UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Exchange Act of 1934
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Preliminary Proxy Statement
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under §240.14a-12
ATRION CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Fee paid previously with preliminary materials
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Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11
![[MISSING IMAGE: lthd_atrion.jpg]](https://files.docoh.com/DEF 14A/0001104659-22-044797/lthd_atrion.jpg)
One Allentown Pkwy.
Allen, TX 75002
Tel 972-390-9800
![[MISSING IMAGE: lg_atrion.jpg]](https://files.docoh.com/DEF 14A/0001104659-22-044797/lg_atrion.jpg)
![[MISSING IMAGE: lg_atrioncorporation-4c.jpg]](/files/DEF 14A/0001104659-23-043239/lg_atrioncorporation-4c.jpg)
April 12, 202210, 2023
Dear Stockholder:
You are cordially invited to attend the 20222023 annual meeting of stockholders of Atrion Corporation to be held on Tuesday, May 24, 202223, 2023 at 10:00 a.m., Central Time, at our offices in Allen, Texas. A notice of the annual meeting and the Company’s proxy statement accompany this letter. The business to be conducted at the annual meeting is described in our proxy statement. We have also made a copy of our 20212022 Annual Report to Stockholders available with our proxy statement. We encourage you to read these materials because they contain important information about the Company.
Your vote is very important to all stockholders.
Thank you for your investment in and ongoingcontinued support of the Company.
Sincerely,
![[MISSING IMAGE: sg_davidbattat-bw.jpg]](https://files.docoh.com/DEF 14A/0001104659-22-044797/sg_davidbattat-bw.jpg){kind=small}
![[MISSING IMAGE: sg_davidbattat-bw.jpg]](/files/DEF 14A/0001104659-23-043239/sg_davidbattat-bw.jpg)
David A. Battat
President and Chief Executive Officer
President and Chief Executive Officer
ATRION CORPORATION
One Allentown Parkway
Allen, Texas 75002
Allen, Texas 75002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Atrion Corporation:
Notice is hereby given that the 20222023 annual meeting of stockholders of Atrion Corporation (the “Company”) will be held on Tuesday, May 24, 202223, 2023 at 10:00 a.m., Central Time, at the Company’s principal executive offices, One Allentown Parkway, Allen, Texas 75002, for the following purposes:
1.
Election of two Class IIII directors.
2.
Ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the year 2022.2023.
3.
Approval, on an advisory basis, of executive officer compensation.
4.
To conduct an advisory vote on the frequency of future advisory voting to approve executive officer compensation.
5.
Transaction of such other business as may properly come before the meeting.
The Board of Directors fixed the close of business on March 28, 202227, 2023 as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting and at any adjournment thereof.
By Order of the Board of Directors
Cindy Ferguson
Vice President and Chief Financial
Officer, Secretary, and Treasurer
April 12, 202210, 2023
IMPORTANT
WE HOPE YOU WILL VOTE AS SOON AS POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. TO VOTE YOUR SHARES, PLEASE REFER TO THE INSTRUCTIONS FOR VOTING IN THE COMPANY’S PROXY STATEMENT OR IN THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS OR PROXY CARD.
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i
ATRION CORPORATION
One Allentown Parkway
Allen, Texas 75002
Allen, Texas 75002
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY24, 202223, 2023
MAY
This proxy statement is being furnished to the stockholders of Atrion Corporation (sometimes referred to herein as “Atrion,” “we,” “us,” “our,” or the “Company”) in connection with the solicitation of proxies by our Board of Directors to be voted at the 20222023 annual meeting of stockholders to be held at the Company’s principal executive offices, One Allentown Parkway, Allen, Texas 75002 on Tuesday, May 24, 202223, 2023 at 10:00 a.m., Central Time, and at any adjournment of such meeting. The notice of annual meeting, proxy statement, and form of proxy and the Company’s 20212022 Annual Report are first being made available to stockholders on or about April 12, 2022.10, 2023.
PROXY STATEMENT SUMMARY
This summary highlights selected information in this proxy statement and certain other financial information. Please review this entire proxy statement and the accompanying letter to stockholders before voting. This proxy statement and the letter to stockholders are available at www.proxyvote.com.www.proxyvote.com.
About Atrion
Atrion (Nasdaq: ATRI) develops and manufactures products primarily for medical applications, targeting niche markets with particular emphasis on fluid delivery, cardiovascular, and ophthalmology applications. The Company is headquartered in Allen, Texas, with design and manufacturing facilities in Alabama, Florida, and Texas.
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Operating margin was 21.8%21.6%.
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Revenue was $165.0$183.5 million.
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EBITDA margin was 29%.(1)
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Earnings per diluted share were $18.18.$19.56.
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Cash flows from operating activities were $38.8$28.8 million.
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Dividends were increased for the 18th19th consecutive year.
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Returned $30.4$40.4 million to stockholders through dividends and stock repurchases.
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Total assets were $267.3$264.7 million at year end.
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Our three manufacturing facilities were operated continuously throughout the COVID-19 pandemic in 2021.pandemic.
Voting Matters and Board Recommendations
| Item | | | Voting Recommendation of the Board | | | Page References | |
| Election of two Class | | | FOR | | | | |
| Ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year | | | FOR | | | | |
| Approval, on an advisory basis, of executive officer compensation | | | FOR | | | | |
| Advisory vote on the frequency of future advisory voting to approve executive officer compensation | | | EVERY “1 YEAR” | | | |
(1)
EBITDA margin is a non-GAAP financial measure. For a reconciliation of this non-GAAP financial measure and EBITDA to their most comparable GAAP financial measures, see Appendix A below.
1
Additional important information about the meeting and voting can be found in the section entitled “General Information” beginning on page 5.
Governance Highlights
We believe that strong, sensible, and ethical corporate governance enhance stockholder value. Our governance practices include:
| Governance Practice | | | Description | | | Page References | |
| Director Independence | | | All of our directors, except our Chairman of the Board, are | | | | |
| Separate Chairman | | | We separate the roles of Chairman of the Board and Chief Executive | | | | |
| Director Attendance | | | | | | ||
| Director Resignation Policy | | | We have a resignation policy if a director fails to garner a majority of votes cast in his or her | | | | |
| Executive Session | | | Our independent directors meet regularly in executive session without management and non-independent directors | | | | |
| Independent Compensation Consultant | | | We have a fully independent compensation consultant | | | |
Diversity
Our employees, customers, and communities are highly diverse. Our Board consists of individuals with diverse and complementary business, leadership, personal, and financial expertise. One of our sixfive directors is a woman and Hispanic and another is a person of color. Additional information about our Board'sBoard’s diversity is set forth in the following charts and in the Board Diversity Matrixmatrices at page 11.11.
Our directors are:
![[MISSING IMAGE: tm223545d1-pc_directors4c.jpg]](https://files.docoh.com/DEF 14A/0001104659-22-044797/tm223545d1-pc_directors4c.jpg)
![[MISSING IMAGE: pc_directors-4c.jpg]](/files/DEF 14A/0001104659-23-043239/pc_directors-4c.jpg)
We have a highly diverse workforce-by gender, race or ethnicity, and education. Over half of our employees have at most a high school degree. Additionally, we do not have a mandatory retirement age because we think human beings do not have an expiration date when it comes to their abilities. Many of our employees have tenures with us ranging from 10 to 40 years. Our employees enjoy competitive wages, educational opportunities, and health and retirement benefits.
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Our workforce is:
![[MISSING IMAGE: tm223545d1-pc_workforce4c.jpg]](https://files.docoh.com/DEF 14A/0001104659-22-044797/tm223545d1-pc_workforce4c.jpg)
![[MISSING IMAGE: pc_workforce-4c.jpg]](/files/DEF 14A/0001104659-23-043239/pc_workforce-4c.jpg)
Executive Compensation Highlights
Atrion’s compensation program is designed to align the compensation of our executive officers with our performance and the interests of our stockholders and to provide the proper incentives to attract, retain, and motivate key personnel in a clear, transparent manner. In order to do this, our compensation program includes the following components:
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Base salaries, annual cash bonuses, and long-term incentives in the form of equity awards are the principal components of our compensation program;
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Base salaries are a significant component of our compensation program because they help us attract and retain executive officers and provide them with a level of assured compensation commensurate with their positions;
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Annual cash bonuses are based on meaningful Company performance metrics and generally can be modified upward or downward based on individual performance; and
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Long-term equity awards are intended to align the interests of our executive officers with our stockholders’ interests.
At our annual meeting of stockholders in 2021,2022, our stockholders approved, on an advisory basis, our executive compensation with approximately 97.5%98.5% of the shares present in person or by proxy at the meeting and entitled to vote being voted to approve the compensation of our executive officers. Based on the results of the stockholder vote and other factors, we believe our overall executive compensation program is aligned with the interests of our stockholders.
In summary, we compensate our executive officers as follows:
| Components of Compensation | | | Form of Compensation | | | Page References | |
| Base Salary | | | Annual Cash Salary | | | | |
| Annual Cash Incentives | | | Annual cash incentive based on Company and individual performance | | | | |
| Long-Term Equity Incentives | | | Stock Options, Restricted Stock, Stock Units, | | | |
We also adhere to several additional principles regarding executive compensation for our executive officers, which we believe highlight the strength of both our governance practices and our overall executive compensation program:
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| Additional Executive Compensation Principles | | | Description | | | Page References | |
| Stock Ownership | | | | | | ||
| Anti-Hedging, Anti-Pledging, and Clawback Policies | | | We have anti-hedging and anti-pledging policies and a clawback | | | | |
| No Single-Trigger Change in Control Agreements | | | | | | ||
| At-Will Employment | | | | | | ||
| | | | | | |||
| No Gross-Ups for §280G Excise Taxes Related to Change in Control Agreements | | | | | |
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GENERAL INFORMATION
Q:
What is the purpose of the annual meeting?
A:
At the annual meeting, our stockholders will consider and vote upon the following matters:
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election of two Class IIII directors;
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ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the year 2022; and2023;
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approval, on an advisory basis, of executive officer compensation; and
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to conduct an advisory vote on the frequency of future advisory voting to approve executive officer compensation.
Our stockholders will also transact such other business as may properly come before the meeting.
Q:
Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
A:
Q:
How can I get electronic access to the proxy materials?
A:
The Notice of Internet Availability provides you with instructions regarding how you may access and review on the Internet our proxy materials for the annual meeting.
Q:
Who is entitled to vote at the annual meeting?
A:
Stockholders Entitled to Vote. Stockholders of record at the close of business on March 28, 2022,27, 2023, the record date for the meeting, will be entitled to notice of, and to vote at, the annual meeting and at any adjournment thereof. At the close of business on the record date, we had outstanding and entitled to vote 1,795,1041,760,546 shares of common stock, our only voting securities. Holders of record of shares of common stock outstanding on the record date will be entitled to one vote for each share held of record on that date upon each matter presented to the stockholders to be voted upon at the meeting.
Registered Stockholders. If your shares are registered directly in your name with our transfer agent, you are considered, with respect to those shares, the stockholder of record, and we are providing the Notice of Internet Availability to you directly. As the stockholder of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to a third party, or to vote in person at the annual meeting.
Beneficial Owners. If your shares are held in the name of a broker, bank, or other nominee, you are considered the beneficial owner of those shares and the broker, bank, or other nominee is the record holder. As the beneficial owner, you have the right to direct your broker, bank, or other nominee how to vote, and you are also invited to attend the annual meeting. However, because you are not the record holder, you may not vote these shares in person at the annual meeting unless you follow the record holder’s procedures for obtaining a legal proxy. Under the rules of the New York Stock Exchange, brokers that have not received voting instructions from their customers 10 days prior to the meeting date may vote their customers’ shares in the brokers’ discretion on the “routine” items, which in most cases includes the ratification of the appointment of the independent registered public accounting firm. Under those rules, the election of directors and the advisory vote to approve our executive officer compensations are considered “non-routine” items, which means that your broker cannot vote your shares on these items without your direction.
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Q:
Can I attend the annual meeting in person?
A:
You are invited to attend the annual meeting if you are a registered stockholder or a beneficial owner
as of the record date. You must present a form of photo identification acceptable to us, such as a valid driver’s license or passport, to enter the meeting. In addition, if your shares are held by your broker, bank, or other nominee, please bring your Notice of Internet Availability or other evidence of stock ownership as of the record date. The meeting will begin promptly at 10:00 a.m., Central Time. Check-in will begin at 9:30 a.m., Central Time. Please allow ample time for the check-in procedures.
Q:
How can I vote my shares?
A:
Registered Stockholders. Registered stockholders may vote (i) by attending the annual meeting, (ii) by following the instructions in your Notice of Internet Availability for voting by telephone or on the Internet at www.proxyvote.com or (iii) by signing, dating, and mailing in a proxy card. Please note that the Internet and telephone voting facilities will close at 11:59 p.m., Eastern Time, on May 23, 2022.22, 2023.
Beneficial Owners. If you hold your shares through a broker, bank, or other nominee, that institution will instruct you as to how your shares may be voted by proxy, including whether telephone or Internet voting options are available. If you hold your shares through a broker, bank, or other nominee and would like to vote in person at the meeting, you must request a legal proxy from the broker, bank, or other nominee that holds your shares and present that proxy at the annual meeting to vote your shares.
Q:
If I sign, date, and return a proxy, how will it be voted?
A:
Unless you revoke your proxy instructions, as described in the answer to the question immediately below, shares of common stock represented by your proxy will be voted at the annual meeting as you specify over the Internet, by telephone or on the proxy card. If you do not specify how to vote your shares, the shares represented by your proxy will be voted “FOR” the election as directors of the nominees of the Board of Directors named herein; “FOR” ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the year 2022; and2023; “FOR” approval, on an advisory basis, of our executive officer compensation.compensation; and, on an advisory basis, to hold advisory voting to approve our executive officer compensation every “1 Year.” In addition, in their discretion the persons designated as proxies will vote upon such other business as may properly come before the meeting.
Q:
Can I change my vote?
A:
You may change your vote at any time prior to the vote at the annual meeting. To revoke your proxy instructions and change your vote if you are a holder of record, you must (i) attend the annual meeting and vote your shares in person, (ii) advise our Secretary at our principal executive office in writing before the proxy holders vote your shares, (iii) deliver later dated and signed proxy instructions, or (iv) cast a new vote by the Internet or by telephone (not later than 11:59 p.m., Eastern Time, on May 23, 2022)22, 2023). If your shares are held by a broker, bank, or other nominee, you must request instructions as to how to revoke your proxy from the broker, bank, or other nominee that holds your shares.
Q:
What happens if I decide to attend the annual meeting, but I have already voted or submitted a proxy covering my shares?
A:
You may attend the meeting and vote in person even if you have already voted or submitted a proxy. However, please be aware that attendance at the annual meeting will not, by itself, revoke a proxy. If a broker, bank, or other nominee holds your shares and you wish to attend the annual meeting and vote in person, you must obtain a legal proxy from the record holder of the shares giving you the right to vote the shares.
Q:
What is a quorum?
A:
A majority of our outstanding shares entitled to vote at the annual meeting as of the record date must be present in person or represented by proxy to have a quorum. Abstentions and broker non-votes will be counted as present and represented at the annual meeting for purposes of determining a quorum.
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Q:
What if I am a beneficial owner and do not give the nominee voting instructions?
A:
If your broker, bank, or other nominee holds your shares in its name and does not receive voting instructions from you, your broker, bank, or other nominee has discretion to vote these shares on certain routine matters but cannot vote on non-routine matters. The election of directors and advisory voting
to approve executive officer compensation and on the frequency of holding advisory voting to approve executive compensation are not deemed to be routine matters. Accordingly, your broker, bank, or other nominee will not be entitled to vote your shares on those matters unless voting instructions are received from you. Ratification of the appointment of Grant Thornton LLP is a routine matter, and your broker, bank, or other nominee is permitted to vote your shares even if you do not provide your broker, bank, or other nominee voting instructionsinstructions.
Q:
What votes are necessary to elect directors and approve the other items of business at the annual meeting?
A:
Election of Directors.Directors. A majority of votes cast with respect to each director’s election at the meeting is required to elect each director. A majority of the votes cast means that the number of votes cast “FOR” a director must exceed the number of votes cast “AGAINST” that director in order for the director to be elected. Abstentions and broker non-votes will have no effect on the election of directors.
Ratification of the Appointment of Grant Thornton LLP. Ratification of the appointment of Grant Thornton LLP requires the affirmative vote of a majority of the shares present, in person or by proxy, at the meeting and entitled to vote on such item. Abstentions will have the same effect as a negative vote. Because this is considered routine item, no broker non-votes will occur with respect to this item.
Approval, on an Advisory Basis, of our Executive Officer Compensation. Approval of this item requires the affirmative vote of a majority of the shares present, in person or by proxy, at the meeting and entitled to vote on such item. Abstentions will have the same effect as a negative vote, and broker non-votes will have no effect, on the voting to approve this item.
Advisory vote on the frequency of advisory voting to approve our executive officer compensation. With respect to this item, the frequency choice receiving the greatest number of votes cast will be considered to be the preference of our stockholders. Abstentions and broker non-votes will have no effect on this advisory vote.
Q:
Where can I find the voting results for the annual meeting?
A:
The voting results will be published in a current report on Form 8-K that will be filed with the SEC within four business days after the annual meeting. The Form 8-K will also be available on our website at www.atrioncorp.com.
