Item 1. Business.
General
Trion, Inc. (the "Company" or "Trion") was incorporated in 1946 in the Commonwealth of Pennsylvania and is principally engaged in the design, manufacture, sale and distribution of equipment to improve indoor air quality ("IAQ"). On August 1, 1995 the Company acquired Envirco Corporation ("Envirco"), a manufacturer and distributor of ultra clean air systems and components located in Albuquerque, New Mexico. In addition, on August 30, 1996 the Company acquired Herrmidifier Company, Inc. ("Herrmidifier"), a manufacturer and distributor of humidification systems and components located in Lancaster, Pennsylvania.
Products and Markets
The Company's industry segments are Engineered Products, Consumer Products and European Operations. See Note L to the financial statements included in Item 8 of this Annual Report on Form 10-K for financial information concerning the Company's industry segments.
Engineered Products. The Engineered Products group designs, manufactures and sells indoor air quality and dust collection equipment. Engineered Products comprised 73%, 65% and 57% of the Company's total sales in the years 1996, 1995 and 1994, respectively.
The Company's Sanford, North Carolina operation provides air cleaning equipment and systems primarily designed for industrial, residential, commercial and specialty uses. These products are used in a wide variety of industries including microelectronics, residential, metal working, pharmaceuticals, medical, commercial buildings, general manufacturing and ships and submarines. Products range from custom-engineered systems that remove large volumes of airborne contaminants caused by industrial processes to self-contained air cleaners used to capture tobacco smoke, dust and pollen in environments such as enclosed work areas, restaurants and homes.
Through its subsidiary Envirco, the Company utilizes high efficiency particulate arrestance ("HEPA") and ultra low particulate arrestance ("ULPA") technologies in applications including cleanrooms in the semiconductor and microelectronics industries and systems to provide hospitals with clean environments for surgery rooms, cancer research, patient isolation and sterile medication preparation. The Company's products include the patented MAC-10r used in cleanroom applications and Hospi-Gardr, a portable filtration unit used in medical applications.
		Herrmidifier, acquired in 1996, designs, manufactures and sells humidification products used for residential, commercial, and industrial applications. Products range from custom-designed systems used in industrial processes to residential humidifiers installed with heating and air conditioning systems in homes.
The Company also manufacturers equipment to electrostatically distribute microthin films of lubricants, corrosion inhibitors and other protective coatings to metal strips on high speed lines.
Consumer Products. The Company's Consumer Products group, also located in Sanford, North Carolina, manufactures and markets appliance air cleaners, including both tabletop and free standing console units. Trion's appliance units historically have been marketed principally to retailers and others on a private label basis. In recent years, the Company has begun to market products under Trion brand names. The Company has plans to introduce a new line of products in 1997. Consumer Products comprised 16%, 24% and 29% of the Company's total sales in the years 1996, 1995 and 1994, respectively.
European Operations. European Operations consists of sales and distribution primarily in Europe of both engineered and consumer IAQ products manufactured at Trion's U.S. facilities. European Operations comprised 11%, 11% and 14% of the Company's total sales in the years 1996, 1995 and 1994, respectively.
Technologies
In its air cleaning products, the Company utilizes what it believes to be the industry's broadest range of technologies to collect airborne contaminants.
- HEPA filtration utilizes laminar flow filtration which ensures even and constant airflow and has 99.97% efficiency on 0.3 micron size particles. ULPA filtration functions similarly and has 99.999% efficiency on 0.12 micron size particles. These processes provide the level of airborne contamination control essential for applications requiring ultra-clean air, such as cleanrooms and hospital and laboratory settings.
- Electrostatic precipitators are high efficiency electronic air filters. In an electrostatic precipitator, air passes through an ionizing section where airborne particles are electrically charged by ions in an electrostatic field. The charged particles then enter a collecting cell where the particles are repelled from charged plates and collected on grounded plates within the cell. This process is highly effective at capturing submicron particulate, including particulate found in tobacco smoke, dust, pollen, welding smoke and oil mists from machining operations.
- In a media filtration system, air passes through media filters that trap airborne particles. Some of these filters, like cartridge collectors, can collect submicron particulate, such as welding smoke, as well as larger particulate. Other filters, like bag collectors, are useful for larger particulate such as that generated in machining and welding processes. In some systems, air passes through a prefilter where large particles are collected and then pass through a second or third media filter where smaller particles are collected.
In its humidification products, the Company also uses multiple technologies. Humidification is accomplished by introducing moisture in the form of steam, water vapor or water droplets into the air system. The moisture raises the relative humidity of the air stream to a desired level for human comfort, protection of valuable articles and manufacturing processes. Raw Materials and Purchased Components
Raw materials and components used by the Company in the manufacturing process are either readily available from a number of suppliers or are manufactured by the Company from raw materials that have such availability.
Aluminum, steel and filter paper represent principal raw materials in the Company's products. Prices for aluminum, steel and filter paper can be subject to wide fluctuation and the Company's products cannot always be priced to take into account such fluctuations, especially in the short term. Other significant materials used by the Company include motors, blowers, injection molded plastics, media filters, packaging materials and various electrical components. In aggregate, the cost of materials in 1996 increased slightly less than the consumer price index, whereas, in 1995 prices of raw materials increased slightly ahead of the consumer price index. The Company does not anticipate significant cost increases during 1997.
Sales and Distribution
Engineered Products are sold in North America by the Company's own sales force to end users, contractors and distributors as well as through manufacturers' representatives. Consumer Products are sold directly to retailers, distributors and other companies for ultimate sale to consumers through retail outlets.
Trion sells appliance air cleaners on a recurring basis to Sears, Roebuck and Co. within Consumer Products. This customer represented approximately 6% of consolidated sales in 1996 and the loss of the account could have an adverse effect on the Company.
The Company's indoor air quality products are sold throughout the world. Through Trion Limited, a wholly-owned subsidiary, the Company has a marketing and distribution office in Andover, England, servicing primarily the European market directly and through distributors and representatives. The Company's products are also sold in other countries outside Europe through distributors and representatives, principally in the Pacific Rim.
For information regarding the Company's export sales, see Note L to the financial statements included in Item 8 of this Annual Report on Form 10-K. Competition
While the Company is a principal competitor in most of its markets, the indoor air quality industry is highly competitive. In Engineered Products, the Company and its major competitors, Honeywell, Inc., White- Rodgers, a division of Emerson Electric, United Air Specialists, Inc., a subsidiary of CLARCOR, Inc., American Air Filter Co., Inc., Research Products Corporation, Torit, a division of Donaldson Co., Inc., Farr Company, and Flanders Filters, Inc., account for the predominant share of the market in the lines in which they compete. In Consumer Products, while appliance air cleaners are sold by a large number of companies, Honeywell, Inc., Bionaire, Inc. and Trion together have the predominant share of the market. Of the three, Trion is the only manufacturer of electronic appliance air cleaners. Principal competitors outside the United States include some of these companies as well as foreign competitors. Competition in the Company's market
segment is primarily on the basis of price, product technology, product quality and customer service with a majority of the Company's business obtained through competitive bidding. Some of the Company's competitors have assets and/or sales substantially in excess of the Company.
Patents and Trademarks
The Company holds a number of patents that relate to the design and use of its products, some of which it considers significant to the overall conduct of the Company's business. No patents which the Company considers significant will expire within the next five years.
The Company owns several trademarks that it considers important in the marketing of its products and believes that its rights in these trademarks are adequately protected and of unlimited duration.
Research and Development
The Company's ongoing research and development program involves creating new products and redesigning existing products to reduce manufacturing costs and to increase product efficiencies. During 1996, 1995 and 1994, the Company spent approximately $1,259,000, $977,000 and $743,000, respectively, on research and development activities.
Employees
As of December 31, 1996, the Company employed approximately 469 persons worldwide. The Company's employees are not represented by a union. The Company believes its employee relations are satisfactory.
Backlog
The backlog of unfilled orders at December 31, 1996 was $6,912,000 compared to $9,564,000 at the prior year-end. Substantially all of this backlog is scheduled for shipment during 1997.
Risks
As a cautionary note to investors, statements made in this Annual Report on Form 10-K which are not historical are forward - looking statements that involve risks and uncertainties. In addition, the Company may from time to time make oral forward - looking statements. There are several important factors that could cause actual results to differ materially from those contained in any forward - looking statement made by or on behalf of the Company. Such factors include, but are not limited to, those set forth below.
Acquisition Strategy
The Company has initiated an acquisition program as part of its strategic plan. The Company's acquisition strategy entails the potential risk inherent in assessing the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates and in integrating the operations of acquired companies. There can be no assurance that suitable acquisition opportunities will be available, that the Company
will have access to the capital required to finance potential acquisitions, that the Company will continue to acquire businesses or that any business acquired will be integrated successfully or prove profitable.
Potential Fluctuations in Operating Results
The Company can experience fluctuations in operating results, both on a quarterly and annual basis, caused by various factors, including general economic conditions and the factors discussed below under "Cyclicality". Fluctuations in the Company's operating results, particularly quarter-to- quarter, are also affected in certain of its markets by the timing of customer orders, the pattern of customer purchasing cycles and the resulting changes in product mix.
Fluctuations in Raw Material Costs
Aluminum, steel and filter paper represent principal raw materials in the Company's products. Prices for these materials can be subject to wide fluctuation and the Company's products cannot always be priced to take into account such fluctuations, especially in the short term. See "Business - Raw Materials and Purchased Components" for a more detailed discussion of raw materials used in the Company's business.
Cyclicality
Sales of Engineered Products in general are tied to capital spending levels. A significant percentage of the Company's sales of residential wholehouse air cleaners is dependent upon new residential construction, which is a cyclical industry. In addition, the Company has substantial sales of products for cleanroom applications to the microelectronics industry, which can be cyclical. Sales of Consumer Products may also be subject to cycles due to the seasons and weather conditions.
Competition
While the Company is a principal competitor in most of its markets, the indoor air quality industry is highly competitive. Competition is primarily on the basis of price, product quality, product technology and customer service, with a majority of the Company's business obtained through competitive bidding. See "Business - Competition" for a more detailed discussion of competition in the Company's markets.
Intellectual Property
The Company's success is dependent in part on its ability to protect proprietary technology contained in certain of its products. While Trion's critical technologies are patented, there can be no assurance that this will prove sufficient to deter misappropriation of those technologies or independent third-party development of rival technologies, which would have an adverse effect on the Company's sales. The defense and prosecution of patent suits are both costly and time-consuming, even if the outcome is favorable to the Company. In foreign countries, the expenses associated with such proceedings can be prohibitive. In addition, there is an inherent unpredictability in obtaining and enforcing patents in foreign countries.
Reliance on Key Personnel
The Company's operations are dependent on the continued efforts of senior management, in particular Steven L. Schneider, its President and Chief Executive Officer. Should any of the senior managers be unable to continue in their present roles, the Company's prospects could be adversely affected.
Potential Regulatory Risks
The Company's business and products may be significantly influenced by the constantly changing body of environmental laws and regulations, which require that certain environmental standards be met and impose liability for the failure to comply with such standards. While the Company endeavors at its facilities to assure compliance with environmental laws and regulations, future changes in such standards could have an adverse effect on the Company. In addition, to some extent, changes in the liabilities and risks imposed by the environmental laws on the Company's customers could impact demand for certain of the Company's products or impose greater liabilities and risks on the Company, which could also have an adverse effect on the Company's business.
International Transactions
The Company has sold and expects it will continue to sell products in areas outside the United States. Such transactions entail the risks associated with conducting business internationally, including the risk of currency fluctuations, slower payment of invoices and possible social, political and economic instability.
Item 2.

