UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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))
|_| Definitive Proxy Statement
|X| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
CHAD THERAPEUTICS
- --------------------------------------------------------------------------------
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(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):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
[LOGO]
CHAD
THERAPEUTICS
Vote to Stop McDowell's Disruptive Tactics
Vote to Support Your Board's Commitment
To Continued Growth at Chad
SIGN AND RETURN THE BOARD'S WHITE PROXY CARD TODAY
DO NOT RETURN ANY GOLD CARDS TO McDOWELL
August 25, 2003
Dear Fellow Chad Shareholder:
With only a short time remaining before the September 9 Annual Meeting we urge
all Chad shareholders to focus on the FACTS and to support your Board's nominees
by signing and returning the enclosed WHITE proxy card today!
Chad shareholders have already heard from dissident Monte McDowell, a self
proclaimed marketing expert who has made you, the Chad shareholders, the target
of his latest marketing pitch. Don't be taken in by his misleading phrases,
self-aggrandizing statements, distortions of the truth, and omissions of
important information.
McDowell is attempting to present himself as an independent director
nominee--apparently hoping that you have already forgotten his disastrous
campaign last year with another group of dissidents. If McDowell is elected, we
believe he will be an extremely disruptive and negative influence on Chad's
improving financial performance. We also remain concerned about the potential
future involvement with Chad of his former dissident group members, many of whom
remain associated with McDowell in other businesses.
MOREOVER, SHOULD McDOWELL GAIN A SEAT ON THE CHAD BOARD, THE ANIMOSITY CREATED
BY HIS LAW SUIT AGAINST A MAJOR CHAD CUSTOMER COULD PRESENT A REAL THREAT TO OUR
RELATIONSHIP WITH THIS CUSTOMER, WHICH GENERATES SEVERAL MILLION DOLLARS IN
REVENUE ANNUALLY FOR CHAD.. McDowell's efforts to shrug off this threat are
entirely unconvincing. He describes his relationship with our customer as
"business as usual," yet when you look at how disruptive and antagonistic
McDowell has been toward Chad -- with whom he also once did business - then you
must question what he really means by "business as usual."
Apart from the $250,000 in Company expense and enormous disruption that McDowell
has already inflicted on Chad in his two proxy contests, he has indicated that
he may seek reimbursement from Chad for his own expenses in this contest if he
receives enough votes to gain a seat on the Chad Board. Don't give him that
chance! Sign and return the WHITE proxy card today! Do not return any gold
proxies to McDowell. A later dated gold card, even one voted "withhold" in
protest, may revoke a previously voted WHITE proxy. ONLY YOUR LATEST DATED PROXY
COUNTS, SO MAKE CERTAIN THE LATEST DATED CARD YOU RETURN IS THE BOARD'S WHITE
PROXY CARD.
MORE McDOWELL CRITICISMS =
MORE McDOWELL CREDIBILITY PROBLEMS
A pattern has emerged in the two proxy contests instigated by McDowell against
your Board. Whenever McDowell launches new criticisms against Chad, he raises
even more serious questions about his own credibility.
For example, McDowell tells you not to "...be fooled by Management's claims of
strong sales...." His statement is an insult to the intelligence of all Chad
shareholders. Our results are FACTS not claims.
Chad's 13% increase in sales in the first quarter of fiscal 2004 is a
FACT, not a claim.
Chad's 26% increase in net earnings in the quarter is a FACT, not a claim.
Furthermore, McDowell's chart of our stock price in his August 15th letter fails
to make clear that in the past two and a half months, Chad's stock price has
increased by over 20%, reflecting the market's recognition of Chad's improved
results.
McDowell's Accounting Smokescreen
Chad has always scrupulously adhered to Generally Accepted Accounting Principles
(GAAP) and practices sound business ethics in its financial reporting.
Shareholders have always been given full and complete disclosure of our results.
In order to give you a clearer picture of our performance last year, we recently
provided you with a pro forma comparison to show the results Chad would have
achieved without the occurrence of two events--which are not necessarily
reflective of our company's ongoing business --a non-cash intangible asset
write-off in 2003, and an income tax benefit in 2002. We believe an
understanding of how these events impacted our net earnings is essential to a
true understanding of our performance.
This information had previously been sent to shareholders and disclosed to the
public along with our net earnings and all required information under GAAP in
our year-end press release and related SEC filing. Pro forma statements are a
common accounting convention and are often valuable to analysts and other
investors who want to track the progress of a company's operating performance
without certain events which are not necessarily reflective of a company's
on-going business but that are required to be included under GAAP.
McDowell objected to our use of a pro forma comparison, calling it "juggling of
numbers." We find this complaint absurd and self serving. You should be aware
that Maxus Realty Trust --on whose board McDowell sits as a trustee and member
of the Audit Committee - uses pro forma accounting to report its "Funds from
Operations" -which excludes information that would otherwise be required to be
included under GAAP.
