UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
[ x ] 
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 2017
 
or
 
[ ] 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from to
 
Commission File Number 001-32982
 
Atrion Corporation
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
63-0821819
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
One Allentown Parkway, Allen, Texas 75002
(Address of Principal Executive Offices) (Zip Code)
 
(972) 390-9800
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
 
Indicate by check whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
 
  Large accelerated filer
 ☐
  Accelerated filer
 ☑
  Smaller reporting company
 ☐
  Non-accelerated filer
 ☐
 
 
  Emerging growth company
 ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
 
Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐ Yes  ☑ No
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
 
Title of Each Class
 
Number of Shares Outstanding at
October 20, 2017
Common stock, Par Value $0.10 per share
 
1,851,842
 
 
 
 
ATRION CORPORATION AND SUBSIDIARIES
 
TABLE OF CONTENTS
 
PART I. Financial Information  
 
3
 
 
 
 
 
 
Item 1. Financial Statements  
 
 3
 
 
 
 
 
 
 
Consolidated Statements of Income (Unaudited) For the Three and Nine months Ended September 30, 2017 and 2016
 
 3
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Unaudited) For the Three and Nine months Ended September 30, 2017 and 2016
 
4
 
 
 
 
 
 
 
Consolidated Balance Sheets (Unaudited) September 30, 2017 and December 31, 2016
 
 5
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (Unaudited) For the Nine months Ended September 30, 2017 and 2016
 
 6
 
 
 
 
 
 
 
Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) September 30, 2017 and December 31, 2016
 
 7
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (Unaudited)
 
 8
 
 
 
 
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations  
 
13
 
 
 
 
 
 
Item 3 . Quantitative and Qualitative Disclosures About Market Risk  
 
18
 
 
 
 
 
 
Item 4. Controls and Procedures  
 
18
 
 
 
 
 
PART II. Other Information    
 
19
 
 
 
 
 
 
Item 1. Legal Proceedings  
 
19
 
 
 
 
 
 
Item 1A. Risk Factors  
 
19
 
 
 
 
 
 
Item 6. Exhibits  
 
19
 
 
 
 
 
SIGNATURES    
 
20
 
 
 
 
 
Exhibit Index    
 
21
 
 
 
2
 
 
PART I
FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 
 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
(in thousands, except per share amounts)
 
Revenues
  $ 37,903  
  $ 37,835  
  $ 112,571  
  $ 110,193  
Cost of goods sold
    19,498  
    20,211  
    57,841  
    57,789  
Gross profit
    18,405  
    17,624  
    54,730  
    52,404  
Operating expenses:
       
       
       
       
Selling
    1,691  
    1,471  
    5,303  
    4,871  
General and administrative
    4,086  
    3,613  
    12,390  
    11,442  
Research and development
    1,149  
    1,564  
    4,056  
    4,576  
 
    6,926  
    6,648  
    21,749  
    20,889  
Operating income
    11,479  
    10,976  
    32,981  
    31,515  
 
       
       
       
       
Interest and dividend income
    287  
    106  
    806  
    315  
Other income (expense), net
    --  
    1  
    1  
    (309 )
 
    287  
    107  
    807  
    6  
 
       
       
       
       
Income before provision for income taxes
    11,766  
    11,083  
    33,788  
    31,521  
Provision for income taxes
    (3,795 )
    (3,469 )
    (5,841 )
    (9,511 )
 
       
       
       
       
Net income
  $ 7,971  
  $ 7,614  
  $ 27,947  
  $ 22,010  
 
       
       
       
       
Net income per basic share
  $ 4.30  
  $ 4.17  
  $ 15.16  
  $ 12.07  
Weighted average basic shares outstanding
    1,852  
    1,825  
    1,844  
    1,823  
 
       
       
       
       
 
       
       
       
       
Net income per diluted share
  $ 4.29  
  $ 4.10  
  $ 15.06  
  $ 11.86  
Weighted average diluted shares outstanding
    1,857  
    1,858  
    1,856  
    1,856  
 
       
       
       
       
Dividends per common share
  $ 1.20  
  $ 1.05  
  $ 3.30  
  $ 2.85  
 
The accompanying notes are an integral part of these statements.
 
3
 
 
ATRION CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
  $ 7,971  
  $ 7,614  
  $ 27,947  
  $ 22,010  
Other Comprehensive Income (Loss)
       
       
       
       
  Unrealized income (loss) on investments, net of tax expense (benefit) of $23, ($273), $58 and ($445)
    43  
    (506 )
    109  
    (827 )
 
       
       
       
       
Comprehensive Income
  $ 8,014  
  $ 7,108  
  $ 28,056  
  $ 21,183  
 
The accompanying notes are an integral part of these statements.
 
 
4
 
 
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
Assets
 
September 30,
2017
 
 
December 31,
2016
 
 
 
(in thousands)
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
  $ 20,995  
  $ 20,022  
Short-term investments
    38,959  
    24,080  
Accounts receivable
    19,585  
    17,166  
Inventories
    29,924  
    29,015  
Prepaid expenses and other current assets
    3,001  
    3,181  
 
    112,464  
    93,464  
 
       
       
Long-term investments
    10,112  
    9,945  
 
       
       
Property, plant and equipment
    167,148  
    160,413  
Less accumulated depreciation and amortization
    100,630  
    95,148  
 
    66,518  
    65,265  
 
       
       
Other assets and deferred charges:
       
       
Patents
    1,808  
    1,929  
Goodwill
    9,730  
    9,730  
    Other
    1,494  
    1,609  
 
    13,032  
    13,268  
 
       
       
    Total assets
  $ 202,126  
  $ 181,942  
Liabilities and Stockholders’ Equity
       
       
Current liabilities:
       
       
Accounts payable and accrued liabilities
  $ 10,382  
  $ 8,663  
Accrued income and other taxes
    2,312  
    410  
 
    12,694  
    9,073  
 
       
       
Line of credit
    --  
    --  
 
       
       
Other non-current liabilities
    10,981  
    9,881  
 
       
       
Stockholders’ equity:
       
       
Common stock, par value $0.10 per share; authorized10,000 shares, issued 3,420 shares
    342  
    342  
Paid-in capital
    48,360  
    37,448  
Accumulated other comprehensive (loss) income
    (365 )
    (474 )
Retained earnings
    261,777  
    239,946  
Treasury shares,1,584 at September 30, 2017 and 1,596 at December 31, 2016, at cost
    (131,663 )
    (114,274 )
Total stockholders’ equity
    178,451  
    162,988  
 
       
       
 
       
       
    Total liabilities and stockholders’ equity
  $ 202,126  
  $ 181,942  
 
The accompanying notes are an integral part of these financial statements.
 
 
5
 
 
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
  Nine Months Ended
September 30,  
 
 
 
2017
 
 
2016
 
 
  (In thousands)        
Cash flows from operating activities:
 
 
 
 
 
 
Net income
  $ 27,947  
  $ 22,010  
Adjustments to reconcile net income tonet cash provided by operating activities:
       
       
Depreciation and amortization
    6,458  
    6,655  
Deferred income taxes
    1,002  
    (116 )
Stock-based compensation
    1,240  
    1,323  
Bond impairment
    --  
    345  
Net change in accrued interest, premiums, and discounts
       
       
    on investments
    (167 )
    (5 )
Other
    (2 )
    --  
 
    36,478  
    30,212  
 
       
       
Changes in operating assets and liabilities:
       
       
Accounts receivable
    (2,419 )
    (3,504 )
Inventories
    (909 )
    (285 )
Prepaid expenses
    180  
    754  
Other non-current assets
    115  
    (633 )
Accounts payable and accrued liabilities
    1,719  
    265  
Accrued income and other taxes
    1,902  
    1,405  
Other non-current liabilities
    39  
    195  
 
    37,105  
    28,409  
 
       
       
Cash flows from investing activities:
       
       
Property, plant and equipment additions
    (7,590 )
    (8,836 )
Purchase of investments
    (46,712 )
    (21,798 )
Proceeds from sale of investments
    --  
    210  
Proceeds from maturities of investments
    32,000  
    5,000  
 
    (22,302 )
    (25,424 )
 
       
       
Cash flows from financing activities:
       
       
Shares tendered for employees’ withholding taxes on   stock-based compensation
    (7,735 )
    (1,112 )
Purchase of treasury stock
    --  
    (1,276 )
Dividends paid
    (6,095 )
    (5,196 )
 
    (13,830 )
    (7,584 )
 
       
       
Net change in cash and cash equivalents
    973  
    (4,599 )
Cash and cash equivalents at beginning of period
    20,022  
    28,346  
Cash and cash equivalents at end of period
  $ 20,995  
  $ 23,747  
 
       
       
 
       
       
Cash paid for:
       
       
Income taxes
  $ 2,411  
  $ 7,568  
 
       
       
Non-cash financing activities:
       
       
Non-cash effect of stock option exercises
  $ 10,237  
    --  
 
The accompanying notes are an integral part of these financial statements.
 
6
 
 
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
 
Common Stock
 
 
Treasury Stock
 
     
     
     
     
 
 
Shares Outstanding
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Additional Paid-in Capital
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
Retained Earnings
 
 
Total
 
Balances, January 1, 2017
    1,824  
  $ 342  
    1,596  
  $ (114,274 )
  $ 37,448  
  $ (474 )
  $ 239,946  
  $ 162,988  
 
       
       
       
       
       
       
       
       
    Net income
       
       
       
       
       
       
    27,947  
    27,947  
    Other comprehensive income (loss)
       
       
       
       
       
    109  
       
    109  
    Stock-based compensation transactions
    46  
       
    (46 )
    583  
    10,912  
       
       
    11,495  
    Shares surrendered in stock transactions
    (34 )
       
    34  
    (17,972 )
       
       
       
    (17,972 )
    Dividends
       
       
       
       
       
       
    (6,116 )
    (6,116 )
Balances, September 30, 2017
    1,836  
  $ 342  
    1,584  
  $ (131,663 )
  $ 48,360  
  $ (365 )
  $ 261,777  
  $ 178,451  
 
The accompanying notes are an integral part of these financial statements
 
 
7
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
(1)
Basis of Presentation
 
The accompanying unaudited consolidated financial statements of Atrion Corporation and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all normal and recurring adjustments necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and notes. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its Annual Report on Form 10-K/A for the fiscal year ended December 31, 2016 ("2016 Form 10-K/A"). References herein to "Atrion," the "Company," "we," "our," and "us" refer to Atrion Corporation and its subsidiaries.
 