Item 2. Properties.
The Company owns a 263,000 square foot modern brick facility on 27 acres in Sanford, North Carolina which houses the Company's corporate headquarters as well as manufacturing, engineering, sales and distribution operations. This property plus equipment are pledged to secure industrial revenue bonds totaling $3,200,000 at December 31, 1996. The bonds mature on November 1, 2011. The carrying value of assets pledged to secure these bonds was approximately $4,574,000 at December 31, 1996. In addition, the Company leases a 45,000 square foot facility in Albuquerque, New Mexico which houses Envirco and a 53,000 square foot facility in Lancaster, Pennsylvania which houses Herrmidifier. Both leases expire in 1998.
Foreign properties consist of a 53,000 square foot facility located in Andover, England owned by the Company.
The Company's facilities in Sanford, Lancaster and Andover are suitable for their intended uses, however, Sanford and Andover have excess capacity for current needs. The facility in Albuquerque is approaching full capacity. The facility in Andover, England remains for sale.
Item 3.

Item 3. Legal Proceedings.
Neither the Company nor its subsidiaries are party to any material pending legal proceedings nor is any of their property subject to such proceedings.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 4.(a) Executive Officers of the Registrant.
Positions and Name Age Office Held
Steven L. Schneider (1) 53 President, Chief Executive Officer 	 Brian H. Boender (2) 47 Vice President - Sales and Marketing Charles A. Haynes (3) 48 Vice President - Engineering Calvin J. Monsma (4) 45 Vice President and Chief Financial Officer Herbert A. Rose (5)	 	 42 		Vice President - Sales 							and Marketing J. Gary Waters (6) 51 Vice President - Finance
On March 31, 1993 the Company and Mr. Schneider entered into an employment agreement which was subsequently amended and restated on July 28, 1995 (the "Agreement") providing for his employment as President and Chief Executive Officer for a three-year term commencing on May 24, 1993 and which, after the initial term, is automatically extended for an additional year on each anniversary date. A more complete discussion regarding the Agreement may be found under the caption "Compensation Agreements" on page 11 of the annual Proxy Statement dated March 11, 1997 and is incorporated herein by reference. All other executive officers serve at the discretion of the Board.
(1) Mr. Schneider joined the Company on May 24, 1993. For a period of more than five years prior to joining the Company, Mr. Schneider served as Group President of Tomkins Industries U.S.A., a subsidiary of Tomkins PLC, a diversified manufacturing company.
(2) Prior to joining the Company on July 19, 1993, Mr. Boender was Vice President-International for White-Rodgers (Division of Emerson Electric Co.), a leading manufacturer in the HVAC industry, from May 1992 until July 1993 and Vice President-Sales and Marketing from 1989 until 1992.
(3) Prior to joining the Company on July 6, 1994, Mr. Haynes was Engineering Director of Heating Products for NORDYNE, a leading manufacturer of HVAC products for modular housing and residential applications from August 1992 until June 1994. Prior to joining NORDYNE, for a period of more than three years, Mr. Haynes was the Engineering Program Manager for New Product Development at United Technologies Corporation's Allied Products Division of Carrier Air Conditioning and was responsible for the design and development of various indoor air quality and electric heat products.
(4) Prior to joining the Company on July 11, 1994, Mr. Monsma was employed by Concurrent Computer Corporation, a provider of high-performance real-time computer systems, serving as Director of Finance for worldwide sales and international operations until he joined the Company.
(5) Mr. Rose joined Trion on January 15, 1996. From September 1991 to January 1996 he served in various sales and marketing responsibilities at Whirlpool Corporation, including Director of Merchandising for that company's appliance business with Sears and Director of Trade Marketing for the Whirlpool, KithchenAid and Roper brands in North America.
(6) Mr. Waters assumed responsibility for the newly created position of Vice President Finance for North America Operations on November 1, 1996. Prior to that he had served as Vice President Operations since September 1, 1994 and Vice President and Controller from 1989 until his election as Vice President Operations.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
MARKET AND DIVIDEND INFORMATION
The Company's common stock trades on the Nasdaq National Market under the symbol: "TRON". There were 1,060 shareholders of record on January 2, 1997. High and low sales prices and dividends declared by quarter for the last two years were:
Item 6.