The Maxus Annual Report [10-KSB] states that Maxus believes the pro forma
information "is helpful to investors."
In other words, from McDowell's standpoint, it's perfectly acceptable for his
company (Maxus) to use pro forma accounting measures to clarify a particular
aspect of the company's performance, but not for Chad.
Of course McDowell was not interested in giving you this information,
since that kind of disclosure might negatively affect his marketing pitch
to get your vote. Even though as an audit committee member of Maxus,
McDowell is obviously familiar with pro forma accounting, in dealing with
Chad shareholders he would prefer to call it a "juggling of numbers." Do
you believe he calls it a "juggling of numbers" in Maxus audit committee
meetings when they review Maxus' pro forma accounting?
In criticizing our accounting, McDowell also conveniently misstates the
difference in operating income in our latest two fiscal years by nearly one
million dollars. Although we are no longer surprised by his sloppiness, this
serves as another warning to those who believe they can afford to accept
McDowell's statements at face value.
We Believe Chad's Executive Compensation
Is Fair and Reasonable by Authoritative Industry Standards
Apparently, that's not good enough to satisfy McDowell's complaints
McDowell's complaints about increases in management compensation certainly don't
give you the full story. Here are the facts:
FACT: Several years ago, Chad's two senior officers took significant pay cuts to
help Chad through the difficult period in its turnaround. Our pay cuts served an
important purpose in assisting Chad to speed up the process of returning to
growth and profitability. These pay cuts were not deferrals - the amount of
salary cut was never repaid to the officers.
FACT: Chad's revenue has increased by more than 50% over the revenue levels at
the time our senior officers voluntarily implemented their pay cuts.
FACT: The pay cuts weren't designed to last forever, and the phasing out of the
pay cuts, of course, showed as an increase in compensation when compared to the
earlier years.
Considering Chad's progress, we believe our senior officers are entitled to a
reasonable salary and the modest bonuses that were paid for improved performance
in fiscal 2003 (Mr. Jones received $22,000 as a bonus and Mr. Yager received
$20,000). Our performance in 2003 helped us gain momentum and set the stage for
accelerated earnings and revenue growth in 2004. In the past two months, our
stock price has increased by over 20%, reflecting Chad's improving results.
FACT: Based on the latest authoritative industry study -The 2002 Medical
Equipment and Supply Industry Annual Compensation Report-- published by Top Five
Data Services, Inc. -- the compensation paid to Chad's two senior officers in
that year was in the midrange of companies of similar size. That report
identifies the mid-point for total compensation paid to CEOs and COOs of
similarly sized companies in our industry as $259,000 and $185,000. For fiscal
2002, we paid our CEO and COO total compensation of $238,000 and $191,000.
In addition, our two senior officers own collectively 352,113 Chad shares, with
options to purchase an additional 277,686 shares. They are well motivated
through their equity interests to work to increase Chad's share price. OUR
OFFICERS STAND TO GAIN MUCH MORE FROM AN INCREASE IN CHAD'S SHARE PRICE THAN
FROM THE MODEST BONUSES AWARDED LAST YEAR. We believe the disruptive presence of
Mr. McDowell - whose plan would require our directors to work for nothing for,
at the very least, the balance of this fiscal year - would be a negative
influence on our efforts to enhance value for all Chad shareholders.
Chad does not need McDowell's brand of "Independence"
McDowell has told you that he will add "independence" to the Chad Board. If his
experience on the Maxus Realty Trust board is any sample of what to expect, we
do not need his version of "independence." During McDowell's tenure on the Maxus
Board, the Board recommended a bylaw allowing one shareholder --- McDowell's
close business associate, David L. Johnson, who was also Maxus' CEO at the
time--to increase his ownership limit to 19.6% of the trust's shares, while
lowering the ownership limit for all other shareholders to 7.6%, thereby helping
to entrench Mr. Johnson. And this year, the Maxus trustees proposed to their
shareholders a measure which could have the effect of relaxing certain
restrictions upon transactions between Maxus and related parties.
Furthermore, McDowell has had business dealings with Johnson while Johnson was
Chairman or CEO of Maxus and McDowell was on the Board and Audit Committee,
including being participants in a partnership that has made a loan to the
trust's current CEO. In addition to Johnson, McDowell joined with two other
Maxus trustees (with whom he still serves, including the trust's current CEO) to
wage a failed proxy fight against Chad last year.
Chad already has five independent directors on its seven member Board. All of
our nominees for the 2003 Annual meeting are independent. Our Nominating, Audit
and Compensation Committee members are all independent. WE REMAIN A NO-NONSENSE
COMPANY WITH NO RELATED PARTY TRANSACTIONS AND NO LOANS TO OFFICERS OR
DIRECTORS. Our directors take their oversight duties very seriously.
