UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[ ] Preliminary Proxy Statement
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14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
ATRION CORPORATION
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(Name of Registrant as Specified In Its Charter)
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[Atrion Letterhead]
April 6, 2006
Dear Stockholder:
You are cordially invited to attend the 2006 annual meeting of stockholders
of Atrion Corporation which will be held at our offices in Allen, Texas on
Monday, May 22, 2006 at 10:00 a.m., Central Time. A notice of the annual meeting
and the Company's proxy statement, together with a proxy card, accompany this
letter. Also enclosed is a copy of our 2005 Annual Report. The notice of annual
meeting and proxy statement describe the matters to be voted on at the meeting.
We hope that you will attend the meeting in person. However, whether or not
you plan to be personally present, please read the accompanying proxy statement
carefully and then complete, date and sign the enclosed proxy card and return it
promptly in the envelope provided herewith. This will ensure that your shares of
common stock are represented at the meeting if you are unable to attend.
Sincerely,
/s/ Emile A. Battat
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Emile A. Battat
Chairman and President
ATRION CORPORATION
ONE ALLENTOWN PARKWAY
ALLEN, TEXAS 75002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Atrion Corporation:
Notice is hereby given that the annual meeting of stockholders of Atrion
Corporation (the "Company") will be held at the Company's offices, One Allentown
Parkway, Allen, Texas on Monday, May 22, 2006 at 10:00 a.m., Central Time, for
the following purposes:
1. To elect one Class II director.
2. To consider and vote upon a proposal to approve the Company's 2006
Equity Incentive Plan.
3. To ratify the appointment of Grant Thornton LLP as independent
accountants to audit the Company's financial statements for the year
2006.
4. To transact such other business as may properly come before the
meeting.
The Board of Directors fixed the close of business on March 31, 2006 as the
record date for the determination of stockholders entitled to notice of and to
vote at the annual meeting and at any adjournment thereof.
By Order of the Board of Directors
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Jeffery Strickland
Vice President and Chief Financial
Officer, Secretary and Treasurer
April 6, 2006
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED
HEREWITH. IF YOU ATTEND THE MEETING, YOU MAY, IF YOU WISH, WITHDRAW YOUR PROXY
AND VOTE IN PERSON.
ATRION CORPORATION
ONE ALLENTOWN PARKWAY
ALLEN, TEXAS 75002
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 2006
GENERAL INFORMATION
This Proxy Statement is being furnished to the stockholders of Atrion
Corporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company to be voted at the annual meeting of
stockholders to be held at the Company's offices, One Allentown Parkway, Allen,
Texas on Monday, May 22, 2006 at 10:00 a.m., Central Time, and at any
adjournment of such meeting. This Proxy Statement and the accompanying proxy
card are being first sent or given to stockholders on or about April 6, 2006.
The Company's 2005 Annual Report is being mailed to stockholders with this Proxy
Statement.
PURPOSE OF THE MEETING
At the annual meeting, the Company's stockholders will consider and vote
upon the following matters: (i) the election of one Class II director, (ii) a
proposal to approve the Company's 2006 Equity Incentive Plan and (iii) a
proposal to ratify the appointment of Grant Thornton LLP as independent
accountants to audit the Company's financial statements for the year 2006.
VOTING SECURITIES AND RECORD DATE
Stockholders of record at the close of business on March 31, 2006 (the
"Record Date") will be entitled to notice of, and to vote at, the annual meeting
and at any adjournment thereof. At the close of business on the Record Date, the
Company had outstanding and entitled to vote 1,841,906 shares of common stock,
the only voting securities of the Company. Holders of record of shares of common
stock outstanding on the Record Date will be entitled to one vote for each share
held of record on that date upon each matter presented to the stockholders to be
voted upon at the meeting.
If the enclosed proxy card is properly executed and received in time for
the annual meeting, unless previously revoked, shares of common stock
represented thereby will be voted at the annual meeting as specified by the
stockholder on the proxy. If no such specification is made, shares represented
by such proxy will be voted FOR the election as director of the nominee of the
Board of Directors named herein, FOR adoption of the Company's 2006 Equity
Incentive Plan and FOR ratification of the appointment of Grant Thornton LLP as
independent accountants to audit the Company's financial statements for the year
2006. In addition, in their discretion the persons designated in the proxy card
will vote upon such other business as may properly come before the meeting,
including voting for any adjournment of the meeting proposed by the Board of
Directors. A proxy may be revoked at any time before it is voted at the meeting
by delivering to the Company a later-dated proxy, by voting by ballot at the
meeting or by filing with the Inspectors of Election an instrument of
revocation.
REQUIRED VOTE
The presence, in person or by proxy, of the holders of a majority of the
shares of common stock outstanding on the Record Date is necessary to constitute
a quorum at the annual meeting. Abstentions and broker non-votes will be counted
as present and represented at the annual meeting for purposes of determining a
quorum. A director will be elected at the annual meeting by a plurality of the
votes cast by the stockholders present in person or by proxy and entitled to
vote. Abstentions and broker non-votes will have no effect on the outcome of the
election of the director. The affirmative vote of the holders of a majority of
the shares of common stock of the Company present in person or represented by
proxy at the annual meeting and entitled to vote thereon is required for
approval of the Company's 2006
Equity Incentive Plan. Abstentions will have the same effect as a vote against
and broker non-votes will have no effect on the proposal to approve the
Company's 2006 Equity Incentive Plan.
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes: Class I,
Class II and Class III. One Class II director is to be elected at the annual
meeting, to serve until the annual meeting of stockholders to be held in 2009
and until the election and qualification of his successor in office. The nominee
for election as Class II director named below is a member of the Board of
Directors and was previously elected by the stockholders. It is intended that
the persons named in the proxy card will vote for the election of this nominee.
If the nominee listed below, who has indicated his willingness to serve as a
director if elected, is not a candidate when the election occurs, proxies may be
voted for the election of any substitute nominee.
The following information is furnished with respect to the Board of
Directors' nominee for election as a director and each director whose term will
continue after the annual meeting.
Name, Age, Service as a Director of the Company (a)
Principal Occupation, Positions and Offices,
Other Directorships and Business Experience
NOMINEE FOR ELECTION AS DIRECTOR
Class II - Term Ending in 2009
HUGH J. MORGAN, JR.
Mr. Morgan, age 77, has been a director since 1988. Mr. Morgan is a private
investor. He served as Chairman of the Board of National Bank of Commerce
of Birmingham from February 1990 until April 2003. Mr. Morgan holds a
Bachelor of Arts degree from Princeton University and is a graduate of the
Vanderbilt University Law School.
DIRECTORS CONTINUING IN OFFICE
Class III - Term Ending in 2007
ROGER F. STEBBING
Mr. Stebbing, age 65, has been a director since 1992. Mr. Stebbing is
President and Chief Executive Officer of Stebbing and Associates, Inc., an
engineering consulting company, and has served in such capacities since
1986. He was President and Chief Executive Officer of Marlboro Enterprises,
Inc., a company engaged in chemical plant engineering, design, construction
and operation, for many years until the sale of that company in September
1999 and continued to serve as an employee of Marlboro Enterprises, Inc.
until September 2001. Mr. Stebbing is a licensed professional engineer and
has a BSc honors degree in Chemical Engineering from Salford University.
JOHN P. STUPP, JR.
Mr. Stupp, age 56, has been a director since 1985. He is President of Stupp
Bros., Inc., a diversified holding company, and has served in such capacity
since March 2004. From April 1995 until March 2004, he served as Executive
Vice President and Chief Operating Officer of Stupp Bros., Inc., and since
August 1995 he has also served as Chief Executive Officer of Stupp
Corporation, a division of Stupp Bros., Inc. Mr. Stupp holds a Bachelor of
Science degree in Business and Economics from Lehigh University. He serves
as a director of The Laclede Group, Inc.
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Class I - Term Ending in 2008
EMILE A. BATTAT
Mr. Battat, age 68, has been a director since 1987 and has served as
Chairman of the Board of the Company since January 1998 and as President
and Chief Executive Officer of the Company, and as Chairman of the Board or
President of each of the Company's subsidiaries, since October 1998. Mr.
Battat holds Bachelor of Science and Master of Science degrees in
Mechanical Engineering from Massachusetts Institute of Technology and a
Master of Business Administration degree from Harvard University. He is an
associate member of Sigma Xi, a scientific honor society.
RONALD N. (NICKY) SPAULDING
Mr. Spaulding, age 42, was elected to the Board of Directors in February
2006. Mr. Spaulding is the President of International Operations of Guidant
Corporation and has served in that position since 2005. He also serves on
the Guidant Management Committee, having been appointed to that committee
in 2002. From 2003 to 2005, he was the President of Europe, Middle East,
Africa and Canada of Guidant Corporation. From 2000 to 2003, Mr. Spaulding
served as President of Guidant's Cardiac Surgery business and during the
period from 1994, when he joined Guidant Corporation, until 2000 he served
in various other positions with that company. Mr. Spaulding holds a
Master's degree in Biomedical Engineering and a Bachelor of Science degree
in Mechanical Engineering from the University of Miami.
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(a) Unless the context otherwise requires, references in this Proxy Statement
to the Company, Board of Directors and executive officers of the Company
prior to February 25, 1997 mean ATRION Corporation, the Company's
predecessor, and its Board of Directors and executive officers.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF ITS NOMINEE, HUGH
J. MORGAN, JR.
INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES
Director Independence. The Company's Board of Directors has determined that
the following directors are "independent" within the meaning of The Nasdaq Stock
Market ("Nasdaq") listing standards: Hugh J. Morgan, Jr., Ronald N. (Nicky)
Spaulding, Roger F. Stebbing and John P. Stupp, Jr.
Meetings. The Board of Directors held four meetings during 2005. Each
director attended at least 75% of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings of all
committees on which he served held in 2005 during the time he served as a
director or as a member of such committees.
Nominating Process. In light of its small size, the Board of Directors has
determined, and has adopted a resolution providing, that nominees for election
to the Board of Directors will be selected by a majority vote of the directors
meeting the Nasdaq independence requirements and, consequently, does not have a
separate nominating committee or a nominating committee charter. In accordance
with resolutions adopted by the Board of Directors, in selecting nominees for
election as directors, the Board of Directors, with the assistance of the
Corporate Governance Committee, will review and evaluate candidates submitted by
directors and management and by the Company's stockholders pursuant to the
procedures set forth in the Company's Bylaws and described in "STOCKHOLDER
PROPOSALS -- Stockholder Nominations for Directors" below. The Board of
Directors, in considering possible nominees, will take into account the
following: (a) each director should be an individual of the highest character
and integrity; (b) each director should have substantial experience that is
relevant to the Company; (c) each director should have sufficient time available
to devote to the affairs of the Company; and (d) each director should represent
the best interest of all stockholders. All possible nominees are to be reviewed
in the same manner, regardless of whether they have been submitted by
stockholders, directors or management.
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Committees. The Board of Directors has four standing committees: the
Executive Committee, the Corporate Governance Committee, the Compensation
Committee and the Audit Committee. The Executive Committee is currently
comprised of Emile A. Battat, Richard O. Jacobson and Hugh J. Morgan, Jr. The
Executive Committee did not meet during 2005. The Corporate Governance
Committee, which is currently comprised of Richard O. Jacobson and Roger F.
Stebbing, is to assist in the evaluation of possible nominees for election to
the Board of Directors as requested by the Board of Directors, review annually
and advise the Board of Directors with respect to the compensation of directors
and recommend to the Board of Directors (a) the number of directors to be fixed
in connection with each annual meeting of stockholders, (b) the directors to be
appointed to each of the committees of the Board, (c) corporate governance
guidelines and (d) proposed changes to the charter of the Corporate Governance
Committee. The Corporate Governance Committee met one time in 2005. The
Compensation Committee, which is currently comprised of Richard O. Jacobson,
Hugh J. Morgan, Jr. and John P. Stupp, Jr., makes recommendations to the Board
of Directors as to the remuneration of all executive officers of the Company,
administers the Atrion Corporation 1997 Stock Incentive Plan (the "1997 Stock
Incentive Plan") and reviews and makes recommendations regarding the Company's
other incentive compensation plans. The Compensation Committee met one time in
2005. The Audit Committee, the current members of which are Hugh J. Morgan, Jr.,
Roger F. Stebbing and John P. Stupp, Jr., appoints, determines the appropriate
compensation for and oversees the work of the Company's independent auditors,
and assists the Board of Directors in its oversight of the Company's accounting
and financial reporting principles and policies and internal audit controls and
procedures and oversees related party transactions. The Board of Directors has
adopted a written charter for the Audit Committee. The Audit Committee reviews,
at least annually, the Audit Committee Charter and is to recommend any changes
to the Audit Committee Charter to the Board of Directors. The Board of Directors
has determined that each member of the Audit Committee is independent within the
meaning of the Nasdaq listing standards and is financially literate and that Mr.
