Exhibit 10.4
  

 
 
 
ATRION CORPORATION
SHORT-TERM INCENTIVE COMPENSATION PLAN

 
Effective January 1, 2013
 
(As last amended on March 11, 2019)
 
 
 
 
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ATRION CORPORATION SHORT-TERM INCENTIVE COMPENSATION PLAN
Introduction
 
Atrion Corporation (the “Corporation”) adopts this Atrion Corporation Short-Term
Incentive Compensation Plan (the “Plan”) effective as of January 1, 2013. The
purposes of the Plan are (1) to provide performance bonuses to selected
Executive Officers, Key Employees, and Critical-Needs Individuals whose
performance has a direct impact on the Corporation's objectives of achieving a
high level of annual profitability and sustained long-term growth; (2) to
attract and retain Executive Officers, Key Employees and Critical-Needs
Individuals; and (3) to maintain a corporate-wide pool of profits that will be
available to pay various types of performance bonuses, contractual bonuses,
holiday gifts, severance payments, moving expenses, other employment-related
expenses, and similar types of payments approved by the Corporate Board or the
Subsidiary Board.
 
The Plan is designed to provide annual performance bonuses to three groups:
 
●
Executive Officers
●
Key Employees
●
Critical-Needs Individuals
 
The Corporation intends the Plan to be an unfunded plan maintained primarily for
the purpose of providing incentive compensation to a select group of
individuals, which is exempt from the minimum participation, vesting and funding
standards of the Employee Retirement Income Security Act of 1974 (“ERISA”). The
Plan is designed to be unfunded within the meaning of Internal Revenue Code
(“IRC”) § 404(a)(5). If the Corporation sets aside monies in a separate account
to fund benefits due under the Plan, such monies will remain subject to claims
of the general creditors of the Corporation or any Subsidiary. The Corporation
reserves the right to interpret and operate the Plan accordingly, and to amend
the Plan as necessary to maintain its status as an unfunded incentive
compensation plan as defined under ERISA and the IRC and any other applicable
law, and to qualify for the tax deduction under IRC § 404(a)(5) for payments
made under the Plan. The Plan is designed to be a short-term deferral plan
within the meaning of IRC § 409A and will be administered accordingly, in
compliance with Treasury Regulations § 1.409A-1(b)(4).
 
 
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ATRION CORPORATION INCENTIVE COMPENSATION AND AWARDS PLAN
Table of Contents
 
ARTICLE 1 - DEFINITIONS
Page
1.1 Adjustment Factor for Subsidiary Profitability
1
1.2 Awards Pool
1
1.3 Board or Corporate Board
1
1.4 Board Chairman
1
1.5 Bonus
1
1.6 Bonus Allocation Formula
1
1.7 Compensation Committee
2
1.8 Corporation
2
1.9 Critical-Needs Individual
2
1.10 Discretionary Expenses
2
1.11 Effective Date
2
1.12 Employee
2
1.13 Employment
2
1.14 ERISA
3
1.15 Executive Officer
3
1.16 Formula Bonus
3
1.17 Formula Table
3
1.18 Independent Contractor
3
1.19 Individual Bonus Rate
3
1.20 Individual Performance
3
1.21 Individual Pool Points
3
1.22 IRC
3
1.23 Key Employee
3
1.24 Participant
4
1.25 Performance Year
4
1.26 Plan
4
1.27 Plan Administrator
4
1.28 Plan Year
4
1.29 Salary
4
1.30 Subsidiary
4
1.31 Subsidiary Board
4
1.32 Termination Date
4
1.33 Total Pool Points
4
 
 

 
 
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ARTICLE 2 - PLAN ADMINISTRATION
 
2.1 Purposes of the Awards Pool
5
2.2 Carry-Over of Unused Amounts
5
2.3 Duties of the Corporate Board
5
2.4 Duties of the Subsidiary Board
5
2.5 Duties of the Compensation Committee
5
2.6 Duties of the Board Chairman
5
 