Item 6. Selected Financial Data.
All amounts have been restated to reflect the acquisition of the Herrmidifier Company in August 1996 which was accounted for as a pooling of interest. The restated financial and performance highlights for 1995 through 1992 above include the historical financial statements of Herrmidifier Company for the years ended December 31, 1995 and 1994 and the years ended March 31, 1994 and 1993. For years prior to 1993 and including the year ended March 31, 1994, Herrmidifier Company presented financial statements based on a fiscal year end March 31. For the three-month period ended March 31, 1994, which results have been included in both the financial and performance highlights for 1994 and 1993, Herrmidifier Company net sales were approximately $1,827,000 and net income was approximately $156,000. Past performance is not indicative of future results.
*A non-recurring charge related to a management restructuring reduced net income by $969,000 or $0.14 per share
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis incorporates the performance of Herrmidifier Company, Inc. (Herrmidifier), acquired by the Company on August 30, 1996. The acquisition was accounted for as a pooling of interest, whereby the current and prior period statements of financial condition and results of operations are included. Accordingly, the prior periods presented and discussed have been restated.
Results of Operations
Net sales for the year 1996 were $62,401,000, a 26% improvement over the prior year's $49,565,000 which, in turn, was a 27% increase over the $39,090,000 reported in 1994. The substantial increase in each of the years was primarily due to the acquisition of the Envirco Corporation in Albuquerque, New Mexico ("Envirco") in August 1995. Twelve months' activity was included in 1996, five months' activity in 1995, and no activity in 1994. North American base business sales increased 1% during 1996 and increased 6% in 1995. Although Envirco generated a significant increase in sales year on year, there was a downward trend in the second half of 1996 due to the slowdown in capital spending by the microelectronics industry. Sales by consolidated European Operations increased by 26% in 1996 over 1995 due to the introduction of Envirco products in that market as well as the generally improving economic conditions in Europe. European Operations sales declined 4% in 1995 mainly due to the decline in business in the German market.
Improvement in Engineered Products sales reflect management's emphasis on growing this segment. Combined with the acquisitions of Herrmidifier and Envirco, Engineered Products revenues increased by 42% in 1996 and 45% in 1995. The Consumer Products segment declined by 17% in 1996 as compared to 1995 primarily due to a delay in the introduction of a new line of appliance air cleaner products for a major retailer which is now expected to occur in the first half of 1997. Consumer Products recorded a 6% increase in 1995 over 1994, primarily due to increased sales to a major retail customer and the introduction of a new HEPA air cleaner appliance product in the second half. Management expects to continue its strategic focus on the Engineered Products component of the business while protecting and cultivating the Consumer Products segment.
Consolidated gross profit as a percentage of sales declined to 33.6% in 1996 as compared to 36.2% and 36.8% in 1995 and 1994, respectively. Generally, the decline in this ratio in 1996 was due to increased sales of Envirco products, which have a lower gross profit margin, product and customer mix and the Company's commitment to reducing inventory balances to improve asset management. In the case of finished goods and work-in-process elements, this inventory reduction caused a lower level of direct labor to be expended and a reduced amount of overhead being absorbed, resulting in higher comparative cost of products sold. In 1995, the Company experienced price increases in raw materials such as aluminum, steel, plastics, motors and packaging which were slightly ahead of the consumer price index. In both years, the Company's value analysis and profit improvement programs as well as advances and changes to manufacturing processes partially offset cost increases. Evaluation of production methods, facilities and locations will continue.
Operating expenses as a percentage of sales were 28.5% in 1996 in comparison to 27.9% and 29.7% in 1995 and 1994, respectively. Although spending on direct advertising was down in 1996, the slight increase in 1996 was primarily the result of the Company's increased investment in sales and marketing efforts, especially in the Consumer Products segment, which incurred higher costs as a result of developing the new line of appliance air cleaner products. The reduction in the ratio in the 1995 and 1994 comparative period is attributable to the synergies developed by the acquisition of Envirco and in 1994 included a onetime charge of $125,000 for the closure of the Company's German subsidiary and the consolidation of European operations. Savings continue to be generated by the profit improvement programs implemented by the Company.
Interest expense during 1996 was $856,000 as compared to $578,000 in 1995 and $275,000 in 1994. The increases in 1996 and 1995 were due primarily to a net increase in borrowing of $6,800,000 for the Envirco acquisition in August 1995 with twelve months' interest in 1996 as compared to five months in 1995. In addition, the Company has entered into an interest rate hedge agreement on $6,000,000 at an interest rate fixed at 7.5% for three years in order to reduce the impact of fluctuations in interest rates on its floating debt. Amortization expense for 1996 was $344,000 as compared to $143,000 in 1995 and zero in 1994 due to the goodwill recorded for the August 1995 acquisition of Envirco.
Onetime acquisition expenses for the Herrmidifier acquisition in August 1996 were $414,000.
Income taxes were $502,000, $1,366,000, and $982,000, or an effective rate of 31.1%, 37.2% and 36.2% in 1996, 1995, and 1994, respectively. The primary reason for the reduction in taxes and the effective tax rate in 1996 was the utilization of net operating loss carryforwards resulting from the income generated in the Company's subsidiary in the United Kingdom. Due to prior years' losses, this favorable tax treatment in the United Kingdom will continue with available tax losses being carried forward indefinitely.
Net income for the year ended 1996 was $1,112,000 as compared to $2,303,000 in 1995 and $1,734,000 in 1994. Corresponding earnings per share were $0.16, $0.33 and $0.25 in 1996, 1995 and 1994, respectively. The 1996 results were impacted by the previously discussed changes in gross profit, the investments made in sales and marketing programs and the onetime charge for the acquisition of Herrmidifier, which negatively impacted earnings per share by <11>
$0.06. In 1995, net income increased as compared to 1994 primarily due to the incremental sales volume generated by Envirco.
Liquidity and Sources of Capital
Cash flow from operations was sufficient to fund working capital requirements. Capital expenditures during the most recent period were significantly above prior periods due to the investment in streamlining manufacturing and production processes and tooling for new products. The cash balance on hand increased to $2,073,000 at 1996 year end, from $497,000 in 1995. The reduction in cash from 1994 to 1995 was primarily due to the purchase of the Envirco operation. In addition to the Company's own funds, supplemental bank borrowings of $3,000,000 were required during 1996 to fund the previously mentioned capital spending and to retire the debt of Herrmidifier. In 1995, bank borrowings of $6,800,000 were required to fund the Envirco acquisition. Working capital decreased to $14,182,000 in 1996 as compared to $16,486,000 in 1995, primarily due to the increase in the current portion of long-term debt. The ratio of current assets to current liabilities in 1996 was 2.4 to 1 compared to 2.9 to 1 a year ago. The Company has taken and will continue to take measures to manage and control accounts receivable and inventory balances in order to improve utilization of available resources.
Currently, the Company has an unsecured line of credit in the amount of $18,000,000 with Wachovia Bank of North Carolina, N.A. which, when combined with operating cash flow, is deemed sufficient to fund future operating requirements. Anticipated acquisition financing requirements may require the Company to seek additional sources of credit. These funds would be used primarily for financing activities associated with future growth opportunities through additional acquisitions. The Company has no commitments with respect to any additional acquisitions at this time. <12>
Item 8.

Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and the report of independent auditors are set forth below. Information required by Item 302, "Supplementary Data," is set forth in Note J of the Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ACCOUNTING POLICIES
Principles of Consolidation: The financial statements include the accounts of the Company's subsidiaries, all of which are wholly owned. All significant intercompany transactions have been eliminated.
Use of Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Translation of Foreign Currencies: Assets and liabilities of foreign subsidiaries are translated using year-end exchange rates and revenues and expenses are translated using exchange rates prevailing during the year. Unrealized currency translation adjustments are recorded as a component of shareholders' equity and are not included in income until realized.
Operations: The Company is principally engaged in the design, manufacture and sale of equipment to improve the quality of indoor air in the consumer, residential, commercial and industrial markets, and equipment to electrostatically distribute micro-thin films of lubricants, corrosion inhibitors and other protective coatings to metal strips on high speed process lines.
Inventories: Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out method for domestic raw materials and by the first-in, first-out method for all other inventories. Obsolete or slow moving inventory is written off or written down when it is determined that the carrying value of the particular item exceeds realizable value.
Property, Plant and Equipment: Property, plant and equipment are carried at cost. Depreciation is computed by the straight-line method. The range of the estimated lives used in depreciating buildings are 25 to 40 years and for equipment 4 to 10 years.
Intangible Assets: The carrying value of intangible assets are reviewed if the facts and circumstances indicate impairment of their carrying value. Any impairment in the carrying value of such intangibles is recorded when identified.
Long-Lived Assets: Effective January 1, 1996, the Company adopted FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The adoption of SFAS 121 did not materially affect the financial statements.
Pension and Savings Plans: The Company has one noncontributory defined benefit pension plan and three defined contribution profit sharing plans covering eligible employees. (See Note I)
Net Sales: The Company generally recognizes revenues on product sales when goods are shipped.
Advertising Costs: It is the Company's policy to expense all advertising costs in the year the advertising occurs. Advertising expenses were $764,000, $923,000 and $521,000 for the years 1996, 1995 and 1994, respectively.
Research and Development Expenses: Included in selling, administration and engineering expenses is $1,259,000, $977,000 and $743,000 for research and development in the years 1996, 1995 and 1994, respectively. It is a policy of the Company to expense research and development costs in the year incurred.
Warranty Expenses: The Company has a warranty reserve which has been established at a percentage of cost of sales. This percentage, which is subject to regular review, is based on the history of warranty expenses incurred.
Net Income Per Share: Net income per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year (6,976,252 in 1996, 6,929,396 in 1995 and 6,881,229 in 1994). Outstanding stock options are not considered in computing earnings per share as the effect would not be material.
Statement of Cash Flows: For purposes of this statement, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Reclassification: Certain amounts in 1995 and 1994 have been reclassified to conform to present classifications. These reclassifications have no effect on previously reported shareholders' equity or financial results.
Restatement: The Company's 1995 and 1994 financial statements have been restated to include the results of Herrmidifier Company, Inc., a company acquired in 1996 accounted for as a pooling of interest.
NOTE B - ACQUISITIONS
On August 30,1996, the Company acquired 100% of the outstanding stock of Herrmidifier Company, Inc. (Herrmidifier) located in Lancaster, Pennsylvania for 500,000 shares of the Company's Common Stock. Related to this transaction, the Company recognized approximately $414,000 in non-recurring transaction costs. The transaction was accounted for by the pooling of interest method, and accordingly, the consolidated financial statements for the periods presented have been restated to include Herrmidifier.
The following are reconciliations of net sales and net income (loss) previously reported by the Company for the years ended 1995 and 1994, with the combined amounts currently presented in the financial statements for those years:
(in thousands) Year Ended December 31, 1995 Company Herrmidifier Consolidated Net sales $43,695 $ 5,870 $49,565 Net income $ 2,234 $ 69 $ 2,303
(in thousands) Year Ended December 31, 1994 Company Herrmidifier Consolidated Net sales $34,077 $ 5,013 $39,090 Net income (loss) $ 1,779 $ (45) $ 1,734
In addition, the following table presents the results of operations for Herrmidifier for the eight months ended August 30, 1996, the period prior to the acquisition: Herrmidifier Company, Inc. (in thousands) (Unaudited) Eight Months Ended August 30, 1996
Net sales $ 4,486 Cost of products sold 3,112 Selling, administrative and engineering 1,364 Interest 83 Other expenses (income), net (15) Loss before income taxes (58) Income tax benefit (30) Net loss $ (28)
On August 1, 1995 the Company acquired all of the outstanding common stock of Envirco Corporation (Envirco), a manufacturer and distributor of ultra-clean air systems and components located in Albuquerque, New Mexico for cash consideration of approximately $7,986,000. The Company incurred costs of approximately $516,000; consisting principally of a finders fee, accounting and legal expenses. The acquisition was financed through a combination of cash on hand and borrowings of $6,800,000. The details of the credit facility are discussed in Note D.
In a related transaction, the Company and/or Envirco entered into employment agreements and/or non-compete agreements with five key employees of Envirco. These agreements have terms which vary from two to five years, maintain salary levels previously in effect, and, in certain circumstances based upon company performance, provide incentive payments and options to purchase the Company's common stock at $6.00 per share.
The Envirco acquisition was accounted for using the purchase method, with the assets and liabilities of the business recorded at their estimated fair value at the acquisition date. The excess of total acquisition cost over the fair value of the net assets acquired was classified as goodwill and is being amortized on a straight line basis over 20 years. The results of operations of Envirco are included in these consolidated statements of income as of the date of the acquisition.
If Envirco had been acquired at the beginning of 1995 and 1994, the unaudited pro forma summary of consolidated results of operations would have been reported as: net sales of $57,308,000 and $50,633,000; net income of $2,400,000 and $1,834,000; and net income per share of $0.35 and $0.27, respectively. These pro forma results do not purport to be indicative of the results that would have actually been attained, or that will be attained in the future.
NOTE C - INVENTORIES (in thousands) 1996 1995
Raw materials . . . . . . . . . . . . . . . . $ 4,939 $ 5,946 Work in process and finished products . . . . 4,390 4,152 $ 9,329 $10,098
If the first-in, first-out method of accounting for cost had been used for domestic raw materials, inventories would have been approximately $371,000 and $355,000 more at December 31, 1996 and 1995, respectively.
NOTE D - LINE OF CREDIT/LONG-TERM DEBT
In September 1995, the Company obtained a master credit facility in the United States which allows the Company to borrow up to $18,000,000 at the London Interbank Offering Rate of interest plus 1.3% which expires in September, 1998. The structure of the master credit facility includes an $8,000,000 thirty six (36) month revolving line of credit and a $10,000,000 sixty (60) month declining balance term loan with 12.5% of the balance as of March 1997 payable every six months beginning March 1997. As of December 31, 1996 and 1995, the amount outstanding on the revolving line of credit was $1,000,000 and $0, respectively, and is included in accounts payable.
Long-term debt for the periods is comprised of the following: (in thousands)
In addition, as part of the purchase and sale agreement associated with the acquisition of Envirco Corporation, the Company issued a note for $458,000; due in October of 1997 and bearing interest at the fixed rate of 6%.
The industrial development revenue refunding bonds, due in November of 2011, bear interest, inclusive of fees for the letter of credit, remarketing, and other financing charges, of approximately 5.5% and require no principal payments until maturity. The bonds are secured by the Sanford facility, including real property and equipment.
Maturities on long-term debt over the next five years are as follows: 1997 - $2,664,000; 1998 - $2,256,000; 1999 - $2,252,000; 2000- $2,200,000; and 2001 - $0.
In order to reduce the impact of fluctuations in interest rates on its floating rate debt the Company entered into an interest rate hedge agreement. On December 31, 1996, the Company had one interest rate hedge agreement outstanding. It effectively fixes the rate of interest on $6,000,000 of debt at a rate of 7.5% for a period of three years.
NOTE E - LEASES
The Company leases manufacturing facilities in Albuquerque, New Mexico and Lancaster, Pennsylvania. Both leases expire in 1998. In addition, the Company leases a small amount of other equipment. Total lease payments were $546,000 in 1996 and $302,000 in 1995. Future minimum lease payments in effect at December 31, 1996 are as follows:
(in thousands)
1997 $ 548,000 1998 191,000 1999 30,000 2000 and thereafter 0 Total $ 769,000
NOTE F - INCOME TAXES