Stupp qualifies as an audit committee financial expert. The Audit Committee met
nine times in 2005.
Board Compensation. Each outside director is paid a fee of $24,000 per
year. In addition, the Chairmen of the Corporate Governance Committee and the
Compensation Committee are each paid a fee of $6,000 per year, and the Chairman
of the Audit Committee is paid a fee of $12,000 per year. The Company reimburses
each director for travel and out-of-pocket expenses incurred in connection with
attending meetings of the Board of Directors.
Stockholder Communications to the Board of Directors. Any stockholder
wishing to communicate with the Board of Directors about any matter should send
the communication, in written form, to Emile A. Battat, Chairman and President,
at the Company's principal office in Allen, Texas. Mr. Battat will promptly send
the communication to the other members of the Board of Directors.
Attendance at Stockholder Meetings. The Board of Directors has adopted a
policy encouraging each director to attend, if practicable, the annual meeting
of stockholders of the Company. The 2005 annual meeting was attended by five
directors.
4
SECURITIES OWNERSHIP
The following table sets forth information regarding the beneficial
ownership of shares of common stock of the Company as of March 15, 2006 by (i)
each of the directors of the Company, one of whom is also the Board of
Directors' nominee for election as a director at the annual meeting; (ii) the
executive officers of the Company who are named in the Summary Compensation
Table herein; (iii) all of the directors and executive officers of the Company
as a group, and (iv) each other person known by the Company to be the beneficial
owner of more than 5% of the outstanding common stock of the Company.
NUMBER OF SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED (A) OF CLASS (A)
------------------------ ---------------- ------------
Emile A. Battat (b) 221,900(c) 11.95%
Richard O. Jacobson 36,000(c) 1.95%
Hugh J. Morgan, Jr. 20,000(d) 1.09%
Ronald N. (Nicky) Spaulding 0 *
Roger F. Stebbing 28,800(c) 1.56%
John P. Stupp, Jr. 165,000(c)(e) 8.84%
Jeffery Strickland 34,966(c)(f) 1.89%
Oak Forest Investment Management, Inc.(g) 127,323 6.92%
Royce & Associates, LLC.(h) 107,278 5.83%
T. Rowe Price Associates, Inc. (i) 168,000 9.13%
All directors and executive
officers as a group 506,666(j) 26.48%
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* Less than 1% of class
(a) Based on 1,839,607 shares of common stock outstanding on March 15, 2006,
plus shares which can be acquired through the exercise of options within 60
days thereafter by the specified individual or group. Except as otherwise
indicated in the notes to this table, beneficial ownership includes sole
voting and investment power.
(b) The business address for Mr. Battat is One Allentown Parkway, Allen, Texas
75002-4211.
(c) The shares listed include the following shares issuable upon the exercise
of options exercisable on March 15, 2006 or within 60 days thereafter: Mr.
Battat, 17,800 shares; Mr. Jacobson, 10,000; Mr. Stebbing, 10,000; Mr.
Stupp, 26,000; and Mr. Strickland 10,100. All such persons are parties to
award agreements setting forth certain terms of options granted to them
under the 1997 Stock Incentive Plan, and Mr. Stupp is also a party to an
award agreement setting forth certain terms of options granted to him under
the Atrion Corporation 1998 Outside Directors Stock Option Plan.
(d) Does not include 23,000 shares held by Mr. Morgan's children and their
spouses and Mr. Morgan's grandchildren as a result of gifts by Mr. Morgan,
none of which shares is beneficially owned by Mr. Morgan.
(e) Includes 135,000 shares held by Stupp Bros., Inc. as to which shares Mr.
Stupp shares voting power and investment power as a director and executive
officer and as a voting trustee of a voting trust which owns 100% of the
voting stock of Stupp Bros., Inc. The 135,000 shares held by Stupp Bros.,
Inc. represent 7.34% of the common stock of the Company outstanding as of
March 15, 2006. The business address for Mr. Stupp and Stupp Bros., Inc. is
3800 Weber Road, St. Louis, Missouri 63125.
(f) Includes 15,966 shares held in a family trust of which Mr. Strickland is a
co-trustee.
(g) The address of Oak Forest Investment Management, Inc. ("Oak Forest") is
9705 Carmel Court, Bethesda, Maryland 20817. This information is based upon
a Schedule 13G dated January 18, 2006 filed with the Securities and
Exchange Commission (the "Commission") and furnished to the Company
reporting that Oak Forest has sole power to vote or direct the vote of and
the sole power to dispose or direct the disposition of 127,323 shares of
common stock of the Company.
(h) The address of Royce & Associates, LLC ("Royce") is 1414 Avenue of the
Americas, New York, New York 10019. This information is based upon a
Schedule 13G dated January 11, 2006 filed with the Commission and furnished
to the Company reporting that Royce has sole power to vote or direct the
vote of and the sole power to dispose or direct the disposition of 107,278
shares of common stock of the Company.
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(i) The address of T. Rowe Price Associates, Inc. is 100 East Pratt Street,
Baltimore, Maryland 21202. This information is based upon a Schedule 13G
dated February 14, 2006 filed with the Commission and furnished to the
Company by T. Rowe Price Associates, Inc. ("Price Associates") and T. Rowe
Price Small-Cap Value Fund, Inc. reporting that T. Rowe Price Small-Cap
Value Fund, Inc. has sole power to vote or direct the vote of 168,000
shares of common stock and that Price Associates, which serves as
investment adviser for T. Rowe Price Small-Cap Value Fund, Inc., has sole
power to dispose or direct the disposition of such shares. For purposes of
the reporting requirements of the Exchange Act, Price Associates is deemed
to be a beneficial owner of such shares of common stock; however, Price
Associates has expressly disclaimed beneficial ownership of all such
shares.
(j) See notes (a)-(f) above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors to file initial reports of ownership and reports of changes of
ownership of the Company's common stock with the Commission. Executive officers
and directors are required to furnish the Company with copies of Section 16(a)
forms that they file. Based upon a review of these filings and written
representations from the Company's directors and executive officers regarding
the filing of such reports, the Company believes that its directors and
executive officers complied with all applicable Section 16(a) filing
requirements during 2005.
APPROVAL OF 2006 EQUITY INCENTIVE PLAN
INTRODUCTION
The Atrion Corporation 2006 Equity Incentive Plan was adopted by the Board
of Directors in February 2006, subject to approval by the Company's
stockholders. If approved by the stockholders, the 2006 Equity Incentive Plan
will become effective as of May 22, 2006, the date of the annual meeting. Under
the 2006 Equity Incentive Plan, the Company is authorized to grant equity-based
awards in the form of stock options, restricted common stock, restricted stock
units, deferred stock units, stock appreciation rights and performance share
units to key employees (including executive officers) and consultants of the
Company and its subsidiaries. The purpose of the 2006 Equity Incentive Plan is
(a) to recognize and compensate selected employees and consultants who
contribute to the success of the Company and its subsidiaries, (b) to attract
and retain key employees and consultants and (c) to provide incentive
compensation to key employees and consultants based on the performance of the
Company and its subsidiaries.
SUMMARY OF 2006 EQUITY INCENTIVE PLAN
The following is a summary of the 2006 Equity Incentive Plan. The
statements contained herein are qualified in their entirety by reference to the
2006 Equity Incentive Plan, a copy of which is attached as Appendix A to this
Proxy Statement.
General. The 2006 Equity Incentive Plan authorizes the Company to grant to
eligible persons the following types of equity-based awards: options to purchase
common stock that qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code");
options to purchase common stock that do not qualify as incentive stock options
under the Code, which also are referred to as "nonqualified stock options;"
shares of restricted stock that are subject to certain transferability and
forfeiture restrictions that lapse after specified restricted periods;
restricted stock units; deferred stock units; stock appreciation rights, also
known as "SARs;" and performance share units.
Eligible Persons. Key employees and consultants of the Company will be
eligible to participate in the 2006 Equity Incentive Plan. Under present law,
incentive stock options may be granted only to employees. As of March 15, 2006,
approximately 40 employees and consultants of the Company and its subsidiaries
would be eligible to participate in the 2006 Equity Incentive Plan. The
selection of key employees and consultants to participate in the 2006 Equity
Incentive Plan and the types of awards will be entirely within the discretion of
the Compensation Committee of the Board of Directors.
6
Shares Available. The maximum number of shares of common stock subject to
all awards granted under the 2006 Equity Incentive Plan will be 100,000 shares,
constituting approximately 5.5% of the shares of common stock outstanding on
March 15, 2006. The maximum number of shares of common stock that may be awarded
to any one person during any one year is 20,000 shares. The awards granted under
the 2006 Equity Incentive Plan and the foregoing share limitations are subject
to equitable adjustment or substitution, as determined by the Compensation
Committee in its sole discretion, in the event of certain changes in the
Company's outstanding shares of common stock or its capital structure resulting
from a dividend or other distribution in the form of cash, common stock, other
securities or other property, on account of a recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of the common stock
or other securities of the Company, issuance of warrants or other rights to
purchase common stock or other securities of the Company, or other similar event
that effects the common stock. In the event that any stock option, restricted
common stock, restricted stock unit, deferred stock unit, SAR, or performance
share unit expires or is surrendered, terminated, or forfeited, the shares of
common stock no longer subject to such award will be released and thereafter
available for new awards under the 2006 Equity Incentive Plan.
Administration. The Compensation Committee is authorized to administer the
2006 Equity Incentive Plan. The Compensation Committee has the power, subject to
the provisions of the 2006 Equity Incentive Plan, to interpret the 2006 Equity
Incentive Plan and the agreements pursuant to which stock options, restricted
common stock, restricted stock units, deferred stock units, SARs and performance
units are granted or awarded, and to adopt such rules for the administration,
interpretation and application of the 2006 Equity Incentive Plan as are
consistent therewith and to interpret, amend or revoke any such rules. The
Compensation Committee has the power, subject to the provisions of the 2006
Equity Incentive Plan, to designate the key employees and consultants to receive
awards from time to time; to determine the nature and extent of the awards to be
made; to determine the time when awards will be made; to establish the
performance goals and determine the period of time within which performance is
measured; to establish the various targets and bonus amounts which may be
earned; to specify the relationship between the performance goals and the
targets and amounts that may be earned; to determine the period of time during
which shares of restricted stock and restricted stock units are subject to
restrictions; to determine the conditions for the payment of awards; and to
prescribe the forms of agreements and documents evidencing the awards. The
Compensation Committee, in its absolute discretion, will determine the effect of
a participant's termination on unvested options, restricted common stock and
restricted stock units unless otherwise provided in the 2006 Equity Incentive
Plan.
TYPES OF EQUITY-BASED AWARDS
Stock Options. The Compensation Committee may grant stock options to
eligible persons under the 2006 Equity Incentive Plan. Each option granted
pursuant to the 2006 Equity Incentive Plan is designated at the time of grant as
either an option intended to qualify as an incentive stock option under Section
422 of the Code or as an option that is not intended to so qualify, referred to
as a nonqualified stock option. Nonqualified stock options may be granted to all
eligible persons, but incentive stock options may be granted only to employees
of the Company and its subsidiaries. The Compensation Committee may set the
exercise price of stock options, provided that the exercise price per share is
not less than the par value of a share of common stock and is not less than the
fair market value of the underlying common stock on the date of grant. Stock
options will vest and become exercisable in such a manner and on such date or
dates as are determined by the Compensation Committee. Any incentive stock
options granted pursuant to the 2006 Equity Incentive Plan will expire after a
period not exceeding ten years from the date of grant, as determined by the
Compensation Committee, subject to earlier termination in the event that the
participant's employment or service with the Company or a subsidiary ceases
before the end of the option period. If an incentive stock option is granted to
a key employee who owns or is deemed to own more than 10% of the combined voting
power of all classes of the Company's stock, the option period may not exceed
five years and the exercise price may not be less than 110% of the fair market
value of the underlying common stock on the date of grant. The exercise price
for any option is generally payable in cash or, in certain circumstances, by the
surrender, at the fair market value on the date on which the option is
exercised, of shares of the Company's common stock having a value equal to the
exercise price. The 2006 Equity Incentive Plan permits optionholders to exercise
their options prior to the date on which the options will vest, subject to
Compensation Committee action. In such case, the optionholder will, upon payment
for the shares, receive restricted stock having vesting terms that are identical
to the vesting terms under the original option and subject to repurchase by the
Company while the restrictions on
7
vesting are in effect. Each stock option is to be evidenced by an award
agreement containing such provisions, consistent with the 2006 Equity Incentive
Plan, as are determined by the Compensation Committee.