 
ARTICLE 3 - CONTRIBUTIONS TO THE AWARDS POOL
 
3.1 Determination of each Subsidiary’s Contributions
6
3.2 Timing of Contributions
6
 
 
ARTICLE 4 - DETERMINATION AND PAYMENT OF ANNUAL BONUSES
 
4.1 Eligibility for Bonus
7
4.2 Determination of Annual Bonus Amounts
7
(a) Executive Officer’s Bonus
7
(b) Key Employee’s Bonus
7
(c) Critical-Needs Individual’s Bonus
7
4.3 Payment of Annual Bonuses
7
(a) Minimum Payment
7
(b) Bonuses for Executive Officers and Key Employees
8
(c) Bonuses for Critical-Needs Individuals
8
(d) Short-Term Deferral Plan
8
4.4 Vesting in Bonus Awards
8
 
 
ARTICLE 5 - AMENDMENT AND TERMINATION
 
5.1 Amendment of the Plan
9
5.2 Termination of the Plan
9
 
 
ARTICLE 6 - MISCELLANEOUS
 
6.1 Headings
10
6.2 Construction and Choice of Law
10
6.3 Severability
10
6.4 Effect of Bonuses on Other Plans
10
6.5 Status as an Unfunded Top-Hat Plan
10
6.6 Nonalienation
10
6.7 No Implied Rights
10
6.8 Contractual Limitation Period
10
 
 
ADDENDUM A Formula Table - Bonus Allocation Formula
 

 
 
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ARTICLE 1
Definitions
 
As used in the Plan, the following words and phrases and any derivatives thereof
will have the meanings set forth below unless the context clearly indicates
otherwise. Definitions of other words and phrases are set forth throughout the
Plan. Section references indicate sections of the Plan unless otherwise stated.
The masculine pronoun includes the feminine, and the singular number includes
the plural and the plural the singular, whenever applicable.
 
1.1 
“Adjustment Factor for Subsidiary Profitability” means a percentage that is a
component of the Bonus Allocation Formula based on one or more factors including
a Subsidiary’s profitability for a given Performance Year, a Subsidiary's
contribution to the Awards Pool in a Plan Year relative to the total of all such
contributions in that Plan Year, and accomplishments of a Subsidiary in
executing meaningful corporate transactions and addressing business risks and
other extraordinary items, as determined by the Subsidiary Board.
 
1.2 
“Awards Pool” means the aggregate amounts contributed by the Subsidiaries for
each Plan Year, which Atrion Corporation records and maintains in a separate
account and uses for the payment of Bonuses and Discretionary Expenses.
 
1.3 
“Board” or” Corporate Board” means the Board of Directors of Atrion Corporation.
 
1.4 
“Board Chairman” means the Chairman of the Board of Directors of Atrion
Corporation.
 
1.5 
“Bonus” means (a) for an Executive Officer, a performance bonus in an amount
equal to the Formula Bonus, as such amount may be adjusted by the Corporate
Board based on the recommendation of the Compensation Committee; (b) for a Key
Employee, a performance bonus in an amount equal to the Formula Bonus, as such
amount may be adjusted by the Subsidiary Board; and (c) for a Critical-Needs
Individual, a performance bonus in such amount as is determined by the
Subsidiary Board.
 
1.6 
“Bonus Allocation Formula” means the formula used to calculate Formula Bonuses
for Executive Officers and Key Employees, which is reflected in the Formula
Table, the steps in the determination of which are as follows:
 
 
1

 
  

Step 1: 
Salary X Individual Bonus Rate X Adjustment Factor for Subsidiary Profitability
= Individual Pool Points;
Step 2: 
Ratio of Individual Pool Points to Total Pool Points X total amount of the
Awards Pool = Preliminary Bonus Amount;
Step 3: 
Preliminary Bonus Amount X Individual Performance = Formula Bonus.
 
1.7 
“Compensation Committee” means the Compensation Committee of the Corporate
Board.
 
1.8 
“Corporation” means Atrion Corporation.
 
1.9 
“Critical-Needs Individual” means (a) a manager, director, supervisor, engineer,
or other Employee designated as such, who is not an Executive Officer or a Key
Employee but whose skills have special value and are relatively unique in the
labor market; or (b) an Independent Contractor (such as a member of an advisory
board), whom the Subsidiary Board selects to receive a Critical-Needs Individual
Bonus under Article 4 for a given Plan Year.
 