We Believe in the Future of Chad Therapeutics
Chad's performance continued to improve in fiscal 2003 and its growth has
accelerated in the current fiscal year. We have laid the groundwork for
enhancing the value of Chad's shares in the best way we know -- by working to
improve its fundamental performance. Four of our directors have bought Chad
shares in the past month, and our director nominee, Kathy Fisher, purchased
7,000 shares in that same time period. We believe in the future of Chad.
We urge you to join us in sending a message to Mr. McDowell that his costly and
disruptive tactics are not welcome at Chad. Please sign and return the Board's
WHITE proxy card today.
Once again, we thank you for your consideration and support.
On behalf of the Board of Directors,
/s/ Earl L. Yager /s/ Thomas E. Jones
Earl L. Yager Thomas E. Jones
President Chief Executive Officer
- --------------------------------------------------------------------------------
Only your latest dated proxy counts! Please make certain that the latest dated
proxy you return is the Board's WHITE proxy card. Even if you have previously
sent a gold proxy to McDowell, you can revoke that vote and support the Board's
nominees by signing and returning a later dated WHITE proxy card.
DO NOT RETURN ANY GOLD PROXIES TO McDOWELL. A GOLD PROXY--EVEN ONE VOTED
"WITHHOLD" IN PROTEST-- MAY REVOKE AN EARLIER DATED WHITE PROXY CARD. PLESE MAKE
CERTAIN THE LATEST DATED PROXY YOU RETURN IS THE BOARD'S WHITE PROXY CARD.
If you hold your shares in street-name, please sign, date and return the
enclosed WHITE proxy card in the envelope provided by your brokerage firm or
bank.
To discuss the issues in this proxy contest, please call Earl Yager at Chad
Therapeutics, 818-882-0883, ext. 223. If you need assistance in voting your
WHITE proxy, please call Morrow & Co., Inc., our proxy solicitor, at
800-607-0088.
- --------------------------------------------------------------------------------
Safe Harbor Statements under the Private Securities Litigation Reform Act of
1995
The foregoing statements regarding prospects for future earnings and revenues,
future sales trends for the OXYMATIC 400 series and CYPRESS conservers and the
introduction of products under development are forward-looking statements that
involve certain risks and uncertainties. A number of important factors could
cause actual results to differ materially from those contemplated by such
forward-looking statements. These include the loss of one or more major
customers, increased competition, the introduction of new products with
perceived competitive advantages over the OXYMATIC 400 series and CYPRESS
conservers, changes or proposed changes in health care reimbursement which
affect home care providers and CHAD's ability to anticipate and respond to
technological and economic changes in the home oxygen market. Moreover, the
success of the OXYMATIC 400 series and CYPRESS conservers and products under
development will depend on their efficacy, reliability and the health care
community's perception of the products' capabilities and benefits, the degree of
acceptance the products achieve among home care providers and, with respect to
products under development, obtaining timely regulatory approval. Additional
factors that could cause actual results to differ materially from those
contemplated in this letter can be found in the Company's annual and quarterly
reports filed with the Securities and Exchange Commission under the caption
"Outlook: Issues and Risks."
- --------------------------------------------------------------------------------
Please sign, date and return the enclosed Board of Directors WHITE proxy card
today. If you have already returned a card to McDowell,
you have every right to revoke your vote by signing and returning a later dated
WHITE proxy card in the envelope provided. Only your latest dated proxy counts.
Do not return any gold cards to McDowell. A later dated gold card, even one
voted "withhold" in protest, may revoke a previously voted WHITE proxy.
If you hold your shares in street-name, please return your WHITE proxy card in
the envelope provided by your brokerage firm or bank.
To discuss the issues in this proxy contest, please call Earl Yager at Chad
Therapeutics (818) 882-0883, ext. 223. For assistance in voting your WHITE proxy
card, please call our proxy solicitor, Morrow & Co., Inc., at (800) 607-0088.
- --------------------------------------------------------------------------------
CHAD THERAPEUTICS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas E. Jones and Earl L. Yager, and
either of them, as Proxyholders, with the full 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 14, 2003 (and in the case of item 1
to cumulate and allocate said votes for directors in his discretion), at the
Annual Meeting of Shareholders to be held on September 9, 2003, 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 proxyholders are authorized to vote upon such
other business as may properly come before the meeting.
(Continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
- --------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS:
Nominees:
Philip Wolfstein
James M. Brophy
Kathleen M. Fisher
FOR ALL
NOMINEES WITHHELD
|_| |_|
For, except vote withheld from the following nominee(s):
________________________________________________________
2. Proposal to ratify the appointment of KPMG LLP as independent Certified
Accountants and Auditors.
FOR AGAINST ABSTAIN
|_| |_| |_|
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
________________________________________________________________________________
Dated
________________________________________________________________________________
(Signature)
________________________________________________________________________________
(Signature)
________________________________________________________________________________
(Title)
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.