL INNOVATIONS ORTHOLOGIC CORP.
ALARIS MEDICAL INC. GISH BIOMEDICAL INC. OXBORO MEDICAL INTERNATIONAL
ANGEION CORP. GUIDANT CORP. PARADIGM MEDICAL INDUSTRIES
APPLIED IMAGING CORP. HAEMONETICS CORP. PERCLOSE INC.
ARROW INTERNATIONAL INC. HEARTPORT INC. QUEST MEDICAL INC.
ARTERIAL VASCULAR ENGINEERING HEARX LTD. RESMED INC.
AVECOR CARDIOVASCULAR HUMASCAN INC. ROCHESTER MEDICAL CORP.
BALLARD MEDICAL PRODUCTS I-FLOW CORP. SOMNUS MEDICAL TECHS INC.
BAXTER INTERNATIONAL INC. ICU MEDICAL INC. SPECIALIZED HEALTH PROD.
BECTON, DICKINSON AND CO. INTEGRATED SURGICAL SYSTEMS STRATEGIC DIAGNOSTICS
BIO-PLEXUS INC. INTELLIGENT MED IMAGING STRYKER CORP.
BIOJECT MEDICAL TECH KENSEY NASH CORP. SWISSRAY INTERNATIONAL INC.
BIONX IMPLANTS INC. MED-DESIGN CORP. THERMO CARDIOSYSTEMS INC.
BOSTON SCIENTIFIC CORP. MEDAMICUS INC. THORATEC LABS CORP.
C. R. BARD INC. MEDI-JECT CORPORATION ULTRAFEM INC.
CARDIOVASCULAR DYNAMICS MEDICAL DYNAMICS INC. UNITED STATES SURGICAL
CLOSURE MEDICAL CORP. MEDWAVE INC. UNIVEC INC.
CONCEPTUS INC. MERIDIAN MEDICAL TECH UROMED CORP.
CRYO-CELL INTERNATIONAL INC. MERIT MEDICAL SYSTEMS UTAH MEDICAL PRODUCTS
DIASYS CORP. MICRO THERAPEUTICS INC. VENTANA MEDICAL SYSTEMS
EP MEDSYSTEMS INC. MINNTECH CORP. VIDAMED INC.
FEMRX INC. NITINOL MEDICAL TECH VITAL SIGNS INC.
FOCAL INC NOVAMETRIX MEDICAL SYSTEMS VIVUS INC.
FRESENIUS MED CARE AG OPHTHALMIC IMAGING SYSTEMS W.R. GRACE AND CO.
FUSION MEDICAL TECH OPTICAL SENSORS INC. XOMED SURGICAL PRODUCTS

-13-
15

INDEPENDENT AUDITORS

The Board of Directors has appointed, subject to ratification by the
shareholders, KPMG Peat Marwick LLP as independent auditors for the fiscal year
commencing April 1, 1998. A representative of KPMG Peat Marwick LLP is expected
to attend the Meeting to make any statements he may desire and respond to
shareholders' questions.

THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION OF THE APPOINTMENT OF
KPMG PEAT MARWICK LLP.

DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR 1999 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, 1999, 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, 1999. 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.

-14-
16

CHAD THERAPEUTICS, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Charles R. Adams and Thomas E. Jones,
and either of them, as Proxyholders, with the power of substitution, and hereby
authorizes them to represent and vote, as designated on the reverse, all the
shares of voting capital stock of Chad Therapeutics, Inc. held of record by the
undersigned at the close of business on July 17, 1998 (and in the case of item I
to cumulate and allocate said votes for directors in his discretion), at the
Annual Meeting of Shareholders to be held on September 15, 1998, and at any and
all adjournment(s) thereof.

The shares represented by this Proxy, when properly executed, will be
voted in the manner directed herein by the undersigned shareholder. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL THE NOMINEES FOR DIRECTOR
AND FOR APPROVAL OF PROPOSAL 2.

In their discretion the proxyholder's are authorized to vote upon such
other business as may properly come before the meeting.

(TO BE SIGNED ON REVERSE SIDE)

-----------
SEE REVERSE
SIDE
-----------
17
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!

ANNUAL MEETING OF SHAREHOLDERS
CHAD THERAPEUTICS, INC.

SEPTEMBER 15, 1998

Please Detach and Mail in the Envelope Provided

A [X] Please mark your votes
as in this example.

FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of [ ] [ ] NOMINEES: Thomas E. Jones 2. Proposal to ratify the appointment [ ] [ ] [ ]
Directors Norman Cooper of KPMG Peat Marwick LLP as
John C. Boyd independent Certified Accountants
Earl L. Yager and Auditors.

FOR, EXCEPT VOTE WITHHELD FROM PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
THE FOLLOWING NOMINEE(S): CARD PROMPTLY USING THE ENCLOSED ENVELOPE

- ------------------------------

SIGNATURE: DATE:
------------------------------- --------------------

NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please