1.10 
“Discretionary Expenses” means the following expenses that may be paid from the
Awards Pool:
(a)
Various bonuses to be paid under employment agreements;
(b) 
Various types of special bonuses, including but not limited to signing bonuses,
relocation bonuses, safety bonuses, referral bonuses, quarterly bonuses, and
spot bonuses;
(c)
Holiday gifts in the form of cash or gift cards or merchandise;
(d)
Severance payments;
(e)
Various types of employment-related expenses;
(f) 
The expense amortization of each Subsidiary’s allocation of the cost of
restricted stock unit awards to its Employees, over the vesting period; and
(g) 
Such other payments and expenses as the Subsidiary Board determines to be
appropriate.
 
1.11 
“Effective Date” means January 1, 2013.
 
1.12 
“Employee” means an individual (a) who is regularly employed by the Corporation
or a Subsidiary as a common-law employee, and (b) who has FICA taxes withheld by
his or her employer.
 
1.13 
“Employment” means the period during which a Participant is employed as a
regular, full-time employee of the Corporation or a Subsidiary.
 
 
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1.14 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and regulations and rulings issued under ERISA.
 
1.15 
“Executive Officer” means the Chief Executive Officer of the Corporation and the
Chief Financial Officer of the Corporation.
 
1.16 
“Formula Bonus” means the performance bonus determined under the Bonus
Allocation Formula.
 
1.17 
“Formula Table” means the table set forth in Addendum A to this Plan that sets
forth the Bonus Allocation Formula.
 
1.18 
“Independent Contractor” means an individual who performs services for the
Corporation or a Subsidiary in a capacity other than that of an Employee.
 
1.19 
“Individual Bonus Rate” means a percentage that is a component of the Bonus
Allocation Formula as determined (a) for Executive Officers by the Compensation
Committee after taking into account the recommendation of the Board Chairman and
(b) for Key Employees by the Subsidiary Board.
 
1.20 
“Individual Performance” means a percentage that is a component of the Bonus
Allocation Formula which constitutes the rating assigned to a Participant for a
given Performance Year based on his or her performance as determined (a) for
Executive Officers by the Compensation Committee after taking into account the
recommendation of the Board Chairman and (b) for Key Employees by the Subsidiary
Board.
 
1.21 
“Individual Pool Points” means the number of points calculated for each eligible
Executive Officer and Key Employee for each Performance Year, determined as set
forth in Step 1 of the Bonus Allocation Formula.
 
1.22 
“IRC” means the Internal Revenue Code of 1986, as amended from time to time, and
regulations and rulings issued under the Code.
 
1.23 
“Key Employee” means an Employee other than an Executive Officer or a
Critical-Needs Individual, who is employed by the Corporation or a Subsidiary,
who has responsibility for the management, supervision, profitability, or growth
of all or part of the Subsidiary’s business operations, and who is eligible to
receive a Formula Bonus for a given Plan Year under Section 4.1.
 
 
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1.24 
“Participant” means an Executive Officer whom the Corporate Board has determined
is eligible to receive a Bonus for one or more Plan Years and a Key Employee or
Critical-Needs Individual whom the Subsidiary Board has determined is eligible
to receive a Bonus for one or more Plan Years.
 
1.25 
“Performance Year” means the 12 months ending on September 30 of each Plan Year.
 
1.26 
“Plan” means the Atrion Corporation Short-Term Incentive Compensation Plan, as
set forth in this document and as amended from time to time.
 
1.27 
“Plan Administrator” means the Subsidiary Board, unless the Subsidiary Board has
appointed an individual to serve in that role for purposes of any litigation
that has or may arise from this Plan.
 
1.28 
“Plan Year” means calendar year 2013 and each succeeding calendar year.
 
1.29 
“Salary” means a Participant's base salary for the Plan Year, determined without
regard to any bonus or award under this Plan or any benefits accrued under any
other deferred compensation plan, retirement plan or welfare benefit plan.
 
1.30 
“Subsidiary” means (a) Halkey-Roberts Corporation, (b) Quest Medical, Inc., (c)
Atrion Medical Products, Inc., and (d) any other company of which the
Corporation owns at least 80% of the outstanding common stock, which common
stock represents at least 80% of the total value of the stock of such company,
and which has been designated as a participant in the Plan.
 
