UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
_____ EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-3108
TRION, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0922753
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 760, 101 McNeill Road, Sanford, North Carolina 27331-0760
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 919-775-2201
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 14, 1999.
7,161,247 shares of Common Stock, par value $.50
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Part I
Item 1. Financial Statements
TRION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months
Ended March 31
1999 1998
<S> <C> <C>
Net sales . . . . . . . . . . . . . $ 14,857 $ 15,981
Cost and expenses:
Cost of products sold . . . . . 9,710 10,733
Selling, administration
and engineering expenses . . . 4,261 4,583
Interest . . . . . . . . . . . . 187 219
Amortization . . . . . . . . . . 86 86
Other expense (income), net. . . (33) (57)
14,211 15,564
Income before income taxes. . . . . 646 417
Income tax expense. . . . . . . . . 211 146
Net income for the period . . . . . $ 435 $ 271
Earnings per share of common
stock - basic . . . . . . . . . $ 0.06 $ 0.04
Earnings per share of common
stock - assuming dilution . . . $ 0.06 $ 0.04
Cash dividends declared
per common share. . . . . . . . $ 0.00 $ 0.02
See notes to consolidated condensed financial statements
</TABLE>
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<TABLE>
TRION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<CAPTION>
ASSETS
March 31 December 31
_ 1999 * _ 1998
<S> <C> <C>
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . $ 2,473 $ 2,158
Trade accounts receivable, less allowance
for doubtful accounts (1999 - $323,000 and
1998 - $317,000) . . . . . . . . . . . . . . 8,258 9,964
Inventories . . . . . . . . . . . . . . . . . 9,327 8,834
Refundable income taxes . . . . . . . . . . . 923 994
Prepaid expenses and other current assets . . 713 694
Deferred current income taxes . . . . . . . . 103 91
Total current assets . . . . . . . . . . . 21,797 22,735
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . 78 78
Buildings. . . . . . . . . . . . . . . . . . . 5,408 5,408
Equipment. . . . . . . . . . . . . . . . . . . 19,744 19,663
Allowance for depreciation . . . . . . . . . . (15,931) (15,549)
9,299 9,600
OTHER ASSETS
Goodwill less accumulated amortization:
($1,260,000 in 1999 and $1,174,000 in 1998) 5,619 5,705
Deferred income taxes . . . . . . . . . . . . 588 546
Other non-current assets . . . . . . . . . . . 584 615
6,791 6,866
$37,887 $39,201
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accruals . . . . . . . . $ 5,569 $ 5,510
Note payable . . . . . . . . . . . . . . . . . - 1,450
Revolving line of credit . . . . . . . . . . . 3,500 2,500
Current portion of long-term debt . . . . . . 2,500 2,500
Total current liabilities . . . . . . . . . 11,569 11,960
LONG-TERM DEBT . . . . . . . . . . . . . . . . . 4,450 5,700
16,019 17,660
SHAREHOLDERS' EQUITY
Common stock, par value $0.50 a share:
Authorized 20,000,000 shares
Issued and outstanding: (7,149,247 in 1999
and 1998) . . . . . . . . . . . . . . . . 3,575 3,575
Additional paid-in capital . . . . . . . . . . 1,558 1,558
Retained earnings . . . . . . . . . . . . . . 16,634 16,199
Accumulated other comprehensive income . . . . 101 209
21,868 21,541
$37,887 $39,201
See notes to consolidated condensed financial statements
*Unaudited
</TABLE>
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TRION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Three Months
Ended March 31
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . $ 435 $ 271
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . 607 596
Deferred income taxes . . . . . . . . . . . . . (54) (5)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . 1,706 1,265
Inventory and other. . . . . . . . . . . . . (448) (272)
Accounts payable and accrued expenses . . . 59 (1,047)
Foreign currency transaction loss (gain). . . . (15) (6)
Net cash provided by
operating activities . . . . . . . . . . . 2,290 802
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net . . . (191) (487)
Net cash used by investing activities . . . (191) (487)
FINANCING ACTIVITIES
Net proceeds from (payments on)
master credit facility . . . . . . . . . . . . 1,000 (1,000)
Principal payments on long-term debt
and note payable. . . . . . . . . . . . . . . (2,700) (1,250)
Cash dividends paid. . . . . . . . . . . . . . . . . - (143)
Other. . . . . . . . . . . . . . . . . . . . . . . . - (8)
Net cash used by financing activities . . . (1,700) (2,401)
Effect of foreign exchange rate changes on cash . . . . (84) 27
Increase (decrease) in cash . . . . . . . . . . . . . . 315 (2,059)
Cash and cash equivalents at beginning of period . . . 2,158 2,979
Cash and cash equivalents at end of period . . . . . . $ 2,473 $ 920
See notes to consolidated condensed financial statements
</TABLE>
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TRION, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
Note A - Basis of presentation
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and therefore
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been reflected in the
reported financial information. Operating results for the three-month period
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes included in the
Registrant's annual report on Form 10-K for the year ended December 31, 1998.