Restricted Common Stock. The Compensation Committee may award restricted
common stock to key employees and consultants under the 2006 Equity Incentive
Plan. The participant's rights to the restricted common stock are subject to
certain transferability and forfeiture restrictions during a restricted period
which commences on the date of grant of the restricted common stock and expires
from time to time in accordance with a schedule established by the Compensation
Committee. While the restrictions are in place, the participant generally has
the rights and privileges of a stockholder as to the restricted common stock,
including the right to vote the restricted common stock and to receive dividends
thereon. Upon the expiration of the restricted period, the restrictions are of
no further force or effect with respect to the restricted common stock. Each
restricted common stock award is to be evidenced by an award agreement between
the Company and the participant setting forth the applicable restrictions.
Restricted Stock Units and Deferred Stock Units. The Compensation Committee
may award restricted stock units and deferred stock units to key employees and
consultants under the 2006 Equity Incentive Plan, each for the duration that it
determines in its discretion. Each restricted stock unit and each deferred stock
unit is equivalent in value to one share of common stock and entitles the
participant receiving the award to receive one share of common stock for each
restricted stock unit at the end of the vesting period applicable to such
restricted stock unit and for each deferred stock unit at the end of the
deferral period. Participants are not required to pay any additional
consideration in connection with the settlement of restricted stock units or
deferred stock units. A holder of restricted stock units or deferred stock units
has no voting rights, right to receive cash distributions or other rights as a
stockholder until shares of common stock are issued to the holder in settlement
of the stock units. However, participants holding restricted stock units or
deferred stock units are entitled to receive dividend equivalents with respect
to any payment of cash dividends on an equivalent number of shares of common
stock. Such dividend equivalents are credited in the form of additional stock
units.
Stock Appreciation Rights. The Compensation Committee may award stock
appreciation rights to key employees and consultants, alone or in tandem with
stock options, pursuant to the 2006 Equity Incentive Plan. SARs are awards that
give the participant the right to receive an amount equal to (1) the number of
shares exercised under the right, multiplied by (2) the amount by which the
Company's stock price exceeds the exercise price. Payment may be in cash, in
shares of the Company's common stock with equivalent value, or in some
combination, as determined by the Compensation Committee. The Compensation
Committee will determine the exercise price, vesting schedule and other terms
and conditions of stock appreciation rights; however, SARs expire under the same
rules that apply to stock options.
Performance Units. The Compensation Committee is authorized to establish
performance programs and may award performance units to key employees and
consultants in accordance with such programs under the 2006 Equity Incentive
Plan. Holders of performance units will be entitled to receive payment in cash
or shares of our common stock (or in some combination of cash and shares) if the
performance goals established by the Compensation Committee are achieved or the
awards otherwise vest. Each performance unit will have an initial value
established by the Compensation Committee. The Compensation Committee will set
performance objectives, and such performance objectives may be based upon the
achievement of Company-wide, subsidiary or individual goals.
Transferability. A participant's interest in and rights under the 2006
Equity Incentive Plan, including amounts receivable on account of the
equity-based awards thereunder, may not be sold, assigned, donated, transferred,
or otherwise disposed of, and may not be mortgaged, pledged or encumbered,
except in the event of a participant's death to a designated beneficiary to the
extent permitted in the 2006 Equity Incentive Plan, or by will or the laws of
descent and distribution in the absence of any such designation. The
Compensation Committee, however, may allow for the transfer of awards other than
incentive stock options to other persons or entities.
Change of Control Provisions. Under the 2006 Equity Incentive Plan, if the
Company experiences a change of control, a participant's then unvested options
will automatically vest and be fully exercisable, and restricted stock and
restricted stock units will vest and no longer be subject to forfeiture, unless
otherwise provided in the participant's award agreement or employment agreement.
A "change of control" is defined as any of the followings events:
8
- any person, entity or affiliated group, excluding the Company or any
employee benefit plan of the Company, acquiring more than 25% of the
then outstanding shares of voting stock of the Company,
- the consummation of any merger or consolidation of the Company into
another company, such that the holders of the shares of the voting
stock of the Company immediately before such merger or consolidation
own less than 50% of the voting power of the securities of the
surviving company or the parent of the surviving company,
- the adoption of a plan for complete liquidation of the Company or the
sale or disposition of all or substantially all of the Company's
assets, such that after the transaction, the holders of the shares of
the voting stock of the Company immediately prior to the transaction
own less than 50% of the voting securities of the acquiror or the
parent of the acquiror, or
- during any period of two (2) consecutive years, individuals who at the
beginning of such period constituted the Board (including for this
purpose any new director whose election or nomination for election by
the Company's stockholders was approved by a vote of at least a
majority of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at
least a majority of the Board.
Amendment and Termination. The Board of Directors may amend or terminate
the 2006 Equity Incentive Plan at any time. The Board of Directors may also
suspend and, if suspended, reinstate the 2006 Equity Incentive Plan in whole or
in part at any time and from time to time. Any amendment of the 2006 Equity
Incentive Plan must be approved by the Company's stockholders to the extent that
such approval is required by the 2006 Equity Incentive Plan, applicable law,
regulations or rules.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the 2006 Equity Incentive Plan to the Company and the
participants. The summary is based on current federal income tax law, which is
subject to change, and does not address state, local, or foreign tax
consequences or considerations.
Stock Options. The grant of stock options under the 2006 Equity Incentive
Plan will not result in taxable income at the time of the grant for either the
Company or the optionee. Upon exercising an incentive stock option, the optionee
will have no taxable income (except that the alternative minimum tax may apply)
and the Company will receive no deduction. Upon exercising a nonqualified stock
option, the optionee will recognize ordinary income in the amount by which the
fair market value of the common stock at the time of exercise exceeds the option
exercise price, and the Company will be entitled to a deduction for the same
amount. The optionee's income is subject to withholding tax as wages. The tax
treatment of the optionee upon a disposition of shares of common stock acquired
through the exercise of a stock option is dependent upon the length of time that
the shares have been held and on whether such shares were acquired by exercising
an incentive stock option or a nonqualified stock option. If an employee
exercises an incentive stock option and holds the shares for two years from the
date of grant and one year after exercise, then any gain or loss realized based
on the exercise price of the option will be treated as long-term capital gain or
loss. Shares obtained upon exercise of an incentive stock option that are sold
without satisfying these holding periods will be treated as shares received from
the exercise of a nonqualified stock option. Generally, upon the sale of shares
obtained by exercising a nonqualified stock option, the optionee will treat the
gain realized on the sale as a capital gain. Generally, there will be no tax
consequence to the Company in connection with the disposition of shares of
common stock acquired under an option, except that the Company may be entitled
to a deduction in the case of a disposition of shares acquired upon exercise of
an incentive stock option before the applicable holding periods have been
satisfied.
Restricted Stock. An award of restricted stock will not result in taxable
income to the participant at the time of grant. Upon the lapse of the
restrictions, the participant will recognize ordinary income in the amount of
the fair market value of the shares of common stock at the time that the
restriction lapses. Alternatively, within 30 days after receipt of the
restricted stock, a participant may make an election under Section 83(b) of the
Code, which would allow the participant to include in income in the year that
the restricted common stock is awarded an amount equal
9
to the fair market value of the restricted stock on the date of such award
determined as if the restricted common stock were not subject to restrictions.
The Company will be entitled to a deduction for the year in which the
participant recognizes ordinary income with respect to the restricted stock in
an amount equal to such income. Upon disposition of the stock awarded as
restricted stock, the participant will recognize capital gain or loss equal to
the difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon issuance or vesting of
the stock. Such gain or loss will be long term or short term depending on
whether the stock was held for more than one year.
Restricted Stock Units. No taxable income will be recognized upon the award
of a restricted stock unit. The participant will generally recognize ordinary
income in the year in which the shares subject to that unit are actually vested
and issued to the participant in an amount equal to fair market value of the
shares on the date of issuance. The Company will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by the participant
at the time the shares are issued.
Deferred Stock Units. The award of a deferred stock unit generally will not
be taxable to the participant and will not be deductible by the Company at the
time of the award. At the time a deferred stock unit award is settled in shares
of common stock, the participant will recognize ordinary income and the Company
will be entitled to a corresponding deduction. Generally the measure of the
income and deduction will be the fair market value of the common stock at the
time the deferred stock unit is settled.
Stock Appreciation Rights. No taxable income will be realized upon the
award of a stock appreciation right. Upon exercise of the stock appreciation
right, the fair market value of the shares (or cash in lieu of shares) received
is recognized as ordinary income to the participant in the year of such
exercise. Generally, the Company will be entitled to an income tax deduction in
the year in which such ordinary income is recognized by the participant.
Performance Units. The award of a performance unit generally will not be
taxable to the participant at the time of the award, and the Company will not be
entitled to a deduction at that time with respect to the award. When the
performance goals applicable to the performance unit are attained and amounts
are due under the award, the holder of the performance unit will be treated as
receiving compensation taxable as ordinary income, and the Company will be
entitled to a corresponding deduction.
Potential Limitation on Deductions. Section 162(m) of the Code denies a
deduction to any publicly-held corporation for compensation paid to certain
"covered employees" in a taxable year to the extent that compensation to each
covered employee exceeds $1,000,000. It is possible that compensation
attributable to awards under the 2006 Equity Incentive Plan, when combined with
all other types of compensation received by a covered employee from the Company,
may cause this limitation to be exceeded in any particular year. However,
certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation.
NEW PLAN BENEFITS
No awards will be granted under the 2006 Equity Incentive Plan until it is
approved by the Company's stockholders. In addition, awards granted under the
2006 Plan are subject to the discretion of the Compensation Committee.
Therefore, it is not possible to determine the benefits that will be received in
the future by key employees and consultants in the 2006 Equity Incentive Plan or
the benefits that would have been received by such persons if the 2006 Plan had
been in effect in the year ended December 31, 2005.
COMMON STOCK PRICE
The closing price of the Company's common stock on March 28, 2006 as
reported on Nasdaq was $76.76 per share.
10
OTHER EQUITY COMPENSATION PLANS
The following table provides certain information as of December 31, 2005
with respect to compensation plans under which shares of the Company's common
stock may be issued. The table does not include shares of common stock that may
be issued under the 2006 Equity Incentive Plan if approved by the stockholders
at the annual meeting.
Number of securities
remaining available for
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
warrants and rights rights reflected in column (a))
Plan Category (a) (b) (c)
------------- -------------------------- ------------------------- -------------------------
Equity compensation plans
approved by security holders 216,800 $25.34 1,034(1)
Equity compensation plans not
approved by security holders 8,300(2) $12.25 --
------- ------ -----
Total 225,100 $24.86 1,034
======= ====== =====
----------
(1) Consists of shares of the Company's common stock authorized for issuance
under the Company's 1997 Stock Incentive Plan, which provides for the grant
of nonqualified stock options, incentive stock options, stock appreciation
rights, restricted stock and performance shares. The number of shares
available for issuance under the 1997 Stock Incentive Plan is also subject
to equitable adjustment by the Compensation Committee of the Board of
Directors in the event of any change in the Company's capitalization,
including, without limitation, a stock dividend or stock split.
(2) Consists of shares of the Company's common stock authorized for issuance
upon exercise of nonqualified options granted to certain of the Company's
clinical advisors on February 10, 1998. All such options are now vested and
expire ten years from the grant date. The exercise price of the options is
the closing price on the Nasdaq National Market of the Company's common
stock on the grant date.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
COMPANY'S 2006 EQUITY INCENTIVE PLAN.
11
APPROVAL OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to stockholder ratification, the Audit Committee has appointed the
firm of Grant Thornton LLP as independent accountants to audit the financial
statements of the Company for the year 2006. A representative of Grant Thornton
LLP will attend the annual meeting, will have an opportunity to make a
statement, and will be available to respond to appropriate questions. If the
stockholders do not ratify the appointment of Grant Thornton LLP, the selection
of independent accountants will be reconsidered by the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF GRANT THORNTON LLP AS INDEPENDENT ACCOUNTANTS TO AUDIT THE
FINANCIAL STATEMENTS OF THE COMPANY FOR THE YEAR 2006.
AUDIT AND RELATED FEES
Audit Fees
The aggregate fees billed by Grant Thornton LLP for professional services
rendered for the audit of the Company's annual financial statements and the
reviews of the financial statements included in the Company's quarterly reports
on Form 10-Q were $281,265 for the year ended December 31, 2005 and $161,610 for
the year ended December 31, 2004. For the year ended December 31, 2005, these
fees include $163,659 for consultations regarding the Sarbanes-Oxley Act of 2002
and attestation of the Company's internal control report required by Section 404
of the Sarbanes-Oxley Act of 2002 and for the year ended December 31, 2004 the
fees include $58,860 for consultations regarding the Sarbanes-Oxley Act of 2002.
Audit Related Fees
The aggregate fees billed by Grant Thornton LLP for professional services
rendered for the audit of the Company's benefit plans and consultations
regarding financial and reporting standards were $19,403 for the year ended
December 31, 2005 and $13,670 for the year ended December 31, 2004.