The liability method is used in accounting for income taxes as prescribed by FASB Statement No. 109, Accounting for Income Taxes (SFAS 109). Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Income before income taxes consisted of the following: (in thousands) 1996 1995 1994 Domestic . . . . . $ 841 $ 3,575 $ 2,631 Foreign . . . . . 773 94 86 $ 1,614 $ 3,669 $ 2,717
Federal, foreign and state income tax expenses (benefit) consisted of the following: (in thousands)
Income tax payments were $772,000 in 1996, $1,016,000 in 1995 and $1,259,000 in 1994.
At December 31, 1996, the Company had operating loss carryforwards of $2,394,000 in England that are available indefinitely to offset future taxable income of that subsidiary. For financial reporting purposes, a valuation allowance has been recognized to offset the deferred tax assets related to the carryforward.
A reconciliation of income tax expense (benefit) to the statutory rate follows:
NOTE G - STOCK OPTIONS
At December 31, 1996, the Company had two incentive stock option plans in effect - the "1985 Plan" and the "1995 Plan." Under terms of both plans options to purchase shares of common stock have been granted to officers and other key executives at prices not less than the fair market value of the stock on the date of grant. Options may be granted for a term of up to ten years at the discretion of the Board of Directors. At December 31, 1996, there were no shares available for future grants under the 1985 Plan and 238,517 shares available under the 1995 Plan.
A summary of transactions relating to options during 1996 and 1995 follows:
All incentive stock options were granted for a period of five years and may be exercised for one-third of the shares in each year following the date of grant. In addition, during 1993, non-qualified stock options were granted for 100,000 shares at $2.50 per share, 75,000 shares at $3.00 per share and 70,000 at $3.13 per share. The market value on the date of grant of 175,000 shares was $3.75 and the market value on the date of grant of 70,000 shares was $4.38. The options for 175,000 shares were granted for a period of five years. Vesting of 100,000 of these shares is 25% per year commencing in May 1993, and 75,000 of these shares vest at 33 1/3% per year commencing May 1994. In 1995, 43,300 of the $2.50 per share options were exercised. The options for 70,000 shares are for a period of ten years and were vested immediately. In 1996, non-qualified stock options were granted for 8,000 shares at $6.00 per share and 20,000 shares at $6.00 per share. The per share market value on the date of grant of the 8,000 shares was $5.50 and the 20,000 shares was $6.13. The difference between grant prices and market prices at the date of grant are charged to expense over the respective vesting periods.
The Company has elected to follow APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee incentive stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Pro forma information regarding net income and earnings per share is required by SFAS 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31,1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for 1995 and 1996: risk free interest rate of 6.25%; a weighted average dividend yield of 1.43%; a volatility factor of .412; and an expected life of five years. The effects of applying SFAS 123 for providing pro forma disclosure are not indicative of future amounts until the new rules are applied to all outstanding awards.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
(in thousands, except per share amounts)
1996 1995 Pro forma net income $ 1,027 $ 2,281
Pro forma earnings per share $ 0.15 $ 0.33
The weighted average per share fair value of options granted in the year ended December 31, 1996 and 1995 was $2.39 and $1.88, respectively.
NOTE H - STOCK TRANSACTIONS
NOTE I - PENSION AND SAVINGS PLANS
The Company maintains a noncontributory defined benefit retirement plan for substantially all Sanford employees. Benefits are based on earnings and years of service. The Company's funding policy is to contribute annually the amount required by the Employee Retirement Income Security Act. Assets of the Plan are managed by a trustee and invested in marketable securities, bonds and money market instruments. Based on actuarial studies as of January 1 of each year, the contribution required was $0 for 1996, $191,000 for 1995 and $0 for 1994.
The following table sets forth the plan status at December 31: (in thousands)
Net pension cost included the following components:
A weighted average discount rate of 7.0% in 1996, 1995 and in 1994 and a rate of increase in future compensation levels of 5.5% in 1996, 1995 and 1994, were used in determining the actuarial present value of the projected benefit obligation. The expected long-term rate of return on plan assets was 6.0% for 1996 and 8.0% for 1995 and 1994.
The Company also maintains defined contribution profit sharing plans as described in Section 401(k) of the Internal Revenue Code of 1986. Participants may elect to defer from 1% to 18% of their total cash compensation. The maximum deferral allowed for income tax purposes was $9,500 in 1996 and $9,240 in 1995. There are also other limitations placed upon highly compensated employees, as defined in the plans.
The Company may make discretionary matching contributions to these plans. During 1996 and 1995, the Company contributed $131,000 and $96,000, respectively, representing 25% to 50% of the employee's deferral up to a maximum of 1.25% to 2.00% of total cash compensation.
Amounts deferred, including Company matching contributions, are invested by a trustee in a variety of investment options as directed by the participant.
NOTE J - SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly financial data for the years ended December 31, 1996 and 1995 are set forth below: (in thousands, except per share data)
NOTE K - FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and trade accounts receivable. The Company maintains cash and cash equivalents with various financial institutions. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base. However, as of December 31, 1996, the Company's receivable from one customer was $1,148,000. The carrying amount reported in the balance sheet for cash and cash equivalents, accounts receivable, accounts payable and long-term debt approximate their fair values.
NOTE L- INDUSTRY SEGMENT INFORMATION
The Company's operations are classified in three general industry segments: Engineered Products; Consumer Products and European Operations.
North American Engineered Products include air quality products manufactured for commercial, industrial and marine applications, equipment manufactured for permanent installation in residential air handling systems, and equipment designed to electrostatically distribute micro-thin films of lubricants, corrosion inhibitors and other protective coatings to metal strips on high speed process lines.
North American Consumer Products include portable room-size air cleaning units, small appliance models and equipment and components sold to other suppliers of air cleaners.
European Operations consists of Trion Limited (and Trion GmbH in 1994) which functions in Europe as a sales and distribution operation. U.S. manufacturing operations provide products for resale. Trion GmbH ceased operations at the end of 1994.
Net sales by segment include only sales to unaffiliated customers as reported in the Company's consolidated income statement. Segment income from operations is net sales less cost of products sold and certain operating expenses. In computing income from operations, other income, general corporate expenses, domestic interest expense and taxes on income have been excluded.
The Company's Sanford manufacturing facility serves all segments; therefore, specific identification of its property, plant and equipment and inventory is not practicable. These assets and related depreciation were allocated to segments based on estimates. General corporate assets were principally cash and cash equivalents, office equipment and engineering equipment.
Net sales of the Company in 1996 include approximately $1,033,000 of direct and indirect sales to the United States Government ($1,466,000 in 1995 and $1,277,000 in 1994). These sales are included in the Engineered Products group. Sales to a significant customer in the Consumer Products group were $3,553,000 in 1996; $6,288,000 in 1995 and $5,967,000 in 1994.
Export sales from the United States to unaffiliated customers were as follows: (in thousands)
1996 1995 1994 Pacific Rim . . . . . . . . . . $ 7,419 $ 3,947 $ 2,577 Europe . . . . . . . . . . . . . 709 452 178 Other . . . . . . . . . . . . . 1,760 1,114 795 $ 9,888 $ 5,513 $ 3,550
NOTE L- INDUSTRY SEGMENT INFORMATION - (continued)
Additional information on industry segments is set forth below: (in thousands)
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors Trion, Inc. Sanford, North Carolina
We have audited the accompanying consolidated balance sheets of Trion, Inc. and subsidiaries as of December 31,1996 and 1995, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1995 and 1994 financial statements of Herrmidifier Company, Inc., which was combined with the Company in 1996 in a transaction accounted for as a pooling of interest. Total assets of Herrmidifier Company, Inc. represent 9% of consolidated assets for 1995 and total revenues constituted 12% and 13% of consolidated revenues for 1995 and 1994, respectively. Those statements were audited by other auditors whose reports have been provided to us, and our opinion, insofar as it relates to amounts included for Herrmidifier Company, Inc. is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Trion, Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Raleigh, North Carolina January 31, 1997
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable. PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant.
"Election of Directors" on pages 4 through 6, "Security Ownership" on page 7 and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 8 of the annual Proxy Statement dated March 11, 1997 are incorporated herein by reference.
See Part I, Item 4.(a) of this report for the required information on executive officers.
Item 11.