1.31 
“Subsidiary Board” means a committee the members of which are the members of the
Boards of Directors of the participating Subsidiaries.
 
1.32 
“Termination Date” means the date (a) of termination of Employment in the case
of Participant who is an Employee, or (b) in the case of an Independent
Contractor, when he or she stops performing services for the Corporation and its
Subsidiaries. A Participant who is on an approved leave of absence is not
treated as terminated.
 
1.33 
“Total Pool Points” means the total of all Individual Pool Points.
 

 
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ARTICLE 2
Plan Administration
 
2.1 
Purposes of the Awards Pool. The Corporation will make, or cause to be made, the
following payments from the Awards Pool:
(a) 
Bonuses to Executive Officers in amounts determined by the Corporate Board;
(b) 
Bonuses to Key Employees in amounts determined by the Subsidiary Board;
(c) 
Bonuses to Critical-Needs Individuals in amounts determined by the Subsidiary
Board; and
(d) 
Discretionary Expenses.
 
2.2 
Carry-Over of Unused Amounts. In its sole discretion, the Corporation may carry
over from Plan Year to Plan Year amounts contributed to the Awards Pool with
respect to a Plan Year and may use such amounts for any purpose under the Plan
at such times as it considers proper.
 
2.3 
Duties of the Corporate Board. The Corporate Board will have the following
responsibilities for Plan administration:
(a)       Approve and adopt the Plan;
(b) 
Approve amendments to the Plan;
(c) 
Determine the amount and timing of Bonuses for Executive Officers for each Plan
Year; and
(d) 
Perform such other functions to be performed by it as set forth in the Plan.
 
2.4 
Duties of the Subsidiary Board. The Subsidiary Board will have the following
responsibilities for Plan administration:
(a) 
Determine each Subsidiary’s return-on-investment goal for each Performance Year,
at the 15% level or at a higher level that reflects a risk adjustment considered
appropriate for certain investments;
(b) 
Determine certain components of the Bonus Allocation Formula as provided in the
Plan;
(c) 
Determine each Subsidiary’s bonus sharing percentage;
(d) 
Determine the date or dates that each Subsidiary is to make contributions to the
Awards Pool;
(e) 
Determine the amount and timing of the Bonus for each eligible Key Employee for
each Plan Year;
(f) 
Determine the amount and timing of the Bonus for each eligible Critical-Needs
Individual for each Plan Year; and
(g) 
Perform such other functions to be performed by it as set forth in the Plan or
as may be directed by the Board.
  

2.5 
Duties of the Compensation Committee. The Compensation Committee will have the
responsibility to review the determinations by the Board Chairman of the Formula
Bonuses for Executive Officers, to make recommendations to the Corporate Board
with respect thereto, to determine certain components of the Bonus Allocation
Formula as provided in the Plan and to perform such other functions to be
performed by it as set forth in the Plan or as may be directed by the Board.
 
2.6
Duties of the Board Chairman. The Board Chairman, in addition to serving on the
Subsidiary Board, shall determine the Formula Bonuses for the Executive Officers
and report same to the Compensation Committee.
  

 
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ARTICLE 3
Contributions to the Awards Pool
 
3.1 
Determination of each Subsidiary’s Contributions. Subject to any adjustment that
the Subsidiary Board may make for any Plan Year, each Subsidiary will make
contributions to the Awards Pool in amounts determined by the Subsidiary Board
based on the following procedures for the month, calendar quarter, or the Plan
Year:
 
Step One – Determine each Subsidiary’s bonus hurdle amount:
 
(A)
(1)
The Subsidiary’s average investment for the Performance Year as determined by
the Subsidiary Board multiplied by
 
(2)
15% annual return requirement, or such higher percentage fixed by the
Subsidiary Board, equals
 
(3)

The Subsidiary’s return hurdle.
(B)
(1)

The Subsidiary’s return hurdle, plus
 
(2)

The Subsidiary’s charge for corporate expenses for the Performance Year as
 
 
determined by the executive officers of the Corporation, equals
 
(3)
The Subsidiary’s bonus hurdle amount.