Tax Fees
The aggregate fees billed by Grant Thornton LLP for professional services
rendered for tax services were $26,047 for the year ended December 31, 2005 and
$14,957 for the year ended December 31, 2004. These fees relate to federal and
state tax compliance and tax advice in each such year.
All Other Fees
There were no fees billed by Grant Thornton LLP for services rendered for
the year ended December 31, 2005 or for the year ended December 31, 2004 other
than those set forth above.
The Audit Committee has determined that the provision by Grant Thornton LLP
of the above referenced services is compatible with maintaining its
independence.
The Audit Committee has adopted policies and procedures for pre-approval of
audit and non-audit services in order to ensure that the provision of those
services does not impair the auditor's independence. In accordance with those
policies and procedures, the Company is not to engage the independent auditors
to render any audit or non-audit services unless either the service is approved
in advance by the Audit Committee or the engagement to render the service is
entered into pursuant to the Audit Committee's pre-approval policies and
procedures. In the fourth quarter of each year, the Audit Committee is to review
the services expected to be performed by the independent auditor. The Audit
Committee will pre-approve fee levels for the up-coming fiscal year for each of
the following categories: audit, audit-related and tax compliance/planning
services (individual projects less than $10,000). Tax compliance/planning
projects exceeding $10,000 and all other services not pre-approved in the
categories above will require specific pre-approval from the Audit Committee on
an individual project basis. Approval for such services may be requested at the
next Audit Committee meeting or, if earlier approval is
12
necessary, it may be obtained in accordance with the Audit Committee's
delegation to the Audit Committee Chairman as described below. The Audit
Committee will not delegate its responsibilities to pre-approve services
performed by the independent auditor to management. However, the Audit Committee
has delegated pre-approval authority to the Audit Committee Chairman for
unplanned services that arise during the year. The Chairman has the authority to
review and approve permissible services up to $10,000 per service, provided that
the aggregate amount of such services does not exceed $25,000 in any calendar
year. The Audit Committee Chairman must report, for informational purposes only,
any pre-approval decisions to the Audit Committee at its next scheduled meeting.
During 2005, no services were provided by Grant Thornton LLP other than in
accordance with the pre-approval policies and procedures then in place.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors has reviewed and discussed
with management the Company's audited financial statements as of and for the
year ended December 31, 2005. The Audit Committee has discussed with Grant
Thornton LLP, the Company's auditors, the matters required to be discussed by
Statement on Auditing Standards No. 61, Communication with Audit Committees, as
amended, by the Auditing Standards Board of the American Institute of Certified
Public Accountants. The Audit Committee has received and reviewed the written
disclosures and the letter from the Company's auditors required by Independence
Standard No. 1, Independence Discussions with Audit Committees, as modified or
supplemented, by the Independence Standards Board, and has discussed with the
auditors their independence.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the financial statements referred to
above be included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2005.
MEMBERS OF THE AUDIT COMMITTEE
John P. Stupp, Jr. (Chairman) Hugh J. Morgan, Jr. Roger F. Stebbing
13
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual
and long-term compensation for services in all capacities to the Company and its
subsidiaries for the years ended December 31, 2005, 2004 and 2003 of those
persons who served as the Chief Executive Officer of the Company at any time
during 2005 and other persons who served as executive officers of the Company at
any time during 2005 and whose salary and bonus for the year ended December 31,
2005 exceeded $100,000 (such officers are referred to herein as the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(1) SECURITIES
NAME AND ------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (2) COMPENSATION
------------------ ---- -------- -------- ----------- ------------
Emile A. Battat 2005 $500,000 $100,000 0 $2,816(3)
Chairman of the 2004 500,000 100,000 20,000 2,779
Board, President 2003 500,000 100,000 0 2,970
and Chief
Executive Officer
Jeffery Strickland 2005 $190,000 $ 65,636 0 $5,568(3)
Vice President and 2004 185,000 89,427 7,000 5,602
Chief Financial 2003 180,000 68,220 0 5,592
Officer, Secretary
and Treasurer
----------
(1) In accordance with the regulations of the Commission, this table does not
include perquisites and other personal benefits received by Named Executive
Officers since the value of perquisites and other benefits for each Named
Executive Officer did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for such Named Executive Officer.
(2) For Mr. Battat, options granted in 2004 represent both qualified and
nonqualified stock options granted under the 1997 Stock Incentive Plan. For
Mr. Strickland, options granted in 2004 represent nonqualified stock
options granted under the 1997 Stock Incentive Plan.
(3) Includes the following paid or accrued by the Company or one or more of its
subsidiaries: (i) matching contributions to the Atrion Corporation 401(k)
Savings Plan of $2,520 for Mr. Battat and $2,281 for Mr. Strickland and
(ii) payment of life insurance premiums of $296 for Mr. Battat and $3,287
for Mr. Strickland.
14
INFORMATION CONCERNING STOCK OPTIONS
The following table provides information as to exercises of options by the
Named Executive Officers during the year ended December 31, 2005 and the values
of each Named Executive Officer's unexercised options at December 31, 2005.
AGGREGATED OPTION EXERCISES IN 2005
AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY OPTIONS
SHARES OPTIONS AT YEAR END AT YEAR END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
Emile A. Battat 77,200 $2,266,618 17,800 0 $442,330 $ 0
Jeffery Strickland 0 0 10,100 5,000 291,874 190,200
----------
(1) Such value is equal to the product of (i) the closing price of the common
stock of the Company on December 31, 2005 ($69.43 per share) less the
exercise price and (ii) the number of shares subject to in-the-money
options.
RETIREMENT PLAN
The Company maintains a cash balance retirement plan (the "Cash Balance
Plan") that includes all full-time active employees of the Company and its
subsidiaries, other than Quest Medical, Inc., that were hired prior to May 1,
2005. Each participant has an account balance which represents his or her
benefit under the Cash Balance Plan. The Cash Balance Plan provides for the
Company to make annual allocations to a participant's cash balance account in an
amount equal to 3% of the participant's eligible compensation up to the Social
Security wage base and 6% in excess thereof and for an interest credit each plan
year equal to the rate on 30 year U.S. Treasury bonds during November of the
preceding plan year. For the 2005 plan year, the interest rate was 4.89%.
"Eligible compensation" is, for the Named Executive Officers, the salary as
included in the Summary Compensation Table above, subject to an annual
limitation imposed by law which for 2005 was $210,000 and is $220,000 in 2006.
Generally, each participant becomes fully vested in the benefits under such plan
after five years of employment. Benefits may be paid, subject to certain
limitations under the Internal Revenue Code of 1986, as amended, upon
termination of employment, retirement or death. The Cash Balance Plan specifies
various options that participants may select for the distribution of their
accrued balance, including forms of annuity payments and lump sum distributions.
Both of the Named Executive Officers participate in the Cash Balance Plan. The
estimated annual retirement benefits that would be payable to the Named
Executive Officers under the Cash Balance Plan at normal retirement age of 65,
assuming 4% annual increases in eligible compensation until retirement, no
change from 2006 levels of maximum includable compensation and Social Security
wage base, and a 30 year U.S. Treasury bond rate of 5.5%, are as follows: Mr.
Battat, $8,801; and Mr. Strickland, $76,152.
CERTAIN AGREEMENTS, PLANS AND TRANSACTIONS
The Company has an employment agreement with Emile A. Battat, the Company's
Chairman, President and Chief Executive Officer, that provides for his
employment for an initial term that expires on December 31, 2006. The base
salary for each calendar year is $500,000. In addition, Mr. Battat is entitled
to receive a cash bonus each year that is not less than $100,000. If Mr.
Battat's employment is terminated during the term by the Company for other than
"just cause" or by Mr. Battat for "good reason" (as those terms are defined in
the agreement) or upon Mr. Battat's death or disability, Mr. Battat will receive
(1) a cash payment equal to the sum of (i) all cash compensation accrued but not
paid and (ii) the base salary and the annual bonus for the remainder of the
term, (2) immediate vesting of all stock options or equity granted to him, and
(3) continued participation in the Company's health benefit plans for the
remainder of the term. In addition, the Company will reimburse Mr. Battat for
excise
15
taxes imposed on him in the event payments or benefits received by him result in
"parachute payments" under the Internal Revenue Code and for income taxes on
such reimbursement.
The Company has a severance plan pursuant to which Jeffery Strickland, Vice
President and Chief Financial Officer, Secretary and Treasurer of the Company,
will be entitled to severance compensation if his employment is terminated under
certain conditions set forth in the plan. The severance pay is to be equal to
Mr. Strickland's annual base salary for the 12 months preceding the termination
of employment.
David A. Battat is the President of Halkey-Roberts Corporation, a Company
subsidiary. He was paid $122,313 base salary and bonus compensation for his
services during 2005. In addition, during 2005 he was awarded options to
purchase 4,500 shares of the Company's common stock under the 1997 Stock
Incentive Plan. David Battat is the son of Emile A. Battat, the Company's
Chairman, President and Chief Executive Officer.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which is currently comprised of Richard O.
Jacobson, Hugh J. Morgan, Jr. and John P. Stupp, Jr., establishes the overall
executive compensation program for the Company and makes recommendations for
base salaries, salary increases and bonuses for the Company's executive
officers. In addition, the Compensation Committee administers the Company's
incentive programs that cover the Company's executive officers. The executive
compensation program, which is periodically reviewed and modified, as necessary,
by the Compensation Committee, is designed to attract, retain and motivate
management personnel and includes compensation that is tied to enhanced
stockholder value.
Compensation Policies
The principal components of compensation for the Company's executive
officers are base salaries, cash bonus and incentive compensation and stock
awards. The base salary of one of the Company's executive officers is fixed by
contract, and the base salary of the Company's other executive officer is
reviewed annually and adjustments made generally on the basis of the Company's
performance as measured by certain financial and non-financial criteria, various
survey information respecting compensation of executive officers, compensation
levels for executive officers in a broad range of companies (which range is
broader than the group of companies included in the peer group index used in
comparing cumulative stockholder return), cost-of-living information and
individual performance of that executive officer. The Compensation Committee has
not assigned relative weights or values to any of such criteria. With respect to
the financial performance of the Company, the Compensation Committee generally
takes into consideration the Company's earnings from continuing operations,
earnings per share and total stockholder return. Subject to the terms of any
employment agreement or incentive compensation plan, executive officers of the
Company are eligible for discretionary bonuses as determined by the Compensation
Committee. At the recommendation of the Compensation Committee, the Company and
its subsidiaries have implemented cash incentive plans covering certain key
employees. These plans are intended to foster a corporate culture focused on
bottom line results by providing key employees with a substantial stake in
reducing costs and increasing sales and productivity while conserving capital
resources.
Stock awards are designed to motivate executives to improve the long-term
performance of the Company's Common stock in the market, to encourage them to
achieve superior results over the long term and to align the interests of
executive officers with those of stockholders. Decisions respecting stock awards
are made on the basis of the criteria referred to above.
Compensation of Chief Executive Officer
The Company has an employment agreement with Mr. Battat that expires at the
end of 2006. (For a description of the terms of Mr. Battat's employment
agreement, see "EXECUTIVE COMPENSATION - Certain Agreements and Plans.") Under
the employment agreement, Mr. Battat's base salary is fixed for each year of the
term at $500,000 and he is to receive an annual bonus of not less than $100,000.
In addition to cash compensation under his employment agreement, Mr. Battat is
entitled to receive stock-based incentive awards. In making determinations
regarding the amount of such bonus and stock-based incentive awards, the
Compensation Committee
16
generally reviews the performance of the Company, Mr. Battat's contributions and
leadership and the compensation of chief executive officers of other companies.
For 2005, the Compensation Committee, at Mr. Battat's request, maintained Mr.
Battat's cash bonus at the minimum contractual amount of $100,000.
MEMBERS OF THE COMPENSATION COMMITTEE
Richard O. Jacobson Hugh J. Morgan, Jr. John P. Stupp, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2005, Messrs. Jacobson, Morgan and Stupp served as members of the
Compensation Committee. None of the members of the Compensation Committee was an
officer or employee of the Company or its subsidiaries or had any relationship
requiring disclosure pursuant to Item 404 of Regulation S-K. Additionally,
during 2005, none of the executive officers of the Company was a member of the
board of directors, or any committee thereof, of any other entity one of the
executive officers of which served as a member of the Board of Directors, or any
committee thereof, of the Company.
PERFORMANCE OF COMMON STOCK
The following graph compares the cumulative total return on investment (the
change in year-end stock price plus reinvestment of dividends), for each of the
last five fiscal years, assuming that $100 was invested on December 31, 2000 in
each of (i) the Company, (ii) a group of stocks consisting of companies in the
Hemscott (formerly Media General) Index of Surgical & Medical Instruments and
(iii) a group of stocks consisting of all companies whose stocks are included in
the S&P 500 Composite Index.