It is a standard and accepted practice used by the Company in the preparation
of the financial statements in conformity with generally accepted accounting
principles that estimates and assumptions are used by management that affect
the amounts reported in the financial statements. Actual results could differ
from those estimates.
Note B - Earnings per Share of Common Stock
The following tables set forth the computation of basic and diluted earnings
per share:
March 31
1999 1998
Numerator for basic and
diluted earnings per share:
Net income . . . . . . . . . . $ 435,000 $ 271,000
Denominator:
Denominator for basic
earnings per share - weighted
average shares: . . . . . . . 7,149,247 7,128,797
Effect of dilutive securities:
Employee stock options . . 14,258 62,189
Denominator for diluted
earnings per share - adjusted
weighted average shares and
assumed conversions . . . . . 7,163,505 7,190,986
Basic earnings per share . . . . . $ 0.06 $ 0.04
Diluted earnings per share. . . . . $ 0.06 $ 0.04
Note C - Inventories
The Registrant does not maintain an integrated dollar perpetual inventory
system. During the interim periods, inventories are charged with actual costs
incurred and relieved at products standard costs. Such standards are updated
at least annually. Based upon the components of inventory at the preceding
physical inventory date and charges to and relief of inventories during the
interim period, the components of inventory are estimated as follows (in
thousands):
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March 31 December 31
__ 1999 ___ 1998
Raw materials . . . . . . . . . . . . . $ 4,703 $ 4,454
Work-in-process and finished goods. . . 4,624 4,380
$ 9,327 $ 8,834
Cost of domestic inventory is determined by the last-in, first-out method. No
provision has been made during the interim period to reflect changes in last-
in, first-out values since the preceding December 31. Management believes
that such provision, if any, would not be significant.
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Note D - Segment Information
<CAPTION>
3 Months Ended March 31
1999 1998
<S> <C> <C>
Revenues from external customers:
Consumer products . . . . . . . . . . . . . . $4,835 $6,671
Engineered products . . . . . . . . . . . . . $3,407 $3,713
Cleanroom products. . . . . . . . . . . . . . $5,114 $4,147
European operations . . . . . . . . . . . . . $1,501 $1,450
Segment profit (loss):
Consumer products . . . . . . . . . . . . . . $ 315 $ 548
Engineered products . . . . . . . . . . . . . $ 59 $ (4)
Cleanroom products. . . . . . . . . . . . . . $ 726 $ 397
European operations . . . . . . . . . . . . . $ (34) $ (87)
Reconciliation of segment profit to income
before income taxes follows:
Total profit for reportable segments . . . . $1,066 $ 854
Interest . . . . . . . . . . . . . . . . . . (187) (219)
Other income and general corporate expenses. (233) (218)
Income before income taxes . . . . . . . . . $ 646 $ 417
</TABLE>
Note E - Comprehensive Income
Total comprehensive income (loss) amounted to $327,000 and $292,000 during the
first quarter of 1999 and 1998, respectively. The differences between reported
net income and these amounts were due to foreign currency translation
adjustments.
Note F - Legal Proceedings
During the month of April 1999, the company participated in an arbitration
proceeding related to a dispute over consulting fees purportedly owed by the
Company to International Business Consultants, Inc. of Atlanta, Georgia
("IBC"). The claims made by IBC include fees, interest and other costs
related to the identification and introduction of the Herrmidifier Company
("Herrmidifier") to the Company. Herrmidifier was acquired by the Company in
August 1996. In aggregate, the amount claimed by IBC is $295,687.69. The
Company has denied all claims made by IBC and has aggressively defended its
position.
The Company believes that all claims by IBC are unfounded and have no legal
basis and that the proceeding will not result in a material adverse effect on
the Company's financial condition or results of operations.
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2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Consolidated net sales for the quarter ended March 31, 1999 were $14,857,000
compared to $15,981,000 from the same period a year ago, a 7% reduction. The
reduction in sales was primarily attributable to the 28% decline in sales
within the Consumer Products segment resulting from significantly lower
shipments to two major name brand customers. However, the reduction in
shipments for this period does not necessarily indicate a reduction in the
annual business levels with these customers. Engineered Products sales
declined 8% due primarily to shipment of two Electrostatic Oil Depositors
units during the prior year period, with no units shipped during the current
year. Cleanroom Products sales increased 23% over the prior period due to
improved sales into the microelectronics industry market. Sales from European
Operations increased approximately 4% primarily due to improved sales of
Cleanroom Products in Europe.