Item 11. Executive Compensation.
"Executive Compensation" on pages 8 through 13 (excluding the information under the subheading "Compensation Committee Report on Executive Compensation" on pages 12 and 13), "Service Agreement" on page 15 and information concerning Directors' compensation on page 7 of the annual Proxy Statement dated March 11, 1997 is incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
"Security Ownership" on page 7 and information concerning Directors' ownership on pages 4 through 6 of the annual Proxy Statement dated March 11, 1997 are incorporated herein by reference.
Item 13.

Item 13. Certain Relationships and Related Transactions.
"Service Agreement" on page 15 of the annual Proxy Statement dated March 11, 1997 is incorporated herein by reference.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 14. (a) (1) and (2)- The following consolidated financial statements of Trion, Inc. and subsidiaries, included in the annual report of the Company to its shareholders for the year ended December 31, 1996 are included in Item 8 beginning on page 13 hereof:
Consolidated Balance Sheets -- December 31, 1996 and 1995.
Consolidated Statements of Income and Retained Earnings -- years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows -- years ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements -- December 31, 1996.
Report of Independent Auditors, Ernst & Young LLP -- January 31, 1997.
Independent Accountants' Report, Kuntz Lesher Siegrist & Martini LLP - October 2, 1996 is incorporated herein by reference to Exhibit 99.1 of this Form 10-K.
Parent company financial statements are not included because restricted net assets of subsidiaries after intercompany eliminations are less than 25% of consolidated net assets.
Item 14. (a) (3) - See Index to Exhibits beginning on page 33 hereof including the Report of Kuntz Lesher Siegrist & Martini LLP relating to the Herrmidifier Company, Inc. included as Exhibit 99.1 of this Form 10-K.
Item 14. (b) - There were no reports on Form 8-K filed by the Registrant during the last quarter of the period covered by this report.
Item 14. (c) - The Exhibits required by Item 601 of Regulation S-K are filed herewith and incorporated by reference herein. See Index to Exhibits on page 33 hereof.
Item 14. (d) - The following consolidated financial statement schedule of Trion, Inc. and subsidiaries is included on page 32 hereof:
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are not applicable and therefore have been omitted. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRION, INC.
By: /s/ Steven L. Schneider 3/26/97 Steven L. Schneider, Date President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Steven L. Schneider 3/26/97 /s/ James E. Heins 3/26/97 Steven L. Schneider, Date James E. Heins, Date President, Chief Executive Director Officer and Director (Principal Executive Officer)
/s/ Calvin J. Monsma 3/26/97 /s/ F. Trent Hill 3/26/97 Calvin J. Monsma, Date F. Trent Hill, Date Vice President and Director Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ Hugh E. Carr 3/26/97 /s/ Grant R. Meyers 3/26/97 Hugh E. Carr, Date Grant R. Meyers, Date Director Director
/s/ Joseph W. Deering 3/26/97 /s/ Samuel J. Wornom III 3/26/97 Joseph W. Deering, Date Samuel J. Wornom III, Date Director Director
/s/ Seddon Goode, Jr. 3/26/97 Seddon Goode, Jr., Date Director
INDEX TO EXHIBITS
The following Exhibits to this report are filed herewith or, if marked with an asterisk (*), are incorporated herein by reference:
Exhibit Number Description of Exhibits 3.1 Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to Form 10-K for the year ended December 31, 1985, file number 0-3108). (*)
3.2 Bylaws (incorporated herein by reference to Exhibit 3.2 to Form 10-K for the year ended December 31, 1994, file number 0-3108). (*)
4.1 $18,000,000 Credit Agreement dated September 8, 1995 (incorporated herein by reference to Exhibit 4.1 to Form 10-K for the year ended December 31, 1995, file number 0-3108). (*)
10.1 1997 Management Incentive Plan as adopted in December 1996. (**)
10.2 1985 Trion, Inc. Incentive Stock Option Plan as adopted and approved by shareholders on April 16, 1985 (incorporated herein by reference to Exhibit A to Proxy Statement dated April 16, 1985, file number 0-3108). (*) (**)
10.3 Form of option for the 1985 Trion, Inc. Incentive Stock Option Plan (incorporated herein by reference to Exhibit 10.4 to Form 10-K for the year ended December 31, 1986, file number 0-3108). (*) (**)
10.4 Trion Savings Plus Plan, effective January 1, 1987 as approved in November 1986 (incorporated herein by reference to Exhibit 10.5 to Form 10-K for the year ended December 31, 1986, file number 0-3108). (*) (**)
10.5 Loan Agreement dated August 1, 1984 between The Lee County Industrial Facilities and Pollution Control Financing Authority and Trion, Inc. (incorporated herein by reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 1984, file number 0-3108). (*)
10.6 Note dated September 11, 1984 from Trion, Inc. to The Lee County Industrial Facilities and Pollution Control Financing Authority (incorporated herein by reference to Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 1984, file number 0-3108). (*)
10.7 Guaranty and Purchase Agreement dated as of August 1, 1984 from Trion, Inc. to Wachovia Bank and Trust Company, N.A. (incorporated herein by reference to Exhibit 10.3 to Form 10-Q for the quarter ended September 30, 1984, file number 0-3108). (*)
10.8 Stock Option Agreement between Samuel J. Wornom III and Trion, Inc. dated September 21, 1993 (incorporated herein by reference to Exhibit 10.2 to form 10-Q for the quarter ended September 30, 1993, file number 0-3108). (*) (**)
INDEX TO EXHIBITS (continued)
10.9 Stock Option Agreement between Steven L. Schneider and Trion, Inc. dated March 31, 1993 (incorporated herein by reference to Exhibit 10.2 to form 10-Q for the quarter ended June 30, 1993, file number 0-3108). (*) (**)
10.10 Service Agreement dated October 30, 1992 between Trion, Inc. and Hugh E. Carr, a director of Trion, Inc. (incorporated herein by reference to Exhibit 10.8 to Form 10-K for the year ended December 31, 1992, file number 0-3108). (*) (**)
10.11 Trion, Inc. 1995 Stock Incentive Plan (incorporated herein by reference to the Registrant's Registration Statement No.033-59095 on Form S-8 dated May 4, 1995). (*) (**)
10.12 Form of option for the Trion, Inc. 1995 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.14 to Form 10-K for the year ended December 31, 1995, file number 0-3108). (*) (**)
10.13 First Amendment to Stock Option Agreement between Steven L. Schneider and Trion, Inc. dated July 28, 1995 (incorporated herein by reference to Exhibit 10.15 to Form 10-K for the year ended December 31, 1995, file number 0-3108). (*) (**)
10.14 Amended and Restated Employment Agreement between Steven L. Schneider and Trion, Inc. dated July 28, 1995 (incorporated herein by reference to Exhibit 10.16 to Form 10-K for the year ended December 31, 1995, file number 0-3108). (*). (**)
10.15 Trion, Inc. 1995 Non-Employee Director Stock Plan (incorporated herein by reference to the Registrant's Registration Statement No.033-58561 on Form S-8 dated April 12, 1995). (*) (**)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors; Ernst & Young LLP.
23.2 Consent of Independent Auditors; Kuntz Lesher Siegrist & Martini LLP
27 Financial Data Schedule.
99.1 Independent Accountants' Report; Kuntz Lesher Siegrist & Martini LLP
(**) Management Contract or Compensatory Plan.