(PERFORMANCE GRAPH)
2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------
Atrion Corporation 100.00 257.97 152.54 309.81 318.16 483.66
Surgical & Medical
Instruments 100.00 113.88 92.95 137.80 157.90 147.94
S&P Composite 100.00 88.12 68.64 88.33 97.94 102.75
17
STOCKHOLDER PROPOSALS
STOCKHOLDER PROPOSALS IN THE COMPANY'S PROXY STATEMENT
In order for proposals by stockholders to be considered for inclusion in
the Company's proxy material relating to the 2007 annual meeting of
stockholders, such proposals must be received by the Company on or before
December 7, 2006.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT ANNUAL MEETINGS
The Company's Bylaws provide that a stockholder who desires to propose any
business at an annual meeting of stockholders must give the Company written
notice of such stockholder's intent to bring such business before such meeting.
Such notice is to be delivered to, or mailed, postage prepaid, and received by,
the Secretary of the Company at the principal executive offices of the Company
not later than the close of business on the 120th day prior to the first
anniversary of the date of the Company's proxy statement released to
Stockholders in connection with the preceding year's annual meeting of
stockholders. However, in the event that no annual meeting was held in the
previous year or the date of the annual meeting is more than 30 days before or
more than 60 days after the anniversary date of the previous year's meeting,
notice by the stockholder must be delivered not later than the close of business
on the later of the 120th day prior to such annual meeting and the 10th day
following the date on which public announcement of the date of the meeting is
first made. Such notice for the 2007 annual meeting must be delivered not later
than December 7, 2006, provided the date of the 2007 annual meeting is not more
than 30 days before or more than 60 days after May 22, 2007. The stockholder's
written notice must set forth (a) a brief description of the business desired to
be brought before the meeting and the reasons for conducting such business at
the meeting; (b) the name and address of the stockholder who intends to propose
such business; (c) a representation that the stockholder is a holder of record
of shares of common stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at such meeting to propose such
business; (d) any material interest of the stockholder in such business; and (e)
as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the proposal is made (i) the name and address of such stockholder,
as they appear on the Company's books, and of such beneficial owner and (ii) the
class and number of shares of the Company which are owned beneficially and of
record by such stockholder and such beneficial owner. The Chairman of the
meeting may refuse to transact any business presented at any meeting without
compliance with the foregoing procedure.
STOCKHOLDER NOMINATIONS FOR DIRECTORS
The Company's Bylaws provide that a stockholder who desires to nominate
directors at a meeting of stockholders must give the Company written notice,
within the same time period described above for a stockholder who desires to
bring business before a meeting, setting forth (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
shares of common stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Commission had each nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the consent of each nominee to serve as a director
of the Company if so elected. The Chairman of the meeting may refuse to
acknowledge the nomination of any person if a stockholder has failed to comply
with the foregoing procedure.
18
COST AND METHOD OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally or by telephone,
telegram, facsimile and other electronic communication methods by the directors,
officers and employees of the Company without additional compensation. Brokerage
firms, nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to the beneficial owners of common stock of the Company
held in their names or in those of their nominees and their reasonable expenses
will be reimbursed upon request.
OTHER BUSINESS
The Board of Directors does not intend to bring any business before the
meeting other than that stated herein and is not aware of any other matters that
may be presented for action at the meeting. However, if any other matters should
properly come before the meeting, or any adjournments thereof, it is the
intention of the persons named in the accompanying proxy to vote on such matters
as they, in their discretion, may determine.
By Order of the Board of Directors
----------------------------------------
Jeffery Strickland
Vice President and Chief Financial
Officer, Secretary and Treasurer
April 6, 2006
19
Appendix A
ATRION CORPORATION
2006 EQUITY INCENTIVE PLAN
Table of Contents
Page
----
ARTICLE 1. DEFINITIONS................................................... 1
ARTICLE 2. COMMON STOCK SUBJECT TO PLAN.................................. 4
2.1 Common Stock Subject to Plan.................................. 4
2.2 Add-back of Grants............................................ 4
ARTICLE 3. ELIGIBILITY; GRANTS; AWARD AGREEMENTS......................... 5
3.1 Eligibility.................................................. 5
3.2 Awards....................................................... 5
3.3 Provisions Applicable to Key Employees....................... 5
3.4 Award Agreement.............................................. 5
ARTICLE 4. OPTIONS....................................................... 6
4.1 Award Agreement for Option Grant............................. 6
4.2 Option Price................................................. 6
4.3 Qualification for Incentive Stock Options.................... 6
4.4 Change in Incentive Stock Option Grant....................... 6
4.5 Option Term.................................................. 7
4.6 Option Exercisability and Vesting............................ 7
ARTICLE 5. EXERCISE OF OPTIONS........................................... 8
5.1 Exercise...................................................... 8
5.2 Manner of Exercise............................................ 8
5.3 Conditions to Issuance of Common Stock........................ 8
5.4 Rights as Stockholders........................................ 9
5.5 Ownership and Transfer Restrictions........................... 9
5.6 Limitations on Exercise of Options............................ 9
ARTICLE 6. STOCK AWARDS.................................................. 10
6.1 Award Agreement............................................... 10
6.2 Awards of Restricted Common Stock, Restricted Stock Units and
Deferred Stock Units.......................................... 10
6.3 Rights as Stockholders........................................ 11
6.4 Restriction................................................... 11
6.5 Lapse of Restrictions......................................... 11
6.6 Repurchase of Restricted Common Stock......................... 11
6.7 Escrow........................................................ 12
6.8 Legend........................................................ 12
6.9 Conversion.................................................... 12
ARTICLE 7. STOCK APPRECIATION RIGHTS..................................... 12
7.1 Award Agreement for SARs...................................... 12
7.2 General Requirements.......................................... 12
7.3 Base Amount................................................... 12
i
Table of Contents
(continued)
Page
----
7.4 Tandem SARs................................................... 12
7.5 SAR Exercisability............................................ 13
7.6 Value of SARs................................................. 13
7.7 Form of Payment............................................... 13
ARTICLE 8. PERFORMANCE UNITS............................................. 13
8.1 Award Agreement for Performance Units......................... 13
8.2 General Requirements.......................................... 13
8.3 Performance Period and Performance Goals...................... 13
8.4 Payment With Respect to Performance Units..................... 14
ARTICLE 9. ADMINISTRATION................................................ 14
9.1 Committee..................................................... 14
9.2 Duties and Powers of Committee................................ 14
9.3 Compensation; Professional Assistance; Good Faith Actions..... 14
ARTICLE 10. MISCELLANEOUS PROVISIONS..................................... 15
10.1 Transferability............................................... 15
10.2 Amendment, Suspension or Termination of this Plan............. 15
10.3 Changes in Common Stock or Assets of the Company, Acquisition
or Liquidation of the Company and Other Corporate Events...... 16
10.4 Continued Employment.......................................... 17
10.5 Tax Withholding............................................... 18
10.6 Forfeiture Provisions......................................... 18
10.7 Limitations Applicable to Section 16 Persons and
Performance-Based Compensation................................ 18
10.8 Effect of Plan Upon Option and Compensation Plans............. 18
10.9 Compliance with Laws.......................................... 19
10.10 Effective Date................................................ 19
10.11 Titles........................................................ 19
10.12 Governing Law................................................. 19
ii
ATRION CORPORATION
2006 EQUITY INCENTIVE PLAN
Atrion Corporation, a Delaware corporation (the "Company"), has established the
Atrion Corporation 2006 Equity Incentive Plan (the "Plan") for the benefit of
employees and consultants of the Company.
The purposes of this Plan are (a) to recognize and compensate selected employees
and consultants who contribute to the success of the Company and its
Subsidiaries, (b) to attract and retain employees and consultants, and (c) to
provide incentive compensation to employees and consultants based upon the
performance of the Company and its Subsidiaries.
ARTICLE 1. DEFINITIONS
Whenever the following initially capitalized terms are used in the Plan, they
shall have the meanings specified below, unless the context clearly indicates
otherwise.
"Award" shall mean the grant or award of Options, Restricted Common Stock,
Restricted Stock Units, Deferred Stock Units, SARs or Performance Units under
this Plan.
"Award Agreement" shall mean the agreement granting or awarding Options,
Restricted Common Stock, Restricted Stock Units, Deferred Stock Units, SARs or
Performance Units.
"Board" shall mean the Board of Directors of the Company, as comprised from time
to time.
"Change of Control" shall mean the occurrence of any of the following events:
(a) any person, entity or affiliated group, excluding the Company or any
employee benefit plan of the Company, acquiring more than twenty-five percent
(25%) of the then outstanding shares of voting stock of the Company, (b) the
consummation of any merger or consolidation of the Company into another company,
such that the holders of the shares of the voting stock of the Company
immediately before such merger or consolidation own less than fifty percent
(50%) of the voting power of the securities of the surviving company or the
parent of the surviving company, (c) the adoption of a plan for complete
liquidation of the Company or the sale or disposition of all or substantially
all of the Company's assets of the Company, such that after the transaction, the
holders of the shares of the voting stock of the Company immediately prior to
the transaction own less than fifty percent (50%) of the voting securities of
the acquiror or the parent of the acquiror, or (d) during any period of two (2)
consecutive years, individuals who at the beginning of such period constituted
the Board (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least a majority of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Compensation Committee of the Board.
"Common Stock " shall mean the common stock, par value ten cents ($0.10) per
share, of the Company.
"Company" shall mean Atrion Corporation, a Delaware corporation, or any business
organization which succeeds to all or substantially all of its business, whether
by virtue of a purchase, merger, consolidation, or otherwise. For purposes of
this Plan, the term Company shall include, where applicable, a Subsidiary that
employs the Key Employee or engages the Consultant.
"Consultant" shall mean a professional or technical expert, consultant or
independent contractor who provides services to the Company or a Subsidiary, and
who may be selected to participate in the Plan.
"Deferred Stock Unit" shall mean a right to receive Common Stock awarded under
Article 6 of this Plan.
"Employment Agreement" shall mean the employment, consulting or similar
contractual agreement entered into by the Key Employee or the Consultant, as the
case may be, and the Company governing the terms of the Key Employee's or
Consultant's employment or engagement with the Company, if any.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of a share of Common Stock, as of a given date, means (i)
with respect to an Award of an Incentive Stock Option and an Award which is
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code, the average of the high and low sales price of shares
of Common Stock on such date as reported by (1) any national securities exchange
on which the shares of Common Stock are traded or (2) The Nasdaq Stock Market
or, if no shares of Common Stock are traded on such exchange or system on such
date, then on the next preceding date on which any shares of Common Stock were
traded on such exchange or system; and (ii) with respect to all other Awards,
the closing sales price of a share of Common Stock on such date as reported by
(1) any national securities exchange on which the shares of Common Stock are
traded or (2) The Nasdaq Stock Market or, if no shares of Common Stock are
traded on such exchange or system on such date, then on the next preceding date
on which any shares of Common Stock were traded on such exchange or system.
"Incentive Stock Option" shall mean an option which conforms to the applicable
provisions of Section 422 of the Code and which is designated as an Incentive
Stock Option by the Committee.
"Key Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of the Company or a Subsidiary of the Company, whether such employee was
so employed at the time this Plan was initially adopted or becomes so employed
subsequent to the adoption of this Plan, who is designated as a key employee by
the Committee.
2
"Non-Qualified Stock Option" shall mean an Option which the Committee does not
designate as an Incentive Stock Option.
"Option" shall mean an option to purchase shares of Common Stock that is granted
under Article 4 of this Plan. An option granted under this Plan shall, as
determined by the Committee, be either a Non-Qualified Stock Option or an
Incentive Stock Option; provided, however, that Options granted to consultants
shall be Non-Qualified Stock Options.
"Participant" shall mean an Key Employee or Consultant who has been granted an
Award.
"Performance Units" shall mean performance units granted under Article 8 of this
Plan.
"Permanent Disability" or "Permanently Disabled" shall mean the inability of a
Participant, due to a physical or mental impairment, to perform the material
services of the Participant's position with the Company for a period of six (6)
months, whether or not consecutive, during any 365-day period. A determination
of Permanent Disability shall be made by a physician satisfactory to both the
Participant and the Committee, provided that if the Participant and the
Committee do not agree on a physician, each of them shall select a physician and
those two physicians together shall select a third physician, whose
determination as to Permanent Disability shall be binding on all parties.
"Plan" shall mean the Atrion Corporation 2006 Equity Incentive Plan, as embodied
herein and as amended from time to time.
"Plan Year" shall mean the fiscal year of the Company.
"Restricted Common Stock" shall mean Common Stock awarded under Article 6 of
this Plan.
"Restricted Stock Unit" shall mean a right to receive Common Stock awarded under
Article 6 of this Plan.
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as such
rule may be amended from time to time.
"SAR" shall mean stock appreciation rights awarded under Article 7 of this Plan.
"Stock Award" shall mean an Award of Restricted Common Stock, Restricted Stock
Units or Deferred Stock Units under Article 6 of this Plan.