(2)            
Inventories
 
Inventories are stated at the lower of cost or market. Cost is determined by using the first-in, first-out method. The following table details the major components of inventories (in thousands):
 
 
 
September 30,
 
 
December 31,
 
 
 
2017
 
 
2016
 
Raw materials
  $ 13,334  
  $ 12,984  
Work in process
    7,174  
    6,230  
Finished goods
    9,416  
    9,801  
Total inventories
  $ 29,924  
  $ 29,015  
 
(3)            
Income per share
 
The following is the computation for basic and diluted income per share:
 
 
 
Three Months Ended September 30,
 
 
Nine Months Ended September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
(in thousands, except per share amounts)
 
Net income
  $ 7,971  
  $ 7,614  
  $ 27,947  
  $ 22,010  
Weighted average basic shares outstanding
    1,852  
    1,825  
    1,844  
    1,823  
Add: Effect of dilutive securities
    5  
    33  
    12  
    33  
Weighted average diluted shares outstanding
    1,857  
    1,858  
    1,856  
    1,856  
Earnings per share:
       
       
       
       
Basic
  $ 4.30  
  $ 4.17  
  $ 15.16  
  $ 12.07  
Diluted
  $ 4.29  
  $ 4.10  
  $ 15.06  
  $ 11.86  
 
 
 
8
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

Incremental shares from stock options and restricted stock units were included in the calculation of weighted average diluted shares outstanding using the treasury stock method. Dilutive securities representing 447   and 41 shares of common stock for the quarters ended September 30, 2017 and 2016, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.
 
(4)            
Investments
 
As of September 30, 2017, we held investments in certificates of deposit, commercial paper, corporate bonds and equity securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The certificates of deposit, commercial paper and corporate bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheet. The equity securities are considered available for sale and recorded at fair value in the accompanying consolidated balance sheet with the unrealized gains and losses recorded as a component of other comprehensive income. These investments are considered Level 2 investments. We consider as current assets those investments which will mature in the next 12 months including interest receivable on the long-term corporate bonds. The remaining investments are considered non-current assets including our investment in equity securities we intend to hold longer than 12 months. The fair values of these Level 2 investments were estimated using recently executed transactions and market price quotations. The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of the dates shown below (in thousands):
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
 
Cost
 
 
Gains
 
 
Losses
 
 
Fair Value
 
As of September 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term Investments:
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of Deposit
  $ 9,096  
  $ --  
  $ (1 )
  $ 9,095  
Commercial Paper
  $ 29,833  
  $ 62  
  $ (4 )
  $ 29,891  
Corporate bonds
  $ 30  
  $ --  
  $ --  
  $ 30  
 
       
       
       
       
Long-term Investments
       
       
       
       
Corporate bonds
  $ 5,000  
  $ --  
  $ (36 )
  $ 4,964  
Equity investments
  $ 5,675  
  $ --  
  $ (563 )
  $ 5,112  
 
 
 
9
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
 
Cost
 
 
Gains
 
 
Losses
 
 
Fair Value
 
As of December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term Investments:
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of Deposit
  $ 24,000  
  $ 9  
  $ --  
  $ 24,009  
Corporate bonds
  $ 80  
  $ --  
  $ --  
  $ 80  
 
       
       
       
       
Long-term Investments
       
       
       
       
Corporate bonds
  $ 5,000  
  $ --  
  $ (287 )
  $ 4,713  
Equity investments
  $ 5,675  
  $ --  
  $ (730 )
  $ 4,945  
 
The above long-term corporate bonds represent an investment in one issuer at September 30, 2017. The unrealized loss for this investment relates to a rise in interest rates which resulted in a lower market price for that security. This investment has not been in a loss position for more than 12 months.
 
The certificates of deposit have maturities from greater than two weeks to less than eight months. The commercial paper securities have maturities from two days to less than eleven months. The corporate bonds will mature in 44.5 months.
 
(5)            
Patents and Licenses
 
Purchased patents and license fees paid for the use of other entities’ patents are amortized over the useful life of the patent or license. The following tables provide information regarding patents and licenses (dollars in thousands):
 
 
September 30, 2017
 
 
December 31, 2016
 
 
Weighted Average Original Life (years)
 
 
Gross Carrying Amount
 
 
Accumulated Amortization
 
 
Weighted Average Original Life (years)
 
 
Gross Carrying Amount
 
 
Accumulated Amortization
 
    15.67  
  $ 13,840  
  $ 12,032  
    15.67  
  $ 13,840  
  $ 11,911  
 
Aggregate amortization expense for patents and licenses was $30,000 and $63,000 for the three months ended September 30, 2017 and 2016, respectively, and $121,000 and $188,000 for the nine months ended September 30, 2017 and 2016, respectively.
 
Estimated future amortization expense for each of the years set forth below ending December 31 is as follows (in thousands):
 
2018                                           
$119
2019                                           
$119
2020                                           
$119
2021                                           
$119
2022                                           
$117
 
 
10
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

(6)            
Recent Accounting Pronouncements
 
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09) . The objective of this update is to simplify several aspects of the accounting for employee share-based payments. Under this guidance all excess tax benefits (“windfalls”) and deficiencies (“shortfalls”) related to employee stock compensation are recognized within income tax expense. Under prior guidance windfalls were recognized in paid-in capital and shortfalls were only recognized to the extent they exceeded the pool of windfall tax benefits. The ASU also requires companies to classify cash flows resulting from employee share-based payments, including the additional tax benefits or expenses related to the vesting or settlement of share-based awards, as cash flows from operating activities. These items were previously included as cash flows from financing activities. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We elected to adopt ASU 2016-09 during the second quarter of 2016 and are therefore required to report the impacts as though the ASU had been adopted on January 1, 2016. As a result of the adoption, a tax benefit of $623,000 was recorded in the second quarter of 2016 reflecting the excess tax benefits. The adoption also impacted the computation of diluted shares outstanding for all 2016 reporting periods. First quarter of 2016 net income per diluted share was restated to $3.74 from $3.76. There was no restatement necessary for cash flows from operating activities or cash flows from financing activities in the previous 2016 period. The adoption was on a prospective basis and therefore had no impact on years prior to 2016.   No tax benefit was recorded in the third quarter of 2017. In the first nine months of 2017 we recorded a tax benefit of $5.3 million, reflecting the excess tax benefits, resulting in a $2.83 per share favorable effect on the net income per diluted share.
 
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The main objective of this update is to enhance the reporting model for financial instruments in order to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the new guidance to determine the full impact it may have on our consolidated financial statements. We anticipate any impact in accounting changes to be limited to our equity investment that is classified as an available for sale investment in our consolidated balance sheets. We also anticipate disclosure changes as a result of this standard when effective.
 
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17) which requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet.  The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by this guidance.  ASU 2015-17 is effective for annual and interim periods beginning after December 15, 2016 but early application is permitted and the guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  We elected to adopt this ASU in the first quarter of 2017 on a retrospective basis. Amounts reclassified from “Deferred income taxes” to “Other non-current liabilities” were $651,000 as of December 31, 2016.The adoption did not have a material impact on our consolidated financial statements.
 
 
 
11
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in United States Generally Accepted Accounting Principles when it becomes effective. In July 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year, making it effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted as of the original effective date. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. Based on our evaluation, we will adopt the requirements of the new standard on January 1, 2018, but have not yet selected a transition method for adoption. Presented below is the status of the process we have utilized for the adoption of the new standard and the significant implementation matters addressed:
 
We established a cross-functional project management implementation team to assess all potential impacts of this standard. This team identified significant contracts and relationships and assessed the impact of the new standard on those contracts.
 
We evaluated the contract provisions and performed a comparison of historical accounting policies and practices to the requirements of the new standard (including the related qualitative disclosures regarding the potential impact of the effects of the accounting policies we expect to apply), and a comparison to our current revenue recognition policies is in process.
 
We are currently reviewing our current accounting policies and practices to identify potential differences that would result from the application of this standard.
 
We are determining key factors from the five step process to recognize revenue as prescribed by the new standard that may be applicable to our business.
 
We expect to complete this process prior to the filing of, and make disclosures in, our Form 10-K for the fiscal year ended December 31, 2017.
 
Based on our evaluation, we determined no significant changes are required to our business processes, systems and controls to effectively report revenue recognition under the new standard. Adoption of the new standard is not expected to materially change the timing or amount of revenue recognized in our Consolidated Financial Statements.
 
From time to time, new accounting standards updates applicable to us are issued by the FASB which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards updates that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.
 
 
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Item 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
We develop and manufacture products primarily for medical applications. We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics and other treatment centers. Our medical products primarily serve the fluid delivery, cardiovascular, and ophthalmology markets. Our other medical and non-medical products include instrumentation and disposables used in dialysis and valves and inflation devices used in marine and aviation safety products.
 
Our products are used in a wide variety of applications by numerous customers. We encounter competition in all of our markets and compete primarily on the basis of product quality, price, engineering, customer service and delivery time.
 
Our strategy is to provide a broad selection of products in the areas of our expertise. Research and development efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential. Proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable. We also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes. We have been successful in consistently generating cash from operations and have used that cash to reduce indebtedness, to fund capital expenditures, to repurchase stock and to pay dividends.
 
Our strategic objective is to further enhance our position in our served markets by:
 
Focusing on customer needs;
Expanding existing product lines and developing new products;
Manufacturing products to exacting quality standards; and
Preserving and fostering a collaborative and entrepreneurial culture.
 
For the three months ended September 30, 2017, we reported revenues of $37.9 million, operating income of $11.5 million and net income of $8.0 million, up less than 1 percent, up 5 percent and up 5 percent, respectively, from the three months ended September 30, 2016. For the nine months ended September 30, 2017, we reported revenues of $112.6 million, operating income of $33.0 million and net income of $27.9 million, up 2 percent, up 5 percent and up 27 percent, respectively, from the nine months ended September 30, 2016.
 