Step Two – Determine each Subsidiary’s Contribution Amount:
 
(1)
(The Subsidiary’s pre-bonus operating income for the Performance Year minus the
Subsidiary’s bonus hurdle amount) multiplied by
 
(2)

15% or lower bonus sharing percentage assigned to the Subsidiary by the
Subsidiary Board, equals
 
(3)
The Subsidiary’s contribution for the period.

 
3.2 
Timing of Contributions. Each Subsidiary will make its contributions to the
Awards Pool on the dates determined by the Subsidiary Board.
 
 
6

 
 
ARTICLE 4
Determination and Payment of Annual Bonuses
 
4.1 
Eligibility for Bonus. The Corporate Board will determine which Executive
Officers are eligible to receive Bonuses, and the Subsidiary Board will
determine which Key Employees and which Critical-Needs Individuals are eligible
to receive Bonuses.
 
4.2 
Determination of Annual Bonus Amounts.
 
(a) 
Executive Officers Bonuses. A Formula Bonus will be determined for each eligible
Executive Officer for the Plan Year by the Board Chairman. The Board Chairman
shall advise the Compensation Committee of the Formula Bonus determined by him
for each such Executive Officer. The Compensation Committee will review such
Formula Bonuses, may recommend adjustments to the amount of such Formula Bonuses
and shall advise the Corporate Board of the determinations made by the Board
Chairman and of any recommendations it may have for adjustments to the Formula
Bonuses determined by the Board Chairman. The Corporate Board will determine the
amount of the Bonus to be paid to each eligible Executive Officer after taking
into consideration the Formula Bonuses determined by the Board Chairman and any
adjustments to the amount thereof as recommended by the Compensation Committee.
 
(b) 
Key Employees Bonuses. A Formula Bonus will be determined for each eligible Key
Employee for the Plan Year. The Subsidiary Board will determine the amount of
the Bonus to be paid to each eligible Key Employee after taking into
consideration the Formula Bonus and adjusting the amount to be paid for any
factors that the Subsidiary Board deems appropriate.
 
(c) 
Critical-Needs Individuals Bonuses. The Subsidiary Board will determine the
amount of each eligible Critical-Needs Individual’s Bonus for the Plan Year
based on his or her performance and any other factors the Subsidiary Board deems
appropriate.
 
4.3            
Payment of Annual Bonuses.
      

(a) 
Minimum Payment. On or before the December 31 of each Plan Year, the Subsidiary
Board, taking into account Bonuses for Key Employees and Critical-Needs
Individuals as well as Bonuses to Executive Officers, may determine the minimum
aggregate amount of Bonuses with respect to such Plan Year, and the prior Plan
Year regarding the deferred portion of any Bonuses for such prior Plan Year, to
be paid by the immediately following March 15, such minimum aggregate amount to
be subject to approval by the Corporate Board.
 
 
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(b) 
Bonuses for Executive Officers and Key Employees. For business reasons such as
retention, motivation, cash flow, and similar matters, the Corporate Board and
the Subsidiary Board may in their discretion cause there to be distributed to
some or all Executive Officers and Key Employees, respectively, a cash payment
of 75% of their Bonus on a date fixed by the Corporate Board in the case of the
Executive Officers and a date fixed by the Subsidiary Board in the case of Key
Employees, but in each case such date shall be no later than the April 15
immediately following the Plan Year, and a cash payment of the remaining 25% on
a date fixed by the Corporate Board in the case of the Executive Officers and a
date fixed by the Subsidiary Board in the case of Key Employees, but in each
case such date shall be no later than the next succeeding April 15. All
Executive Officers and Key Employees who are to receive Bonuses and who are not
selected for such deferred payment for a given Plan Year will receive 100% of
their Bonuses on a date fixed by the Corporate Board in the case of the
Executive Officers and a date fixed by the Subsidiary Board in the case of Key
Employees, but in each case such date shall be no later than the April 15
immediately following the Plan Year.
 
(c) 
Bonuses for Critical-Needs Individuals. Unless the Subsidiary Board determines
otherwise, the Bonuses for Critical-Needs Individuals will be paid in full on a
date fixed by the Subsidiary Board that is no later than the April 15
immediately following the Plan Year.
 
(d) 
Short-Term Deferral Plan. The Corporate Board and the Subsidiary Board will
strictly comply with the payment schedule described in this Section 4.3 to
preserve the Plan’s status as a short-term deferral plan within the meaning of
IRC § 409A.
 