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ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes: Class I, Class II, and Class III. Two Class IIII directors are to be elected at the annual meeting, to serve until the annual meeting of stockholders to be held in 20252026 and until the election and qualification of their successors. The nominees for election as Class IIII directors named below and all of the directors continuing in office after the annual meeting are currently members of our Board and with the exception of Maria Sainz, were previously elected by our stockholders. Unless otherwise directed, the persons named as proxies intend to vote all proxies “FOR” the election of the nominees named below. If such nominees, who have indicated their willingness to serve as directors if elected, are not candidates when the election occurs, proxies may be voted for the election of a substitute nominee or nominees proposed by the Board or the Board may reduce the number of directors to be elected.
The following information is furnished with respect to our Board of Directors’ nominees for election as directors and each director whose term will continue after the annual meeting:
Name, Age, Service as a Director of the Company,
Principal Occupation, Positions and Offices, Other Directorships, and Business Experience
Principal Occupation, Positions and Offices, Other Directorships, and Business Experience
Nominees for Election as Directors
Class I — Term Ending in 20232026
Emile A Battat
Mr. Battat, age 84,85, has been a director since 1987 and has served as Chairman of the Board of the Company since January 1998 and as Chairman of Halkey-Roberts Corporation, or Halkey-Roberts, one of our subsidiaries since October 1998. He has served as our executive Chairman since May 2011. Mr. Battat served as Chief Executive Officer of the Company from October 1998 until May 2011, as President of the Company from October 1998 until May 2007, and as Chairman or President of each of the Company’s subsidiaries, other than Halkey-Roberts, from October 1998 until May 2011. Mr. Battat holds Bachelor of Science and Master of Science degrees in Mechanical Engineering from Massachusetts Institute of Technology and a Master of Business Administration degree from Harvard University. He is an associate member of Sigma Xi, a scientific honor society. Mr. Battat’s many years of executive-level experience at other companies, his education and training, and his in-depth knowledge of the Company’s operations and finances gained through his 3334 years as a director and 13 years as our Chief Executive Officer enable him to provide our Board with strong and capable leadership.
Ronald N. Spaulding
Mr. Spaulding, age 58,59, has been a director since February 2006 and has been a private investor since May 2008. Prior to May 2008, Mr. Spaulding was the President of Worldwide Commercial Operations of Abbott Vascular and a Vice President and corporate officer of Abbott Laboratories, which he joined in April 2006 upon its acquisition of Guidant Corporation’s vascular intervention assets. Between 2005 and April 2006, Mr. Spaulding served as the President of International Operations of Guidant Corporation, a medical device manufacturer, and also served on the Guidant Management Committee from 2002 until 2005. From 2003 to 2005, he was the President of Europe, Middle East, Africa, and Canada of Guidant Corporation. From 2000 to 2003, Mr. Spaulding served as President of Guidant Corporation’s cardiac surgery business. Mr. Spaulding holds a Master of Science degree in Biomedical Engineering and a Bachelor of Science degree in Mechanical Engineering from the University of Miami. Mr. Spaulding’s over 21 years of healthcare experience, including service as an officer of publicly-held companies with medical device operations, his knowledge of regulatory and operational matters affecting the development and marketing of medical devices, and his educational background enable Mr. Spaulding to bring a valuable and unique perspective to our Board.
8
Directors Continuing in Office
Class II — Term Ending in 2024
Preston G. Athey
Mr. Athey, age 72,73, has been a director since March 2017 and a private investor since his retirement in January 2017 from T. Rowe Price Associates, Inc., a subsidiary of T. Rowe Price Group, Inc., a global investment management firm. Mr. Athey was employed by T. Rowe Price Associates, Inc. from 1978 until January 2017, serving from 1981 until January 2017 as a Vice President and from 1991 until 2014 as President and Portfolio Manager of T. Rowe Price Small-Cap Value Fund. He is a Certified Investment Counselor and also holds the Chartered Financial Analyst designation. Mr. Athey received a Bachelor of Arts degree from Yale University and a Master of Business Administration degree from Stanford University. Mr. Athey’s many years of experience as a securities analyst and equity portfolio manager and his keen interest in good corporate governance enable him to provide the Board of Directors with valuable financial and governance insight.
Hugh J. Morgan, Jr.
Mr. Morgan, age 93,94, has been a director since 1988 and a private investor since 2003. He served as Chairman of the Board of National Bank of Commerce of Birmingham from 1990 until 2003. Prior to that
time, Mr. Morgan spent over 26 years at Southern Natural Gas Company and 14 years at Sonat Inc., its parent company, after its formation in 1973. At the time of his retirement in 1987, Mr. Morgan was serving as the Chairman of the Board of Southern Natural Gas Company and as Vice Chairman of the Board of Sonat Inc. Mr. Morgan holds a Bachelor of Arts degree from Princeton University and is a graduate of the Vanderbilt University Law School and the Advanced Management Program at Harvard Business School. Mr. Morgan’s legal and business background, including his substantial experience as a senior officer and director of Sonat Inc. and its subsidiary, Southern Natural Gas Company, and his long-term service as a director of the Company enable him to provide our Board valuable insight into corporate operations and governance and financial matters.
Class III — Term Ending in 2025
John P. Stupp, Jr.
Mr. Stupp, age 73, has been a director since 1985. He has served as President since March 2004, and as Chief Executive Officer since March 2014, of Stupp Bros., Inc., a diversified holding company. From April 1995 until March 2004, he served as Executive Vice President and Chief Operating Officer of Stupp Bros., Inc., and since August 1995 he has also served as Chief Executive Officer of Stupp Corporation, a division of Stupp Bros., Inc. Through its subsidiaries, Stupp Bros., Inc. fabricates steel highway and railroad bridges and offers general, steel, and industrial construction services. Mr. Stupp also serves as a director of Stupp Bros., Inc. Mr. Stupp holds a Bachelor of Science degree in Business and Economics from Lehigh University. He serves as a director of Spire Inc. and is a member of its compensation and human resources committee and its corporate governance committee. Mr. Stupp’s substantial experience as President and Chief Executive Officer of Stupp Bros., Inc., as Chief Executive Officer of Stupp Corporation, and as a director of public companies and non-profit organizations, as well as his long-term relationship with the Company, provides our Board of Directors valuable financial and operational expertise.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF ITS NOMINEES, MARIA SAINZEMILE A BATTAT AND JOHN P. STUPP, JR.RONALD N. SPAULDING.
Corporate Governance
Board Leadership and Independence
We separate the roles of Chairman of the Board and Chief Executive Officer. Our Board believes that this leadership structure is in the best interests of the Company and our stockholders and that it fosters innovative, responsive, and strong leadership for the Company. This leadership structure permits Mr. Emile Battat,
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who has had many years of experience with the Company, to continue to play a key role as Chairman and thereby provide leadership to the Company’s Board of Directors as well as work with our Chief Executive Officer, Mr. David Battat, in the evaluation, planning, and implementation of corporate strategy and in operational and financial matters. In addition to his participation in strategic and financial matters, Mr. David Battat focuses on operational matters, including the day-to-day management of our business. We currently have no plans to have the Chairman and Chief Executive Officer roles filled by a single individual.
Under the listing rules of The Nasdaq Stock Market LLC, or Nasdaq, a majority of the members of our Board of Directors must qualify as “independent directors,” as determined by our Board. In making the determination whether our directors are independent, our Board applies the requirements for director independence set forth in the Nasdaq listing rules. After considering the relationship of each director with the Company, our Board has determined that Ms. Sainz and Messrs. Athey, Morgan, Spaulding, and Stupp are independent directors within the meaning of those rules and that our Chairman, Mr. Emile Battat, is not an independent director. Solely independent directors comprise our Audit, Compensation, and Corporate Governance Committees. Our independent directors meet regularly in executive sessions without management present. Mr. Spaulding, who is currently the Chair of the Corporate Governance Committee, is serving as our lead independent director and as such is responsible forLead Director. Under our Bylaws, our Lead Director’s responsibilities include calling, establishing agendasthe agenda for, and moderating executive sessions of the independent directors. Following those executive sessions, the Lead Director communicates with the Chairman of the Board about matters that are addressed in those sessions and are due to be considered by the Chairman. In his capacity as Chairman of Directors’ executive sessions.our Corporate Governance Committee, our Lead Director has input on the size and composition of the Board and the composition of the committees of the Board. The Board believes an independent Lead Director serves an important function in providing independent leadership of the Board.
Our Board is committed to regular evaluations of itself and its committees to measure ongoing effectiveness. Generally, every other year directors are asked to complete a written evaluation of the Board and the committees on which they serve. To protect anonymity and the integrity of the evaluation process, our outside counsel compiles responses to these evaluations and presents a report thereon to the Board of Directors. Following such report, the Board discusses the evaluations and determines if any follow-up actions are appropriate.
Nominating Process
Because we have a relatively small number of directors, our Board of Directors has determined, and has adopted a resolution providing, that nominees for election to the Board will be selected by a majority vote of the directors meeting the Nasdaq independence requirements. Accordingly, our Board does not have a separate nominating committee or a nominating committee charter. In accordance with resolutions adopted by the Board, in selecting nominees for election as directors our Board, with the assistance of our Corporate Governance Committee, will review and evaluate candidates submitted by directors, management, and our stockholders. Stockholders who would like to suggest qualified candidates for selection by our independent directors as nominees of our Board of Directors should provide written notification thereof to the Secretary of the Company at our principal executive offices and include the candidates’ qualifications.
In considering possible nominees, our independent directors are to take into account the following: (i)
•
each director should be an individual of the highest character and integrity; (ii)
•
each director should have substantial experience that is relevant to our Company; (iii)
•
each director should have sufficient time available to devote to the affairs of the Company; and (iv)
•
each director should represent the best interest of our stockholders.
Our Board strongly believes that having directors with diverse backgrounds, business experience, and skills is in our best interest.invaluable to the Company. Under our nominating process, when we are seeking new candidates for our Board, we consider the needs of the Company, taking into account the skills, perspectives, and attributes of our current directors, and then seek to identify those individuals who meet those needs and select the most suitable candidates based on merit, including diversity of experience and skills, regardless of a candidate’s gender, race, religion, or ethnicity. We believe that our Board of Directors must be able to assess a candidate’s qualities and competencies as a whole rather than emphasizing any one of these factors.needs. Our current directors have diverse industry backgrounds, including substantial experience in medical device, industrial, engineering, financial, and energy companies,companies. Throughout most of 2022, 40% of our independent directors were people of color or women. Maria Sainz, who joined our Board in 2021, resigned from the Board in
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late 2022 to devote her energies to a new position as the chief executive officer of a publicly-traded company. We think having women who bring both professional depth and diverse skills. Allpersonal perspectives is critical to our growth and are committed to bringing another female director onto our Board. Our policy is for all possible nominees are to be reviewed in the same manner, regardless of whether they have been submitted by stockholders, directors, or management.
Board Diversity
The Board Diversity Matrixmatrices below setsset forth the self-identified gender identity and demographic diversity attributes of each of our directors as of January 31, 2023 and as of January 31, 2022 in the format prescribed by the Nasdaq listing rules.
| Board Diversity Matrix (As of January 31, 2022) | | ||||||||||||||||||||||||
| Total Number Of Directors | | | 6 | | |||||||||||||||||||||
| | | | Female | | | Male | | | Non-Binary | | | Did Not Disclose Gender | | ||||||||||||
| Part I: Gender Identity | | | | | | | | | | | | | | | | | | | | | | | | | |
| Directors | | | | | 1 | | | | | | 5 | | | | | | 0 | | | | | | 0 | | |
| Part II: Demographic Background | | | | | | | | | | | | | | | | | | | | | | | | | |
| African American or Black | | | | | 0 | | | | | | 1 | | | | | | 0 | | | | | | 0 | | |
| Alaskan Native or Native American | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| Asian | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| Hispanic or Latinx | | | | | 1 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| Native Hawaiian or Pacific Islander | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| White | | | | | 0 | | | | | | 4 | | | | | | 0 | | | | | | 0 | | |
| Two Or More Races or Ethnicities | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| LGBTQ+ | | | 0 | | |||||||||||||||||||||
| Did Not Disclose Demographic Background | | | 0 | | |||||||||||||||||||||
| Board Diversity Matrix (As of January 31, 2023) | | ||||||||||||||||||||||||
| Total Number of Directors | | | 5 | | |||||||||||||||||||||
| | | | Female | | | Male | | | Non-Binary | | | Did Not Disclose Gender | | ||||||||||||
| Part I: Gender Identity | | | | | | | | | | | | | | | | | | | | | | | | | |
| Directors | | | | | 0 | | | | | | 5 | | | | | | 0 | | | | | | 0 | | |
| Part II: Demographic Background | | | | | | | | | | | | | | | | | | | | | | | | | |
| African American or Black | | | | | 0 | | | | | | 1 | | | | | | 0 | | | | | | 0 | | |
| Alaskan Native or Native American | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| Asian | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| Hispanic or Latinx | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| Native Hawaiian or Pacific Islander | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| White | | | | | 0 | | | | | | 4 | | | | | | 0 | | | | | | 0 | | |
| Two Or More Races or Ethnicities | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| LGBTQ+ | | | 0 | | |||||||||||||||||||||
| Did Not Disclose Demographic Background | | | 0 | | |||||||||||||||||||||
| Board Diversity Matrix (As of January 31, 2022) | | ||||||||||||||||||||||||
| Total Number of Directors | | | 6 | | |||||||||||||||||||||
| | | | Female | | | Male | | | Non-Binary | | | Did Not Disclose Gender | | ||||||||||||
| Part I: Gender Identity | | | | | | | | | | | | | | | | | | | | | | | | | |
| Directors | | | | | 1 | | | | | | 5 | | | | | | 0 | | | | | | 0 | | |
| Part II: Demographic Background | | | | | | | | | | | | | | | | | | | | | | | | | |
| African American or Black | | | | | 0 | | | | | | 1 | | | | | | 0 | | | | | | 0 | | |
| Alaskan Native or Native American | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| Asian | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| Hispanic or Latinx | | | | | 1 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| Native Hawaiian or Pacific Islander | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| White | | | | | 0 | | | | | | 4 | | | | | | 0 | | | | | | 0 | | |
| Two Or More Races or Ethnicities | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 0 | | |
| LGBTQ+ | | | 0 | | |||||||||||||||||||||
| Did Not Disclose Demographic Background | | | 0 | | |||||||||||||||||||||
Voting Standards for the Election of Directors
Our Bylaws provide for a majority voting standard for the election of directors in an uncontested election, which is an election in which the number of nominees equals the number of directors to be elected.
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A director nominee will be elected if the votes cast for such nominee exceed the number of votes cast against such nominee. In the event of a contested election, which is an election in which the number of nominees exceeds the number of directors to be elected, the directors are to be elected by the vote of a plurality of the stock present in person or represented by proxy at a meeting of stockholders and entitled to vote on the election of directors. The Bylaws further provide that no incumbent director is to be a nominee for reelection as director in an uncontested election who has not agreed to tender, prior to the meeting of stockholders at which he or she is to be reelected as a director, an irrevocable resignation that will be effective upon the failure of such director to receive a majority of the votes cast with respect to that director’s reelection at such meeting of stockholders and the earlier of (i) five business days after the date on which the voting results of such meeting are determined and (ii) the date an individual is selected by the Board of
Directors to fill the office held by such director. Additionally, under our Bylaws any incumbent director who fails to receive the requisite vote for reelection in an uncontested election is not to be appointed or elected as a director by the Board for at least one year after the meeting at which such individual fails to be reelected.
The Board’s Role in Risk Oversight
The Board of Directors has the responsibility for overseeing the Company’s exposure to risk. Directly and through its committees, the Board of Directors reviews our material risk exposures, including operational risks, investment risks, financial risks, cybersecurity risks, and compensation risks. Our Board and its committees meet with management when necessary in performing these oversight functions. We engage outside advisors to assess our risks, including cybersecurity risks and threats, and our Board meets and consults with those advisors.
Meetings
Our Board of Directors held sixfive meetings during 2021.2022. Each director attended 100%more than 90% of the meetings of the Board and all committees on which he or she served that were held in 20212022 during the time that he or she served as a director or as a member of such committees.
Committees
Our Board has four standing committees: the Executive Committee, the Corporate Governance Committee, the Compensation Committee, and the Audit Committee.
Messrs. Emile Battat and Morgan currently comprise the Executive Committee, with Mr. Emile Battat currently serving as Chair.
The Board has determined that the members of our Corporate Governance Committee, Compensation Committee, and Audit Committee must meet the independence requirements of the Nasdaq listing rules for directors and that the Audit Committee members must also meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, not have participated in the preparation of the financial statements of the Company or any current subsidiary during the past three years, and be able to read and understand fundamental financial statements. The Nasdaq listing rules also require that, in determining the independence of any director who will serve on our Compensation Committee, our Board must consider all factors specifically relevant to determining whether such director has a relationship to the Company that is material to that director’s ability to be independent from management in connection with the duties of a Compensation Committee member, including the source of compensation of such director and whether such director is affiliated with the Company, a Company subsidiary, or an affiliate of a Company subsidiary.
Our Corporate Governance Committee, which is currently composed of Ms. Sainz and Messrs. Athey, Morgan, and Spaulding, assists in the evaluation of possible nominees for election to the Board of Directors as requested by the Board, reviews annually and advises the Board with respect to the compensation of directors, administers the Company’s stock ownership guidelines, and recommends to the Board (i) the following:
•
the number of directors to be fixed in connection with each annual meeting of our stockholders, (ii) stockholders;
•
the directors to be appointed to each of the committees of the Board, after considering the recommendation of our Chairman of the Board, (iii) Board;
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•
corporate governance guidelines if the Corporate Governance Committee deems them appropriate for the Company,Company; and (iv)
•
proposed changes to the charter of the Corporate Governance Committee.