Results for the three months ended September 30, 2017
 
Consolidated net income totaled $8.0 million, or $4.30 per basic and $4.29 per diluted share, in the third quarter of 2017. This is compared with consolidated net income of $7.6 million, or $4.17 per basic and $4.10 per diluted share, in the third quarter of 2016. The income per basic share computations are based on weighted average basic shares outstanding of 1,852,000 in the 2017 period and 1,825,000 in the 2016 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,857,000 in the 2017 period and 1,858,000 in the 2016 period.
 
 
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Consolidated revenues of $37.9 million for the third quarter of 2017 were less than 1 percent higher than revenues of $37.8 million for the third quarter of 2016.
 
Revenues by product line were as follows (in thousands):
 
 
 
Three Months ended September 30,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Fluid Delivery
  $ 16,083  
  $ 16,573  
Cardiovascular
    12,837  
    11,389  
Ophthalmology
    3,595  
    4,386  
Other
    5,388  
    5,487  
Total
  $ 37,903  
  $ 37,835  
 
Cost of goods sold of $19.5 million for the third quarter of 2017 was 4 percent lower than cost of goods sold of $20.2 million for the third quarter of 2016 primarily due to a favorable product sales mix, improved manufacturing efficiencies and the impact of continued cost improvement projects. Our cost of goods sold in the third quarter of 2017 was 51.4 percent of revenues compared with 53.4 percent of revenues in the third quarter of 2016.
 
Gross profit of $18.4 million in the third quarter of 2017 was $781,000, or 4 percent, higher than in the comparable 2016 period. Our gross profit percentage in the third quarter of 2017 was 48.6 percent of revenues compared with 46.6 percent of revenues in the third quarter of 2016. The increase in gross profit in the 2017 period compared to the 2016 period was primarily related to the favorable product sales mix, improved manufacturing efficiencies and cost improvement projects mentioned above.
 
Our third quarter 2017 operating expenses of $6.9 million were $278,000 higher than the operating expenses for the third quarter of 2016. This increase was attributable to a $473,000 increase in General and Administrative, or G&A, expenses and a $220,000 increase in Selling expenses partially offset by a $415,000 decrease in Research and Development, or R&D, expenses. The increase in G&A expenses for the third quarter of 2017 was principally attributable to increased compensation and outside services. The increase in Selling expenses was principally attributable to increased commissions, compensation, outside services and travel costs. The decrease in R&D expenses was primarily related to decreased outside services.
 
Operating income in the third quarter of 2017 increased $503,000 to $11.5 million, a 5 percent increase compared to our operating income in the quarter ended September 30, 2016. Operating income was 30 percent of revenues for the third quarter of 2017 compared to 29 percent of revenues for the third quarter of 2016.
 
 
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Interest and dividend income in the third quarter of 2017 was $287,000, compared with $106,000 for the same period in the prior year. Increased levels of investment, increased interest rates and higher dividends were the primary reasons for the increase.
 
Income tax expense for the third quarter of 2017 was $3.8 million compared to income tax expense of $3.5 million for the same period in the prior year. The effective tax rate for the third quarter of 2017 was 32.3 percent, compared with 31.3 percent for the third quarter of 2016. We expect the effective tax rate for the remainder of 2017 to be approximately 32.0 percent.
 
Results for the nine months ended September 30, 2017
 
Consolidated net income totaled $28.0 million, or $15.16 per basic and $15.06 per diluted share, in the first nine months of 2017. This is compared with consolidated net income of $22.0 million, or $12.07 per basic and $11.86 per diluted share, in the first nine months of 2016. The income per basic share computations are based on weighted average basic shares outstanding of 1,844,000 in the 2017 period and 1,823,000 in the 2016 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,856,000 in both the 2017 and 2016 periods.
 
Consolidated revenues of $112.6 million for the first nine months of 2017 were 2 percent higher than revenues of $110.2 million for the first nine months of 2016. This increase was primarily attributable to increased volumes of our fluid delivery and cardiovascular products.
 
Revenues by product line were as follows (in thousands):
 
 
 
Nine Months ended September 30,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Fluid Delivery
  $ 49,718  
  $ 47,183  
Cardiovascular
    36,523  
    35,649  
Ophthalmology
    11,030  
    12,417  
Other
    15,300  
    14,944  
Total
  $ 112,571  
  $ 110,193  
 
Cost of goods sold of $57.8 million for the first nine months of 2017 was $52,000 higher than in the comparable 2016 period. The primary contributors to the increase in our cost of goods sold were increased sales and manufacturing inefficiencies in the first quarter of 2017 partially offset by a favorable product sales mix. Our cost of goods sold in the first nine months of 2017 was 51.4 percent of revenues compared with 52.4 percent of revenues in the first nine months of 2016.
 
Gross profit of $54.7 million in the first nine months of 2017 was $2.3 million, or 4 percent, higher than in the comparable 2016 period. Our gross profit percentage in the first nine months of 2017 was 48.6 percent of revenues compared with 47.6 percent of revenues in the first nine months of 2016. The increase in gross profit percentage in the 2017 period compared to the 2016 period was primarily related to a favorable product sales mix partially offset by manufacturing inefficiencies in the first quarter of 2017.
 
 
15
 
 
Our first nine months 2017 operating expenses of $21.7 million were $860,000 higher than the operating expenses for the first nine months of 2016. This increase was comprised of a $948,000 increase in G&A and a $432,000 increase in Selling expenses partially offset by a $520,000 decrease in R&D expenses. The increase in G&A expenses for the first nine months of 2017 was principally attributable to increased compensation and outside services partially offset by decreased travel and depreciation. The increase in Selling expenses was primarily related to increased travel, commissions, outside services and compensation partially offset by reduced promotion costs. The decrease in R&D costs was primarily related to decreased outside services and supplies.
 
Operating income in the first nine months of 2017 increased $1.5 million to $33.0 million, a 5 percent increase from our operating income in the nine months ended September 30, 2016. Operating income was 29 percent of revenues in the first nine months of both 2017 and 2016.
 
Interest and dividend income for the first nine months of 2017 was $806,000, compared with $315,000 for the same period in the prior year. Increased levels of investment, increased interest rates and higher dividends were the primary reasons for the increase.
 
In 2016, our other income (expense) was primarily related to an additional impairment loss on one of our previously impaired long-term corporate bonds. In the first quarter of 2016, the market value of this corporate bond further declined. Therefore, we recorded an additional impairment loss on this bond of $345,000, reducing the carrying value of the bond to its market value at March 31, 2016. This bond was sold in the second quarter of 2016.
 
Income tax expense for the first nine months of 2017 was $5.8 million compared to income tax expense of $9.5 million for the same period in the prior year. The effective tax rate for the first nine months of 2017 was 17.3 percent, compared with 30.2 percent for the first nine months of 2016. The effective tax rate for the first nine months of 2017 was favorably impacted by a tax benefit of $5.3 million related to excess tax benefits from stock compensation as a result of the adoption of ASU 2016-09.
 
Liquidity and Capital Resources
 
At December 31, 2016, we had a $40.0 million revolving credit facility with a money center bank that could be utilized for the funding of operations and for major capital projects or acquisitions, subject to certain limitations and restrictions. We had no outstanding borrowings under our credit facility at December 31, 2016. At December 31, 2016, we were in compliance with all financial covenants in the credit facility.
 
On February 28, 2017, we replaced the revolving credit facility with a new $75.0 million revolving credit facility with the same bank. The new credit facility has similar operational, covenant and collateral characteristics as the prior facility. Interest under the new credit facility is to be assessed at one, two, three or six-month LIBOR, as selected by us, plus .875 percent. The new credit facility allows us to make advances until February 28, 2022. We had no outstanding borrowings under our new credit facility at September 30, 2017. The new credit facility contains various restrictive covenants, none of which is expected to impact our liquidity or capital resources. At September 30, 2017, we were in compliance with all financial covenants. We believe the bank providing the credit facility is highly-rated and that the entire $75.0 million under the credit facility is currently available to us.
 
 
16
 
 
At September 30, 2017, we had a total of $70.1 million in cash and cash equivalents, short-term investments and long-term investments, an increase of $16.0 million from December 31, 2016. The principal contributor to this increase was operating results.
 
Cash flows from operating activities of $37.1 million for the nine months ended September 30, 2017 were primarily comprised of net income plus the net effect of non-cash expenses, increases to accrued income and other taxes, accounts payable and accrued expenses partially offset by increases to accounts receivable. During the first nine months of 2017, we expended $7.6 million for the addition of property and equipment, $46.7 million for the purchase of investments, $7.7 million for shares tendered on stock-based compensation for tax withholding and $6.1 million for dividends. During the same period, maturities of investments generated $32.0 million.
 
At September 30, 2017, we had working capital of $99.8 million, including $21.0 million in cash and cash equivalents and $39.0 million in short-term investments. The $14.7 million increase in working capital during the first nine months of 2017 was primarily related to increases in short-term investments, accounts receivable and cash and cash equivalents. This increase was partially offset by increases in accrued income and other taxes and increases in accounts payable and accrued liabilities. The net increase in cash and short-term investments was primarily related to operating results. The increase in accounts receivable was primarily related to increased revenues for the third quarter of 2017 as compared to the fourth quarter of 2016. The increase in accrued income and other taxes is primarily related to accrued state income taxes. The increase in accounts payable and accrued liabilities is primarily related to timing of payments for replenishment of inventories, and operating expenditures. 
 
We believe that our $70.1 million in cash, cash equivalents, short-term investments and long-term investments, along with cash flows from operations and available borrowings of up to $75.0 million under our new credit facility, will be sufficient to fund our cash requirements for at least the foreseeable future, including the costs associated with the planned expansion of one of our manufacturing facilities. We believe that our strong financial position would allow us to access equity or debt financing should that be necessary. Additionally, we believe that our cash and cash equivalents, short-term investments and long-term investments, as a whole, will continue to increase during the remainder of 2017.
 