"Stock Award Account" shall mean the bookkeeping account reflecting Awards of
Restricted Stock Units and Deferred Stock Units under Article 6 of this Plan.
"Subsidiary" shall mean an entity in an unbroken chain beginning with the
Company if each of the entities other than the last entity in the unbroken chain
owns fifty percent (50%) or more of the total combined voting power of all
classes of equity in one of the other entities in such chain.
3
"Termination of Employment" shall mean the date on which the employee-employer,
consulting, contractual or similar relationship between a Participant and the
Company is terminated for any reason, with or without cause, including, but not
by way of limitation, a termination of employment by resignation, discharge,
death, Permanent Disability or Retirement, but excluding (i) termination of
employment where there is a simultaneous reemployment or continuing employment
of a Participant by the Company, and (ii) at the discretion of the Committee,
termination of employment which results in a temporary severance of the
employee-employer relationship. The Committee, in its absolute discretion, shall
determine the effect of all matters and questions relating to a Termination of
Employment (subject to the provisions of any Employment Agreement between a
Participant and the Company), including, but not limited to all questions of
whether particular leaves of absence constitute a Termination of Employment;
provided, however, that, unless otherwise determined by the Committee in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change the employee-employer, consulting,
contractual or similar relationship shall constitute a Termination of Employment
if, and to the extent that, such leave of absence, change in status or other
change interrupts employment for the purposes of Section 422(a)(2) of the Code
and the then applicable regulations and revenue rulings under said Section.
ARTICLE 2. COMMON STOCK SUBJECT TO PLAN
2.1 COMMON STOCK SUBJECT TO PLAN.
2.1.1 The Common Stock subject to an Award shall be shares of the Company's
authorized but unissued, reacquired, or treasury Common Stock. Subject to
adjustment as described in Section 10.3.1, the aggregate number of shares of
Common Stock that may be issued under the Plan as Restricted Common Stock,
Restricted Stock Units, Deferred Stock Units or pursuant to the exercise of
Options is one hundred thousand (100,000) shares.
2.1.2 The maximum number of shares of Common Stock which may be awarded to any
individual in any calendar year shall not exceed twenty thousand (20,000)
shares.
2.2 ADD-BACK OF GRANTS. If any Option or SAR expires or is canceled without
having been fully exercised, is exercised in whole or in part for cash as
permitted by this Plan, or is exercised prior to becoming vested as permitted
under Section 4.6.3 and is forfeited prior to becoming vested, the number of
shares of Common Stock subject to such Option or SAR but as to which such
Option, SAR or other right was not exercised or vested prior to its expiration,
cancellation or exercise may again be optioned, granted or awarded hereunder.
Shares of Common Stock which are delivered by the Participant or withheld by the
Company upon the exercise of any Option or other Award under this Plan, in
payment of the exercise price thereof, may again be optioned, granted or awarded
hereunder. If any shares of Common Stock awarded as Restricted Common Stock,
Restricted Stock Units or other Award hereunder or as payment for Performance
Units are forfeited by the Participant, such shares may again be optioned,
granted or awarded hereunder. Notwithstanding the provisions of this Section
2.2, no shares of Common Stock may again be optioned, granted or awarded
pursuant to an Incentive Stock Option if such action would cause such Option to
fail to qualify as an Incentive Stock Option under Section 422 of the Code.
4
ARTICLE 3. ELIGIBILITY; GRANTS; AWARD AGREEMENTS
3.1 ELIGIBILITY. Any Key Employee or Consultant selected to participate pursuant
to Section 3.2 shall be eligible to participate in the Plan.
3.2 AWARDS. The Committee shall determine which Key Employees and Consultants
shall receive Awards, whether the Key Employee or Consultant will receive
Options, Restricted Common Stock, Restricted Stock Units, Deferred Stock Units,
SARs or Performance Units, whether an Option grant shall be of Incentive Stock
Options or Non-Qualified Stock Options, and the number of shares of Common Stock
subject to such Award. Notwithstanding the foregoing, the terms and conditions
of an Award intended to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code.
3.3 PROVISIONS APPLICABLE TO SECTION 162(M).
3.3.1 Notwithstanding anything in the Plan to the contrary, the Committee may
grant Options, Restricted Common Stock, Restricted Stock Units, SARs or
Performance Units to a Key Employee that vest upon the attainment of performance
targets for the Company which are related to one or more of the following
performance goals: (i) pre-tax income, (ii) operating income, (iii) cash flow,
(iv) earnings per share, (v) return on equity, (vi) return on invested capital
or assets, (vii) cost reductions or savings, (viii) earnings from continuing
operations, (ix) total stockholder return, or (x) such other identifiable and
measurable performance objectives, as determined by the Committee.
3.3.2 To the extent necessary to comply with the performance-based compensation
requirements of Section 162(m)(4)(C) of the Code, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period (or such other time as may be required or permitted by
Section 162(m) of the Code), the Committee shall, in writing, (i) select the
performance goal or goals applicable to the fiscal year or other designated
fiscal period, (ii) establish the various targets and bonus amounts which may be
earned for such fiscal year or other designated fiscal period, (iii) specify the
relationship between performance goals and targets and the amounts to be earned
by each Key Employee for such fiscal year or other designated fiscal period and
(iv) take such other action as the Committee may deem appropriate to comply with
the performance-based compensation requirements of Section 162(m)(4)(C) of the
Code. Following the completion of each fiscal year or other designated fiscal
period, the Committee shall certify in writing whether the applicable
performance targets have been achieved for such fiscal year or other designated
fiscal period. In determining the amount earned by such Key Employee, the
Committee shall have the right to reduce (but not to increase) the amount
payable at a given level of performance to take into account additional factors
that the Committee may deem relevant to the assessment of individual or
corporate performance for the fiscal year or other designated fiscal period.
3.4 AWARD AGREEMENT. Upon the selection of a Key Employee or Consultant to
receive an Award, the Committee shall cause a written Award Agreement to be
issued to such individual encompassing the terms and conditions of such Award,
as determined by the Committee in its
5
sole discretion; provided, however, that, if applicable, the terms of such Award
Agreement shall comply with the terms of such Key Employee's or Consultant's
Employment Agreement, if any. Such Award Agreement shall provide for the
exercise price for Options and SARs; the purchase price for Restricted Common
Stock, Restricted Stock Units and Deferred Stock Units; the performance criteria
for Performance Units; and the exercisability and vesting schedule, payment
terms and such other terms and conditions of such Award, as determined by the
Committee in its sole discretion. Each Award Agreement shall be executed by the
Participant and an officer of the Company authorized to sign such Award
Agreement and shall contain such terms and conditions that are consistent with
the Plan, including but not limited to the exercisability and vesting schedule,
if any, as the Committee in its sole discretion shall determine. All Awards
shall be made conditional upon the Participant's acknowledgment, in writing in
the Award Agreement or otherwise by acceptance of the Award, that all decisions
and determinations of the Committee shall be final and binding on the
Participant, his beneficiaries and any other person having or claiming an
interest under such Award.
ARTICLE 4. OPTIONS
4.1 AWARD AGREEMENT FOR OPTION GRANT. Option grants shall be evidenced by an
Award Agreement, pursuant to Section 3.4. All Award Agreements evidencing
Options intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall contain such terms and conditions as may
be necessary to meet the applicable provisions of Section 162(m) of the Code.
All Award Agreements evidencing Incentive Stock Options shall contain such terms
and conditions as may be necessary to meet the applicable provisions of Section
422 of the Code.
4.2 OPTION PRICE. The price per share of the Common Stock subject to each Option
shall be set by the Committee; provided, however, that (i) such price shall not
be less than the par value of a share of Common Stock and shall not be less than
one hundred percent (100%) of the Fair Market Value of a share of Common Stock
on the date the Option is granted, (ii) in the case of Incentive Stock Options
granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation thereof
(within the meaning of Section 422 of the Code), such price shall not be less
than one hundred and ten percent (110%) of the Fair Market Value of a share of
Common Stock on the date the Option is granted.
4.3 QUALIFICATION FOR INCENTIVE STOCK OPTIONS. The Committee may grant an
Incentive Stock Option to an individual only if such person is an employee of
the Company or is an employee of a Subsidiary as permitted under Section
422(a)(2) of the Code.
4.4 CHANGE IN INCENTIVE STOCK OPTION GRANT. Any Incentive Stock Option granted
under this Plan may be modified by the Committee to disqualify such Option from
treatment as an Incentive Stock Option under Section 422 of the Code. To the
extent that the aggregate Fair Market Value of shares of Common Stock with
respect to which Incentive Stock Options (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by a Participant during any calendar year (under the Plan and all
other Incentive Stock Option plans of the Company) exceeds one hundred thousand
dollars
6
($100,000), such Options shall be treated as Non-Qualified Stock Options to the
extent required or permitted by Section 422 of the Code. The rule set forth in
the preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 4.4, the Fair
Market Value of shares of Common Stock shall be determined as of the time the
Option with respect to such shares of Common Stock is granted, pursuant to
Section 4.7.
4.5 OPTION TERM. The term of an Option shall be set by the Committee in its
discretion; provided, however, in the case of Incentive Stock Options, the term
shall not be more than ten (10) years from the date the Incentive Stock Option
is granted, or five (5) years from such date if the Incentive Stock Option is
granted to an Employee then owning (within the meaning of Section 424(d) of the
Code) more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation thereof
(within the meaning of Section 422 of the Code). Such Incentive Stock Options
shall be subject to Section 5.6, except as limited by the requirements of
Section 422 of the Code and regulations and rulings thereunder applicable to
Incentive Stock Options.
4.6 OPTION EXERCISABILITY AND VESTING.
4.6.1 The period during which Options in whole or in part become exercisable and
vest in the Participant shall be set by the Committee and shall be as provided
for in the Award Agreement. At any time after the grant of an Option, the
Committee may, in its sole and absolute discretion and subject to whatever terms
and conditions it selects, accelerate the period during which an Option becomes
exercisable and vests.
4.6.2 Each Award Agreement shall set forth the extent to which, if any, the
Participant shall have the right to exercise the Options after the Participant's
Termination of Employment. Such provisions shall be determined in the sole
discretion of the Committee, need not be uniform among the Options granted and
may differentiate between the reasons for the Participants' Termination of
Employment.
4.6.3 At any time on or after the grant of an Option, the Committee may provide
in an Award Agreement that the Participant may elect to exercise part or all of
an Option before it otherwise has become exercisable. Any shares of Common Stock
so purchased shall be restricted Common Stock and shall be subject to a
repurchase right in favor of the Company during a specified restriction period,
with the repurchase price equal to the lesser of (i) the price per share paid by
the Participant for the Common Stock, or (ii) the Fair Market Value of such
Common Stock at the time of repurchase, or such other restrictions as the
Committee deems appropriate. The Participant shall have, unless otherwise
provided by the Committee in the Award Agreement, all the rights of an owner of
Common Stock, subject to the restrictions and provisions of his Award Agreement,
including the right to vote such Common Stock and to receive all dividends and
other distributions paid or made with respect to Common Stock.
4.6.4 Any Options which are not exercisable and vested immediately prior to a
Change of Control, including shares of restricted Common Stock received upon the
exercise of an Option as described in Section 4.6.3 above, shall, upon a Change
of Control, become one hundred percent (100%) exercisable, if not previously
exercised, and one hundred percent (100%) vested, unless the Award Agreement or
the Participant's Employment Agreement provides otherwise.
7
ARTICLE 5. EXERCISE OF OPTIONS
5.1 EXERCISE. At any time and from time to time prior to the time when any
exercisable Option or portion thereof becomes unexercisable under the Plan or
the Award Agreement, such Option or portion thereof may be exercised in whole or
in part; provided, however, that the Company shall not be required to issue
fractional shares of Common Stock and the Committee may, by the terms of the
Option, require any partial exercise to be with respect to a minimum number of
shares of Common Stock.
5.2 MANNER OF EXERCISE. An exercisable Option, or any exercisable portion
thereof, may be exercised solely by delivery to the Company of all of the
following prior to the time when such Option or such portion becomes
unexercisable under the Plan or the Award Agreement:
5.2.1 A written notice signed by the Participant or other person then entitled
to exercise such Option or portion thereof, stating that such Option or portion
is being exercised, provided such notice complies with all applicable rules
established by the Committee from time to time.
5.2.2 Such representations and documents as the Committee, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee may, in its
absolute discretion, also take whatever additional actions it deems appropriate
to effect such compliance including, without limitation, causing legends to be
placed on certificates for shares of Common Stock and issuing stop-transfer
notices to agents and registrars.
5.2.3 In the event that the Option shall be exercised pursuant to Section 10.1
by any person or persons other than the Participant, appropriate proof of the
right of such person or persons to exercise the Option or portion thereof.