In making recommendations to the Board as to director compensation, our Corporate Governance Committee considers our directors’ responsibilities and time devoted by them in fulfilling their duties as directors, the skills required, and market data on director compensation and takes into account recommendations made by Mr. Emile Battat. Except for Mr. Emile Battat, who is Chairman of our Board, our executive officers are not involved in determining or recommending the amount or form of director compensation. Our Board of Directors has adopted a written charter for the Corporate Governance Committee, a copy of which is available on our website at www.atrioncorp.com. Mr. Spaulding currently serves as Chair of the Corporate Governance Committee. The Corporate Governance Committee met threetwo times in 2021.2022.
The Compensation Committee, which is currently composed of Ms. Sainz and Messrs. Athey, Morgan, Spaulding, and Stupp, makes recommendations to the Board of Directors as to the remuneration of our
executive officers, administers the Atrion Corporation 2021 Equity Incentive Plan, or 2021 Equity Plan, the Amended and Restated Atrion Corporation 2006 Equity Incentive Plan, or 2006 Equity Plan, our Nonqualified Deferred Compensation Plan, or NQDC Plan, the Atrion Corporation Non-Employee Director Stock Purchase Plan, or Non-Employee Director Stock Purchase Plan, and the Atrion Corporation Deferred Compensation Plan for Non-Employee Directors, or Non-Employee Director Deferred Compensation Plan, and makes recommendations to our Board with respect to annual cash incentive bonuses for our executive officers who participate in the Atrion Corporation Short-Term Incentive Compensation Plan, or Short-Term Incentive Plan. The primary processes and procedures for the consideration and determination of executive compensation, the roles of our executive officers in determining or recommending the amount and form of executive officer compensation, the extent of delegation of authority, and the role of compensation consultants in determining or recommending executive officer compensation are discussed in “Compensation Discussion and Analysis” beginning on page 1718 of this proxy statement. Our Board has determined that each member of the Compensation Committee meets the independence rules and other criteria for Compensation Committee membership set forth above. Our Board of Directors has adopted a written charter for the Compensation Committee, a copy of which is available on our website at www.atrioncorp.com. Mr. Stupp currently serves as Chair of the Compensation Committee. The Compensation Committee met threefour times in 2021.2022.
From time to time, we engaged Mercer, an outside compensation consultant, has been engaged from time to time at the request of the Compensation Committee to provide information as to the compensation of executive chairmen, chief executive officers, chief operating officers, chief financial officers, and directors of various companies, including certain companies in the medical products and devices industry. We have recently engaged a new compensation consultant, FW Cook, to assist with the development of an annual incentive compensation plan to take the place of our Short-Term Incentive Plan and to provide other services related to executive officer and non-employee director compensation. For further information regarding the services provided by Mercer and FW Cook, see “Compensation Discussion and Analysis” beginning on page 1718 of this proxy statement.
Our Audit Committee, the current members of which are Messrs. Athey, Morgan, Spaulding, and Stupp, appoints, determines the compensation for, and oversees the work of the Company’s independent auditors, assists the Board in its oversight of our accounting and financial reporting principles and policies and internal audit controls and procedures, and oversees related persons transactions. The Audit Committee reviews and assesses, at least annually, the Audit Committee Charter and recommends any changes in the Audit Committee Charter to the Board of Directors. Our Board has determined that each member of the Audit Committee meets the independence rules and other criteria for Audit Committee membership set forth above and that Mr. Stupp qualifies as an audit committee financial expert. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is available on our website at www.atrioncorp.com. Mr. Athey currently serves as Chair of the Audit Committee. Our Audit Committee met four times in 2021.2022.
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Stockholder Communications to the Board of Directors
Any stockholder wishing to communicate with our Board of Directors about any matter should send the communication, in written form, to Emile A Battat, Chairman, at our principal office in Allen, Texas. Mr. Emile Battat will promptly send the communication to the other members of the Board.
Attendance at Stockholders Meetings
The Board has a policy encouraging each director to attend, if practicable, our annual meetings of stockholders. However, due to COVID-19 travel restrictions and safety concerns, only threeFour of our six directors who were serving at the time of the 20212022 annual meeting attended that meeting. Due to COVID-19 travel restrictions and safety concerns, two of our directors were not present for the meeting.
Code of Ethics
Our Board has adopted a code of ethics to ensure that our business is conducted in a legal and ethical manner. Our Code of Business Conduct which applies to our employees, including our executive(the “Code of Conduct”) that requires all directors, officers, and employees to adhere to the membersCode of Conduct in addressing legal and ethical issues encountered in conducting their work. The Code of Conduct is intended to:
•
deter wrongdoing and to promote honest and ethical conduct, including the ethical handling of conflicts of interest;
•
safeguard Company funds;
•
protect the confidentiality of proprietary information and intellectual property;
•
provide accurate and timely disclosure in our public documents; promote compliance with applicable laws and regulations;
•
ensure the quality of our Boardproducts; promote the production of Directors, defines our principlesproducts in an environmentally responsible manner;
•
make our workplaces safe and free from harassment;
•
prevent using Company funds to make contributions to a political candidate or holder of a political office;
•
ensure the prompt reporting of violations of the Code of Conduct and maintain the anonymity of the reporting persons to the maximum extent possible;
•
prevent retaliation against such reporting persons; and provide accountability for ethical business conduct, and requires strict adherence to all lawsthe Code of Conduct.
We intend to disclose any amendments to, or waivers from, the Code of Conduct in accordance with the SEC regulations and regulations applicable to our business.Nasdaq listing rules. A copy of our Code of Business Conduct is available on our website at www.atrioncorp.com.
Our Audit Committee has adopted our Audit Committee Whistleblower Policy setting forth procedures for the submission of complaints or concerns regarding financial statement disclosures, accounting, internal accounting controls, or auditing matters. The reporting is to be on a confidential basis to the Audit Committee, and retaliation is prohibited.
Stock Ownership Guidelines for Directors
We have stock ownership guidelines that apply to our directors, executive officers, and designated officers of the Company and its subsidiaries. Each non-employee director is required to own shares of our common stock with a market value of at least $300,000 within three years of the date of election to the Board of Directors, except that non-employee directors who elect to receive at least 25% of the cash portion of their annual cash retainers in shares of our common stock under the Non-Employee Director Stock Purchase Plan or in stock units under the Non-Employee Director Deferred Compensation Plan and continue such
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election annually are permitted five years to meet the guidelines. Shares of our stock that count toward those guidelines are shares owned outright, shares held as restricted stock, shares underlying stock units, and shares held in certain trusts, family limited partnerships, limited liability companies, or similar investment vehicles.
Social Responsibility and Sustainability
The purpose of almost every product manufactured by the Company is to save lives or to improve the health of patients and safety of clinicians. We are committed to operating our business in a sustainable and socially responsible manner and to working to build a safer, more equitable, and sustainable future. At the core of our values is a commitment to operate with responsibility and integrity while making a positive contribution to our industry and the world around us. We invest in our research and development, operations, supply chain, and interactions with our local communities. We are committed to advancing sustainability, not only through improvements in our own operations but also through investing in technological innovation.
Our Board and management actively oversee sustainability matters to foster accountability. We are focused on integrating sustainability into our operations and culture through initiatives that address a broad set of stakeholders, including stockholders, customers, employees, suppliers, governments, and our local communities.
We are dedicated to maintaining a safe and healthful working environment, demonstrating environmental leadership, and meeting or exceeding regulatory compliance.
We have long managed our business in a way that promotes respect for the environment, for our communities, for our customers, and for our employees because saving lives is the purpose of almost everything we make. As our performance over the last 2223 years demonstrates, we have done so in a manner that proves that our focus on social responsibility and sustainability has helped create a profitable company.
For example, we have not engaged in offshore manufacturing in low labor-cost countries where all too often companies discover that labor and safety practices are disregarded. By operating all of our manufacturing facilities in the United States, we are able to continually ensure we are doing the right thing legally and ethically. This also allows us to offer greater employment opportunities in our communities. We proudly employ many individuals who have come from difficult circumstances that have the effect of disqualifying them from being hired at many companies. We have a highly diverse workforce-by gender, race and ethnicity, and education. Approximately 49% of our employees are women, and approximately 50%49% are racially or ethnically diverse. Approximately 57%55% of our employees have a high school diploma or less and 43%45% have some college or more. Additionally, we do not have a mandatory retirement age because we think human beings do not have an expiration date when it comes to their abilities and contributions. Approximately 31%30% of our employees have been with us 10 or more years, with almost 100 employees having been with us over 20 years. Our employees enjoy competitive wages, educational opportunities, and health and retirement benefits.
We continue practicing environmental stewardship through responsible use of materials and consumption of energy. We work hard to reduce carbon emissions by shortening our supply chain. For example, 90% of our sourcing was domestic in 2022. We focus on monitoring and reducing energy and material waste and are consistently seeking ways to reduce, reuse, and recycle materials such as plastics, pallets, and cardboard in our facilities. One of our facilities is powered by carbon-free nuclear energy with backup power from hydroelectric plants. We are also investing in solar energy at this facility. Another of our facilities receives one third of its power from wind resources. Although the green options at our third facility remain more limited, we are working with ourThe Company is completing an expansion of its Florida facility. The addition is designed to minimize environmental impact through several initiatives, including incorporating an energy provider to address this matter. In late 2021, we broke ground on a 116,000 square foot expansion at that facility,saving, reflective roof, well insulated wall panels, and theother energy savings designs. The new production area at the facility is beinghas been constructed with a focus on
sustainability. PowerWe expect power consumption in the new area will be reduced by features that exceed recognized energy-saving standards, including in the building’s overall electrical design, the advanced insulating materials used for the roof and building panels, zoned temperature and lighting controls, and the reworking of existing building areas to reduce the carbon footprint of the new construction.
We are committed to conducting business in a lawful and ethical manner and the protecting human rights. To that end, we have adopted a Supply Chain Policy for Conflict Minerals in recognition of the
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significant adverse impacts associated with extracting, trading, handling, and exporting minerals from conflict-affected and high-risk areas and our responsibility to respect human rights. In accordance with this Policy, we do not knowingly procure raw materials, components, or services that are derived from any party committing abuses to humanity. The Policy provides that we will neither tolerate nor by any means profit from, contribute to, assist with, or facilitate the commission by any party of:
•
any forms of torture, cruel, inhuman, and degrading treatment;
•
any forms of forced or compulsory labor, which means work or service extracted from any person that has not offered himself voluntarily;
•
any form of child labor;
•
human rights violations and abuses such as widespread sexual violence, or human trafficking; or
•
war crimes or other violations of international humanitarian law, crimes against humanity, or genocide.
We also have a Supply Chain Transparency Policy to promote responsible sourcing and compliance with the California Transparency in Supply Chains Act of 2010 and have initiated policies and procedures intended to prevent slavery and human trafficking in our supply chains. The Policy provides for training on slavery and human trafficking to our employees and management who have direct responsibility for supply chain management.
Hedging of Risk of Stock Ownership; Pledging Our Common Stock
We have a policy strongly discouraging the hedging of the risk of ownership of our securities and the pledging of our common stock. Any director, officer, or other employee wishing to enter into a hedging or pledge transaction must pre-clear the proposed transaction with our compliance officer and, for hedging, must provide justification for the proposed transaction.
Director Compensation
Under our director compensation program, each non-employee director is paid an annual cash retainer for his or her service as a director and is annually awarded fully-vested shares of our common stock under our 2021 Equity Plan. During 2020, our compensation program for non-employee directors was modified to increase the equity compensation for those directors from $60,000 per year to $140,000 per year, to be phased in over a five yearfive-year period and to be paid in the form of fully-vested shares of our common stock having a market value on the date of the award in the applicable amount. This change was made while maintaining the annual cash retainer at $66,000 for each non-employee director. The equity awards are made each year immediately following our annual meeting of stockholders. In addition to their compensation as directors, the Chairpersons of the Corporate Governance Committee, the Compensation Committee, and the Audit Committee are each paid an annual cash retainer of $14,000. Mr. Emile Battat, our Chairman and our only employee director, does not receive any compensation for his service as a director. We reimburse our directors for travel and out-of-pocket expenses incurred in connection with attending meetings of the Board.
Our Non-Employee Director Stock Purchase Plan provides non-employee directors with a convenient method of acquiring shares of our common stock. This plan allows non-employee directors to elect to receive fully-vested stock and restricted stock in lieu of some or all of their cash fees. The foregone fees are converted into shares of fully-vested stock and restricted stock on the day the applicable cash fees otherwise would have been paid. The restricted stock vests in equal amounts on the first day of the second, third, and fourth calendar quarters following receipt of the stock, provided the non-employee director is then serving as a member of our Board.
The Non-Employee Director Deferred Compensation Plan allows non-employee directors to defer all or part of their cash fees into stock units. A stock unit account is set up for each participating non-employee director. The stock unit account is credited with a number of stock units equal to the cash fees deferred by the non-employee director divided by the closing price of our common stock on the day preceding the date on which the deferred fees would have been paid. The stock units vest as follows: 25% vest on the
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date credited to the stock unit account and 25% vest on each of the April 1, July 1, and October 1 immediately following the date credited to the stock unit account, provided the non-employee director is then serving as a member of our Board. Each stock unit account is credited with additional whole or partial stock units reflecting dividends that would have been paid on the number of shares represented by that stock unit account. The stock units held in a non-employee director’s stock unit account are distributed in the form of whole shares of common stock, with cash paid for fractional stock units, in the January following the year in which his or her service as a director ceases or in January of a particular year, as specified by the non-employeenon- employee director in his or her deferred fee election form.
The annual cash retainers for non-employee directors who elect to participate in either the Non-EmployeeNon- Employee Director Stock Purchase Plan or the Non-Employee Director Deferred Compensation Plan or both are payable on the first business day of January of each year for the calendar year then beginning, in each case to the extent such election or elections apply.
The following table sets forth summary information concerning the compensation of our non-employeenon- employee directors for the year ended December 31, 2021:2022:
Director Compensation Table
| Name | | Fees Earned or Paid in Cash ($)(1) | | Stock Awards ($)(2) | | All Other Compensation ($) | | Total ($) | | | Fees Earned or paid in Cash ($)(1) | | Stock Awards ($)(2) | | All Other Compensation ($) | | Total ($) | | ||||||||||||||||||||||||||||||||
| Preston G. Athey | | | | 66,000 | | | | | 92,000 | | | — | | | | 158,000 | | | | | | 76,500 | | | | | 62,450(3) | | | — | | | | 138,950 | | | ||||||||||||||
| Hugh J. Morgan, Jr. | | | | 80,000 | | | | | 92,000 | | | — | | | | 172,000 | | | | | | 69,500 | | | | | 108,000 | | | — | | | | 177,500 | | | ||||||||||||||
| Maria Sainz | | | | 22,060 | | | | | 66,290 | | | — | | | | 88,350 | | | | | | 66,000 | | | | | 108,000 | | | — | | | | 174,000 | | | ||||||||||||||
| Ronald N. Spaulding | | | | 80,000 | | | | | 92,000 | | | — | | | | 172,000 | | | | | | 80,000 | | | | | 108,000 | | | — | | | | 188,000 | | | ||||||||||||||
| John P. Stupp, Jr. | | | | 80,000 | | | | | 92,000 | | | | | 3,736(3) | | | | | 175,736 | | | | | | 80,000 | | | | | 108,000 | | | | | 3,981(5) | | | | | 191,981 | | | ||||||||
(1)
Each non-employee director received an annual cash retainer of $66,000 for his or her service as a director. The Chairpersons of the Corporate Governance Committee, the Compensation Committee, and Audit Committee are each paid an annual cash retainer of $14,000 for serving in those capacities.
(2)
Amounts shown reflect the aggregate fair value of the awards on the date they were granted, computed in accordance with Financial Accounting Standards Board’s Accounting Standards Codified Topic 718, or ASC 718. The assumptions used in the valuations may be found in Note 8 to the financial statements included as a part of our Annual Report on Form 10-K for the year ended December 31, 2021.2022. The amount shown includes $417.74$586.00 paid in cash in lieu of fractional shares for each non-employee director other than Ms. Sainz and $149.19 for Ms. Sainz.Messrs. Morgan, Spaulding, and Stupp.
(3)
Mr. Athey waived $45,550 of his stock award.
(4)
Ms. Sainz elected to receive 20% of her fees for 2022 in shares of our common stock, pursuant to the Stock Purchase Plan described above. As a result, Ms. Sainz was issued 18 shares, valued at $704.90 per share, the closing market price of the Company’s common stock on December 31, 2021, the last trading date prior to the date of issuance. Ms. Sainz resigned from the Board effective October 21, 2022 to become the President and Chief Executive Officer of a publicly-traded company
(5)
Amount shown represents the value of stock units credited to Mr. Stupp’s stock unit account in 2021 on account of2022 for dividends paid on our common stock during the prior calendar year, in accordance with the terms of the Non-Employee Director Deferred Compensation Plan.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Summary
This Compensation Discussion and Analysis is designed to explain our philosophy and objectives underlying our compensation program, the elements of our compensation program for our executives, the processes we follow in setting compensation, and the determinations related to our executive compensation for 2021.2022. We recognize that the medical device industry is very competitive, and our executive compensation program is intended to attract, retain, and motivate executives who lead our business and to align their interests with the long-term interests of our stockholders. The principal elements of our program are base salaries, annual cash incentive bonuses, and long-term incentives in the form of equity awards. We also provide our Non-Qualified Deferred Compensation Plan, or NQDC Plan, for the benefit of certain of our highly-compensated employees, including our executive officers. We believe that our program provides appropriate incentives to our executives to achieve our financial and strategic goals without encouraging them to take excessive risks in their business decisions. Our compensation program is designed to reward our executive officers for high level corporate performance.