Forward-Looking Statements
 
Statements in this Management’s Discussion and Analysis and elsewhere in this Quarterly Report on Form 10-Q that are forward looking are based upon current expectations, and actual results or future events may differ materially. Therefore, the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved. Such statements include, but are not limited to, our effective tax rate for the remainder of 2017, our ability to fund our cash requirements for the foreseeable future with our current assets, long-term investments, cash flow and borrowings under the credit facility, the impact of the restrictive covenants in our credit facility on our liquidity and capital resources, our access to equity and debt financing, and the increase in cash, cash equivalents, and investments during the remainder of 2017. Words such as “expects,” “believes,” “anticipates,” “intends,” “should,” “plans,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements contained herein involve numerous risks and uncertainties, and there are a number of factors that could cause actual results or future events to differ materially, including, but not limited to, the following: changing economic, market and business conditions; acts of war or terrorism; the effects of governmental regulation; the impact of competition and new technologies; slower-than-anticipated introduction of new products or implementation of marketing strategies; implementation of new manufacturing processes or implementation of new information systems; our ability to protect our intellectual property; changes in the prices of raw materials; changes in product mix; intellectual property and product liability claims and product recalls; the ability to attract and retain qualified personnel; and the loss of, or any material reduction in sales to, any significant customers. In addition, assumptions relating to budgeting, marketing, product development and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic review which may cause us to alter our marketing, capital expenditures or other budgets, which in turn may affect our results of operations and financial condition.
 
 
17
 
 
Item 3.Quantitative and Qualitative Disclosures About Market Risk
 
For the quarter ended September 30, 2017, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2016 Form 10-K/A.
 
Item 4.  
Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2017. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting for the quarter ended September 30, 2017 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
 
 
18
 
 
PART II OTHER INFORMATION
 
Item 1. Legal Proceedings
 
From time to time, we may be involved in claims or litigation that arise in the normal course of business. We are not currently a party to any legal proceedings, which, if decided adversely, would have a material adverse effect on our business, financial condition, or results of operations .
 
Item 1A. Risk Factors
 
There were no material changes to the risk factors disclosed in our 2016 Form 10-K/A.
 
Item 6. Exhibits
 
Exhibit Number
 
Description
 
Atrion Corporation Nonqualified Deferred Compensation Plan
 
Amended and Restated Atrion Corporation 2006 Equity Incentive Plan (As last amended on August 14, 2017)
 
Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
 
Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
 
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
 
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
19
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Atrion Corporation
(Registrant)
 
 
 
 
 
Date: November 7, 2017
By:  
/s/ David A. Battat
 
 
 
David A. Battat
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
 
Date: November 7, 2017
By:  
/s/  Jeffery Strickland
 
 
 
Jeffery Strickland
 
 
 
Vice President and Chief Financial Officer
(Principal Accounting and   Financial Officer)
 

 
20
 
 
Exhibit Index
 
Exhibit Number
 
Description
 
Atrion Corporation Nonqualified Deferred Compensation Plan
 
Amended and Restated Atrion Corporation 2006 Equity Incentive Plan (As last amended on August 14, 2017)
 
Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
 
Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
 
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
 
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
21
 
 Exhibit 10.1
 
ATRION CORPORATION
NONQUALIFIED DEFERRED COMPENSATION PLAN
 
1.   Establishment of Plan . Atrion Corporation (the “Company”) hereby adopts and establishes this unfunded deferred compensation plan for a select group of key management or highly compensated employees of the Company and its Affiliates which shall be known as the Atrion Corporation Nonqualified Deferred Compensation Plan (the “Plan”).
 
2.   Purpose of Plan . The purpose of the Plan is to provide a select group of management or highly compensated employees (within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA) of the Company and its Affiliates who contribute significantly to the future business success of the Company with supplemental retirement income benefits through the deferral of Base Salary and Bonus Compensation and through Company contributions. This Plan provides for the deferral of compensation within the meaning of Section 409A and is intended to be operated in accordance with the applicable provisions of said Section 409A.
 
3.   Definitions .
 
3.1   “Acceleration Events” is defined in Section 11 hereof.
 
3.2   “Account” means a hypothetical bookkeeping account or accounts established in the name of each Participant and maintained by the Company to reflect each Participant’s interests under the Plan.
 
3.3   “Affiliate” means any corporation, trade, or business which is treated as a single employer with the Company under Sections 414(b) or 414(c) of the Code and any other entity designated by the Committee as an “Affiliate” for purposes of the Plan.
 
3.4   “Base Salary” means the annual rate of base pay paid by the Company or an Affiliate to or for the benefit of the Participant for services rendered.
 
3.5   “Beneficiary” means any person or entity, designated in accordance with Section 16.7 , entitled to receive benefits which are payable upon or after a Participant’s death pursuant to the terms of the Plan.
 
3.6   “Board” means the Board of Directors of the Company, as constituted from time to time.
 
3.7   “Bonus Compensation” means any cash compensation earned by a Participant for services rendered by a Participant under any bonus or cash incentive plan maintained by the Company or an Affiliate.
 
3.8   “Change in Control” means the first to occur of any of the following events:
 
(a)   the date one person (or more than one person acting as a group) acquires ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided that a Change in Control shall not occur if any person (or more than one person acting as a group) owns more than fifty percent (50%) of the total fair market value or total voting power of the Company’s stock and acquires additional stock;
 
(b)   the date one person (or more than one person acting as a group) acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition) ownership of the Company’s stock possessing thirty percent (30%) or more of the total voting power;
 
(c)   the date a majority of the members of the Board are replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election; or
 
(d)   the date one person (or more than one person acting as a group) acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition) assets from the Company that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control under this subsection when there is a transfer to an entity that is controlled by the stockholders of the transferring corporation immediately after the transfer.
 
 
1
 
 
Notwithstanding the foregoing, a Change in Control shall not occur unless such transaction constitutes a change in the ownership of the Company, a change in the effective control of the Company, or a change in the ownership of a substantial portion of the Company’s assets under Section 409A.
 
3.9   “Claimant” has the meaning set forth in Section 17 .
 
3.10   “Code” means the U.S. Internal Revenue Code of 1986, as amended, or any successor statute, and the Treasury Regulations and other authoritative guidance issued thereunder.
 
3.11   “Committee” means the Compensation Committee of the Board.
 
3.12    “Company” means Atrion Corporation, a Delaware corporation, or any successor thereto.
 
3.13   “Deferral Election” means an election by an Eligible Employee to defer Base Salary or Bonus Compensation. A Participant shall make new Deferral Elections for every Plan Year.
 
3.14   “Determination Date” means the last Valuation Date of the week preceding the payment date.
 
3.15   “Disabled or Disability” means that a Participant is: (a) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; (b) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or its Affiliates; or (c) determined to be totally disabled by the Social Security Administration.
 
3.16   “Distribution Date” means a date specified by a Participant in his or her Election Form for the payment of all or a portion of such Participant’s Account.
 
3.17   “Effective Date” means September 1, 2017.
 
3.18   “Election Form” means the form, which may be in electronic format, established from time to time by the Committee for making Deferral Elections under the Plan. The Election Form includes the percentage of Base Salary or Bonus Compensation to be deferred (subject to minimum and maximum percentages established by the Committee); the Distribution Date; and the form of distribution (lump sum or installments). Each Election Form shall be completed in accordance with such procedures as established by the Committee and shall become irrevocable as of the last day of the Election Period.
 
3.19   “Election Period” means the period established by the Committee with respect to each Plan Year during which Deferral Elections for such Plan Year must be made in accordance with the requirements of Section 409A, as follows:
 
(a)   Except as provided in (b), (c), and (d) below, the Election Period shall end no later than the last day of the Plan Year immediately preceding the Plan Year to which the Deferral Election relates.
 
(b)   If any Bonus Compensation constitutes “performance-based compensation” within the meaning of Treas. Reg. Section 1.409A-1(e), then the Election Period for such amounts shall end no later than six (6) months before the end of the Plan Year during which the Bonus Compensation is earned (and in no event later than the date on which the amount of the Bonus Compensation becomes readily ascertainable).
 
(c)   The Election Period for newly Eligible Employees shall end no later than thirty (30) days after the Employee first becomes eligible to participate in the Plan and shall apply only with respect to compensation earned after the date of the Deferral Election.
 
(d)   The Election Period for Deferral Elections for Bonus Compensation payable for each plan year under the Atrion Corporation Short-Term Incentive Compensation Plan shall end on the September 30 preceding the next Plan Year.
 
 
2
 
 
3.20   “Elective Deferrals” means Base Salary deferrals and Bonus Compensation deferrals.
 
3.21   “Eligible Employee” means an Employee who is selected by the Committee to participate in the Plan. Participation in the Plan is limited to a select group of key management or highly compensated employees of the Company and its Affiliates.
 
3.22   “Employee” means an employee of the Company or any Affiliate.
 
3.23   “Entry Date” means, with respect to an Eligible Employee, the first day of the pay period commencing on or following the effective date of such Eligible Employee’s participation in the Plan.
 
3.24   “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
 
3.25   “FICA Amount” has the meaning set forth in Section 11.3 .
 
3.26   “401(k) Plan” means the Atrion Corporation 401(k) Savings Plan.
 
3.27   “Investment Options” an investment fund, index, or vehicle selected by the Committee and made available to Participants for the deemed investment of their Accounts.
 
3.28   “Make-Up Contribution” has the meaning set forth in Section 6 .
 
3.29   “Participant” means an Eligible Employee who elects to participate in the Plan by filing an Election Form in accordance with Section 5.1 and any former Eligible Employee who continues to be entitled to a benefit under the Plan.
 
3.30   “Payment Event” has the meaning set forth in Section 9.1 .
 
3.31    “Plan Year” means the twelve (12) consecutive month period which begins on January 1 and ends on the following December 31 except the first Plan Year which begins on September 1, 2017 and ends on December 31, 2017.
 
3.32   “Re-deferral Election” has the meaning set forth in Section 5.4 .
 
3.33   “Section 409A” means Section 409A of the Code and the regulations promulgated thereunder.
 