Item 1 - Business
The principal executive offices of Dime Financial Corporation (the "Company") and its wholly-owned subsidiary, The Dime Savings Bank of Wallingford ("Dime") are located at 95 Barnes Road, Wallingford, Connecticut 06492. The telephone number of the Company and Dime is (203) 269-8881.
Other information required by this item appears on page 2 of the Company's 1996 Annual Report to Shareholders (the "1996 Annual Report") under the caption "To Our Shareholders"; on the inside front cover under the caption "Corporate Profile"; on page 1 under the caption "Financial Highlights" and on pages 5 through 16 under the caption "Management's Discussion and Analysis of Operations." Such information is incorporated herein by reference and made a part hereof. In addition, certain other information required by this item is set out below.
Interest Rates and Interest Differentials
The information required by this item appears in the 1996 Annual Report on page 10 under the caption "Average Balances and Interest Rates." Such information is incorporated herein by reference and made a part hereof.
Rate / Volume Analysis
The information required by this item appears in the 1996 Annual Report on page 11 under the caption, "Rate / Volume Analysis." Such information is incorporated herein by reference and made a part hereof.
Non-performing Assets
The information required by this item appears in the 1996 Annual Report on pages 5 through 7 under the caption, "Asset Quality." Such information is incorporated herein by reference and made a part hereof.
Problem Loans and Allowance for Loan Losses
Additional information required by this item appears in the 1996 Annual Report on pages 7 through 8 under the caption, "Allowance for Loan Losses & Provisions to the Allowance for Loan Losses." Such information is incorporated herein by reference and made a part hereof.
Loans which were in non-accrual status at December 31, 1996 are included within the presentation on page 7 in the table under the caption, "Asset Quality," of the 1996 Annual Report. In addition to the disclosure on pages 5 through 7 of the 1996 Annual Report, management has internally classified $3.3 million of loans as substandard at December 31, 1996. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any, and must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are still performing. Management does not have serious doubt as to their collectibility and believes that the amounts allocated to these loans in the allowance for loan losses are adequate.
The Company's allowance for loan losses as allocated between loan types for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 are set forth in the following table.
Investment Securities
Additional information required by this item appears in the 1996 Annual Report on pages 23 through 24 under the caption "Note 4: Investment and Mortgage-backed Securities." Such information is incorporated herein by reference and made a part hereof. The carrying values of investment securities were as follows:
Loans
Additional information required by this item appears in the 1996 Annual Report on pages 11 through 12 under the caption "Lending Activities" and on pages 24 through 25 under the caption "Note 5: Loans Receivable." This information is incorporated herein by reference and made a part hereof. The following table sets forth the contractual maturities of the loan portfolio at December 31, 1996:
Deposits
The information required by this item appears in the 1996 Annual Report on pages 13 through 14 under the caption "Deposits and Other Borrowings" and on pages 26 through 27 under the caption, "Note 8: Deposits." Such information is incorporated herein by reference and made a part hereof.
Competition
In attracting deposits, Dime faces strong competition from savings banks, savings and loan associations, commercial banks, credit unions, insurance companies and investment firms located in its primary market area. The banking business in Connecticut is highly competitive. In March 1990 the Connecticut General Assembly adopted legislation that permits full interstate banking in Connecticut by allowing business combinations among commercial banks, bank holding companies and thrift institutions located in Connecticut and other states with reciprocal interstate banking laws. This legislation also permits bank holding companies from other states to establish non-banking offices, including loan production offices, in Connecticut on a limited basis.
In recent years, market demands, economic pressures, fluctuating interest rates and increased customer awareness of product and service differences among financial institutions have forced such institutions to diversify their services to become more cost effective. Such actions may increase the cost of funds to Dime in the future. Dime faces strong competition in attracting deposits and in making real estate and other loans. Dime's most direct competition for deposits comes from other thrift institutions, commercial banks, credit unions and money market funds.
Dime competes for deposits with the financial industry principally by offering depositors a wide variety of deposit programs, convenient branch locations and hours, tax-deferred retirement programs and other services. Dime does not rely upon any individual, group or entity for a material portion of its deposits. In 1996, Dime introduced and sold $3.0 million in retail brokered certificates of deposit. At the present time, it is the general practice of Dime to limit the majority of its lending activities to within the State of Connecticut. While Dime is not engaged in interstate banking, Dime owns mortgages secured by real property located outside of Connecticut.
The competition faced by Dime for real estate loans comes principally from mortgage brokers and mortgage banking companies, other savings banks, savings and loan associations, commercial banks, finance companies, insurance companies and other institutional lenders. Dime competes for loan originations primarily through the interest rates and loan fees it charges and the efficiency and quality of service it provides borrowers, real estate brokers and builders. Factors which affect competition and lending include, among others, the general availability of lendable funds and credit, general and local economic conditions, current interest rate levels, volatility in the mortgage markets and other factors.
Employees
As of February 28, 1997, Dime employed 131 full-time and 36 part-time employees, including 33 officers. During 1995 and 1996, the Company instituted a restructuring plan which significantly reduced the Company's workforce through lay-offs and through attrition. The total reduction in full-time equivalent employees since March 31, 1995 approximates 39%. Additional information regarding this item is located on page 27 of the 1996 Annual Report under the caption "Note 10: Restructure Expense, net." Such information is incorporated herein by reference and made a part hereof.
The principal officers of Dime also serve as officers of the Company but receive no additional compensation from the Company. The Company has no other employees.
REGULATION AND SUPERVISION
As a Connecticut-chartered capital stock savings bank whose deposits are insured by the FDIC, Dime is subject to extensive regulation and supervision by both the Connecticut Banking Commissioner (the "Commissioner") and the FDIC. Dime further is subject to various regulatory requirements of the Federal Reserve Board applicable to FDIC-insured financial institutions. The Company also is subject to certain regulations of the Federal Reserve Board and the Commissioner. This governmental regulation is primarily intended to protect depositors, not shareholders.
Connecticut Regulation
The Commissioner regulates Dime's internal organization as well as its deposit, lending and investment activities. The approval of the Commissioner is required, among other things, for the establishment of branch offices and business combination transactions. The Commissioner conducts periodic examinations of Dime. Many of the areas regulated by the Commissioner are subject to similar regulation by the FDIC.
The Connecticut Interstate Banking Act, as amended, permits Connecticut banks to engage in stock acquisitions of, and mergers with, depository institutions in other states with reciprocal legislation. All of the other New England states, and a majority of the other states, have enacted reciprocal legislation. Several interstate mergers and acquisitions involving Connecticut bank holding companies or banks with offices in the service areas of Dime and bank holding companies or banks headquartered in other states have been completed. Although the effect of this legislation has not been significant, any future effect on the Company and Dime cannot be predicted.
Connecticut banking laws grant banks broad lending authority. Subject to certain limited exceptions, however, total secured and unsecured loans made to any one obligor pursuant to this statutory authority may not exceed 25 percent of a bank's capital, surplus, undivided profits and loss reserves.
Dime is prohibited by Connecticut banking law from paying dividends except from its net profits, which is defined as the remainder of all earnings from current operations. The total of all dividends declared by Dime in any calendar year may not, unless specifically approved by the Commissioner, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years.
Under Connecticut banking law, no person may acquire the beneficial ownership of more than 10 percent, or after acquiring 10 percent, increase ownership to 25 percent or more, of any class of voting securities of a bank chartered by the State of Connecticut or having its principal office in Connecticut or a bank holding company thereof without the prior notification and approval by the Commissioner.
Any state-chartered bank meeting statutory requirements may, with the approval of the Commissioner, establish and operate branches in any town or towns within the state.
FDIC Regulation
Dime's deposit accounts are insured by the FDIC to a maximum of $100,000 for each insured depositor. As a state chartered FDIC-insured bank, Dime is subject to extensive supervision and examination by the FDIC and also is subject to FDIC regulations regarding many aspects of its business, including types of deposit instruments offered and permissible methods for acquisition of funds. The FDIC periodically makes its own examination of insured institutions. Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the FDIC has implemented a system of risk-related deposit insurance assessments. Beginning on January 1, 1993, insurance premiums of all banks vary depending upon the capital level and supervisory rating of the institution.
FDIC risk-based capital requirements became fully effective at the end of 1992. Under these requirements, FDIC-insured institutions are required to maintain minimum levels of "capital" based upon an institution's total "risk-weighted assets." For purposes of these requirements, "capital" is comprised of both Tier 1 capital and Tier 2 capital. Tier 1 capital consists primarily of common stock, additional paid in capital, retained earnings and limited amounts of perpetual preferred stock. Tier 2 capital consists primarily of loan loss reserves and certain preferred stock, subordinated debt, and convertible securities. In determining total capital, the amount of Tier 2 capital may not exceed the amount of Tier 1 capital. A bank's total "risk-weighted assets" are determined by assigning the bank's assets and off balance sheet items (e.g., letters of credit) to one of four risk categories based upon their relative credit risk. Under the regulations, the greater the risk associated with an asset, the greater the amount of such asset that will be subject to the capital requirements. An FDIC-insured bank is required to maintain minimum ratios of Tier 1 and total risk-based capital to risk-weighted assets of 4.0% and 8.0%, respectively. At December 31, 1996, the Tier 1 and total risk-based capital ratios for Dime were 17.91% and 19.19%, respectively. Management believes that Dime will remain in full compliance with applicable risk-based capital requirements.
A leverage capital ratio requirement adopted by the FDIC became effective in 1991. Under this requirement, FDIC insured institutions are required to maintain a ratio of common equity minus intangible assets to total assets of at least 3% for the most highly rated institutions and 4% to 5% for most institutions. At December 31, 1996 the leverage capital ratio of Dime was 8.43%. Refer to page 15 of the Annual Report under the caption "Liquidity, Sources and Uses of Funds and Capital Resources."
In addition, FDICIA categorizes banks based on capital levels and triggers certain mandatory and discretionary federal banking agency responses for institutions that fall below certain capital levels. These categories are "well-capitalized," "adequately capitalized," "under-capitalized," "significantly undercapitalized," and "critically undercapitalized." A bank is categorized as "well capitalized" if it maintains a leverage ratio of at least 5%, a total risk-based capital ratio of at least 10%, and a Tier 1 risk-based capital ratio of at least 6%. Based on its regulatory capital ratios at December 31, 1996, Dime is well capitalized as defined in FDIC regulations. Refer to page 29 of the 1996 Annual Report under the caption "Note 13: Regulatory Matters."
FDICIA also restricts the ability of FDIC-insured state banks, such as Dime, to acquire and retain equity investments. Generally, state banks only may hold equity securities to the extent permitted for national banks. However, FDICIA also permits certain state banks to acquire or retain equity investments in an amount up to 100 percent of Tier 1 capital in either (1) common or preferred stock listed on a national securities exchange, or (2) shares of a registered investment company. To be eligible for this exception, Dime was required to file, and has filed, a one-time notice of its intention to acquire and retain such securities. In March of 1993, Dime received conditional approval from the FDIC to continue to hold or acquire listed and/or registered equity securities up to the fullest extent permitted by FDICIA.
Pursuant to FDICIA, in December 1993, the FDIC issued a final rule concerning activities of FDIC-insured state banks. Under the final rule, an insured state bank must obtain the FDIC's prior consent before directly, or indirectly through a majority-owned subsidiary, engaging "as principal" in any activity that is not permissible for a national bank unless one of the exceptions contained in the regulation applies. The final rule sets out application procedures for requesting the FDIC's consent; provides a phase-out period for activities which are not approved by the FDIC; and sets out conditions that may be imposed in the FDIC's discretion when approving applications. To date, the final rule has not had a material impact on the business of Dime.
FDIC insurance of deposits may be terminated by the FDIC, after notice and hearing, upon a finding by the FDIC that the insured institution has engaged in unsafe or unsound practices, or is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule or order of, or conditions imposed by, the FDIC. Dime does not know of any practice, condition or violation that might lead to termination of its deposit insurance.
Federal Reserve System Regulation
Under the regulations of the Federal Reserve Board, depository institutions such as Dime are required to maintain reserves against their transaction accounts and non-personal time deposits. These regulations generally require the maintenance of reserves of 3 percent against transaction accounts totaling $49.3 million or less and 10 percent of the amount of such accounts in excess of such amount.
The Federal Reserve Board has established capital adequacy guidelines for bank holding companies that are similar to the FDIC capital requirements described above. As of December 31, 1996, the Company's Tier 1 and total risk-based capital ratios were 17.93% and 19.21%, respectively, and the Company's leverage capital ratio was 8.44%. Management believes that the Company will remain in full compliance with applicable Federal Reserve Board capital requirements. Refer to page 15 of the Annual Report under the caption, "Liquidity Sources and Uses of Funds and Capital Resources."
The Company is subject to regulation by the Federal Reserve Board as a registered bank holding company. The Federal Bank Holding Company Act of 1956, as amended (the "BHCA"), under which the Company is registered, limits the types of companies which the Company and its subsidiaries may acquire or organize and the activities in which they may engage. In general, a bank holding company and its subsidiaries are prohibited from engaging in or acquiring direct control of any company engaged in non-banking activities unless such activities are so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Company has not determined which, if any, of these or other permissible non-banking activities it might seek to engage in.
Under the BHCA, a bank holding company is required to obtain the prior approval of the Board of Governors of the Federal Reserve System to acquire, with certain exceptions, more than 5% of the outstanding voting stock of any bank or bank holding company, to acquire all or substantially all of the assets of a bank or to merge or consolidate with another bank holding company.
As described above, the Connecticut Interstate Banking Act specifically permits Connecticut bank holding companies and banks to acquire or be acquired by banks or bank holding companies in other states with reciprocal merger and acquisition laws. Federal antitrust laws place limitations on the acquisition of banks and other businesses.
Under the BHCA, the Company and Dime are prohibited from engaging in certain tying arrangements in connection with any extension of credit or provision of any property or services. Dime is subject to certain restrictions imposed by the Federal Reserve Act and FDICIA on making any investments in the stock or other securities of the Company and the taking of such stock or securities as collateral for loans to any borrower.
Dime also is subject to certain restrictions imposed by the Federal Reserve Act on the amount of loans it can make to the Company. Such loans must be collateralized as provided by the Federal Reserve Act. The amount of such loans may not exceed (when aggregated with certain other transactions between Dime and the Company) 10 percent of the capital stock and surplus of such bank.
The Company is required under the BHCA to file annually with the Federal Reserve Board reports of operations, and it and Dime are subject to examination by the Federal Reserve Board. In addition, the Company, as a bank holding company, is registered with the Connecticut Banking Commissioner under the Connecticut Bank Holding Company Act.
Effect of Government Policy
Banking is a business that depends on interest rate differentials. One of the most significant factors affecting the earnings of Dime is the difference between the interest rate paid by Dime on its deposits and other borrowings, on the one hand, and, the interest rates received by Dime on loans extended to its customers and securities held in its portfolio on the other hand. The value and yields of its assets and the rate paid on its liabilities are sensitive to changes in prevailing market rates of interest. Thus, the earnings and growth of Dime will be influenced by general economic conditions, the monetary and fiscal policies of the federal government, and policies of regulatory agencies, particularly the Federal Reserve Board, which implements national monetary policy. The nature and impact of any future changes in monetary policies cannot be predicted.
The present bank regulatory scheme is undergoing significant change, both as it affects the banking industry itself and as it affects competition between banks and non-banking financial institutions. There has been significant regulatory change in the regulation and operation of savings associations, in the bank merger and acquisition area, in the products and services banks can offer, and in the non-banking activities in which bank holding companies can engage. In part as a result of these changes, banks are now actively competing with other types of depository institutions and with non-bank financial institutions, such as money market funds, brokerage firms, insurance companies and other financial service enterprises. It is not possible at this time to assess what impact these changes in the regulatory scheme will ultimately have on the Company and Dime.
Moreover, certain legislative and regulatory proposals that could affect the Company, Dime and the banking business in general are pending, or may be introduced, before the United States Congress, the Connecticut General Assembly and various governmental agencies. These proposals include measures that may further alter the structure, regulation and competitive relationship of financial institutions and that may subject the Company and Dime to increased regulation, disclosure and reporting requirements. In addition, the various banking regulatory agencies frequently propose rules and regulations to implement and enforce already existing legislation. It cannot be predicted whether or in what form any legislation or regulations will be enacted or the extent to which the business of the Company and Dime will be affected thereby.
Item 2