5.2.4 Full payment (in cash or by check) for the shares of Common Stock with
respect to which the Option or portion thereof is exercised, including the
amount of any withholding tax due, unless with the prior written consent of the
Committee:
5.2.4.1 payment, in whole or in part, is made through the delivery of shares of
Common Stock owned by the Participant, duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof, provided, that shares of
Common Stock used to exercise the Option have been held by the Participant for
the requisite period of time to avoid adverse accounting consequences to the
Company with respect to the Option;
5.2.4.2 payment, in whole or in part, is made through the surrender of shares of
Common Stock then issuable upon exercise of the Option having a Fair Market
Value on the date of Option exercise equal to the aggregate exercise price of
the Option or exercised portion thereof; or
5.2.4.3 payment is made through any combination of the consideration provided
for in this Section 5.2.4 or such other method approved by the Committee
consistent with applicable law.
5.3 CONDITIONS TO ISSUANCE OF COMMON STOCK. The Company shall not be required to
issue or deliver any certificate or other indicia evidencing ownership of shares
of Common Stock
8
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
5.3.1 The obtaining of any approval or other clearance from any state or federal
governmental agency which the Committee shall, in its sole discretion, determine
to be necessary or advisable.
5.3.2 The lapse of such reasonable period of time following the exercise of the
Option as the Committee may establish from time to time for reasons of
administrative convenience.
5.3.3 The receipt by the Company of full payment for such Common Stock,
including payment of any applicable withholding tax.
5.3.4 The Participant agreeing to the terms and conditions of the Plan and the
Award Agreement.
5.4 RIGHTS AS STOCKHOLDERS. The holders of Options shall not be, nor have any of
the rights or privileges of, stockholders of the Company in respect of any
shares of Common Stock purchasable upon the exercise of any part of an Option
unless and until certificates or other indicia representing such shares of
Common Stock have been issued by the Company to such holders.
5.5 OWNERSHIP AND TRANSFER RESTRICTIONS. The Committee, in its absolute
discretion, may impose at the time of grant such restrictions on the ownership
and transferability of the shares of Common Stock purchasable upon the exercise
of an Option as it deems appropriate. Any such restriction shall be set forth in
the Award Agreement and may be referred to on the certificates or other indicia
evidencing such shares of Common Stock.
5.6 LIMITATIONS ON EXERCISE OF OPTIONS.
5.6.1 Vested Incentive Stock Options may not be exercised after the earlier of
(i) their expiration date, (ii) twelve (12) months from the date of the
Participant's Termination of Employment by reason of his death, (iii) twelve
(12) months from the date of the Participant's Termination of Employment by
reason of his Permanent Disability, or (iv) the expiration of three (3) months
from the date of the Participant's Termination of Employment for any reason
other than such Participant's death or Permanent Disability, unless the
Participant dies within said three (3) month period and the Award Agreement or
the Committee permits later exercise. Leaves of absence for less than ninety
(90) days shall not cause a Termination of Employment for purposes of Incentive
Stock Options.
5.6.2 Non-Qualified Stock Options may be exercised up until their expiration
date, unless the Committee provides otherwise in the Award Agreement.
9
ARTICLE 6. STOCK AWARDS
6.1 AWARD AGREEMENT. Awards of Restricted Common Stock, Restricted Stock Units
and Deferred Stock Units shall be evidenced by an Award Agreement, pursuant to
Section 3.4. All Award Agreements evidencing Restricted Common Stock, Restricted
Stock Units and Deferred Stock Units intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code.
6.2 AWARDS OF RESTRICTED COMMON STOCK, RESTRICTED STOCK UNITS AND DEFERRED STOCK
UNITS.
6.2.1 The Committee may from time to time, in its absolute discretion,
consistent with this Plan:
6.2.1.1 determine which Key Employees and Consultants shall receive Stock
Awards;
6.2.1.2 determine the aggregate number of shares of Common Stock to be awarded
as Stock Awards to Key Employees and Consultants;
6.2.1.3 determine the terms and conditions applicable to such Stock Awards; and
6.2.1.4 determine when the restrictions, if any, lapse.
6.2.2 The Committee may establish the purchase price, if any, and form of
payment for a Stock Award. If the Committee establishes a purchase price, the
purchase price shall be no less than the par value of the Common Stock to be
purchased, unless otherwise permitted by applicable state law.
6.2.3 Upon the selection of a Key Employee or Consultant to be awarded
Restricted Common Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Common Stock and may impose such conditions on
the issuance of such Restricted Common Stock as it deems appropriate, subject to
the provisions of Article 9.
6.2.4 Upon the selection of a Key Employee or Consultant to be awarded
Restricted Stock Units or Deferred Stock Units, the Committee shall instruct the
Secretary of the Company to establish a Stock Award Account on behalf of each
such Participant. The Committee may impose such conditions on the issuance of
such Restricted Stock Units or Deferred Stock Units as it deems appropriate.
6.2.5 Awards of Restricted Common Stock and Restricted Stock Units shall vest
pursuant to the Award Agreement.
6.2.6 Upon the occurrence of a Change of Control, all Restricted Common Stock
and Restricted Stock Units shall become one hundred percent (100%) vested,
unless the Participant's Award Agreement or the Participant's Employment
Agreement provides otherwise.
10
6.2.7 A Participant shall be one hundred percent (100%) vested in the number of
Deferred Stock Units held in his or her Stock Award Account at all times. The
term for which the Deferred Stock Units shall be deferred shall be provided for
in the Award Agreement.
6.3 RIGHTS AS STOCKHOLDERS.
6.3.1 Upon delivery of the shares of Restricted Common Stock to the Participant
or the escrow holder pursuant to Section 6.7, the Participant shall have, unless
otherwise provided by the Committee in the Award Agreement, all the rights of an
owner of Common Stock, subject to the restrictions and provisions of his Award
Agreement; provided, however, that in the discretion of the Committee, any
extraordinary distributions with respect to the Common Stock shall be subject to
the restrictions set forth in Section 6.4.
6.3.2 Nothing in this Plan shall be construed as giving a Participant who
receives an Award of Restricted Stock Units or Deferred Stock Units any of the
rights of an owner of Common Stock unless and until shares of Common Stock are
issued and transferred to the Participant in accordance with the terms of the
Plan and the Award Agreement. Notwithstanding the foregoing, in the event that
any dividend is paid by the Company with respect to the Common Stock (whether in
the form of cash, Common Stock or other property), then the Committee shall, in
the manner it deems equitable or appropriate, adjust the number of Restricted
Stock Units or Deferred Stock Units allocated to each Participant's Stock Award
Account to reflect such dividend.
6.4 RESTRICTION. All shares of Restricted Common Stock issued under this Plan
(including any Common Stock received as a result of stock dividends, stock
splits or any other form of recapitalization, if any) shall at the time of the
Award, in the terms of each individual Award Agreement, be subject to such
restrictions as the Committee shall, in its sole discretion, determine, which
restrictions may include, without limitation, restrictions concerning voting
rights, transferability, vesting, Company performance and individual
performance; provided, however, that by action taken subsequent to the time
shares of Restricted Common Stock are issued, the Committee may, on such terms
and conditions as it may determine to be appropriate, remove any or all of the
restrictions imposed by the terms of the Award Agreement. Restricted Common
Stock may not be sold or encumbered until all restrictions are terminated or
expire.
6.5 LAPSE OF RESTRICTIONS. The restrictions on Awards of Restricted Common Stock
and Restricted Stock Units shall lapse in accordance with the terms of the Award
Agreement. Each Award Agreement shall set forth whether shares of Restricted
Common Stock or Restricted Stock Units then subject to restrictions are
forfeited or if the restrictions shall lapse upon the Participant's Termination
of Employment. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among the Awards of Restricted Common Stock or
Restricted Stock Units and may differentiate between the reasons for the
Participant's Termination of Employment.
6.6 REPURCHASE OF RESTRICTED COMMON STOCK. The Committee may provide in the
terms of the Award Agreement awarding Restricted Common Stock that the Company
shall have call rights, a right of first offer or a right of refusal regarding
shares of Restricted Common Stock then subject to restrictions.
11
6.7 ESCROW. The Company may appoint an escrow holder to retain physical custody
of each certificate or control of each other indicia representing shares of
Restricted Common Stock until all of the restrictions imposed under the Award
Agreement with respect to the shares of Common Stock evidenced by such
certificate expire or shall have been removed.
6.8 LEGEND. In order to enforce the restrictions imposed upon shares of
Restricted Common Stock hereunder, the Committee shall cause a legend or
restrictions to be placed on certificates of Restricted Common Stock that are
still subject to restrictions under Award Agreements, which legend or
restrictions shall make appropriate reference to the conditions imposed thereby.
6.9 CONVERSION. Upon vesting in the case of Restricted Stock Units, and upon the
lapse of the deferral period in the case of Deferred Stock Units, such
Restricted Stock Units or Deferred Stock Units shall be converted into an
equivalent number of shares of Common Stock that will be distributed to the
Participant, or in the case of the Participant's death, to the Participant's
legal representative. Such distribution shall be evidenced by a stock
certificate, appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company, or other appropriate means as
determined by the Company.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 AWARD AGREEMENT FOR SARS. Awards of SARs shall be evidenced by an Award
Agreement, pursuant to Section 3.4. All Award Agreements evidencing SARs
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the Code.
7.2 GENERAL REQUIREMENTS. The Committee may grant SARs separately or in tandem
with any Option (for all or a portion of the applicable Option). The Committee
shall determine which Key Employees and Consultants shall receive Awards of SARs
and the amount of such Awards.
7.3 BASE AMOUNT. The Committee shall establish the base amount of the SAR at the
time the SAR is granted. Unless the Committee determines otherwise, the base
amount of each SAR shall be equal to the price per share of the related Option
or, if there is no related Option, the Fair Market Value of a share of Common
Stock as of the date of grant of the SAR.
7.4 TANDEM SARS. Tandem SARs may be granted either at the time the Option is
granted or at any time thereafter while the Option remains outstanding;
provided, however, that, in the case of an Incentive Stock Option, SARs may be
granted only at the time of grant of the Incentive Stock Option. In the case of
tandem SARs, the number of SARs granted to a Key Employee or Consultant that
shall be exercisable during a specified period shall not exceed the number of
shares of Common Stock that the Key Employee or Consultant may purchase upon the
exercise of the related Option during such period. Upon the exercise of an
Option, the SARs relating to the Common Stock covered by such Option shall
terminate. Upon the exercise of the SARs, the related Option shall terminate to
the extent of an equal number of shares of Common Stock.
12
7.5 SAR EXERCISABILITY.
7.5.1 The period during which SARs in whole or in part become exercisable shall
be set by the Committee and shall be as provided for in the Award Agreement. At
any time after the grant of an SAR, the Committee may, in its sole and absolute
discretion and subject to whatever terms and conditions its selects, accelerate
the period during which the SAR becomes exercisable.
7.5.2 In each Award Agreement, the Committee shall indicate whether the portion
of the SAR, if any, that remains non-exercisable upon the Participant's
Termination of Employment with the Company is forfeited. In so specifying, the
Committee may differentiate between the reason for the Participant's Termination
of Employment.
7.6 VALUE OF SARS. When a Participant exercises an SAR, the Participant shall
receive in settlement of such SAR an amount equal to the value of the stock
appreciation for the number of SARs exercised payable in cash, Common Stock or a
combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Common Stock on the date of exercise of
the SAR exceeds the base amount of the SAR.
7.7 FORM OF PAYMENT. The Committee shall determine whether the appreciation in
an SAR shall be paid in the form of cash, Common Stock or a combination of the
two, in such proportion as the Committee deems appropriate. For purposes of
calculating the number of shares of Common Stock to be received, shares of
Common Stock shall be valued at their Fair Market Value on the date of exercise
of the SAR. If shares of Common Stock are received upon exercise of a SAR, cash
shall be delivered in lieu of any fractional shares of Common Stock.
ARTICLE 8. PERFORMANCE UNITS
8.1 AWARD AGREEMENT FOR PERFORMANCE UNITS. Awards of Performance Units shall be
evidenced by an Award Agreement, pursuant to Section 3.4. All Award Agreements
evidencing Performance Units intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code.
8.2 GENERAL REQUIREMENTS. Each Performance Unit shall represent the right of the
Participant to receive an amount based on the value of the Performance Unit, if
performance goals established by the Committee are met. A Performance Unit shall
be based on the Fair Market Value of a share of Common Stock or such other
measurement base as the Committee deems appropriate. The Committee shall
determine and set forth in the Award Agreement the number of Performance Units
to be granted and the requirements applicable to such Performance Units. The
Committee shall determine which Key Employees and Consultants shall receive
Awards of a Performance Unit and the amount of such Awards.
8.3 PERFORMANCE PERIOD AND PERFORMANCE GOALS. When Performance Units are
granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Performance Units ("Performance Goals") and such other
conditions of the Award as the Committee deems appropriate. Performance Goals
may relate to the financial performance of the Company or its
13
Subsidiaries, the performance of Common Stock, individual performance or such
other criteria as the Committee deems appropriate.