3.34   “Separation from Service” means the termination of the Participant's employment with the Company and its Affiliates for any reason, other than death or Disability, as determined in accordance with Section 409A. Whether a Separation from Service takes place is determined based on the facts and circumstances surrounding the termination of the Participant's employment and whether the Company and the Participant intended for the Participant to provide significant services for the Company or its Affiliates following such termination. A change in the Participant's employment status will not be considered a Separation from Service if:
 
 
3
 
 
(a)   the Participant continues to provide services as an Employee of the Company or Affiliate at an annual rate that is twenty percent (20%) or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is twenty percent (20%) or more of the average annual remuneration earned during the final three full calendar years of employment (or, if less, such lesser period), or
 
(b)   the Participant continues to provide services to the Company or an Affiliate in a capacity other than as an Employee at an annual rate that is fifty percent (50%) or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or if employed less than three years, such lesser period) and the annual remuneration for such services is fifty percent (50%) or more of the average annual remuneration earned during the final three full calendar years of employment (or if less, such lesser period).
 
3.35   “Specified Employee” has the meaning set forth in Section 409A(a)(2)(B)(i) of the Code and Treas. Reg. Section 1.409A-1(i).
 
3.36   “Specified Employee Distribution Date” has the meaning set forth in Section 9.4 .
 
3.37   “State, Local, and Foreign Tax Amount” has the meaning set forth in Section 11.6 .
 
3.38   “Unforeseeable Emergency” means a severe financial hardship of the Participant resulting from (a) an illness or accident of the Participant, the Participant’s spouse, the Participant’s beneficiary, or the Participant’s dependent; (b) a loss of the Participant’s property due to casualty; or (c) such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee in accordance with, and subject to, Section 409A.
 
3.39   “Valuation Date” means each business day of the Plan Year.
 
4.   Eligibility; Participation .
 
4.1   Requirements for Participation . Before the beginning of each Plan Year (other than the first Plan Year), the Committee shall select those Employees who shall be Eligible Employees for such Plan Year. Any Eligible Employee may participate in the Plan commencing as of the Entry Date occurring on or after the date on which he or she becomes an Eligible Employee.
 
4.2   Election to Participate . An Eligible Employee may become a Participant in the Plan by making a Deferral Election in accordance with Section 5 .
 
4.3   Cessation of Participation . If a Participant ceases to be an Eligible Employee for a Plan Year, then the Participant’s Deferral Elections shall no longer be effective. However, such Participant’s Account shall continue to be credited with gains and losses until the applicable Determination Date.
 
5.   Election Procedures .
 
5.1   Deferral Election . An Eligible Employee may elect to defer Base Salary or Bonus Compensation by completing an Election Form and returning it to the Committee during the Election Period. The Election Form must specify:
 
(a)   The percentage of Base Salary or Bonus Compensation to be deferred (subject to any minimum and maximum percentages established by the Committee);
 
(b)   The Distribution Date for the Participant’s Account (subject to the provisions of the Plan);
 
(c)   The percentage or amount of the Participant’s Account to be allocated to each Investment Option available under the Plan; and
 
(d)   The form of distribution for the Participant’s Account (lump sum or installments).
 
 
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5.2   Base Salary Deferrals . A Participant may elect to defer receipt of no less than a minimum percentage and up to a maximum percentage of the Participant’s Base Salary for any Plan Year by making a Deferral Election in accordance with this Section 5 , with such minimum and maximum percentages to be established by the Committee. Base Salary deferrals shall be credited to a Participant’s Account on, or as soon as practicable after, the date the Base Salary otherwise would have been paid.
 
5.3   Bonus Compensation Deferrals . A Participant may elect to defer receipt of no less than a minimum percentage and up to a maximum percentage of the Participant’s Bonus Compensation for any Plan Year by making a Deferral Election in accordance with this Section 5 , with such minimum and maximum percentages to be established by the Committee. Bonus Deferrals shall be credited to a Participant’s Account on, or as soon as practicable after, the date the deferred Bonus Compensation otherwise would have been paid.
 
5.4   Re-deferrals and Changing the Form of Distribution . The Participant may make an election to re-defer all or a portion of the amounts in his or her Account until a later Distribution Date or to change the form of a distribution (a “Re-deferral Election”); provided that, the following requirements are met:
 
(a)   The Re-deferral Election is made at least twelve (12) months before the original Distribution Date;
 
(b)   The Distribution Date for the re-deferred amounts is at least five (5) years later than the original Distribution Date; and
 
(c)   The Re-deferral Election will not take effect for at least twelve (12) months after the Re-deferral Election is made.
 
For purposes of this Section 5.4 , all payments, other than installment payments, shall be treated as separate payments, and a series of installment payments shall be treated as one payment, under Section 409A. The provisions of this Section 5.4 are intended to comply with Section 409A and shall be interpreted in a manner consistent with the requirements thereof.
 
6.   Make-Up Contributions . The Company shall credit Make-Up Contributions to the Account of each Participant who is eligible to participate in the 401(k) Plan and who makes a Deferral Election for Base Salary hereunder for any Plan Year that results in a reduction in the Company's matching contributions for such Participant in the 401(k) Plan. The Make-Up Contributions for each Participant shall be equal to the amount by which the Company's matching contributions to the 401(k) Plan for such Participant are reduced as a result of the Participant's Deferral Election hereunder. The Make-Up Contributions shall be made no later than thirty (30) days after the Company’s total matching contributions to the 401(k) Plan for such Plan Year have been determined and made.
 
7.   Accounts .
 
7.1   Crediting or Debiting of Accounts . In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, amounts shall be credited or debited to a Participant’s Account in accordance with the following:
 
(a)   Each Participant may elect one or more of the Investment Options selected by the Committee for the purpose of crediting or debiting amounts to his or her Account. As necessary, the Committee may, in its sole discretion, discontinue, substitute, or add an Investment Option.
 
(b)   A Participant, in connection with his or her initial Deferral Election in accordance with Section 5.1 above, shall elect, on the Election Form, one (1) or more Investment Options (as described in Section 7.1(a) above) to be used to determine the amounts to be credited or debited to his or her Account. If a Participant does not elect any of the Investment Options as described in the previous sentence, the Participant’s Account shall be allocated to the Investment Option or Options determined by the Committee in its sole discretion. The Participant may (but is not required to) elect, by completing an Election Form in accordance with such rules and procedures established by the Committee, to add or delete one or more Investment Options to be used to determine the amounts to be credited or debited to his or her Account, or to change the portion of his or her Account allocated to each previously or newly elected Investment Option. If an election is made in accordance with the previous sentence, it shall apply as of the first business day deemed reasonably practicable by the Company, in its sole discretion, and shall continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. Notwithstanding the foregoing, the Company, in its sole discretion, may impose limitations on the frequency with which one (1) or more of the Investment Options elected in accordance with this Section 7.1(b) may be added or deleted by such Participant; furthermore, the Company, in its sole discretion, may impose limitations on the frequency with which a Participant may change the portion of his or her Account allocated to each previously or newly elected Investment Option.
 
(c)   In making any election described in this Section 7.1 , the Participant shall specify on the Election Form, in increments of one percent (1%), the percentage of his or her Account or Investment Option, as applicable, to be allocated or reallocated. 
 
(d)   Each Account (including Accounts from which payments are being made in installments) shall be adjusted for gains and losses based on the performance of the Investment Options selected. Gains and losses shall be computed on each Valuation Date. The amount paid to a Participant on the payment date shall be determined as of the applicable Determination Date.
 
 
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7.2   Nature of Accounts . Accounts are not actually invested in any Investment Option, and Participants do not have any real or beneficial ownership in any Investment Option. Each Investment Option is solely a device for the measurement and determination of the amounts to be paid to the Participant pursuant to the Plan, and a Participant’s Account shall not constitute or be treated as a trust fund of any kind.
 
7.3   Statements . Each Participant shall be provided with statements setting out the amounts in his or her Account which shall be delivered quarterly or at such other intervals as determined by the Committee.
 
8.   Vesting of Base Salary Deferrals, Bonus Compensation Deferrals, and Make-Up Contributions . Participants shall be fully vested at all times in their Base Salary deferrals, their Bonus Compensation deferrals, and Make-Up Contributions, and any earnings thereon.
 
9.   Payment of Participant Accounts .
 
9.1   In General . Payment of a Participant’s Account shall be made (or commence, in the case of installments) on the earliest to occur of the following events (each a “Payment Event”):
 
(a)   The Distribution Date specified in the Participant’s Deferral Election; provided that, the Participant must select from among the available Distribution Dates designated by the Committee and set forth in the Election Form;
 
(b)   The Participant’s Separation from Service;
 
(c)   The Participant’s death;
 
(d)   The Participant’s Disability; and
 
(e)   The occurrence of a Change in Control.
 
9.2   Timing of Valuation . The value of a Participant’s Account on the payment date shall be determined as of the applicable Determination Date.
 
9.3   Timing of Payments . Except as otherwise provided in this Section 9 , payments shall be made or commence within thirty (30) days following a Payment Event and installment payments shall be made annually on such date as determined by the Committee.
 
9.4   Timing of Payments to Specified Employees . Notwithstanding anything in the Plan to the contrary, if a Participant is a Specified Employee as of the date of his or her Separation from Service, then no distribution of such Participant’s Account shall be made upon the Participant’s Separation from Service until the first day of the seventh month following the Participant’s Separation from Service or, if earlier, upon the date of the Participant’s death (the “Specified Employee Distribution Date”). Any payments to which a Specified Employee otherwise would have been entitled under the Plan during the period between the Participant’s Separation from Service and the Specified Employee Distribution Date shall be accumulated and paid in a lump sum payment on the Specified Employee Distribution Date.
 
9.5   Death . In the event a Participant dies while there are amounts remaining in his or her Account:
 
(a)    If, at the time of the Participant’s death, installment payments of the Participant’s Account have commenced pursuant to this Section 9 , such payments shall continue to the Participant’s Beneficiary at the same time and in the same form as if the Participant had remained alive until the last installment payment was scheduled to be made. Notwithstanding the foregoing, a Beneficiary may make a request for payment pursuant to Section 10 upon an Unforeseeable Emergency, applying the provisions of said Section 10 by substituting the term “Beneficiary” for “Participant” as the context requires thereunder.
 