4.4 
Vesting in Bonus Awards. No Participant will have any vested or legally binding
right in any type of Bonus, or a part thereof, until the date when such Bonus,
or such part thereof, is actually paid to such Participant. Notwithstanding any
other provision hereof, if a Participant’s Employment terminates before such
Participant actually receives payment of his or her Bonus, or such part thereof,
such Participant will forfeit the unpaid Bonus, or the unpaid part thereof, on
such Participant’s Termination Date. However, for an Executive Officer or Key
Employee who has had 25% of a Bonus withheld under Subsection 4.3(b), there will
be full vesting for the withheld amount upon his or her death or total and
permanent disability, and the Corporation will pay the amount withheld for a
deceased Participant to such Participant’s surviving legal spouse, if any, or,
if none, then to such Participant’s estate and for a disabled Participant to
such Participant.
 
 
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ARTICLE 5
Amendment or Termination of the Plan
 
5.1 
Amendment of the Plan. The Corporate Board may amend the Plan from time to time;
provided that no amendment (a) will have the effect of eliminating or reducing
any Plan benefit earned before the effective date of the amendment; or (b) will
cause any violation of any rule or requirement under IRC § 409A or any other
applicable law.
 
5.2 
Termination of the Plan. The Corporate Board may terminate all or any part of
the Plan at any time, subject to the restrictions stated in Section 5.1 above.
 
 
 
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ARTICLE 6
Miscellaneous
 
6.1 
Headings. The headings and subheadings in the Plan have been inserted for
convenient reference, and, to the extent any heading or subheading conflicts
with the text, the text will govern.
 
6.2 
Construction and Choice of Law. The Plan will be governed and construed in
accordance with the laws of the State of Delaware, except to the extent such
laws are preempted by ERISA or the IRC or any other federal law and excluding
Delaware’s choice of law principles, and all claims relating to or arising out
of this Plan or any violation of this Plan, whether sounding in contract, tort
of otherwise, will be governed by the laws of Delaware, excluding choice of law
principles.
 
6.3 
Severability. If any court of competent jurisdiction rules that any provision of
this Plan is unenforceable, the remaining provisions will remain in full force
and effect to the extent that deletion of the unenforceable provision does not
substantially alter the Plan's purposes.
 
6.4 
Effect of Bonuses on Other Plans. Except to the extent expressly stated in such
other plan, no Bonus payable under this Plan will be included in compensation
for any purpose under any other plan sponsored by the Corporation or any
Subsidiary, including but not limited to qualified and nonqualified retirement
plans, life insurance plans and other welfare benefit plans.
 
6.5 
Status as an Unfunded Top-Hat Plan. Notwithstanding any other provision of the
Plan, this Plan is adopted on the condition that, in the event of an audit or
other review, the Internal Revenue Service will find that the entire Plan meets
the requirements for an unfunded top-hat plan and short-term deferral plan under
applicable provisions of the IRC and ERISA. In the event any contrary
determination cannot be cured by revisions satisfactory to the Corporate Board,
the Corporate Board may in its discretion declare the adoption of the Plan, or
any part of the Plan, null and void. This Section 6.5 is not intended to require
the Corporation to submit this Plan to the IRS or to any other governmental
agency or department for approval.
 
6.6 
Non-alienation. No benefits payable under the Plan will be subject to the claim
or legal process of any creditor of any Participant by execution, levy,
garnishment, attachment, pledge, bankruptcy or otherwise. No Participant may
alienate, transfer, anticipate or assign any benefits under the Plan.
  

6.7 
No Implied Rights. Participation in the Plan will not give any Participant the
right to be retained in Employment or service as an Independent Contractor. No
person will have any right or interest in any portion of the Plan except as
specifically provided in the Plan.
 
6.8 
Contractual Limitation Period. If any active or former Employee, or any other
person whomsoever, asserts any claim against the Plan that is denied by the
Corporate Board or the Subsidiary Board, such person must file any lawsuit that
is based directly or indirectly on such claim denial no later than 180 days
after the date the Corporate Board or the Subsidiary Board, as applicable,
issues the written denial or such person will be forever barred from filing any
such lawsuit.
 
 
 
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