The key financial highlights for 20212022 and 20202021 are as follows:
| | | 2021 | | 2020 | | Change | | | 2022 | | 2021 | | Change | | ||||||||||||||||||||||||
| Revenues | | | $ | 165,009,000 | | | | $ | 147,591,000 | | | | | 11.8% | | | | | $ | 183,506,000 | | | | $ | 165,009,000 | | | | | 11.2% | | | ||||||
| Operating Income | | | | 36,042,000 | | | | | 35,668,000 | | | | | 1.0% | | | | | $ | 39,687,000 | | | | $ | 36,042,000 | | | | | 10.1% | | | ||||||
| Net Income | | | | 33,055,000 | | | | | 32,115,000 | | | | | 2.9% | | | | | $ | 35,008,000 | | | | $ | 33,055,000 | | | | | 5.9% | | | ||||||
| Income per Diluted Share | | | $ | 18.18 | | | | $ | 17.44 | | | | | 4.2% | | | | | $ | 19.56 | | | | $ | 18.18 | | | | | 7.6% | | | ||||||
| Operating Income as a Percentage of Year End Stockholders’ Equity | | | | 14.8% | | | | | 14.8% | | | | | 0.0% | | | | | | 16.6% | | | | | 14.8% | | | | | 1.8% | | | ||||||
In determining our annual incentive compensation for our executive officers for 2021,2022, we took into account the financial performance in that year summarized above as well as the continuing challenges faced by our executive officers in 20212022 resulting from the COVID-19 pandemic.pandemic, including supply chain disruptions. Elements of the program are also intended to reward key employees for individual responsibilities, experience, performance, and capacity to influence our results. We provide limited perquisites for our executive officers. We have stock ownership guidelines that are intended to help ensure that our present and future executive officers, as well as certain other designated officers of the Company or our subsidiaries, acquire and maintain a meaningful equity stake in the Company.
Roles of the Compensation Committee, Management, and Outside Consultants
Our Compensation Committee reviews and makes recommendations to our Board of Directors for our executive officers’ base salaries, salary increases, and discretionary bonuses, as well as cash incentive bonuses for our executive officers who participate in our Short-Term Incentive Plan. Our Compensation Committee also administers our equity incentive programs and our NQDC Plan. Annually, the Compensation Committee reviews tally sheets to obtain an overview of total compensation of our executive officers. These tally sheets identify the annual compensation for each of our executive officers in previous years, including base salaries, cash incentive bonuses, discretionary cash bonuses, equity awards, benefits, and perquisites. Each executive officer’s tally sheet also shows the amount payable to that executive officer upon termination of employment under certain circumstances and details the executive officer’s equity ownership, including stock owned free of restrictions, restricted stock, restricted stock units, and stock options.
From time to time, directors who are not members of the Compensation Committee and executive officers attend meetings, or parts of meetings, of the Compensation Committee at the Committee’s invitation. Although the Compensation Committee generally does not delegate the authority to make equity awards, annually for the past several years it has delegated to Mr. David Battat the authority to grant awards, at any time and from time to time inat his discretion, of restricted stock units within specified limits to employees of the Company who are not officers of the Company or its subsidiaries at the vice-president level or above,
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with the most recent delegation extending through December 31, 2022.2023. Our executive officers are
responsible for the salaries, salary increases, cash incentive bonuses, and discretionary cash bonuses for key employees in our operating units who are not executive officers, and, as hereinafter described, they administerhave administered our Short-Term Incentive Plan, subject to our Compensation Committee’s review of, and recommendations to our Board of Directors with respect to, cash incentive bonuses for our two executive officers who are eligible to participate in that plan. In considering the base salary for Mr. David Battat and cash incentive bonuses for him and for Jeffery Strickland, our Vice President and Chief Financial Officer, Secretary and Treasurer, under the Short-Term Incentive Plan, the Compensation Committee takes into account the recommendations of Mr. Emile Battat. In considering the base salary for Mr. Strickland, the
The Compensation Committee takes into accountengages an external compensation consultant to assist it by providing information, analysis, and other advice relating to our executive compensation program and the recommendationsdecisions resulting from its annual executive compensation review. The Compensation Committee has the final authority to engage and terminate the engagement of Messrs. Emile Battat and David Battat.
any compensation consultant that it retains. At the request of our Compensation Committee, generally at two-year intervals we have engaged Mercer, a global consulting firm, for a number of years, generally at two-year intervals, to provide a range of information regarding the types and levels of compensation of executive officers. This information has provided us with a general sense of compensation practices in the medical device industry. Our Compensation Committee has used this information to assist the Committee in formulating its recommendations to our Board of Directors regarding compensation components and levels for our executive officers. Most recently, Mercer was engaged in early 2022 at the request of the Committee to provide market compensation data for executive officers. Mercer’s report, delivered in March 2022, set forth information as to base salaries, target bonuses as a percent of salary, total annual compensation, long-term incentives,officers and total direct compensation for 13 medical products and device companies selected by Mercer with market capitalizations ranging from $675 million to $14.1 billion. Also included in the March 2022 report was a review of outsidenon-employee director compensation. Earlier this year, the Compensation Committee engaged FW Cook as its external compensation consultant. The services provided or to be provided by FW Cook include the following:
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assisting with the development of all pay-versus-performance required tables and narrative disclosure;
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assisting in the development of an annual incentive compensation plan to replace our Short-Term Incentive Plan;
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assisting in the creation of our compensation peer group;
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reviewing and analyzing the compensation arrangements for our executive officers, including our named executive officers;
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reviewing and analyzing the compensation arrangements for the non-employee members of our Board; and
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reviewing and advising on the compensation disclosure included in our annual proxy statement and other applicable public disclosures.
The terms of FW Cook’s engagement include reporting directly to the Chair of the Compensation Committee. The Compensation Committee has evaluated FW Cook’s independence pursuant to the listing standards of Nasdaq and the relevant SEC regulations and has determined that no conflict of interest has arisen as a result of the work performed by FW Cook.
Components of Our Compensation Program
Base salaries, annual cash incentive bonuses, and long-term incentives in the form of equity awards are the principal components of our compensation program. Additional elements are our health insurance plan, retirement benefits under our Section 401(k) Savings Plan, or 401(k) Plan, and limited perquisites. We utilize these forms of compensation because we believe they are necessary or helpful in achieving the objectives of our compensation program. Base salaries are designed to attract and retain executive officers and other key employees and are intended to be at competitive levels and to provide our executive officers and other key employees a level of assured cash compensation commensurate with their positions within the Company. Annual cash incentive bonuses and equity awards are intended to reward executive officers and other key employees and to provide incentives for superior results by us and for individual responsibility and performance. Equity awards also are intended to align the interests of our executive officers and other key employees with the interests of our stockholders. The combination of these components is designed to compensate employees fairly for the services they provide on a regular basis. Generally, the Compensation Committee analyzes the individual performance of our executive officers, with input from Messrs.Mr. Emile Battat and, when appropriate, from Mr. David Battat with respect to Mr. Strickland’s individual performance.Battat.
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Base salaries are a significant component of our compensation program because they help us attract and retain executive officers and other key employees and provide them a level of assured cash compensation commensurate with their positions within the Company. Annual cash incentive bonuses for our executive officers and other key employees, which provide them with the opportunity to receive cash compensation in addition to their base salaries, are intended to reward them for the Company’s performance and for individual performance as well. We believe that long-term incentives in the form of equity awards help align the interests of our executive officers and other key employees with the interests of our stockholders. We also believe that equity awards further our efforts to promote the growth and profitability of the Company. We do not have a specific policy of awarding options as opposed to restricted stock or restricted stock units, and for the past several years we have granted primarily restricted stock units restricted stock, and stock options have been awarded in our compensation program. We view our health insurance benefits, along with certain other benefits, as necessary to attract and retain employees.
Formula cash bonuses are provided in our employment agreement with Mr. Emile Battat and in our Short-Term Incentive Plan. Pursuant to his employment agreement, Mr. Emile Battat is entitled to annual cash bonuses equal to a fixed percentage of year-to-year increases in our operating income. This arrangement was determined based on our Compensation Committee’s discussions with him a number of years ago. Messrs. David Battat and Strickland areOver the past several years, our other executive officers have been eligible to be selected to participate in, and may receivereceived cash bonuses
under, our Short-Term Incentive Plan. In addition, on the recommendation of our Compensation Committee and approval by our Board of Directors, our executive officers may also receive discretionary cash bonuses. However, none of our executive officers is paid a fixed or guaranteed annual cash bonus. We endeavor to structure our compensation program so that our base salaries and annual cash bonus opportunities are adequate to attract and retain key employees. In addition, we seek to provide sufficient long-term equity compensation to motivate our executive officers and other key employees to focus on our performance over the longerlong term.
The Company, after reviewing and discussing our compensation program with the Compensation Committee of our Board, believes that our compensation program is balanced and does not motivate or encourage unnecessary or excessive risk taking because of, in part, the following:
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Base salaries are fixed in amount, and for most non-executive employees constitute the largest part of their total compensation, and thus do not encourage risk taking.
•
Although our annual incentive compensation focuses on achievement of short-term goals, and short-term goals may encourage the taking of risks at the expense of long-term results, we believe that our annual incentive compensation program represents a reasonable portion of our employees’ total compensation opportunities. The annual incentive compensation to our executive officers who participate in the Short-Term Incentive Plan is subject to review by the Compensation Committee and approval by our Board.Board and generally 25% of the incentive bonuses under that plan are deferred for a year after the award.
•
Long-term equity awards are important to help further align employees’ interests with those of our stockholders. The ultimate value of the awards is tied to the Company’s stock price and because awards are staggered and subject to long-term vesting schedules, they help ensure that our executive officers have significant value tied to long-term stock price performance. As described above, we have established procedures related to the timing and approval of equity awards.
•
Our stock ownership, clawback, anti-hedging, and anti-pledging policies.
Because of the above, we believe that our employee compensation program appropriately balances risk and the desire to focus employees on short-term goals as well as long-term goals important to the Company’s success and does not promote excessive risk taking.
Our Compensation Committee takeshas taken into account the following corporate factors when making compensation recommendations and decisions:
•
•
total stockholder return
•
return on equity
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•
earnings per share;
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safety; and
•
efficiency of our operations.
Going forward, we expect to include earnings before interest, taxes, depreciation, and amortization, or EBITDA, and EBITDA margin among the factors we consider when making compensation recommendations and decisions.
At our annual meeting of stockholders in 2021,2022, our stockholders approved, on an advisory basis, our executive compensation, with approximately 97.5%98.5% of the shares present, in person or by proxy, at the meeting and entitled to vote thereon being voted to approve the compensation of our executive officers. The Compensation Committee has taken into account those results in deciding to retain our general approach to executive compensation.
Base Salaries
Annual base salaries are a principal component of our compensation program. The factors considered when fixing an executive officer’s base salary are performance, responsibilities, experience, capacity to influence our results, competitive conditions, and length of service with us. When considering the base salaries for our executive officers, our Compensation Committee reviews their total annual compensation for previous years as set forth in the tally sheets described above, including base salaries, formula cash incentive bonuses, discretionary cash bonuses, long-term incentive awards, benefits, and perquisites. For 2021,2022, the base salaries of our three executive officers were as follows: the base salary of Mr. Emile Battat, which is fixed
in his employment agreement and in accordance with the recommendation of our Compensation Committee, was $600,000, unchanged from each of the years in the period 2012-2020;2012-2021; the base salary of Mr. David Battat was $620,000, unchanged from his base salary in the period 2015-2020;2015-2021; and the base salary of Mr.Jeffery Strickland, who joined the Company in 1983 and served as our Vice President and Chief Financial Officer, Secretary and Treasurer from 1997 until his retirement on March 3, 2023, was $300,000, unchanged from his base salary in the period 2017-2020.2017-2021. The 20212022 base salaries of Messrs. David Battat and Strickland were fixed in accordance with recommendations of our Compensation Committee, after taking into consideration information provided by Mercer, as well as the factors described above and recommendations of Mr. Emile Battat in the case of Mr. David Battat’s base salary and Messrs. Emile Battat and David Battat in the case of Mr. Strickland’s base salary.
Annual Incentive Compensation
Mr. Emile Battat is entitled to annual cash incentive bonuses equal to a fixed percentage of year-to-year increases in our operating income as provided in his employment agreement. Our Compensation Committee may adjust any increase in our operating income to disregard one-time, nonrecurring extraordinary items and is to make such equitable adjustments as are required to give effect to acquisitions, divestitures, or similar corporate transactions. For 2021,2022, Mr. Emile Battat was paid a cash incentive bonus in the amount of $29,881.$291,588.
The bonus amounts determined pursuant to that formula for participating executive officers arehave been reviewed by our Chairman of the Board, who doeshas not participateparticipated in the Short-Term Incentive Plan. The Chairman makeshas made the initial determinations as to the bonus amounts, and those determinations are then have been
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reviewed by our Compensation Committee, which takeshas taken into account information provided by Mercer. The Compensation Committee makeshas made recommendations as to the bonus amounts to our Board of Directors, which fixeshas fixed the bonuses for the executive officers participating in the Short-Term Incentive Plan. In the case of key employees, the bonus amounts determined pursuant to the formula arehave been subject to adjustments by our executive officers. Cash incentive bonuses under the Short-Term Incentive Plan for each year arehave generally been paid in two installments, one of which ishas been in the year following the performance year and the balance in the next year. No participant in the Short-Term Incentive Plan has had any vested right to such bonus or any part thereof until paid, and in most cases if a participant’s employment terminatesterminated prior to payment, his or her bonus iswas forfeited. The plan ishas been administered generally by our executive officers, subject to our Compensation Committee’s review of, and recommendations to our Board of Directors with respect to, bonuses for Messrs. David Battat and Strickland. In determining the bonus compensation for our executive officersMr. David Battat for 2021,2022, we took into account the financial performance in that year as well as the continuing challenges faced by our executive officers in 20212022 resulting from the COVID-19 pandemic. For 2021,2022, under the Short-Term Incentive Plan, Mr. David Battat’s cash incentive bonus was $900,000$900,000. No incentive compensation was paid to Mr. Strickland for 2022 under the Short-Term Incentive Plan in view of his retirement on March 3, 2023 and Mr. Strickland’s was $450,000.the payments made to him under his retirement agreement, as discussed below.
As stated above, with the assistance of FW Cook we are developing a new annual incentive compensation plan that will replace our Short-Term Incentive Plan and will serve as the basis for determining cash incentive compensation for our executive officers and other management personnel for 2023 and following years.
Our Compensation Committee has the authority to recommend discretionary cash bonuses based on the performance of the Company, one or more Company units or individual performance. We believe that this discretionary authority is useful because there may be circumstances that would support awards being made in addition to those under, or in the absence of attainment of the performance goals in the arrangements discussed above. In 2021, a discretionary cash bonus in the amount of $400,000 was paid to Mr. David Battat and a discretionary cash bonus in the amount of $200,000 was paid to Mr. Strickland.above
Long-Term Incentive Awards
Long-term equity-based compensation is an integral part of our total compensation package. It is intended to align the interests of our executive officers and other key employees with the interests of our
stockholders in focusing on long-term growth and stock performance. In 2021, the Board adopted, and our stockholders approved, our 2021 Equity Plan, thereby enabling us to continue making equity awards in the form of stock options, restricted common stock, restricted stock units, deferred stock units, stock appreciation rights, performance awards, dividend equivalents, and other stock-based awards to our employees, non-employee directors, and consultants. We review the costs and benefits to us from the various forms of long-term compensation. In selecting the form of awards, we take into account factors such as that stock options will have little or no value if we do not have increased profitability and increases in the market price of our stock and that restricted stock and restricted stock units may continue to have value, though possibly reduced, if our profitability declines and the market price of our stock does not increase or even declines. Generally, no stock option or stock appreciation right may be amended to decrease the exercise or grant price thereof, be cancelled in conjunction with the grant of any new stock option or stock appreciation right 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 stock option or stock appreciation right, unless the stockholders of the Company provide prior approval.
Our current policy on equity awards provides that equity awards, other than in connection with new hires or unusual circumstances, will be made at the meeting of our Compensation Committee held in conjunction with our annual stockholders meeting, which usually is held each May, and on the tenth business day immediately following the last day of each “blackout period,” as defined in the Company’s Insider Trading Policy. Those equity awards are to be made only at meetings of the Compensation Committee, including telephonic meetings, and not through actions by written consent. In 2021,2022, the Compensation Committee did not make any equity awards to our executive officers.
NQDC Plan
Our NQDC Plan allows a select group of key management or highly compensated employees of the Company and our subsidiaries, including our executive officers, to defer income under a nonqualified plan.
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We believe that the NQDC Plan is compliant with the regulations promulgated by the Internal Revenue Service under Section 409A of the Internal Revenue Code and provides a vehicle for the eligible employees to defer amounts higher than the limits established for our 401(k) Plan, which is a qualified plan. The Company credits make-up contributions to the account of each participant who makes a deferral election for base salary under the NQDC Plan that results in a reduction of the Company’s matching contribution that would have been made in our 401(k) Plan, with the make-up contribution to be in an amount equal to the amount by which our matching contribution to our 401(k) Plan is reduced as a result of the deferral election made under the NQDC Plan. Base salary and bonus compensation are eligible for deferral under the NQDC Plan, and a participant may defer not less than 10% and not more than 90% of his or her base salary and bonus compensation. Each year our Compensation Committee selects the key management or highly compensated employees who are eligible to participate in the NQDC Plan, and each of those employees makes an election whether or not to participate in the NQDC Plan and at what level he or she wishes to defer compensation. Participants may also elect how their deferred funds are deemed to be invested among the investment options designated by the Compensation Committee, which are generally the same as those available under the 401(k) Plan, as well as the Company’s common stock. In addition, participating employees choose the schedule on which these funds are to be distributed to them or their beneficiaries upon retirement, death, or certain other events. Amounts deferred or credited under the NQDC Plan are credited with notional investment earnings based on participant investment elections made from among the investment options available under the NQDC Plan. No amounts are credited with above-market earnings.