Item 2 - Properties
Including its administrative office located at 95 Barnes Road, Wallingford, Connecticut, Dime has eleven banking branches located throughout New Haven County. The following table sets forth certain information regarding Dime's banking offices.
Item 3

Item 3 - Legal Proceedings
There are no pending legal proceedings to which the Company or Dime is a party, other than ordinary routine litigation in the normal course of business. None of the proceedings is material to the Company or Dime.
Item 4

Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders during the period between October 1, 1996 and December 31, 1996.
Executive Officers of the Registrant
The following table presents information regarding all executive officers of the Company, including his or her positions with the Company and such person's length of service.
All executive officers of the Company are elected annually by the Company's Board of Directors and serve at the pleasure of the Board of Directors.
PART II
Item 5

Item 5 - Market for Registrant's Common Equity and Related Shareholders Matters
A portion of the information required by this item appears on page 36 of the Annual Report under the caption "Corporate Information"; on pages 28 through 29 of the Annual Report under the caption "Notes to Consolidated Financial Statements, Note 12 - Shareholders' Equity, and Note 13 - Regulatory Matters"; and in Item 1 of this report under the subheadings "Connecticut Regulation," "FDIC Regulation," and "Federal Reserve System Regulation." Such information is incorporated herein by reference and made a part hereof.
In addition to the above, the following is noted:
For the foreseeable future, the sole source of amounts available to the Company for the declaration of dividends will be dividends declared and paid by Dime on Dime common stock. Any amounts received by the Company will be used to pay the operating expenses of the Company and for other activities in which it may engage before any dividends can be paid on Company Common Stock. It is anticipated that the only operating expenses of the Company will be administrative expenses, which in large part will be allocated to and reimbursed by Dime. Under the Certificate of Incorporation of the Company, the Company has the authority to issue preferred stock with dividend rights superior to Common Stock that may adversely affect the amount or frequency of Company Common Stock dividends, although the Company has no plans at this time to issue such preferred stock.
Item 6

Item 6 - Selected Financial Data
The information required by this item, appears on page 3 of the Annual Report under the captions "Selected Financial Data." Such information is incorporated herein by reference and made a part hereof.
Item 7

Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required by this item appears on pages 5 through 16 of the Annual Report under the caption "Management's Discussion and Analysis of Operations." Such information is incorporated herein by reference and made a part hereof.
Item 8

Item 8 - Financial Statements and Supplementary Data
The Company's financial statements, and notes thereto, and supplementary data are included in the Annual Report on pages 17 through 34 and on page 4 under the caption "Selected Quarterly Financial Data." Such information is incorporated herein by reference and made a part hereof.
Item 9

Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no disagreements between the Company and its independent public accountants on accounting and financial disclosure matters during the fiscal year ended December 31, 1996 for which a Form 8-K was required to be filed.
PART III
Item 10

Item 10 - Directors and Executive Officers of the Registrant
Directors, executive officers, promoters and control persons
The information required by this section appears in the Proxy Statement under caption "Proposal 1 - Election of a Class of Directors," and in Part I of this Report under the caption "Executive Officers of the Registrant," and is incorporated herein by reference and made a part hereof.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
To the Company's knowledge, based solely upon a review of Forms 3, 4 and 5 and amendments thereto and written representations that no other reports were required that were furnished to the Company for the fiscal year ended December 31, 1996, all filing required by Section 16(a) of the Securities Exchange Act of 1934 were complied with applicable to its officers, directors and greater than ten percent (10%) beneficial owners with the following exceptions: each of Richard H. Dionne, Albert E. Fiacre, Timothy R. Stanton, Frank P. LaMonaca, and Robert P. Simon inadvertently failed to file two reports on a timely basis reporting two separate grants of stock options on July 2, 1996 and on December 18,1996. Each of the aforementioned officers of the Company filed a Form 5 on March 10, 1997 disclosing these transactions.
Item 11

Item 11 - Executive Compensation
The information required by this item appears in the Proxy Statement on page 6 through 11 under the caption "Compensation and Related Matters." Such information is incorporated herein by reference and made a part hereof.
Item 12

Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears in the Proxy Statement on page 2 under the caption "Principal Shareholders of the Company," and on pages 3 through 6 under the caption "Proposal 1 - Election of a Class of Directors." The information is furnished as of February 1, 1997, on which date 5,135,887 shares were outstanding. Such information is incorporated herein by reference and made a part hereof.
Item 13

Item 13 - Certain Relationships and Related Transactions
The information required by this item appears in the Proxy Statement on pages 12 and 13 under the caption "Transactions With Management and Others." Such information is incorporated herein by reference and made a part hereof.
PART IV
Item 14

Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report and appear on the pages indicated. Those items preceded by *** are included in the Annual Report and are incorporated herein by reference:
(1) Financial Statements:
(2) Financial Statement Schedules:
All Schedules to the Consolidated Financial Statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted.
(3) Exhibits:
Exhibit No. Description
3.1 Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (No. 33-23054) filed on July 9, 1988); Amendment to Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1990).
3.2 Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-4 (No. 33-23054) filed on July 8, 1988)
4 Instruments Defining Rights of Security Holders Included In Exhibits 3.1 and 3.2
10.1* The Dime Savings Bank of Wallingford 1986 Stock Option and Incentive Plan, as amended (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-4 (No. 33-23054) filed on July 8, 1988)
10.2* The Dime Savings Bank of Wallingford 1986 Stock Option Plan for Outside Directors (Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-4 (No. 33-23054) filed on July 8, 1988)
10.3* The Dime Savings Bank of Wallingford 1986 Stock Option and Incentive Plan Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-4 (No. 33-23054) filed on July 8, 1988)
10.4* The Dime Savings Bank of Wallingford 1986 Stock Option Plan for Outside Directors Stock Option Agreement (Incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-4 (No. 33-23054) filed on July 8, 1988)
10.5* Dime Financial Corporation 1996 Stock Option and Incentive Plan (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 333-04917) filed on May 31, 1996)
10.6* Dime Financial Corporation 1996 Stock Option Plan for Outside Directors (Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No. 333-04917) filed on May 31, 1996)
10.7* Dime Financial Corporation Non-Qualified Stock Option Agreement for Mr. Ralph D. Lukens (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 333-08447) filed on July 19, 1996)
10.8* The Dime Savings Bank of Wallingford Non-Qualified Stock Option Agreement, as Amended, for Mr. M. Joseph Canavan (Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No. 333-08447) filed on July 19, 1996)
10.9* The Dime Savings Bank of Wallingford Non-Qualified Stock Option Agreement, as Amended, for Mr. William J. Farrell (Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (No 333-08447) filed on July 19, 1996)
13 1996 Annual Report to Shareholders. Except for those portions of the Annual Report which have been specifically incorporated by reference in this Form 10-K, such Annual Report shall not be deemed filed.
21 Subsidiaries of the Registrant (Incorporated by reference to Exhibit 2 to the Company's Registration Statement on Form S-4 (No. 33-23054) filed on July 8, 1988)
23 Consent of Independent Auditors
* Compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c) of this report.
A COPY OF ANY EXHIBIT LISTED ABOVE WILL BE PROVIDED BY THE COMPANY TO ANY SHAREHOLDER UPON THE WRITTEN REQUEST OF SUCH SHAREHOLDER AND UPON THE PAYMENT OF A REASONABLE FEE LIMITED TO THE COMPANY'S EXPENSES IN FURNISHING SUCH EXHIBIT. REQUESTS SHOULD BE ADDRESSED TO ELEANOR M. TOLLA, SECRETARY, DIME FINANCIAL CORPORATION, 95 BARNES ROAD, WALLINGFORD, CONNECTICUT 06492.
(b) The Company filed no reports on Form 8-K during the period from October 1, 1996 to December 31, 1996.
(c) The exhibits required by Item 601 of Regulation S-K are filed as a separate part of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIME FINANCIAL CORPORATION
DATED: March 19, 1997 By /s/ Richard H. Dionne ------------------------------------- Richard H. Dionne President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
DIME FINANCIAL CORPORATION
Exhibits to Annual Report on Form 10-K For the Year Ended December 31, 1996
EXHIBIT INDEX