(b)   If, at the time of the Participant’s death, payments of the Participant’s Account have not commenced pursuant to this Section 9 , the payments made pursuant to this Section 9.5 shall be made to the Participant’s Beneficiary in the form (lump sum or installments) elected by the Participant in accordance with the Participant’s last valid Election Form and shall be paid or commence within ninety (90) days after the Participant’s death. Notwithstanding the foregoing, a Beneficiary may make a request for payment pursuant to Section 10 upon an Unforeseeable Emergency or change the timing and form of payment pursuant to Section 9.6 applying the provisions of said Sections by substituting the term “Beneficiary” for “Participant” as the context requires thereunder.
 
 
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(c)   In the event a Beneficiary dies while there are amounts remaining in his or her Account, the remaining amounts shall be paid to the Beneficiary’s estate in a lump sum within ninety (90) days after the Beneficiary’s death.
 
9.6   Form of Payment . Each Participant shall specify in his or her Election Form the form of payment (lump sum or installments) for amounts in his or her Account that are covered by the election; provided that, if the Participant elects to have amounts paid in installments, the Participant must select from among the permissible installment schedules selected by the Committee and set forth in the Election Form. In the absence of a valid election with respect to the form of payment, amounts will be paid in a single lump sum.
 
9.7   Medium of Payment . All payments from a Participant’s Account shall be made in cash.
 
10.   Payments Due to Unforeseeable Emergency .
 
10.1   Request for Payment . If a Participant suffers an Unforeseeable Emergency, he or she may submit a written request to the Committee for payment of his or her Account.
 
10.2   No Payment If Other Relief Available . The Committee will evaluate the Participant’s request for payment due to an Unforeseeable Emergency taking into account the Participant’s circumstances and the requirements of Section 409A. In no event will payments be made pursuant to this Section 10 to the extent that the Participant’s hardship can be relieved: (a) through reimbursement or compensation by insurance or otherwise; or (b) by liquidation of the Participant’s assets, to the extent that liquidation of the Participant’s assets would not itself cause severe financial hardship; or (c) by the cessation of deferrals under the Plan.
 
10.3   Limitation on Payment Amount . The amount of any payment made on account of an Unforeseeable Emergency shall not exceed the amount reasonably necessary to satisfy the Participant’s financial need, including amounts necessary to pay any Federal, state or local income taxes or penalties reasonably anticipated to result from the payment, as determined by the Committee.
 
10.4   Timing of Payment . Payments shall be made from a Participant’s Account as soon as practicable and in any event within thirty (30) days following the Committee’s determination that an Unforeseeable Emergency has occurred and authorization of payment from the Participant’s Account.
 
10.5   Cessation of Deferrals . If a Participant receives payment on account of an Unforeseeable Emergency, the Participant may make no more Elective Deferrals for the remainder of the Plan Year.
 
11.   Acceleration Events . Notwithstanding anything in the Plan to the contrary, the Committee, in its sole discretion, may accelerate payment of all or a portion of a Participant’s Account upon the occurrence of any of the events (“Acceleration Events”) set forth in this Section 11 . The Committee’s determination of whether payment may be accelerated in accordance with this Section 11 shall be made in accordance with Treas. Reg. Section 1.409A-3(j)(4).
 
11.1   Domestic Relations Orders . The Committee may accelerate payment of a Participant’s Account to the extent necessary to comply with a domestic relations order (as defined in Section 414(p)(1)(B) of the Code).
 
11.2   Limited Cashouts . The Committee may accelerate payment of a Participant’s Account to the extent that (i) the aggregate amount in the Participant’s Account does not exceed the applicable dollar amount under Section 402(g)(1)(B) of the Code, (ii) the payment results in the termination of the Participant’s entire interest in the Plan and any plans that are aggregated with the Plan pursuant to Treas. Reg. Section 1.409A-1(c)(2), and (iii) the Committee’s decision to cash out the Participant’s Account is evidenced in writing no later than the date of payment.
 
11.3   Payment of Employment Taxes . The Committee may accelerate payment of all or a portion of a Participant’s Account (i) to pay the Federal Insurance Contributions Act (“FICA”) tax imposed under Sections 3010, 3121(a), and 3121(v)(2) of the Code (the “FICA Amount”), or (ii) to pay the income tax at source on wages imposed under Section 3401 of the Code or the corresponding withholding provisions of applicable state, local, or foreign tax laws as a result of the payment of the FICA Amount and the additional income tax at source on wages attributable to the pyramiding Section 3401 wages and taxes; provided, however, that the total payment under this Section 11.3 shall not exceed the FICA Amount and the income tax withholding related to the FICA Amount.
 
11.4   Payment Upon Income Inclusion . The Committee may accelerate payment of all or a portion of a Participant’s Account to the extent that the Plan fails to meet the requirements of Section 409A; provided that the amount accelerated shall not exceed the amount required to be included in income as a result of the failure to comply with Section 409A.
 
 
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11.5   Termination of the Plan . The Committee may accelerate payment of all or a portion of a Participant’s Account upon termination of the Plan in accordance with Treas. Reg. Section 1.409A-3(j)(4)(ix).
 
11.6   Payment of State, Local, or Foreign Taxes . The Committee may accelerate payment of all or a portion of a Participant’s Account for:
 
(a)   the payment of state, local, or foreign tax obligations arising from participation in the Plan that relate to an amount deferred under the Plan before the amount is paid or made available to the Participant (the “State, Local, and Foreign Tax Amount”); provided, however, the accelerated payment amount shall not exceed the taxes due as a result of participation in the Plan, or
 
(b)   the payment of income tax at source on wages imposed under Section 3401 of the Code as a result of such payment and the payment of the additional income tax at source on wages imposed under Section 3401 of the Code attributable to the additional Section 3401 wages and taxes; provided however, the accelerated payment amount shall not exceed the aggregate of the State, Local, and Foreign Tax Amount and the income tax withholding related to such amount.
 
11.7   Certain Offsets . The Committee may accelerate payment of all or a portion of the Participant’s Account to satisfy a debt of the Participant to the Company or an Affiliate incurred in the ordinary course of the service relationship between the Company and the Participant; provided, however, the amount accelerated shall not exceed Five Thousand and No/100 Dollars ($5,000.00) and the payment shall be made at the same time and in the same amount as the debt otherwise would have been due and collected from the Participant.
 
11.8   Bona Fide Disputes as to Right to Payment . The Committee may accelerate payment of all or a portion of a Participant’s Account where the payment is part of a settlement between the Company or an Affiliate and the Participant of an arm’s length, bona fide dispute as to the Participant’s right to the deferred amount.
 
11.9   Ethics or Conflicts of Interest . The Committee may accelerate payment of all or a portion of a Participant’s Account to comply with bona fide foreign ethics or conflicts of interest law.
 
11.10   Federal Debt Collection Laws . The Committee may accelerate payment of all of a portion of a Participant’s Account to comply with federal debt collection laws.
 
12.   Payments to Beneficiaries. Notwithstanding any other provision of the Plan, the Committee may accelerate the payment of all or a portion of a Participant’s Account in connection with the death, Disability, or Unforeseeable Emergency of a Beneficiary who has become entitled to payment of a Participant’s Account under the Plan pursuant to Section 16.7 hereof. Payments made pursuant to this Section 12 shall be subject to the same terms and conditions as payments made to Participants pursuant to Section 9 hereof.
 
13.   Section 162(m) of the Code . If the Committee reasonably anticipates that if a payment were made as scheduled under the Plan it would result in a loss of the Company’s tax deduction due to the application of Section 162(m) of the Code, such payment can be delayed and paid (a) during the Participant’s first taxable year in which the Committee reasonably anticipates that the Company’s tax deduction will not be limited or eliminated by the application of Section 162(m) of the Code or (b) subject to Section 9.4 , during the period beginning with the Participant’s Separation from Service and ending on the later of the last day of the Company’s taxable year in which the Participant separates from service or the 15th day of the third month following the Participant’s Separation from Service. Notwithstanding the foregoing, no payment under the Plan may be deferred in accordance with this Section 13 unless all scheduled payments to the Participant that could be delayed in accordance with Treas. Reg. Section 1.409A-2(b)(7)(i) are also delayed.
 
14.   Plan Administration .
 
14.1   Administration by Committee . The Plan shall be administered by the Committee which shall have the authority to:
 
(a)   construe and interpret the Plan and apply its provisions;
 
 
8
 
 
(b)   promulgate, amend, and rescind rules and regulations relating to the administration of the Plan;
 
(c)   authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan;
 
(d)   determine minimum or maximum percentages or amounts that Participants may elect to defer under the Plan;
 
(e)   select, subject to the limitations set forth in the Plan, those Employees who shall be Eligible Employees;
 
(f)   evaluate whether a Participant who has requested payment from his or her Account on account of an Unforeseeable Emergency has experienced an Unforeseeable Emergency and the amount of any payment necessary to satisfy the Participant’s emergency need;
 
(g)   calculate deemed investment gains and losses;
 
(h)   interpret, administer, reconcile any inconsistency in, correct any defect in, and supply any omission in the Plan and any instrument, Election Form, or agreement relating to the Plan; and
 
(i)   exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administration of the Plan.
 
14.2   Non-Uniform Treatment . The Committee’s determinations under the Plan need not be uniform and any such determinations may be made selectively among the Participants. Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations with regard to the terms or conditions of any Elective Deferrals.
 
14.3   Committee Decisions Final . Subject to Section 17 , all decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on the Company and the Participants, unless such decisions are determined by a court having jurisdiction to be arbitrary and capricious.
 
14.4   Indemnification . No member of the Committee or any designee shall be liable for any action, failure to act, determination, or interpretation made in good faith with respect to the Plan, except for any liability arising from his or her own willful malfeasance, gross negligence, or reckless disregard of his or her duties.
 