Benefits and Perquisites
We provide customary benefits to our executive officers, including health insurance and life and disability insurance, as a part of our total compensation package. Our employees, including our executive officers, are also eligible to participate in our 401(k) Plan. Under that plan, we make matching contributions of up to 3.5% of a participant’s eligible compensation. Our executive officers are fully vested in our matching contributions. Perquisites are not a significant component of compensation for our executive officers.
Termination and Change in Control Arrangements
We have agreements or plans under which our executive officers are entitled to payments and benefits upon termination of employment under certain circumstances. The terms of Mr. Emile Battat’s arrangement are set forth in his employment agreement and were determined on the basis of recommendations by our Compensation Committee after discussions with him. The terms of Mr. David Battat’s arrangement were recommended by our Compensation Committee after consideration of his responsibilities and experience. The terms of Mr. Strickland’s severance plan were recommended by our Compensation Committee after consideration of Mr. Strickland’s total compensation package and length of service with the Company. We have structured our arrangements with our executives so that a change in control alone does not trigger any payments. A change in control does, however, result in acceleration of vesting of their equity awards. We believe acceleration of vesting provides our executive officers a reasonable measure of protection in the event of a change in control. For a more detailed discussion of the terms of these arrangements, see “Potential Termination and Change in Control Payments” beginning on page 2829 of this proxy statement.
On June 21, 2022, Mr. Strickland notified the Company that he intended to retire effective March 3, 2023. In connection with Mr. Strickland’s announcement of his retirement, the Company and Mr. Strickland entered into an agreement pursuant to which Mr. Strickland received his annual base salary of $300,000 prorated through March 3, 2023, and on March 6, 2023, Mr. Strickland was paid the following: (i) all accrued and unpaid vacation pay; (ii) an incentive bonus of $550,000; and (iii) the deferred installment of his incentive bonus for 2021 in the amount of $112,500. In addition, on March 3, 2023, 131.72 restricted stock units previously granted to Mr. Strickland, together with dividend equivalents credited with respect to those restricted stock units, that were to vest on August 23, 2024 were accelerated, vested, and were converted into 135 shares of our common stock that were delivered to him, and 466.34 restricted stock units previously granted to Mr. Strickland, together with dividend equivalents credited with respect to those restricted stock units, vested in accordance with the terms thereof that provided, among other things, for accelerated vesting in the event of Mr. Strickland’s retirement, and were settled with a $295,000 cash payment to Mr. Strickland.
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Stock Ownership Guidelines for Officers
Our stock ownership guidelines are designed to ensure that our executive officers and certain other designated officers of the Company and its subsidiaries acquire and maintain a meaningful equity stake in the Company so as to align their interests closely with those of our stockholders. The guidelines provide that within four years of becoming subject to the guidelines the persons serving as our Chairman and as our Chief Executive Officer are required to each own shares of our common stock with a market value of at least $2,400,000, a person serving as our Chief Operating Officer, a position not currently filled, is required to own shares of our common stock with a market value of at least $1,200,000, and the person serving as our Chief Financial Officer is required to own shares of our common stock with a market value of at least $900,000. Other officers of the Company or our subsidiaries who are designated by our Board of Directors are required to own shares of our common stock with a market value of at least $300,000 within five years from being designated as subject to the guidelines. The guidelines also provide that if an executive officer or a designated officer fails to meet the guidelines or having met the guidelines fails to continue to meet them, two-thirds of each bonus payable to such executive officer or designated officer is to be paid in a form that counts toward the guidelines until the guidelines are met. Stock ownership that counts under these guidelines is described in “Stock Ownership Guidelines for Directors” on page 14 of this proxy statement.
Clawback Policy
We have a “clawback” policy that allows the Company to seek recovery with respect to cashcash- and equity-based incentive bonuses paidcompensation awarded to executive officers if, within the preceding three years, any of our financial statements or financial metrics upon which cashcash- or equity-based incentive bonuses havecompensation has been based have been materially misstated due to the fraud or intentional misconduct of one or more of our executive officers. In such event, our Board of Directors may direct the Company to seek to recover from any such executive officer the amount by which such executive officer’s cashcash- and equity-based incentive bonuscompensation exceeded the cashcash- and equity-based incentive bonuscompensation that would have been awarded had there been no such misstatement. We intend to revise our clawback policy in the next 12 months as necessary to comply with the to-be-adopted clawback provisions of the Nasdaq listing rules once those rules are effective.
Tax Considerations
Section 162(m) of the Internal Revenue Code precludes a publicly-held corporation from taking a federal income tax deduction for compensation paid in excess of $1.0 million to certain of its executive officers. Although the Compensation Committee is cognizant of the limitations imposed by Section 162(m), the Committee believes that the primary purpose of our executive compensation program is to support the Company’s business strategy and the long-term interests of our stockholders. Therefore, the Compensation Committee maintains the flexibility to recommend or award compensation that may not be tax-deductible if doing so furthers the objectives of our executive compensation program.
Other
The base salaries of our executive officers can be adjusted upwards and downwards, except in the case of Mr. Emile Battat whose base salary is fixed by his employment agreement, and discretionary bonuses can be awarded based on the individual performance of the executives as well as the performance of the
Company or its units. Additionally, we can make equity awards to reward individual performance. We recognize that there may be circumstances when the individual responsibilities and performance of our executive officers or our corporate performance is so exceptional that a material increase in compensation would be appropriate. Likewise, we recognize that there could be a material downturn in our corporate performance, in which event we would consider reducing and, if appropriate, materially reducing compensation levels where permitted.
In making equity awards or considering adjustments to base salaries or cash incentives, our Compensation Committee takes into account the other elements of the compensation packages of our executive officers, as well as the number of shares of our common stock owned by them, the number of unexercised options held, the restricted stock or restricted stock units held, and the potential benefits they may realize upon the sale of the stock underlying these awards.
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Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis set forth above. Based on this review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the proxy statement.
Members of the Compensation Committee
John P. Stupp, Jr. (Chairman) Preston G. Athey Hugh J. Morgan, Jr. Maria Sainz Ronald N. Spaulding
The following table sets forth summary information concerning the compensation of our three executive officers during the periods indicated:
Summary Compensation Table
| Name and Principal Position | | Year | | Salary ($)(1) | | Bonus | | Stock Awards ($)(2) | | Non-Equity Incentive Plan Compensation ($)(1)(3) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($) | | Total ($) | | | Year | | Salary ($)(1) | | Bonus | | Stock Awards ($)(2) | | Non-Equity Incentive Plan Compensation ($)(1)(3) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($) | | Total ($) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| David A. Battat | | | | 2021 | | | | | 620,000 | | | | | 400,000 | | | — | | | | 900,000 | | | — | | | | 16,585(4) | | | | | 1,936.585 | | | | | | 2022 | | | | | 620,000 | | | — | | — | | | | 900,000 | | | — | | | | 21,376(4) | | | | | 1,541,376 | | | |||||||||||||||||||||||||||||||
| President and Chief | | | | 2020 | | | | | 620,000 | | | — | | | | 1,000,000 | | | | | 400,000 | | | —(5) | | | | 45,635 | | | | | 2,065,635 | | | | | | 2021 | | | | | 620,000 | | | | | 400,000 | | | — | | | | 900,000 | | | — | | | | 16,585 | | | | | 1,936.585 | | | ||||||||||||||||||||||||||||
| Executive Officer | | | | 2019 | | | | | 620,000 | | | — | | — | | | | 800,000 | | | | | 184,066 | | | | | 21,995 | | | | | 1,626,061 | | | | | | 2020 | | | | | 620,000 | | | — | | | | 1,000,000 | | | | | 400,000 | | | —(5) | | | | 45,635 | | | | | 2,065,635 | | | ||||||||||||||||||||||||||||
| Jeffery Strickland | | | | 2021 | | | | | 300,000 | | | | | 200,000 | | | — | | | | 450,000 | | | | | 18,795 | | | | | 36,383(6) | | | | | 1,005,178 | | | | | | 2022 | | | | | 300,000 | | | — | | — | | — | | | | 27,086 | | | | | 43,480(7) | | | | | 370,566 | | | ||||||||||||||||||||||||||||
| Vice President and | | | | 2020 | | | | | 300,000 | | | — | | | | 500,000 | | | | | 325,000 | | | | | 14,399 | | | | | 30,661 | | | | | 1,170,060 | | | | | | 2021 | | | | | 300,000 | | | | | 200,000 | | | — | | | | 450,000 | | | | | 18,795 | | | | | 36,383 | | | | | 1,005,178 | | | ||||||||||||||||||||||
| Chief Financial Officer, | | | | 2019 | | | | | 300,000 | | | — | | | | 100,000 | | | | | 325,000 | | | | | 9,423 | | | | | 29,381 | | | | | 763,804 | | | | | | 2020 | | | | | 300,000 | | | — | | | | 500,000 | | | | | 325,000 | | | | | 14,399 | | | | | 30,661 | | | | | 1,170,060 | | | ||||||||||||||||||||||
| Secretary and Treasurer | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Emile A Battat | | | | 2021 | | | | | 600,000 | | | — | | — | | | | 29,881 | | | — | | | | 36,667(7) | | | | | 666,548 | | | | | | 2022 | | | | | 600,000 | | | — | | — | | | | 291,588 | | | — | | | | 14,534(8) | | | | | 906,122 | | | ||||||||||||||||||||||||||||||||||
| Chairman | | | | 2020 | | | | | 600,000 | | | — | | | | 1,000,000 | | | — | | | | 4,203 | | | | | 18,088 | | | | | 1,622,291 | | | | | | 2021 | | | | | 600,000 | | | — | | — | | | | 29,881 | | | — | | | | 36,667 | | | | | 666,548 | | | |||||||||||||||||||||||||||||||
| | | | | 2019 | | | | | 600,000 | | | — | | — | | — | | | | 15,661 | | | | | 20,349 | | | | | 636,010 | | | | | | 2020 | | | | | 600,000 | | | — | | | | 1,000,000 | | | — | | | | 4,203 | | | | | 18,088 | | | | | 1,622,291 | | | |||||||||||||||||||||||||||||||
(1)
These columns include amounts deferred by the named executive officers under the NQDC Plan and reported in the “Executive Contributions in Last FYE” column of the Nonqualified Deferred Compensation table on page 2628 of this proxy statement.
(2)
The amounts set forth in this column represent the aggregate grant date fair value of the awards made during the year indicated computed in accordance with ASC 718. These amounts do not reflect whether the recipient has actually realized or will realize a financial benefit from the awards. The assumptions used in the valuations for the awards made in 2020 may be found in Note 8 to the financial statements included as a part of our Annual Report on Form 10-K for the year ended December 31, 2020, and for the award made in 2019 may be found in Note 8 to the financial statements included as a part of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
(3)
The incentive compensation for Messrs. David Battat and Strickland in the period 2019-2021for 2020 and 2021 and for Mr. David Battat for 2022 was provided to them under our Short-Term Incentive Plan. Under such plan, at least 75% of incentive compensation for a year is to be paid in the year immediately following the performance year and the remaining amount is to be paid in the next year, generally, however, subject to forfeiture if the participant’s employment terminates before payment is made. Mr. Emile Battat’s incentive compensation for 2021 and 2022 was paid to him under his employment agreement with us.
(4)
Includes $5,490,$1,170, which is the dollar value of dividends on restricted stock; matching contribution to our 401(k) Plan and make-up contribution to our NQDC Plan; and payment of life insurance premiums in the amount of $945.$945; and the incremental cost of personal use of a Company automobile.
(5)
In 2020, Mr. David Battat experienced negative changes in his deferred compensation earnings of ($159,081).
(6)
Mr. Strickland retired on March 3, 2023.
(7)
Includes $6,633,$7,765, which is the dollar value of dividendsdividend equivalents credited in 20212022 with respect to
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unvested restricted stock units; matching contribution to our 401(k) Plan and make-up contribution to our NQDC Plan; payment of life and disability insurance premiums in the amount of $4,294;$4,293; reimbursement of medical expenses; and the incremental cost of personal use of a Company automobile.
(8)
Includes $4,292, which is the dollar value of dividends on restricted stock; matching contribution to our 401(k) Plan and make-up contribution to our NQDC Plan; reimbursement of medical expenses; and payment of life insurance premiums in the amount of $457.$457; and the incremental cost of personal use of a Company automobile.
The following table sets forth summary information concerning the grants of plan-based awards to our executive officers during the year ended December 31, 2021:2022:
Grants of Plan-Based Awards
| Name | | | Grant Type | | | Grant Date | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | | ||||||
| | Threshold ($) | | | Target(2) ($) | | | Maximum ($) | | ||||||||
| David A. Battat | | | Incentive Compensation | | | N/A | | | — | | | 900,000 | | | — | |
| | | Incentive Compensation | | | N/A | | | — | | | | | — | | ||
| Emile A Battat | | | Incentive Compensation | | | — | | | — | | | — | | | — | |
(1)
See “Incentive Compensation” below. Our Short-Term Incentive Plan does not provide for a threshold amount if performance targets are not met and does not provide for a maximum bonus.
(2)
The amountsamount set forth in this column werewas awarded to Messrs.Mr. David Battat and Strickland pursuant to the Short-Term Incentive Plan.
Base Salaries
We have an employment agreement with Mr. Emile Battat that provides that he will serve as a senior executive officer of the Company and, subject to his election as a director by our stockholders, will serve as Chairman of the Board if so elected by our Board of Directors. Mr. Emile Battat’s employment agreement fixes his base salary for each calendar year during the term at $600,000. The term of our employment agreement with Mr. Emile Battat expired on December 31, 2021 and has automatically renewed for an additional one-year termterms and will continue to renew automatically for one-year terms unless either we or Mr. Emile Battat notifies the other of termination at least six months prior to the expiration of the then-current term. BaseThe base salaries for Mr. Strickland and Mr. David Battatour other executive officers are reviewed annually, and adjustments are generally made on the basis of our performance as measured by certain financial and non-financial criteria, survey information respecting compensation of executive officers, cost-of-living information, and the individual performance of the respective executive officer. The Compensation Committee has not assigned relative weights or values to any of such criteria. With respect to our financial performance, the Compensation Committee generally takes into consideration our, operating income, earnings per share, total stockholder return, return on equity, safety, and efficiency of our operations.
operations and expects to consider EBITDA and EBITDA margin in future compensation determinations.Incentive Compensation
Pursuant to his employment agreement, Mr. Emile Battat is entitled to receive a cash bonus each year equal to a percentage of the increase in operating income for such calendar year over operating income for the prior calendar year, subject to equitable adjustments in operating income in the discretion of the Compensation Committee. For 2022, Mr. Emile Battat’s cash bonus was $291,588 determined as set forth above.
Our other executive officers and certain key employees arehave been eligible to be selected to participate in our Short-Term Incentive Plan. Our Short-Term Incentive Plan provideshas provided for the establishment each year of an awards pool that is equal to a portion of our subsidiaries’ operating profits and is funded through contributions by those subsidiaries. The awards pool ishas been used to pay bonuses under employment agreements, other discretionary bonuses to employees who arewere not participating in the Short-Term Incentive
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Plan, and other employment-related expenses. The balance of the awards pool, if any, ishas been available for bonuses to participating executive officers and other key employees. Bonuses under the Short-Term Incentive Plan arehave been based in part on a bonus allocation formula that takeshas taken into account a number of factors, including the participant’s salary, the profitability of the subsidiary employing the participant (where applicable), and individual participant performance. The bonus amounts determined pursuant to that formula for participating executive officers arehave been reviewed by our Chairman of the Board who makeshas made the initial determinations as to the bonus amounts. The Chairman’s determinations arehave then been reviewed by our Compensation Committee, which makeshas made recommendations as to the bonus amounts to our Board of Directors. The Board has then fixesfixed the amount of the bonuses for our executive officers participating in the Short-Term Incentive Plan. The bonus amounts determined pursuant to the bonus formula for key employees arehave been subject to review and adjustment by our executive officers. Bonuses under the Short-Term Incentive Plan for each year arehave generally been paid in two installments, one of which ishas been in the year following the performance year and the balance in the next year. No participant in the Short-Term Incentive Plan has had any vested right to such bonus or any part thereof until paid, and generally if a participant’s employment terminates prior to payment, his or her bonus ishas been forfeited. For 2021,2022, under the Short-Term Incentive Plan, Mr. David Battat’s cash incentive bonus was $900,000 and$900,000. No incentive bonus was paid to Mr. Strickland’s was $450,000.Strickland for 2022 under the Short-Term Incentive Plan in accordance with the provisions of his retirement agreement. The Short-Term Incentive Plan has beenwas designed to foster a corporate culture focused on bottom line results by providing participating executive officers and other key employees with a substantial stake in reducing costs and increasing sales and productivity while conserving capital resources. In addition, our executive officers may receive discretionary bonuses if recommended by our Compensation Committee and approved by our Board of Directors. In 2021,2023, we expect to terminate the Short-Term Incentive Plan and replace it with a discretionary cash bonus in the amount of $400,000 was paid to Mr. David Battat and a discretionary cash bonus in the amount of $200,000 was paid to Mr. Strickland.new annual incentive compensation plan.