8.4 PAYMENT WITH RESPECT TO PERFORMANCE UNITS. At the end of each Performance
Period, the Committee shall determine to what extent the Performance Goals and
other conditions of the Performance Units are met, the value of the Performance
Units (if applicable), and the amount, if any, to be paid with respect to the
Performance Units. Payments with respect to Performance Units shall be made in
cash, in Common Stock or in a combination of the two, as determined by the
Committee.
ARTICLE 9. ADMINISTRATION
9.1 COMMITTEE. The Plan shall be administered by the Compensation Committee of
the Board. The Board may remove members, add members, and fill vacancies on the
Committee from time to time, all in accordance with the Company's Certificate of
Incorporation, Bylaws, and with applicable law. The majority vote of the
Committee, or for acts taken in writing without a meeting by the unanimous
written consent of the members of the Committee, shall be valid acts of the
Committee. Committee members may resign at any time by delivering written notice
to the Board.
9.2 DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the Committee to
conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to designate the Key Employees
and consultants who shall participate in the Plan and to construe and interpret
this Plan and the agreements pursuant to which Options, Restricted Common Stock,
Restricted Stock Units, Deferred Stock Units, SARs and Performance Units are
granted or awarded, and to adopt such rules for the administration,
interpretation, and application of this Plan as are consistent therewith and to
interpret, amend or revoke any such rules. Any such Award under this Plan need
not be the same with respect to each Participant. Any such interpretations and
rules with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. All determinations and decisions made by
the Committee pursuant to the provisions of the Plan shall be final, conclusive
and binding.
9.3 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. Unless otherwise
determined by the Board, members of the Committee shall receive no compensation
for their services pursuant to this Plan. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Participants, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan or any Awards made
hereunder, and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
14
ARTICLE 10. MISCELLANEOUS PROVISIONS
10.1 TRANSFERABILITY.
10.1.1 No Option, Restricted Common Stock, Restricted Stock Unit, Deferred Stock
Unit, SAR, Performance Unit, or any right therein or part thereof shall be
liable for the debts, contracts or engagements of the Participant or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means,
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that nothing in this
Section 10.1.1 shall prevent transfers by will or by the applicable laws of
descent and distribution or as permitted in Section 10.1.2 below. The Committee
shall not be required to accelerate the exercisabilty of an Award or otherwise
take any action pursuant to a divorce or similar proceeding in the event
Participant's spouse is determined to have acquired a community property
interest in all or any portion of an Award. Except as provided below, during the
lifetime of the Participant, only he may exercise an Award (or any portion
thereof) granted to him under the Plan. After the death of the Participant, any
exercisable portion of an Award, prior to the time when such portion becomes
unexercisable under the Plan or the applicable Award Agreement or other
agreement, may be exercised by his personal representative or by any person
empowered to do so under the deceased Participant's will or under the then
applicable laws of descent and distribution.
10.1.2 Notwithstanding the foregoing, the Committee may provide in an Award
Agreement, or amend an otherwise outstanding Award Agreement to provide, that a
Participant may transfer Non-Qualified Stock Options to family members, or one
or more trusts or other entities for the benefit of or owned by family members,
consistent with applicable securities laws, according to such terms as the
Committee may determine; provided that the Participant receives no consideration
for the transfer of a Non-Qualified Stock Option and the transferred
Non-Qualified Stock Option shall continue to be subject to the same terms and
conditions as were applicable to the Non-Qualified Stock Option immediately
before the transfer and shall be exercisable by the transferee according to the
same terms as applied to the Participant.
10.2 AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN.
10.2.1 Except as otherwise provided in this Section 10.2, this Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board; provided, however, no action of the
Board may be taken that would otherwise require stockholder approval as a matter
of applicable law, regulation or rule, without the consent of the stockholders.
The Board and the Committee cannot reprice, replace or regrant through
cancellation or by lowering the price per share of a previously granted Option
unless the stockholders of the Company provide prior approval. No amendment,
suspension or termination of this Plan shall impair any rights or obligations
under any Award theretofore made to a Participant, unless such right has been
reserved in the Plan or the Award Agreement, without the consent of the
Participant holding such Award. No Award may be made during any period of
suspension or after termination of this Plan. In no event may any Award be made
under this Plan after May 22, 2016.
15
10.2.2 Notwithstanding the foregoing, the Board or the Committee may take any
action necessary to comply with a change in applicable law, irrespective of the
status of any Award as vested or unvested, exercisable or unexercisable, at the
time of such change in applicable law.
10.3 CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.
10.3.1 In the event that the Committee determines, in its sole discretion, that
any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), on account of a recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
event, affects the Common Stock such that an adjustment is appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Committee may, in such
manner as it may deem equitable, adjust any or all of the following:
10.3.1.1 the maximum number of shares of Common Stock available for Awards;
10.3.1.2 the maximum number of shares of Common Stock subject to the Plan;
10.3.1.3 the number and kind of Company stock with respect to which an Award may
be made under the Plan;
10.3.1.4 the number and kind of Company stock subject to an outstanding Award;
and
10.3.1.5 the exercise price or purchase price with respect to any Award.
10.3.2 In the event of any transaction or event described in Section 10.3.1 or
any unusual or nonrecurring transactions or events affecting the Company, or the
financial statements of the Company, or of changes in applicable laws,
regulations, or accounting principles, the Committee in its discretion is hereby
authorized to take any one or more of the following actions whenever the
Committee determines, in its sole discretion, that such action is appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to any Award or
right under this Plan, to facilitate such transactions or events or to give
effect to such changes in laws, regulations or principles:
10.3.2.1 the Committee may provide, by the terms of the Award Agreement or by
action taken prior to the occurrence of such transaction or event and either
automatically or upon the Participant's request, for (i) the purchase of any
such Award for the payment of an amount of cash equal to the amount that could
have been attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable, payable, fully
vested or the restrictions lapsed, or (ii) the replacement of such Award with
other rights or property selected by the Committee;
16
10.3.2.2 the Committee may provide, by the terms of such Award Agreement or by
action taken prior to the occurrence of such transaction or event, that the
Award cannot be exercised after such event;
10.3.2.3 the Committee may provide, by the terms of such Award or by action
taken prior to the occurrence of such transaction or event, that for a specified
period of time prior to such transaction or event such Award shall be
exercisable, notwithstanding anything to the contrary in Section 4.6 or the
provisions of such Award;
10.3.2.4 the Committee may provide, by the terms of such Award or by action
taken prior to the occurrence of such transaction or event, that upon such
event, such Award be assumed by the successor or survivor corporation, or a
parent or subsidiary thereof, or shall be substituted for by similar Awards
covering the stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices;
10.3.2.5 the Committee may make adjustments in the number, type and kind of
shares of Common Stock subject to outstanding Options, Restricted Common Stock,
Restricted Stock Units, Deferred Stock Units, SARs and Performance Units and in
the terms and conditions of (including the grant or exercise price), and the
criteria included in, outstanding Awards, and rights and awards which may be
granted in the future; and
10.3.2.6 the Committee may provide, by the terms of an Award of Restricted
Common Stock or Restricted Stock Units or by action taken prior to the
occurrence of such event, that for a specified period of time prior to such
event, the restrictions imposed under an Award Agreement upon some or all shares
of the Restricted Common Stock or the Restricted Stock Units may be terminated,
and some or all shares of such Restricted Common Stock or some or all of such
Restricted Stock Units may cease to be subject to forfeiture under Section 6.5
or repurchase under Section 6.6 after such event.
10.3.3 Subject to Section 10.7, the Committee may, in its sole discretion, at
the time of grant, include such further provisions and limitations in any Award
Agreement or certificate, as it may deem appropriate and in the best interests
of the Company; provided, however, that no such provisions or limitations shall
be contrary to the terms of the Participant's Employment Agreement or the terms
of this Plan.
10.3.4 Notwithstanding the foregoing, in the event of a transaction or event
described in Sections 10.3.1 or any unusual or nonrecurring transactions or
events affecting the Company, no action pursuant to this Section 10.3 shall be
taken that is specifically prohibited under applicable law, the rules and
regulations of any governing governmental agency or national securities
exchange, or the terms of the Participant's Employment Agreement.
10.4 CONTINUED EMPLOYMENT. Nothing in this Plan or in any Award Agreement
hereunder shall confer upon any Participant any right to continue his
employment, consulting or similar relationship with the Company, whether as an
employee or consultant or otherwise, or shall interfere with or restrict in any
way the rights of the Company, which are hereby expressly reserved, to discharge
or terminate the relationship with any Participant at any time for any
17
reason whatsoever, subject to the terms of any Employment Agreement entered into
by the Participant and the Company.
10.5 TAX WITHHOLDING. The Company shall be entitled to require payment in cash
or deduction from other compensation payable to each Participant of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or lapse of any restriction of any Option,
Restricted Common Stock, Restricted Stock Unit, Deferred Stock Unit, SAR or
Performance Unit. The Committee may, in its sole discretion and in satisfaction
of the foregoing requirement, allow such Participant to elect to have the
Company withhold shares of Common Stock otherwise issuable under such Award (or
allow the return of shares of Common Stock) having a Fair Market Value equal to
the sums required to be withheld; provided, however, that any shares of Common
Stock withheld shall be no greater than an amount that does not exceed the
Participant's minimum applicable withholding tax rate for federal (including
FICA), state and local tax liabilities.
10.6 FORFEITURE PROVISIONS. Pursuant to its general authority to determine the
terms and conditions applicable to Awards, the Committee shall have the right to
provide, in the terms of such Award, or to require the Participant to agree by
separate written instrument, that the Award shall terminate and any unexercised
portion of such Award (whether or not vested) shall be forfeited if (i) a
Termination of Employment occurs prior to a specified date, or within a
specified time period following receipt or exercise of the Award, (ii) the
Participant at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee or
as specified in the Participant's Employment Agreement, or (iii) the Company
terminates the Participant with or without cause.
10.7 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-BASED
COMPENSATION. Notwithstanding any other provision of this Plan, any Option,
Restricted Common Stock, Restricted Stock Unit, Deferred Stock Unit, SARs, or
Performance Units granted or awarded to any individual who is then subject to
Section 16 of the Exchange Act shall be subject to any additional limitations
set forth in any applicable exemptive rule under Section 16 of the Exchange Act
(including any amendment to Rule 16b-3 of the Exchange Act). To the extent
permitted by applicable law, Options granted or awarded hereunder shall be
deemed amended to the extent necessary to conform to such applicable exemptive
rule. Furthermore, notwithstanding any other provision of this Plan to the
contrary, any Award that is intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such requirements.
10.8 EFFECT OF PLAN UPON OPTION AND COMPENSATION PLANS. The adoption of this
Plan shall not affect any other compensation or incentive plans in effect for
the Company. Nothing in this Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees or consultants, or (ii) to grant or assume options or other rights
otherwise than under this Plan in connection with any proper corporate purpose
18
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.
10.9 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Awards under
this Plan and the issuance and delivery of shares of Common Stock and the
payment of money under this Plan or under Awards awarded hereunder are subject
to compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
10.10 EFFECTIVE DATE. This Plan shall be effective on the date it is approved by
the stockholders of the Company.
10.11 TITLES. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Plan.
10.12 GOVERNING LAW. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the laws of the State of Texas,
without regard to that state's conflicts of laws rules.
19
ATRION CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints Roger
F. Stebbing and John P. Stupp, Jr., or either of them, proxies of the
undersigned, with full power of substitution, to represent and to vote all
shares of common stock of Atrion Corporation which the undersigned would be
entitled to vote at the annual meeting of stockholders of Atrion Corporation to
be held at the offices of Atrion Corporation, One Allentown Parkway, Allen,
Texas, on Monday, May 22, 2006 at 10:00 a.m., Central Time, and at any
adjournment thereof, in the following manner:
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
ANNUAL MEETING OF STOCKHOLDERS OF
ATRION CORPORATION
MAY 22, 2006
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
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 DIRECTOR:
NOMINEE: Hugh J. Morgan, Jr.
[ ] FOR
[ ] WITHHOLD AUTHORITY
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
[ ]
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE THE COMPANY'S 2006 EQUITY [ ] [ ] [ ]
INCENTIVE PLAN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF GRANT [ ] [ ] [ ]
THORNTON LLP AS INDEPENDENT ACCOUNTANTS OF THE
COMPANY
4. IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEE
LISTED IN ITEM 1 AND "FOR" ITEMS 2 AND 3. IF THIS PROXY IS PROPERLY SIGNED AND
RETURNED, THE SHARES REPRESENTED WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEE
LISTED IN ITEM 1 AND "FOR" ITEMS 2 AND 3 UNLESS YOU OTHERWISE SPECIFY HEREIN.
------------------------------------ -----------------------------------------
Signature of Stockholder Date:
------------------------------------ -----------------------------------------
Signature of Stockholder Date:
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.