15.   Amendment and Termination . The Board may, at any time, and in its discretion, alter, amend, modify, suspend, or terminate the Plan or any portion thereof; provided, however, that no such amendment, modification, suspension, or termination shall, without the consent of a Participant, adversely affect such Participant’s rights with respect to amounts credited to or accrued in his or her Account, and provided, further, that, no payment of benefits shall occur upon termination of the Plan unless the requirements of Section 409A have been met.
 
16.   Miscellaneous .
 
16.1   No Employment or Other Service Rights . Nothing in the Plan or any instrument executed pursuant hereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate or interfere in any way with the right of the Company or any Affiliate to terminate the Participant’s employment or service at any time with or without notice and with or without cause.
 
 
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16.2   Tax Withholding . The Company and its Affiliates shall have the right to deduct from any amounts credited or otherwise payable under the Plan any federal, state, local, or other applicable taxes required to be withheld.
 
16.3   Governing Law . The Plan shall be administered, construed, and governed in all respects under and by the laws of Texas, without reference to the principles of conflicts of law (except and to the extent preempted by applicable Federal law).
 
16.4   Section 409A . The Company intends that the Plan comply with the requirements of Section 409A, and the Plan shall be operated and interpreted consistent with that intent. Notwithstanding the foregoing, the Company makes no representation that the Plan complies with Section 409A and shall have no liability to any Participant for any failure to comply with Section 409A. This Plan shall constitute an “account balance plan” as defined in Treas. Reg. Section 31.3121(v)(2)-1(c)(1)(ii)(A). For purposes of Section 409A, all amounts deferred under this Plan shall be aggregated with amounts deferred under other account balance plans.
 
16.5   General Assets . All amounts provided under the Plan shall be paid from the general assets of the Company and no separate fund shall be established to secure payment.
 
16.6   No Warranties . Neither the Company nor the Committee warrants or represents that the value of any Participant’s Account will increase. Each Participant assumes the risk in connection with the deemed investment of his or her Account.
 
16.7   Beneficiary Designation . Each Participant under the Plan may from time to time name any Beneficiary or Beneficiaries to receive the Participant’s interest in the Plan in the event of the Participant’s death. Each designation will revoke all prior designations by the same Participant, shall be in a form reasonably prescribed by the Committee, and shall be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. If a Participant fails to designate a Beneficiary, then the Participant’s designated Beneficiary shall be deemed to be the Participant’s estate.
 
16.8   No Assignment . Neither a Participant nor any other person shall have any right to sell, assign, transfer, pledge, anticipate, or otherwise encumber, transfer, hypothecate, or convey any amounts payable hereunder prior to the date that such amounts are paid (except for the designation of beneficiaries pursuant to Section 16.7 ).
 
16.9   Expenses . The costs of administering the Plan shall be paid by the Company.
 
16.10   Severability . If any provision of the Plan is held to be invalid, illegal, or unenforceable, whether in whole or in part, such provision shall be deemed modified to the extent of such invalidity, illegality, or unenforceability and the remaining provisions shall not be affected.
 
16.11   Headings and Subheadings . Headings and subheadings in the Plan are for convenience only and are not to be considered in the construction of the provisions hereof.
 
17.   Claims Procedures .
 
17.1   Filing a Claim . Any Participant or other person claiming an interest in the Plan (the “Claimant”) may file a claim in writing with the Committee. The Committee shall review the claim itself or appoint an individual or entity to review the claim.
 
17.2   Claim Decision . The Claimant shall be notified within ninety (90) days after the claim is filed whether the claim is approved or denied, unless the Committee determines that special circumstances beyond the control of the Committee require an extension of time, in which case the Committee may have up to an additional ninety (90) days to process the claim. If the Committee determines that an extension of time for processing is required, the Committee shall furnish written or electronic notice of the extension to the Claimant before the end of the initial ninety (90) day period. Any notice of extension shall describe the special circumstances necessitating the additional time and the date by which the Committee expects to render its decision.
 
 
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17.3   Notice of Denial . If the Committee denies the claim, it must provide to the Claimant, in writing or by electronic communication, a notice which includes:
 
(a)   The specific reasons for the denial;
 
(b)   Specific reference to the pertinent Plan provisions on which such denial is based;
 
(c)   A description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or information is necessary;
 
(d)   A description of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA following a denial of the claim on appeal; and
 
(e)   If an internal rule was relied on to make the decision, either a copy of the internal rule or a statement that this information is available at no charge upon request.
 
17.4   Appeal Procedures . A request for appeal of a denied claim must be made in writing to the Committee within sixty (60) days after receiving notice of denial. The decision on appeal will be made within sixty (60) days after the Committee’s receipt of a request for appeal, unless special circumstances require an extension of time for processing, in which case a decision will be rendered not later than one hundred twenty (120) days after receipt of a request for appeal. A notice of such an extension must be provided to the Claimant within the initial sixty (60) day period and must explain the special circumstances and provide an expected date of decision. The reviewer shall afford the Claimant an opportunity to review and receive, without charge, all relevant documents, information and records and to submit issues and comments in writing to the Committee. The reviewer shall take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim regardless of whether the information was submitted or considered in the initial benefit determination.
 
17.5   Notice of Decision on Appeal . If the Committee denies the appeal, it must provide to the Claimant, in writing or by electronic communication, a notice which includes:
 
(a)   The specific reasons for the denial;
 
(b)   Specific references to the pertinent Plan provisions on which such denial is based;
 
(c)   A statement that the Claimant may receive on request all relevant records at no charge;
 
(d)   A description of the Plan’s voluntary procedures and deadlines, if any;
 
(e)   A statement of the Claimant’s right to sue under Section 502(a) of ERISA; and
 
(f)   If an internal rule was relied on to make the decision, either a copy of the internal rule or a statement that this information is available at no charge upon request.
 
17.6   Claims Procedures Mandatory . The internal claims procedures set forth in this Section 17 are mandatory. If a Claimant fails to follow these claims procedures or to timely file a request for appeal in accordance with this Section 17 , the denial of the Claim shall become final and binding on all persons for all purposes.
 
* * * * * *
 
 
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Exhibit 10.2
 
 
AMENDED AND RESTATED
 
ATRION CORPORATION 2006 EQUITY INCENTIVE PLAN
 
(As last amended on August 14, 2017)
 
 
 
 
 
 
 
 
 
 
 
AMENDED AND RESTATED
 
ATRION CORPORATION 2006 EQUITY INCENTIVE PLAN
 
 
Atrion Corporation, a Delaware corporation (the "Company"), has established the Amended and Restated Atrion Corporation 2006 Equity Incentive Plan (the "Plan") for the benefit of Employees, Non-Employee Directors and Consultants.
 
The purposes of this Plan are (a) to recognize and compensate selected Employees, Non-Employee Directors and Consultants who contribute to the success of the Company and its Subsidiaries, (b) to attract and retain Employees, Non-Employee Directors and Consultants, and (c) to provide incentive compensation to Employees, Non-Employee Directors 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 Agreement" shall mean an agreement between the Company and a Participant setting forth the terms and conditions of an Award granted to a Participant.
 
"Board" shall mean the Board of Directors of the Company, as comprised from time to time.
 
"Change in 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 an Employee or engages a Consultant.
 
"Consultant" shall mean a professional or technical expert, consultant, advisor 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.
"Director" shall mean a member of the Board.
 
 
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"Dividend Equivalent" shall mean a right granted to a Participant under Article 9 of this Plan.
 
"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 may be selected to participate in the Plan.
 
"Employment Agreement" shall mean the employment, consulting or similar contractual agreement entered into by an Employee or a Consultant, as the case may be, and the Company governing the terms of the 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 any national securities exchange on which the shares of Common Stock are traded or, if no shares of Common Stock are traded on any such exchange on such date, then on the next preceding date on which any shares of Common Stock were traded on such exchange; and (ii) with respect to all other Awards, the closing sales price of a share of Common Stock on such date as reported by any national securities exchange on which the shares of Common Stock are traded or, if no shares of Common Stock are traded on any such exchange on such date, then on the next preceding date on which any shares of Common Stock were traded on such exchange; or (iii) if shares of Common Stock are not publicly traded on any exchange, the fair market value of a share of Common Stock as determined by the Committee acting in good faith and after consultation with independent advisors.
 
"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.
 
"Non-Employee Director" shall mean a Director who is not an Employee.
 
"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.
 
"Other Stock-Based Awards" shall mean a right granted to a Participant under Article 10 of this Plan.
 
"Participant" shall mean an Employee, Non-Employee Director 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.
 
 
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"Plan" shall mean the Amended and Restated 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.
 
"Termination of Employment" shall mean the date on which the employee-employer, consulting, contractual, service 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 employmentby 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 (subjectto 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, service 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 12.3, the aggregate number of shares of Common Stock that may be issued under the Plan is two hundred thousand (200,000) shares. The Company, during the term of the Plan, will at all times reserve and keep available such number of shares of Common Stock as shall be sufficient to satisfy the requirements of the Plan.
 
2.1.2   The maximum number of shares of Common Stock with respect to which Options may be granted or other Awards made to any individual in any calendar year shall not exceed thirty-five thousand (35,000) shares.
 
 
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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, Dividend Equivalents, Other Stock-Based Awards 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.
 
ARTICLE 3. ELIGIBILITY; GRANTS; AWARD AGREEMENTS
 
3.1   Eligibility. Any Employee, Non-Employee Director 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 Employees, Non-Employee Directors and Consultants shall receive Awards, whether the Employee, Non-Employee Director or Consultant will receive Options, Restricted Common Stock, Restricted Stock Units, Deferred Stock Units, Dividend Equivalents, SARs, Performance Units or
Other Stock-Based Awards, 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, Dividend Equivalents, Performance Units or Other Stock Based Awards to an 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 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 fiscalyear or other designated fiscal period. In determining the amount earned by such 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.
 
 
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3.4   Award Agreement. Upon the selection of an Employee, Non-Employee Director 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 sole discretion; provided, however, that, if applicable, the terms of such Award Agreement shall comply with the terms of such 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, if any, for Restricted Common Stock, Restricted Stock Units, Deferred Stock Units and Other Stock-Based Awards; the performance criteria for Performance Units; and the exercisability and vesting schedule, payment terms and such other terms and conditions of such Award that are consistent with the Plan, 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. 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 ($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.
 