Equity Awards
No equity awards were made to our executive officers in 2021.2022.
The following table sets forth summary information concerning our executive officers’ outstanding equity awards as of December 31, 2021:2022:
Outstanding Equity Awards at Fiscal Year End(1)
| | | | Option Awards | | | Stock Awards | | ||||||||||||||||||||||||||||||
| Name | | | Number of Securities Underlying Unexercised Options Exercisable (#) | | | Number of Securities Underlying Unexercised Options Unexercisable (#) | | | Option Exercise Price ($) | | | Option Expiration Date | | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | | ||||||||||||||||||
| David A. Battat | | | | | 2,000 | | | | | | 2,000(2) | | | | | | 538.00 | | | | | | 5/23/23 | | | | | | 1,844(3) | | | | | | 1,299,511 | | |
| Jeffery Strickland | | | — | | | — | | | — | | | — | | | | | 1,607(4) | | | | | | 1,132,253 | | | ||||||||||||
| Emile A Battat | | | | | 2,000 | | | | | | 2,000(5) | | | | | | 464.05 | | | | | | 3/13/23 | | | | | | 1,824(6) | | | | | | 1,285,413 | | |
| | | | Stock Awards | | |||||||||
| Name | | | Number of Shares or Units of Stocks That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | | ||||||
| David A. Battat | | | | | 933(3) | | | | | | 521,771 | | |
| Jeffery Strickland | | | | | 601(4) | | | | | | 336,498 | | |
| Emile A Battat | | | | | 933(5) | | | | | | 521,771 | | |
(1)
No option awards were outstanding on December 31, 2022.
(2)
The amounts set forth in this column are based on the closing price of $704.90$559.45 per share of the common stock of the Company on December 31, 2021.2022.
(3)
Composed of (i) 600 shares of restricted stock that are to vest on May 23, 2022, with vesting to be accelerated upon termination of employment of Mr. David Battat by the Company without cause or by Mr. David Battat with good reason in connection with a change in control of the Company, and (ii) 1,244933 restricted stock units that are to vest in fourthree equal annual installments beginning on July 1, 20222023 and on July 1 of the next two succeeding three years, with vesting to be accelerated upon a change in control of the Company or the death, retirement, or termination of employment of Mr. David Battat by the Company without cause or by Mr. David Battat with good reason.
(4)
Composed of (i) 518135.14 restricted stock units that are to vest on May 22, 2022 or Mr. Strickland’s earlier termination of employment due to death or disability; (ii) 333 restricted stock units that are to vest on August 24, 2022; (iii) 134 restricted stock units that arewere to vest on August 23, 2024; and (iv) 622(ii) 466.34 restricted stock units that were to vest in three equal annual installments beginning on July 1, 2023 and on July 1 of the next two succeeding years. Mr. Strickland retired on March 3, 2023 and vesting on the above restricted stock units was accelerated.
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(5)
Composed of 933 restricted stock units that are to vest in fourthree annual equal annual installments beginning on July 1, 20222023 and on July 1 of the next two succeeding three years, with vesting to be accelerated upon a change in control of the Company or the death, retirement or termination of employment of Mr. Strickland by the Company without cause or by Mr. Strickland with good reason.
The following table sets forth summary information concerning stock options exercised, the value realized upon exercise, the vesting of stock, and the value realized upon vesting for our executive officers during the year ended December 31, 2021:2022:
Option Exercises and Stock Vested
| | | Option Awards | | Stock Awards | | | Option Awards | | Stock Awards | | ||||||||||||||||||||||||||||||||||||||||
| Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(1) | | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(1) | | ||||||||||||||||||||||||||||||||
| David A. Battat | | | | 6,000 | | | | | 882,000 | | | | | 911 | | | | | 550,943 | | | | | | 4,000 | | | | | 434,640 | | | | | 911 | | | | | 586,958 | | | ||||||||
| Jeffery Strickland | | — | | — | | | | 155 | | | | | 97,061 | | | | — | | — | | | | 1,019 | | | | | 644,091 | | | ||||||||||||||||||||
| Emile A Battat | | | | 6,000 | | | | | 1,325,700 | | | | | 891 | | | | | 591,429 | | | | | | 4,000 | | | | | 730,440 | | | | | 891 | | | | | 627,860 | | | ||||||||
(1)
The amounts set forth in this column are based on the closing price of the Company’s common stock on the vesting date or the last trading day preceding the vesting date if the vesting date was not a trading date.
The following table sets forth certain information concerning our NQDC Plan for the year ended December 31, 2021:2022:
Nonqualified Deferred Compensation
| Name | | Executive Contributions in Last FY ($)(1) | | Registrant Contributions in Last FY ($)(2) | | Aggregate Earnings in Last FY ($)(3) | | Aggregate Withdrawals/ Distributions ($) | | Aggregate Balance at Last FYE ($)(4) | | | Executive Contributions In Last FY ($)(1) | | Registrant Contributions In Last FY ($)(2) | | Aggregate Earnings in Last FY ($)(3) | | Aggregate Withdrawals/ Distributions ($) | | Aggregate Balance at Last FYE ($)(4) | | ||||||||||||||||||||||||||||||||||
| David A. Battat | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | — | | ||||||||||||||||||||||||||||||||||
| Jeffery Strickland | | | | 470,000 | | | | | 6,825 | | | | | 18,795 | | | — | | | | 1,361,017 | | | | | | 579,033 | | | | | 7,000 | | | | | 27,086 | | | — | | | | 1,974,135 | | | ||||||||||
| Emile A Battat | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | — | | ||||||||||||||||||||||||||||||||||
(1)
The amount set forth in this column represents the base salary and non-equity incentive award deferred
in 20212022 under the NQDC Plan. This amount is included in the Summary Compensation Table on page 2325 of this proxy statement in the “Salary” or “Non-Equity Incentive Plan Compensation” columns.
(2)
The amount set forth in this column represents the make-up contribution to the NQDC Plan made by the Company and is included in the Summary Compensation Table in the “All Other Compensation” column.
(3)
The amount set forth in this column is included in the Summary Compensation Table on page 2325 of this proxy statement in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column.
(4)
The amount set forth in this column includes the following amount previously reported in the Summary Compensation Table for prior years: $865,397$1,361,017 for Mr. Strickland.
Our NQDC Plan allows a select group of key management or highly compensated employees of the Company and its subsidiaries, including our executive officers, to defer income under a nonqualified plan. As such, the plan provides a vehicle for the eligible employees to defer amounts higher than the limits established for our 401(k) Plan, which is a qualified plan. The Company is to credit make-up contributions to the account of each of each participant who makes a deferral election for base salary under the NQDC Plan that results in a reduction of the Company’s matching contribution that would have been made in our 401(k) Plan, with the make-up contribution to be in an amount equal to the amount by which our matching contribution to our 401(k) Plan is reduced as a result of the deferral election made under the NQDC Plan.
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Base salary and bonus compensation are eligible for deferral under the NQDC Plan. Each year our Compensation Committee selects the key management or highly compensated employees who are eligible to participate in the NQDC Plan, and each of those employees makes an election whether or not to participate in the NQDC Plan and at what level he or she wishes to defer compensation. Participants may defer not less than 10% and not more than 90% of base salary and bonus compensation. Participants elect how their deferred funds are deemed to be invested among the investment options designated by the Compensation Committee, which are generally the same as those available under the 401(k) Plan, as well as the Company’s common stock. In addition, participating employees choose the schedule on which these funds are to be distributed to them or their beneficiaries upon retirement, death, or certain other events. Amounts deferred or credited under the NQDC Plan are credited with notional investment earnings based on participant investment elections made from among the investment options available under the NQDC Plan. No amounts are credited with above-market earnings. The NQDC Plan is unfunded. Participants have an unsecured contractual commitment from the Company to pay the amounts due under the NQDC Plan from the general assets of the Company.
Related Persons Transactions Policy
Our Audit Committee, pursuant to the Audit Committee Charter, is authorized to review and approve or ratify, in its sole discretion, any related persons transaction, within the meaning of Nasdaq listing rules and rules and regulations promulgated by the SEC. Under the Audit Committee’s written policies, transactions involving amounts in excess of $120,000 in which a related person has a direct or indirect material interest are subject to review and approval or ratification. The Audit Committee will approve or ratify such a transaction only if it determines that the transaction is in our best interest.
In considering a transaction with a related person, the Audit Committee will consider all relevant factors, including, as applicable, the following: (i) our business rationale for entering into the transaction; (ii) the alternatives to entering into such a transaction; (iii) whether the transaction is on terms comparable to those available to third parties or, in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflict; and (v) the overall fairness of the transaction to us.
The Audit Committee will periodically monitor the transaction to ensure that there are no changed circumstances that would render it advisable for us to amend or terminate the transaction. Management or the affected director or executive officer is to bring the matter to the attention of the Audit Committee. If a member of the Audit Committee is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.
Since January 1, 2021,2022, there have been no related persons transactions which, in accordance with SEC rules,regulations, would require disclosure in this proxy statement.
Potential Termination and Change in Control Payments
We do not have an employment agreement with either Mr. David Battat orand did not have one with Mr. Strickland. However, we have a change in control agreement with Mr. David Battat that provides that he will be entitled to certain payments and benefits in the event his employment is terminated in connection with a change in control of the Company, and we havehad a severance plan pursuant to which Mr. Strickland willwas to be entitled to certain payments if his employment iswas terminated under certain circumstances in connection with a change in control of the Company. This section sets forth the payments and benefits in that each executive officer would have received had his employment been terminated, or had a change in control occurred, on December 31, 2022, excluding amounts payable under our 401(k) Plan to each executive officer. Mr. Strickland retired on March 3, 2023 so the information in this section is no longer applicable to him. Our employment agreement with Mr. Emile Battat provides for certain payments to be made and benefits provided to him upon termination of employment. We do not provide gross-ups for Section 280G excise taxes related to change in control agreements. These arrangements are discussed below.
Termination for Just Cause or Without Good Reason
If Mr. David Battat’s employment or Mr. Strickland’s employment is terminated, for cause, the terminated executive officerhe will receive his base salary up to the termination date, accrued vacation pay, unreimbursed business expenses, his aggregate account balance
29
under the NQDC Plan, and vested amounts under the 401(k) Plan. If Mr. Strickland’s employment had been terminated for cause he would have received his base salary up to the termination date, accrued vacation pay, unreimbursed business expenses, his aggregate account balance under the NQDC Plan, and vested amounts under the 401(k) Plan.
If Mr. Emile Battat’s employment is terminated by us for “just cause” or by Mr. Emile Battat without “good reason” (as those terms are defined in Mr. Emile Battat’s employment agreement), he is towill receive his base salary up to the termination date and the annual bonus for the calendar year in which the termination date occurs, prorated for the number of days in such calendar year prior to the termination date. He willis also be entitled to receive his accrued vacation pay, unreimbursed business expenses, his aggregate account balance under the NQDC Plan, and vested amounts under our 401(k) Plan.
Termination Without Just Cause or With Good Reason or Due to Retirement, Death, or Disability
If Mr. David Battat’s or Mr. Strickland’s employment is terminated by us without “just cause,” by either of themhim with “good reason” (as(as those terms are defined in Mr. David Battat’s change in control agreement or in Mr. Strickland’s severance plan) or due to death or disability, and such termination is not in connection with a change in control of the Company, the terminated executive officerMr. David Battat will receive the same payments and other benefits he would have received had the termination been with just cause, and Mr. Strickland’s restricted stock units awarded to him in May 2018 will vest on the termination date and convert to common stock.cause. If Mr. David Battat’s employment or Mr. Strickland’s employment is terminated due to retirement, death, or disability, then the terminated executive officer’s restricted stock units awarded in July 2020 will vest on the termination date and be settled in cash. If Mr. Mr. Strickland’s employment had been terminated by us without “just cause,” by him with “good reason” (as those terms were defined in Mr. Strickland’s severance plan) or due to death or disability, and such termination were not in connection with a change in control of the Company, Mr. Strickland would have received the same payments and other benefits he would have received had the termination been with just cause. If Mr. Strickland’s employment had been terminated due to death or disability, his restricted stock units awarded in July 2020 would have vested on the termination date and been settled in cash. With Mr. Strickland’s retirement on March 3, 2023, those restricted stock units vested and were settled in cash.
If Mr. Emile Battat’s employment is terminated by us without just cause, by Mr. Emile Battat with good reason or due to his retirement, death, or disability, he will be entitled to receive the same payments and other benefits he would have received had the termination been with just cause, plus an amount equal to the sum of one year’s base salary and the average annual bonus received by him in the three years prior to the year in which the termination occurs. In addition, we will continue to provide group health plan benefits for him, his spouse, and his dependents for one year and all stock options and other equity will fully vest and become exercisable on the termination date.
Termination Without Just Cause or With Good Reason in Connection with Change in Control
If Mr. David Battat’s employment is terminated by us without just cause or by Mr. David Battat for good reason in contemplation of or within two years following a “change in control” (as defined in Mr. David Battat’s change in control agreement), he will be entitled to receive the same payments and other benefits he would have received had the termination been with just cause, plus his base salary up to the termination date and the annual bonus for the calendar year in which the termination date occurs, prorated for the number of days in such calendar year prior to the termination date, and an amount equal to two times the sum of
one year’s base salary and the average annual bonus to which he was entitled for the three years prior to the year in which the termination occurs. In addition, Mr. David Battat will be entitled to one year’s health benefits.benefits and all stock options and other equity will fully vest and become exercisable on the termination date.
If there ishad been a change in control of the Company and Mr. Strickland’s employment ishad been terminated by us without cause or by Mr. Strickland with good reason prior to Mr. Strickland’s death, attainment of age 65, or the expiration of two years following the change in control, Mr. Strickland will bewould have been entitled to receive the same payments and other benefits he would have received had the termination been with just cause, plus severance pay in an amount equal to his annual base salary for the 12 months preceding termination of employment.employment and all stock options and other equity would have fully vested and become exercisable on the termination date.
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If Mr. Emile Battat’s employment is terminated by us without just cause or by Mr. Emile Battat for good reason in contemplation of or within two years following a “change in control” (as that term is defined in Mr. Emile Battat’s employment agreement), he will be entitled to receive the same payments and other benefits he would have received had the termination been with just cause, plus an amount equal to two times the sum of one year’s base salary and the average annual bonus received by him for the three years prior to the year in which the termination occurs. In addition, we will continue to provide group health plan benefits for him, his spouse, and his dependents for one year.year and all stock options and other equity will fully vest and become exercisable on the termination date.
Change in Control
If there is a change in control, all unvested options, restricted stock, and restricted stock units held by Messrs. David Battat Strickland, and Emile Battat will vest at the time of the change in control. If there had been a change in control prior to his retirement, all unvested options, restricted stock, and restricted stock units held by Mr. Strickland would have vested at the time of the change in control.
The following table sets forth the payments and benefits that each executive officer would have received had his employment been terminated, or had a change in control occurred, on December 31, 2021,2022, excluding amounts payable under our 401(k) Plan to each executive officer:
| Name | | | Type of Payment or Benefit | | | Termination for Just Cause or Without Good Reason ($) | | | Termination Without Just Cause, For Good Reason, or upon Retirement, Death, or Disability ($) | | | Termination Without Just Cause or For Good Reason in Connection with a Change in Control ($) | | | Change in Control ($) | | ||||||||||||
| David A. Battat | | | Severance Payment | | | — | | | — | | | | | 3,040,000 | | | | — | | |||||||||
| | Equity Awards(1) | | | — | | | | | 876,571 | | | | | | 1,633,311 | | | | | | 1,633,311 | | | |||||
| | NQDC Plan Account Balance | | | — | | | — | | | — | | | — | | ||||||||||||||
| | Health Benefits | | | — | | | — | | | | | 9,979 | | | | — | | |||||||||||
| | Unreimbursed Business Expenses | | | | | 94,000 | | | | | | 94,000 | | | | | | 94,000 | | | | — | | |||||
| | Accrued Vacation Pay | | | — | | | — | | | — | | | — | | ||||||||||||||
| | Total | | | | | 94,000 | | | | | | 970,571 | | | | | | 4,777,290 | | | | | | 1,633,311 | | | ||
| Jeffery Strickland | | | Severance Payment | | | — | | | — | | | | | 300,000 | | | | — | | |||||||||
| | Equity Awards(1) | | | — | | | | | 803,163 | | | | | | 1,132,239 | | | | | | 1,132,239 | | | |||||
| | NQDC Plan Account Balance(2) | | | | | 1,361,017 | | | | | | 1,361,017 | | | | | | 1,361,017 | | | | — | | |||||
| | Health Benefits | | | — | | | — | | | — | | | — | | ||||||||||||||
| | Unreimbursed Business Expenses | | | — | | | — | | | — | | | — | | ||||||||||||||
| | Accrued Vacation Pay | | | | | 5,769 | | | | | | 5,769 | | | | | | 5,769 | | | | — | | |||||
| | Total | | | | | 1,366,786 | | | | | | 2,169,949 | | | | | | 2,799,025 | | | | | | 1,132,239 | | | ||
| Emile A Battat | | | Severance Payment | | | | | 29,881 | | | | | | 641,442 | | | | | | 1,253,003 | | | | — | | |||
| | Equity Awards(1) | | | — | | | | | 1,767,113 | | | | | | 1,767,113 | | | | | | 1,767,113 | | | |||||
| | NQDC Plan Account Balance | | | — | | | — | | | — | | | — | | ||||||||||||||
| | Health Benefits | | | — | | | | | 20,931 | | | | | | 20,931 | | | | — | | ||||||||
| | Unreimbursed Business Expenses | | | | | 160,168 | | | | | | 160,168 | | | | | | 160,168 | | | | — | | |||||
| | Accrued Vacation Pay | | | — | | | — | | | — | | | — | | ||||||||||||||
| | Total | | | | | 190,049 | | | | | | 2,589,654 | | | | | | 3,201,215 | | | | | | 1,767,113 | | | ||
| Name | | | Type of Payment or Benefit | | | Termination for Just Cause or Without Good Reason ($) | | | Termination Without Just Cause, For Good reason, or upon Retirement, Death, or Disability ($) | | | Termination Without Just Cause or For Good Reason in Connection with a Change in Control ($) | | | Change in Control ($) | | ||||||||||||
| David A. Battat | | | Severance Payment(1) | | | | | 94,000 | | | | | | 94,000 | | | | | | 3,900,666 | | | | — | | |||
| | Equity Awards(2) | | | — | | | | | 521,771 | | | | | | 521,771 | | | | | | 521,771 | | | |||||
| | NQDC Plan Account Balance | | | — | | | — | | | — | | | — | | ||||||||||||||
| | Health Benefits | | | — | | | — | | | | | 10,118 | | | | — | | |||||||||||
| | Total | | | | | 94,000 | | | | | | 615,771 | | | | | | 4,432,555 | | | | | | 521,771 | | | ||
| Jeffery Strickland | | | Severance Payment(3) | | | | | 5,769 | | | | | | 5,769 | | | | | | 305,769 | | | | — | | |||
| | Equity Awards(2) | | | — | | | | | 260,894 | | | | | | 336,498 | | | | | | 336,498 | | | |||||
| | NQDC Plan Account(4) Balance | | | | | 1,974,135 | | | | | | 1,974,135 | | | | | | 1,974,135 | | | | — | | |||||
| | Health Benefits | | | — | | | — | | | — | | | — | | ||||||||||||||
| | Total | | | | | 1,979,904 | | | | | | 2,240,798 | | | | | | 2,616,402 | | | | | | 336,498 | | | ||
| Emile A Battat | | | Severance Payment(1) | | | | | 451,756 | | | | | | 1,061,716 | | | | | | 1,671,676 | | | | — | | |||
| | Equity Awards(2) | | | — | | | | | 521,771 | | | | | | 521,771 | | | | | | 521,771 | | | |||||
| | NQDC Plan Account Balance | | | — | | | — | | | — | | | — | | ||||||||||||||
| | Health Benefits | | | — | | | | | 21,223 | | | | | | 21,223 | | | | — | | ||||||||
| | Total | | | | | 451,756 | | | | | | 1,604,710 | | | | | | 2,214,670 | | | | | | 521,771 | | | ||
(1)
Includes unreimbursed business expenses in the amount of $94,000 for Mr. David Battat and $160,168 for Mr. Emile Battat.