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.
 
 
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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. TheParticipant 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 in 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 in 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.
 
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.
 
 
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5.2.3   In the event that the Option shall be exercised pursuant to Section 12.1 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   Unless otherwise determined by the Committee, the exercise price of an Option or portion thereof, including the amount of any withholding tax due, may be paid as follows:
 
5.2.4.1     In cash or by check;
 
5.2.4.2   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;
 
5.2.4.3   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;
 
5.2.4.4   Through an exercise complying with Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System; or
 
5.2.4.5   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 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 earliest 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.
 
 
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5.6.2   Non-Qualified Stock Options may be exercised up until their expiration date, unless the Committee provides otherwise in the Award Agreement.
 
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 performancebased 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 Employees, Non-Employee Directors 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 Employees, Non-Employee Directors 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 an Employee, Non-Employee Director 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 11.
 
6.2.4   Upon the selection of an Employee, Non-Employee Director 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 in 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.
 
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.
 
 
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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.
 
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. All distributions shall be made no later than March 15 th of the calendar year following the year, with respect to the Restricted Stock Units, in which such Restricted Stock Units vest or, with respect to Deferred Stock Units, in which the deferral period lapses. In the event ownership or issuance of the Common Stock is not feasible due to applicable exchangecontrols, securities regulations, tax laws or other provisions of applicable law, as determined by the Company in its sole discretion, the Participant, or, in the case of the Participant's death, the Participant's legal representative, shall receive cash proceeds in an amount equal to the value of the shares of Common Stock otherwise distributable to the Participant, net of tax withholding as provided in Section 12.5.
 
 
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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 Employees, Non-Employee Directors 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. 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, unless the Committee determines a higher base amount.
 
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 an Employee or Consultant that shall be exercisable during a specified period shall not exceed the number of shares of Common Stock that the Employee, Non-Employee Director or Consultantmay 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.
 
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.
 
 
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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 theCommittee 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 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 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. All payments shall be made no later than March 15 of the calendar year following the year in which the Performance Period ends.
 
ARTICLE 9. DIVIDEND EQUIVALENTS
 
9.1   Grant of Dividend Equivalents. The Committee is hereby authorized, in its sole discretion, to grant Dividend Equivalents to Employees, Non-Employee Directors and Consultants subject to such terms and conditions as may be selected by the Committee. Dividend Equivalents shall entitle the Participant to receive payments (in cash, Common Stock, other Awards or other property as determined in the discretion of the Committee) equivalent to the amount of cash dividends paid by the Company to holders of Common Stock. Dividend Equivalents may be granted on a free-standing basis or in connection with another Award. Dividend Equivalents granted in connection with another Award may be granted with respect to all or a portion of the number of shares of Common Stock subject to such Award. The Committee may provide that the Dividend Equivalents be paid or distributed when accrued or be deemed to have been reinvested in additional shares of Common Stock or otherwise reinvested; provided, however, that the terms of any reinvestment of Dividend Equivalents must comply with all applicable laws, rules and regulations, including, without limitation, Section 409A of the Code, and Dividend Equivalents (other than free-standing Dividend Equivalents) shall be subject to all conditions and restrictions of the underlying Awards to which they relate, unless otherwise provided by the Committee. Notwithstanding the foregoing, the Committee may not grant Dividend Equivalents to Participants in connection with grants of Options or SARs to such Participants.
 
ARTICLE 10. OTHER STOCK-BASED AWARDS
 
10.1   Grant of Other Stock-Based Awards . The Committee is authorized, subject to limitations under applicable law, to grant to Employees, Non-Employee Directors and Consultants such other Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of Common Stock, as deemed by the Committee to be consistent with the purposes of the Plan, including, without limitation, shares of Common Stock awarded purely as a "bonus" and not subject to any restrictions or conditions, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of Common Stock and other Awards valued by reference to book value of shares of Common Stock or the value of securities of or the performance of specified Subsidiaries. The Committee shall determine the terms and conditions of such Awards, which shall be evidenced an Award Agreement, pursuant to Section 3.4.
 
 
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ARTICLE 11. ADMINISTRATION
 
11.1   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.
 
11.2   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 Employees, Non-Employee Directors 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, Dividend Equivalents, Performance Units or Other Stock-Based Awards 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.
 
11.3   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 Committeemay, 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.
 
ARTICLE 12. MISCELLANEOUS PROVISIONS
 
12.1     Transferability.
 
12.1.1   No Award 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 12.1.1 shall prevent transfers by will or by the applicable laws of descent and distribution or as permitted in Section 12.1.2 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 thePlan. 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.
 
 
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12.1.2   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 an Award that is not an Incentive Stock Option or an SAR that is granted in relation to an Incentive Stock Option to family members, or one or more trusts or other entities for the benefit of orowned 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 such an Award and the transferred Award shall continue to be subject to the same terms and conditions as were applicable to the Award immediately before the transfer and shall be exercisable by the transferee according to the same terms as applied to the Participant.
 
12.2     Amendment, Suspension or Termination of this Plan.
 
12.2.1   Except as otherwise provided in this Section 12.2, 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. In no event may any Option or SAR be amended, other than pursuant to Section 12.3, to decrease theexercise or grant price thereof, be cancelled in conjunction with the grant of any new Option or SAR with a lower exercise or grant price, or otherwise be subject to any action that would be treated, under generally accepted accounting principles, as a "repricing" of such Option or SAR, 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 December 31, 2019.
 
12.2.2   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.
 
12.3   Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events.
 
12.3.1   In the event that any dividend (other than an ordinary cash dividend) or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split up, spin-off, combination, repurchase or other similar transaction or 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 shall, in such manner as it may deem equitable, adjust any or all of the following:
 
12.3.1.1     the maximum number of shares of Common Stock available for Awards;
 
12.3.1.2     the maximum number of shares of Common Stock subject to the Plan;
 
12.3.1.3     the number and kind of Company stock with respect to which an Award may be made under the Plan;
 
12.3.1.4     the number and kind of Company stock subject to an outstanding Award; and
 
12.3.1.5     the exercise price or purchase price with respect to any Award.
 
12.3.2   In addition, in the event of any 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 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:
 
 
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12.3.2.1   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;
 
12.3.2.2   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;
 
12.3.2.3   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;
 
12.3.2.4   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;
 
12.3.2.5   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
 
12.3.2.6   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.
 
12.3.3   Subject to Section 12.7, 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.
 
12.3.4   Notwithstanding the foregoing, no action pursuant to this Section 12.3 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, and no adjustment to an Option or SAR shall be made to the extent the same constitutes a "modification" within the meaning of Section 424(h)(3) of the Code, Regulation §1.424-1(a) thereunder or Section 409(A) of the Code or the regulations thereunder.
 
12.4   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 reason whatsoever, subject to the terms of any Employment Agreement entered into by the Participant and the Company.
 
 
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12.5   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 shall be authorized to establish procedures for election by Participants to satisfy such obligation for the payment of such taxes (i) by delivery of, or transfer of, shares of Common Stock to the Company or (ii) by directing the Company to retain shares of Common Stock otherwise deliverable under an Award. Shares of Common Stock withheld or delivered in accordance with this Section 12.5 shall be valued at Fair Market Value as of such date as may be specified in procedures established by the Committee.
 
12.6   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 Employmentoccurs 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.
 
 
 
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12.7     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, Dividend Equivalents, Performance Units or Other Stock-Based Awards 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 under 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.
 
12.8   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, Non-Employee Directors and Consultants, or (ii) to grant or assume options or other rights otherwise than under this Plan in connection with any proper corporate purpose 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.
 
12.9   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. No Award under this Plan (or modification thereof) shall provide for the deferral of compensation that violates Section 409A of the Code. If any provision of the Plan or an Award Agreement contravenes any regulations or Treasury guidance promulgated under Section 409A of the Code or could cause an Award to be subject to the interest and penalties under Section 409A of the Code, such provision of the Plan or any Award Agreement shall be modified to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A of the Code. Moreover, any discretionary authority that the Board or the Committee may have pursuant to the Plan shall not be applicable to an Award that is subject to Section 409A of the Code to the extent such discretionary authority will contravene Section 409A of the Code.
 
12.10   Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Plan.
 
12.11   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.
 
12.12   Effective Date. The Atrion Corporation 2006 Equity Incentive Plan first became effective on May 22, 2006. This Amended and Restated Atrion Corporation 2006 Equity Incentive Plan shall be effective on the date it is approved by the stockholders of the Company.
 
 
 
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Exhibit 31.1
 
Chief Exe cutive Officer Certification
 
I, David A. Battat, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q of Atrion Corporation;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and we have
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
 
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over the financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
 
 
 
Date: November 7, 2017
 
/s/  David A. Battat
 
 
 
David A. Battat
 
 
 
President and
Chief Executive Officer
 
 
 
 
Exhibit 31.2
 
Chief Financial Officer Certification
 
I, Jeffery Strickland, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q of Atrion Corporation;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and we have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material informatio n relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
 
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over the financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
 
 
 
Date: November 7, 2017
 
/s/ Jeffery Strickland  
 
 
 
Jeffery Strickland
 
 
 
Vice President and
Chief Financial Officer
 
 

 
 
Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES – OXLEY ACT OF 2002
 
Pursuant to 18 U.S.C. § 1350, the undersigned officer of Atrion Corporation (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
Date: November 7, 2017
 
/s/  David A. Battat
 
 
 
David A. Battat
 
 
 
President and
Chief Executive Officer
 
 
 
The foregoing certification is made solely for purpose of 18 U.S.C. § 1350 and not for any other purpose.
 
 
 
 
Exhibit 32.2
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES – OXLEY ACT OF 2002
 
Pursuant to 18 U.S .C. § 1350, the undersigned officer of Atrion Corporation (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
Date: November 7, 2017
 
/s/ Jeffery Strickland  
 
 
 
Jeffery Strickland
 
 
 
Vice President and
Chief Financial Officer
 
 
 
The foregoing certification is made solely for purpose of 18 U.S.C. § 1350 and not for any other purpose.