(2)
Represents the market price as of December 31, 20212022 of equity awards vesting on termination of employment or change in control less, in the case of options, the exercise price of those options, and settled in the form of cash or the issuance of common stock.
(3)
Includes accrued vacation pay.
(4)
This amount is also shown in the “Aggregate Balance at Last FYE” column of the Nonqualified Deferred Compensation table on page 2628 of this proxy statement and is shown assuming payment in a single lump sum regardless of any election to receive payment over time.
Pay Ratio Disclosure
Pursuant to Item 402(u) of Regulation S-K under the Exchange Act, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our Chief Executive Officer, Mr. David Battat. For 2021,2022, our Chief Executive Officer had total compensation of $1,936.585,$1,541,376, as reflected in the Summary Compensation Table on page 2325 of this
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proxy statement. We determined that our median employee’s annual total compensation was $41,666$44,190 for 2021.2022. As a result, the ratio of the annual total compensation of our Chief Executive Officer to the annual total compensation of our median employee for 20212022 was 46.534.9 to 1. We identified our median employee by examining the 20212022 total cash compensation for all individuals, excluding our Chief Executive Officer, who were employed by us on December 31, 2021.2022. We included all employees, whether employed on a full-time, part-time, or seasonal basis. We did not make any assumptions, adjustments, or estimates in identifying the median employee or with respect to total cash compensation, and we did not annualize the compensation of any full-time employees who were not employed by us for all of 2021.2022.
Pay Versus Performance Disclosure
In accordance with SECs regulations, we are providing the following information about the relationship between executive compensation actually paid to our chief executive officer (“CEO”) and our other named executive officers (“NEOs”) and certain financial performance of the Company for the years ended December 31, 2022, 2021 and 2020. For further information concerning the Company’s compensation philosophy, see section titled Executive Compensation — Compensation Discussion and Analysis” on page 18.
| Year | | | Summary Compensation Table CEO Total Compensation(a) | | | Compensation Actually Paid to CEO(a)(b) | | | Average Summary Compensation Table Total for Other NEOs(a) | | | Average Compensation Actually Paid to Other NEOs(a)(b) | | | Value of Initial $100 Investment Based On: | | | GAAP Net Income ($ millions) | | | GAAP Operating Income ($ millions) | | |||||||||||||||||||||||||||
| | Company Total Stockholder Return | | | Peer Group(c) Total Stockholder Return | | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | | | | $ | 1,541,376 | | | | | $ | 1,201,240 | | | | | $ | 638,344 | | | | | $ | 413,722 | | | | | $ | 77.01 | | | | | $ | 98.36 | | | | | $ | 35.0 | | | | | $ | 39.7 | | |
| 2021 | | | | $ | 1,936,585 | | | | | $ | 1,996,742 | | | | | $ | 835,863 | | | | | $ | 940,039 | | | | | $ | 95.81 | | | | | $ | 115.30 | | | | | $ | 33.1 | | | | | $ | 36.0 | | |
| 2020 | | | | $ | 2,065,635 | | | | | $ | 1,405,164 | | | | | $ | 1,396,176 | | | | | $ | 1,011,839 | | | | | $ | 86.36 | | | | | $ | 109.66 | | | | | $ | 32.1 | | | | | $ | 35.7 | | |
(a)
NEOs included in these columns reflect the following:
| Year | | | CEO (or Principal Executive Officer) | | | Non-CEO NEOs | |
| 2022 | | | David A. Battat | | | Emile A Battat, Jeffery Strickland | |
| 2021 | | | David A. Battat | | | Emile A Battat, Jeffery Strickland | |
| 2020 | | | David A. Battat | | | Emile A Battat, Jeffery Strickland | |
(b)
The following table details the adjustment to the Summary Compensation Table Total Pay for our CEO, as well as the average for our other NEOs, to determine “compensation actually paid”, as computed in accordance with Item 402(v), with dividends already accounted for in the “All Other Compensation” component of the Summary Compensation Table. Amounts do not reflect actual compensation earned by or paid to our NEOs during the applicable year.
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| | | | CEO | | | Non-CEO NEO Average | | ||||||||||||||||||||||||||||||
| | 2022 | | | 2021 | | | 2020 | | | 2022 | | | 2021 | | | 2020 | | ||||||||||||||||||||
| Summary Compensation Table Total | | | | $ | 1,541,376 | | | | | $ | 1,936,585 | | | | | $ | 2,065,635 | | | | | $ | 638,344 | | | | | $ | 835,863 | | | | | $ | 1,396,176 | | |
Less: Reported Fair Value of Equity Awards(1) | | | — | | | — | | | | $ | 1,000,000 | | | | — | | | — | | | | $ | 750,000 | | | ||||||||||||
Add: Year-End Fair Value of Outstanding and Unvested Equity Awards Granted in the Year(2) | | | — | | | — | | | | $ | 992,794 | | | | — | | | — | | | | $ | 744,597 | | | ||||||||||||
Add: Year Over Year Change in Fair Value of Equity Awards Granted in Prior Years that Vested in the Year(2) | | | | $ | (205,231) | | | | | $ | (94,665) | | | | | $ | (201,459) | | | | | $ | (113,864) | | | | | $ | (22,091) | | | | | $ | (102,712) | | |
Add: Year Over Year Change in Fair Value of Outstanding and Unvested Equity Awards Granted in Prior Years(2) | | | | $ | (134,905) | | | | | $ | 154,821 | | | | | $ | (451,805) | | | | | $ | (110,758) | | | | | $ | 126,267 | | | | | $ | (276,222) | | |
| Compensation Actually Paid | | | | $ | 1,201,240 | | | | | $ | 1,996,742 | | | | | $ | 1,405,164 | | | | | $ | 413,722 | | | | | $ | 940,039 | | | | | $ | 1,011,839 | | |
(1)
The amounts reflect the aggregate grant-date fair value reported in the “Stock Awards” columns in the Summary Compensation Table for the applicable year.
(2)
In accordance with Item 402(v) requirements, the fair values of unvested and outstanding equity awards to our NEOs were measured as of the end of each fiscal year, and as of each vesting date, during the years displayed in the table above.
(c)
Peer Group reflects the SIC Code 3841 Index — Surgical and Medical Instruments.
Tabular List of Company Performance Measures
The three measures listed below, in no particular order, represent the most important metrics linking Compensation Actually Paid to our CEO and other NEOs for FY 2022 to Company performance.
Operating Income
Total Stockholder Return
Return on Equity
Total Stockholder Return
Return on Equity
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Compensation Actually Paid versus Total Stockholder Return
As shown in the chart below, the CEO’s and other NEOs’ Compensation Actually Paid amounts are aligned with the Company’s Total Stockholder Return (“TSR”). Alignment is primarily due to the Company’s use of equity incentives in the form of restricted stock units, which are tied directly to stock price. The TSR calculation assumes a $100 investment made on January 1, 2020.
![[MISSING IMAGE: pc_return-4c.jpg]](/files/DEF 14A/0001104659-23-043239/pc_return-4c.jpg)
Compensation Actually Paid versus Net Income
The chart below compares the CEO’s and other NEOs’ Compensation Actually Paid to our GAAP Net Income.
![[MISSING IMAGE: pc_netincome-4c.jpg]](/files/DEF 14A/0001104659-23-043239/pc_netincome-4c.jpg)
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Compensation Actually Paid versus Operating Income
The chart below compares the CEO’s and other NEOs’ Compensation Actually Paid to our Company Selected Measure, Operating Income.
![[MISSING IMAGE: pc_operatingincome-4c.jpg]](/files/DEF 14A/0001104659-23-043239/pc_operatingincome-4c.jpg)
Compensation Committee Interlocks and Insider Participation
During 2021,2022, Messrs. Athey, Morgan, Spaulding, and Stupp served as members of the Compensation Committee. None of the members of the Compensation Committee was or had previously been an officer or employee of the Company or our subsidiaries or had any relationship requiring disclosure pursuant to Item 404 of Regulation S-K. Additionally, during 2021,2022, none of our executive officers was a member of the board of directors, or any committee thereof, of any other entity that has one of theor more executive officers of which servedserving as a member of our Board of Directors or any committee thereof.
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ITEM 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
ACCOUNTING FIRM
Our Audit Committee has appointed the firm of Grant Thornton LLP as our independent registered public accounting firm for the year 2022.2023. Although ratification by stockholders of the selection of Grant Thornton LLP is not required by law, the selection of Grant Thornton LLP is being submitted to our stockholders for ratification because we believe it is a good corporate practice. If stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain Grant Thornton LLP. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interest of us and our stockholders. A representative of Grant Thornton LLP will attend the annual meeting, will have an opportunity to make a statement, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR 2022.2023.
Audit and Related Fees
Audit Fees
The aggregate fees billed by Grant Thornton LLP for professional services rendered for the audit of the Company’s annual financial statements and the reviews of the financial statements included in our quarterly reports on Form 10-Q were $420,000 for the year ended December 31, 2022 and $399,000 for the year ended December 31, 2021 and $399,152 for the year ended December 31, 2020.2021.
Audit-Related Fees
The aggregate fees billed by Grant Thornton LLP were $9,000 for the year ended December 31, 2022 and $7,500 for the year ended December 31, 2021 and $3,000 for the year ended December 31, 2020 for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported under “Audit Fees” above.
Tax Fees
There were no fees billed by Grant Thornton LLP for the years ended December 31, 20212022 or 20202021 for tax services.
All Other Fees
There were no fees billed by Grant Thornton LLP for the years ended December 31, 20212022 or 20202021 other than those set forth above.
The Audit Committee has determined that the provision by Grant Thornton LLP of the above referenced services is compatible with maintaining its independence.
The Audit Committee has adopted policies and procedures for pre-approval of audit and non-audit services in order to ensure that the provision of those services does not impair the independence of the independent registered public accounting firm. In accordance with those policies and procedures, we are not to engage the independent registered public accounting firm to render any audit or non-audit services unless either the service is approved in advance by the Audit Committee or the engagement to render the service is entered into pursuant to the Audit Committee’s pre-approval policies and procedures. The Audit Committee is to review the services expected to be performed by the independent registered public accounting firm to ensure that the provision of those services will not impair the independent registered public accounting firm’s independence. The Audit Committee will pre-approve fee levels for each of the following categories: audit, audit-related, and tax compliance/planning services. Any proposed services
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exceeding pre-approved fee levels will require specific pre-approval by the Audit Committee. Approval for such services may be requested at the next Audit Committee meeting or, if earlier approval is necessary, it may be obtained in accordance with the Audit Committee’s delegation to the Audit Committee Chairman as described below. The term of any pre-approval is 12 months from the date of the pre-approval unless the Audit Committee specifically provides for a different period. The Audit Committee will not delegate to our management its responsibilities to pre-approve services performed by the independent registered public accounting firm. However, the Audit Committee has delegated pre-approval authority to the Audit Committee Chairman for unplanned services that arise during the year. The Chairman has the authority to review and approve permissible services up to $15,000 per service, provided that the aggregate amount of such services does not exceed $30,000 in any calendar year. The Audit Committee Chairman must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. During the year ended December 31, 2021,2022, no services were provided by Grant Thornton LLP other than in accordance with the pre-approval policies and procedures then in place.
Audit Committee Report
The Audit Committee of the Board of Directors has reviewed and discussed with management our audited financial statements as of and for the year ended December 31, 2021.2022. The Audit Committee has discussed with Grant Thornton LLP, our independent registered public accounting firm, the matters required to be discussed by applicable standards of the Public Company Accounting Oversight Board and the SEC. The Audit Committee has received the written disclosures and the letter from Grant Thornton LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding Grant Thornton’s communications with the Audit Committee concerning independence and has discussed with Grant Thornton LLP its independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to our Board of Directors that the financial statements referred to above be included in our Annual Report on our Form 10-K for the year ended December 31, 20212022 for filing with the SEC.
Members of the Audit Committee
Preston G. Athey (Chairman)Hugh J.G. Morgan, Jr.RonaldJr. Ronald N. SpauldingJohn P. Stupp, Jr.
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ITEM 3
ADVISORY VOTE TO APPROVE EXECUTIVE OFFICER COMPENSATION
We will present the following resolution to be voted on at our 20222023 annual meeting of stockholders:
“RESOLVED, that the stockholders of Atrion Corporation (the “Company”) approve, on an advisory basis, the compensation of the Company’s executive officers named in the Summary Compensation Table in the Company’s proxy statement for its 20222023 annual meeting of stockholders, as disclosed in said proxy statement pursuant to the compensation disclosure rulesregulations of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.”
As an advisory vote, this proposal is not binding on the Company. However, our Compensation Committee and our Board of Directors value the opinions of our stockholders expressed through your vote on this proposal and will consider the outcome of this vote in making future compensation decisions for our executive officers.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL, ON AN ADVISORY BASIS, OF OUR EXECUTIVE OFFICER COMPENSATION AS PRESENTED IN THIS PROXY STATEMENT.
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ITEM 4
ADVISORY VOTE ON THE FREQUENCY OF ADVISORY VOTING ON THE
COMPENSATION OF OUR EXECUTIVE OFFICERS
COMPENSATION OF OUR EXECUTIVE OFFICERS
Pursuant to Section 14A of the Securities Exchange Act of 1934, as amended, we are also requesting stockholders to vote, on an advisory basis, on how frequently we present a request for an advisory vote on the compensation of our executive officers. Stockholders will be able to cast their votes on whether we present the advisory vote on our executive compensation every “1 Year,” “2 Years,” or “3 Years” or may abstain from voting.
We recognize that there are advantages and disadvantages to each of the presented options for the frequency of an advisory vote on executive compensation. However, we are recommending that our stockholders select a frequency of every year for the advisory vote on the compensation of our executive officers. For a number of years, we have been conducting an advisory vote annually on our executive compensation. We believe that we should continue holding an annual vote so that stockholders can express their views on our executive compensation program every year. The Board of Director’s determination to hold the vote annually was influenced by the fact that the compensation of our executive officers is evaluated, adjusted, and approved on an annual basis. The Board believes that, as part of the annual review process, stockholder sentiment should be a factor that is taken into consideration by the Board and our Compensation Committee in making decisions with respect to executive compensation.
Although the Board of Directors recommends a vote every year, stockholders will be able to specify one of the three choices set forth above or abstain from voting on this proposal. Stockholders are not voting to approve or disapprove the Board’s recommendation.
The Board of Directors will consider the frequency choice receiving the highest number of votes cast as the stockholders’ preferred choice for the frequency of advisory voting on the compensation of our executive officers. Because this vote is advisory and not binding on the Board or the Company in any way, the Board of Directors may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option preferred by our stockholders. However, we value the opinions of our stockholders, and we will consider the outcome of the vote in making determinations regarding the presentation of vote proposals in future proxy statements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE, ON AN ADVISORY BASIS, FOR A FREQUENCY OF EVERY “1 YEAR” FOR ADVISORY VOTING ON THE COMPENSATION OF OUR EXECUTIVE OFFICERS.
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SECURITIES OWNERSHIP
The following table sets forth information regarding the beneficial ownership of shares of our common stock as of March 28, 202227, 2023 by (i) each of our directors, two of whom are the Board of Directors’ nominees for election as directors at the annual meeting; (ii) our executive officers who are named in the Summary Compensation Table herein; (iii) all of our current directors and executive officers as a group; and (iv) each other person known by us to be the beneficial owner of more than 5% of our outstanding common stock:
| Name of Beneficial Owner | | Number of Shares Beneficially Owned(1) | | Percent of Class(1) | | | Number of Shares Beneficially Owned(1) | | Percent of Class(1) | | ||||||||||||||||
| Preston G. Athey | | | | 656 | | | | | * | | | | | | 756 | | | | | * | | | ||||
David A. Battat(2) | | | | 98,191(3) | | | | | 5.46% | | | | | | 94,600(3) | | | | | 5.37% | | | ||||
Emile A Battat(4) | | | | 153,802(5) | | | | | 8.55% | | | |||||||||||||||
Emile A. Battat(4) | | | | 150,616(5) | | | | | 8.56% | | | |||||||||||||||
| Hugh J. Morgan, Jr. | | | | 9,952 | | | | | * | | | | | | 10,124 | | | | | * | | | ||||
| Maria Sainz | | | | 112 | | | | | * | | | |||||||||||||||
| Ronald N. Spaulding | | | | 2,282(6) | | | | | * | | | | | | 2,454(6) | | | | | * | | | ||||
| Jeffery Strickland | | | | 1,105(8) | | | | | * | | | |||||||||||||||
| John P. Stupp, Jr. | | | | 140,998(7) | | | | | 7.85% | | | | | | 141,170(7) | | | | | 8,02% | | | ||||
| Jeffery Strickland | | | | 2,402(8) | | | | | * | | | |||||||||||||||
BlackRock, Inc.(9) | | | | 114,537 | | | | | 6.38% | | | | | | 113,355 | | | | | 6.44% | | | ||||
Kayne Anderson Rudnick Investment Management, LLC(10) | | | | 190,555 | | | | | 10.62% | | | | | | 190,681 | | | | | 10.83% | | | ||||
Neuberger Berman Group LLC(11) | | | | 208,151 | | | | | 11.60% | | | | | | 194,910 | | | | | 11.07% | | | ||||
T. Rowe Price Associates, Inc.(12) | | | | 145,019 | | | | | 8.09% | | | |||||||||||||||
All directors and executive officers as a group (8 persons)(13) | | | | 408,395 | | | | | 22.65% | | | |||||||||||||||
T. Rowe Price Investment Management, Inc.(12) | | | | 115,570 | | | | | 6.56% | | | |||||||||||||||
All directors and current executive officers as a group (7 persons)(13) | | | | 399,720 | | | | | 22.70% | | | |||||||||||||||
*
Less than 1% of class.
(1)
The percentages set forth in this column are based on 1,795,1041,760,546 shares of common stock of the Company outstanding on March 28, 2022,27, 2023, plus shares that can be acquired through the exercise of options or vesting of restricted stock units that are to be settled in common stock within 60 days thereafter by the specified individual or group. Except as otherwise indicated in the notes to this table, beneficial ownership includes sole voting and investment power.
(2)
The business address for Mr. David Battat is One Allentown Parkway, Allen, Texas 75002-4206. Mr. David Battat is the son of Mr. Emile Battat.
(3)
These shares include 4,000 shares of common stock of the Company issuable upon the exercise of options exercisable on March 28, 2022 or within 60 days thereafter and 55,500 shares held in a family trust as to which shares Mr. David Battat has shared voting and investment power; these shares do not include restricted stock units that are to be settled in cash. Mr. David Battat is a party to award agreementsan agreement setting forth certain terms of options and restricted stock granted to him under the 2006 Equity Plan and restricted stock units granted to him outside the 2006 Equity Plan and the 2021 Equity Plan that are to be settled in cash.
(4)
The business address for Mr. Emile Battat is One Allentown Parkway, Allen, Texas 75002-4206.2700 Halkey-Roberts Place North, Saint Petersburg, Florida 33716.
(5)
These shares include 4,000 shares of common stock issuable upon the exercise of options exercisable on March 28, 2022; these shares do not include restricted stock units that are to be settled in cash. Mr. Emile Battat is a party to an award agreementsagreement setting forth certain terms of options and restricted stock granted to him under the 2006 Equity Plan and restricted stock units granted to him outside the 2006 Equity Plan and the 2021 Equity Plan that are to be settled in cash.
(6)
These shares are held in a family trust, of which Mr. Spaulding is the trustee.
(7)
These shares include 135,000 shares held by Stupp Bros., Inc. as to which Mr. Stupp shares voting power and investment power as a director and executive officer, and as a voting trustee of a voting trust which owns 100% of the voting stock, of Stupp Bros., Inc. The 135,000 shares held by Stupp Bros., Inc., which are pledged to that company’s lenders as security for its working capital line of credit, represent 7.52%7.67% of our common stock outstanding as of March 28, 2022.27, 2023. Mr. Stupp is the direct
beneficial owner of 5,9986,170 shares, of which 5,206 shares are pledged as collateral for a mortgage loan. These shares do not include 22,330 shares held in a family trust, the co-trustees of which are Mr. Stupp’s wife and one of his children, or 508515 stock units held in Mr. Stupp’s stock unit account that
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will not be converted into shares of our common stock within 60 days after March 28, 2022.27, 2023. The business address for Mr. Stupp and Stupp Bros., Inc. is 3800 Weber Road, St. Louis, Missouri 63125.
(8)
These shares include 1,879 shares that are held in a family limited partnership, the general partner of which is a limited liability company in which Mr. Strickland is a member. Mr. Strickland has shared voting and investment power over these shares. These shares also include 523 shares of our common stock issuable on the vesting of restricted stock units that vest on May 22, 2022 or Mr. Strickland’s earlier termination of employment due to death or disability and exclude the following: 337 shares of our common stock issuable on the vesting of restricted stock units that will not vest until August 24, 2022; 135 shares of our common stock issuable on the vesting of restricted stock units that will not vest until August 23, 2024; and restricted stock units granted to Mr. Strickland that are to be settled in cash. Mr. Strickland is a party to award agreements setting forth certain terms of restricted stock units granted to him under the 2006 Equity Plan and restricted stock units granted to him outside the 2006 Equity Plan that are to be settled in cash.retired on March 3, 2023.
(9)
This information is based on a Schedule 13G/A dated January 31, 20222023 filed with the SEC reporting that BlackRock, Inc. has the sole power to vote or direct the vote of 108,454107,695 shares of our common and has the sole power to dispose or direct the disposition of 114,537113,355 shares of our common stock. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.
(10)
This information is based on a Schedule 13G/A dated February 11, 202214, 2023 filed with the SEC reporting that Kayne Anderson Rudnick Investment Management, LLC has the sole power to vote or direct the vote of 128,339122,627 shares of our common stock, the shared power to vote or direct the vote of 48,88049,140 shares of our common stock, the sole power to dispose or direct the disposition of 141,675141,541 shares of our common stock, and the shared power to dispose or direct the disposition of 48,88049,140 shares of our common stock. The address of Kayne Anderson Rudnick Investment Management, LLC is 18002000 Avenue of the Stars, 2nd Floor,Suite 1110, Los Angeles, California 90067.
(11)
This information is based on a Schedule 13G/A dated February11, 2022February 10, 2023 filed with the SEC reporting that Neuberger Berman Group LLC has the shared power to vote or direct the vote of 206,245192,890 shares of our common stock and the shared power to dispose or direct the disposition of 208,151194,910 shares of our common stock, that Neuberger Berman Investment Advisers LLC has the shared power to vote or direct the vote of 206,245192,889 shares of our common stock and the shared power to dispose or direct the disposition of 208,151194,909 shares of our common stock, that Neuberger Berman Equity Funds has the shared power to vote or direct the vote of 140,684130,235 shares of our common stock and the shared power to dispose or direct the disposition of 140,684130,235 shares of our common stock, and that Neuberger Berman Genesis Fund has the shared power to vote or direct the vote of 140,684130,235 shares of our common stock and the shared power to dispose or direct the disposition of 140,684130,235 shares of our common stock. Neuberger Berman Group LLC, Neuberger Berman Investment Advisers LLC, and certain affiliated entities have disclaimed beneficial ownership of all such shares. The address of Neuberger Berman Group LLC, Neuberger Berman Investment Advisers LLC, Neuberger Berman Equity Funds, and Neuberger Berman Genesis Fund is 1290 Avenue of the Americas, New York, New York 10104.
(12)
This information is based upon a Schedule 13G/A13G dated February 14, 20222023 filed with the SEC reporting that T. Rowe Price Associates,Investment Management, Inc. has sole power to vote or direct the vote of 57,49842,844 shares of our common stock and has sole power to dispose or direct the disposition of 145,019115,570 shares of our common stock. Additionally, T. Rowe Price Associates, Inc. filed a Schedule 13G/A dated February 14, 2023 with the SEC reporting that it has sole power to vote and sole power to dispose of 8,777 shares of our common stock and has ceased to be the beneficial owner of more than 5% of our common stock. T. Rowe Price Investment Management, Inc. and T. Rowe Price Associates, Inc. hashave expressly denied beneficial ownership of all such shares. The address of T. Rowe Price Associates,Investment Management, Inc. and T. Rowe Price Small Cap-Value Fund, Inc.isAssociates, Inc. is 100 East Pratt Street, Baltimore, Maryland 21202.
(13)
See notes (1)-(8)(7) above. In accordance with SEC regulations, Mr. Strickland is not included in this group and Ms. Ferguson, our Vice President and Chief Financial Officer, Secretary, and Treasurer, who succeeded Mr. Strickland is included.
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DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors, and persons who own more than 10% of our common stock to file initial reports of ownership and reports of changes of ownership of our common stock with the SEC and to provide copies of those reports to us. We assist our directors and officers with completing and filing these reports. Based upon a review of these filings and written representations from our directors and officers, we believe that all reports were filed timely in 2022, except that one Form 4 to report the disposition and conversion to cash of restricted stock units was filed late by each of Mr. Emile Battat, Mr. David Battat, and Mr. Strickland. Additionally, one Form 4 to report the disposition and conversion to cash of restricted stock units in 2021 was filed late by each of Mr. Emile Battat, Mr. David Battat, and Mr. Strickland and not previously reported as delinquent.
STOCKHOLDER PROPOSALS
Stockholder Proposals in Our Proxy Statement
In order for proposals by stockholders to be considered for inclusion in our proxy material relating to the 20232024 annual meeting of stockholders, such proposals must be received by us on or before December 12, 2022.2023.
Stockholder Proposals and Director Nominations to be Presented at Stockholder Meetings
Our Bylaws provide that a stockholder who desires to propose any business at an annual meeting of stockholders or to nominate one or more persons for election to our Board of Directors at an annual meeting or special meeting called for the purpose of electing directors must give us written notice of such stockholder’s intent to bring that business before such meeting or nominate such person or persons for election to our Board of Directors at such meeting. The notice must be received by the Secretary of the Company at our principal executive offices not earlier than the close of business on the 150th day and not later than the close of business on the 120th120th day prior to the first anniversary of the preceding year’s annual meeting of stockholders. In the event that the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary date of the previous year’s meeting or in the case of a special meeting called for the purpose of electing directors, notice by the stockholder must be received by the Secretary not earlier than the close of business on the 150th day prior to the date of such meeting and not later than the close of business on the later of the 120th day prior to such meeting and the 10th day following the date on which public announcement of the date of the meeting is first made. Such notice for the 20232024 annual meeting must be delivered not earlier than December 25, 20222023 and not later than January 24, 2023,2024, provided the date of the 20232024 annual meeting is not more than 30 days before or more than 60 days after May 24, 2023.23, 2024. Our Bylaws also specify the information that must be included in the notice that stockholders must provide to the Secretary of the Company in order to propose any business to be conducted at an annual meeting or to nominate one or more persons for election to our Board of Directors at an annual meeting or a special meeting called for the purpose of electing directors. The Chairman of the meeting may refuse to transact any business presented or to acknowledge the nomination of any person made without compliance with the procedures set forth in our Bylaws. The foregoing summary is qualified in its entirety by reference to the full text of our Bylaws which is on file with the SEC and is available upon request to the Secretary of the Company.
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NO INCORPORATION BY REFERENCE
In our filings with the SEC, information is sometimes “incorporated by reference.” This means that we are referring you to information that has previously been filed with the SEC, and that the information should be considered part of a particular filing. As provided in regulations promulgated by the SEC, the “Audit Committee Report” and the “Compensation Committee Report” contained in this proxy statement are not incorporated by reference into any other filings with the SEC unless specifically provided otherwise in such filings. In addition, this proxy statement includes our website address. This website address is intended to provide inactive, textual references only. The information on our website is not part of this proxy statement.
COST AND METHOD OF SOLICITATION
The cost of soliciting proxies will be borne by us. In addition to the use of the mails, proxies may be solicited personally or by telephone, facsimile, and other electronic communication methods by our directors, officers, and employees without additional compensation. Brokerage firms, nominees, fiduciaries, and other custodians will be requested to forward soliciting materials to the beneficial owners of our common stock held in their names or in those of their nominees, and their reasonable expenses will be reimbursed upon request.
OTHER BUSINESS
Our Board of Directors does not intend to bring any business before the meeting other than that stated herein and is not aware of any other matters that may be presented for action at the meeting. However, if any other matters should properly come before the meeting, or any adjournments thereof, it is the intention of the persons named in the accompanying proxy to vote on such matters as they, in their discretion, may determine.
By Order of the Board of Directors
Cindy Ferguson
Vice President and Chief Financial
Officer,
Secretary, and Treasurer
April 12, 202210, 2023
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Appendix A
Reconciliation of GAAP and Non-GAAP Financial Measures
The Company reports its financial results in accordance with generally accepted accounting principles (GAAP). Earnings before interest, taxes, depreciation, and amortization (EBITDA) and EBITDA margin are non-GAAP financial measures. The SEC requires public companies to reconcile non-GAAP to related GAAP measures. In the table below, Net Income margin is Net Income (GAAP) divided by Revenue (GAAP), and EBITDA margin is EBITDA divided by Revenue (GAAP). EBITDA and EBITDA margin are metrics used by our management team as additional measures of our performance.
| Reconciliation To GAAP Information ($ in thousands) | | | Year Ended 12/31/2022 | | |||||||||
| | Amount | | | Margin | | ||||||||
| Net Income (GAAP) | | | | $ | 35,008 | | | | | | 19.1% | | |
| Interest and Dividend Income | | | | | (988) | | | | | | | | |
| Provision for Income Taxes | | | | | 5,609 | | | | | | | | |
| Depreciation and amortization | | | | | 13,812 | | | | | | | | |
| EBITDA (Non-GAAP) | | | | | 53,441 | | | | | | 29.1% | | |
| Revenue (GAAP) | | | | $ | 183,506 | | | | | | | | |
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SCAN TOVIEW MATERIALS & VOTE ATRION CORPORATION ONECORPORATIONONE ALLENTOWN PARKWAY ALLEN, TX 75002 SCAN TO VIEW MATERIALS & VOTE VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONICform.ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS IfMATERIALSIf you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTEyears.VOTE BY PHONE - 1-800-690-6903 Use1-800-690-6903Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTEinstructions.VOTE BY MAIL Mark,MAILMark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D78052-P69385 KEEPV08081-P87099KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. ATRION CORPORATION The Board of Directors recommends you vote "FOR" the nomineesDATED.nominees listed in Item 1. 1. Election1.1.Election of Directors. Nominees: For Against Abstain 1a. Maria Sainz Directors.Nominees:ForAgainstAbstain1a. Emile A Battat1b. John P. Stupp, Jr. The Board of Directors recommends you vote "FOR" Items 2 and 3. For Against Abstain 2. Ratification of the appointment of Grant Thornton LLP as the Company's independent registered public accounting firm for the year 2022. 3. Advisory vote to approve executive officer compensation. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) DateRonald N. Spaulding
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Notice of 20222023 Annual Meeting and Proxy Statement and 20212022 Annual Report are available at www.proxyvote.com. ATRIONwww.proxyvote.com.V08082-P87099ATRION CORPORATION ANNUAL MEETING OF STOCKHOLDERS THISSTOCKHOLDERSTHIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS TheDIRECTORSThe undersigned hereby appoints Preston G. AtheyRonald N. Spaulding and Hugh J. Morgan,John P. Stupp, Jr., or either of them, each with power of substitution, as proxies of the undersigned, and hereby authorizes them to represent and to vote, as specified on the reverse side of this proxy, and in their discretion upon such other matters that may properly come before the meeting or any adjournment thereof, all of the shares of Common Stock of Atrion Corporation that the undersigned is entitled to vote at the Annual Meeting of Stockholders of Atrion Corporation to be held at 10:00 a.m., Central Time, on Tuesday, May 24, 2022,23, 2023, at the offices of Atrion Corporation, One Allentown Parkway, Allen, TX 75002, and at any adjournment thereof. Thisthereof.This proxy, if properly executed and returned, will be voted as specified or, if no specification is made, will be voted "FOR" the nominees listed in Item 1, and "FOR" Items 2 and 3.3, and "1 Year" on Item 4. If any other matters properly come before the meeting, this proxy will be voted as determined by the proxies in their discretion. PLEASEdiscretion.PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE. ContinuedENVELOPE.Continued and to be signed on reverse side.
0000701288 3 2022-01-01 2022-12-31