Total profit for reportable segments increased 25% for the period due
primarily to the strong performance in Cleanroom Products where segment profit
increased by 83% on the 23% increase in sales. The increased profit of the
Cleanroom Products segment was a result of the higher sales volume and lower
unit production cost. Consumer Products segment profit declined 43% as a
direct result of the 28% decline in sales.
Engineered Products segment profit increased to $59,000 from a loss of $4,000
for the prior year period on an 8% decrease in sales primarily as a result of
expense reductions associated with the consolidation of the Lancaster facility
into Sanford operations in May of last year. The segment loss for European
Operations was reduced by $53,000 compared to the prior year period due
principally to a higher gross profit margin mix of products sold during the
period.
On a consolidated basis, cost of goods sold ratio to sales improved from 67.2%
in the 1998 period to 65.4% in the 1999 period due to product mix and cost
reduction actions. Selling, administrative and engineering expenses were
$322,000 lower in the 1999 period due to both lower sales and expense
reduction programs enacted during the fourth quarter of 1998. As a percent of
sales, these expenses were 28.7% for both periods.
Interest expense decreased $32,000 or 15% from the prior year primarily due to
lower average borrowings between the respective periods.
Income tax expense was 33% of pre-tax income for the first quarter 1999 period
compared to 35% for the same prior year period.
The Company's backlog of unshipped customer orders as of March 31, 1999 was
$5,675,000, down 23% from same period the prior year. The decline occurred
primarily in the Consumer Products and Cleanroom Products segments and
resulted primarily from the timing of customer shipments compared to the prior
year and timing of large individual orders.
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Liquidity and Sources of Capital
The financial condition of the Company is strong with a current ratio of 1.9:1
which is unchanged from the 1998 year-end level. Working capital decreased to
$10,228,000 from the $10,775,000 at the end of 1998. This change is primarily
the result of the Company's repayment of borrowings. Long-term debt has
declined to 20.3 percent of equity and total shareholders' equity is
$21,868,000.
Management believes working capital and current credit arrangements will be
adequate to meet its operating and capital requirements during the foreseeable
future.
Contingent Matters
Refer to Note F of the Notes to Condensed Consolidated Financial Statements
for a discussion of legal contingencies.
Implications of the Year 2000 Issue
Many existing information technology ("IT") products and systems and non-IT
products and systems containing embedded processor technology were originally
programmed to represent any date by using six digits (e.g., 12/31/99), as
opposed to eight digits (e.g., 12/31/1999). Accordingly, such products and
systems may experience miscalculations, malfunctions or disruptions when
attempting to process information containing dates that fall after December
31, 1999 or other dates, such as September 9, 1999 (9/9/99), a date
traditionally used by some computer programmers as a default. These potential
problems are collectively referred to as the "Year 2000" problem. The
following comments summarize the Company's approach and status with respect to
Year 2000 issues. The Company's plan to resolve the Year 2000 problem
involves four phases: assessment, remediation, testing and implementation.
The Company uses numerous software applications and computer programs
throughout the various functions within its organization that may require
modification in order to address the Year 2000 issues. The significant systems
identified include: the primary computer system (IBM AS400), which maintains
the Company's sales, accounting and inventory records and transactions in
Sanford, North Carolina, its primary manufacturing and headquarters location;
the networked personal computer systems, which maintain engineering design
software, electronic mail, and various support subsystems including sales,
accounting and inventory transactions at the other Company locations;
individual personal computers utilizing standard, off-the-shelf software; and
embedded non-IT microprocessors contained in production machinery, office
equipment and other such devices.
Over 90% of the software and computer programs used by the Company are
standard off-the-shelf applications, all of which have been or the Company
anticipates will be deemed by the Company's software providers to be Year 2000
compliant by the provider. The remaining custom software applications and code
are currently undergoing a comprehensive review and correction process which
will prepare them for compliance by September 1999. The Company is assessing
and evaluating its non-IT systems, but does not believe it will have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company expects to remediate and test its non-IT
systems by early third quarter 1999.
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The Company is currently in the process of assessing and evaluating its
materially significant customers and suppliers of goods and services, to
determine the ability of those entities to achieve Year 2000 compliance. As
part of the process, the Company has distributed Year 2000 compliance
questionnaires to its materially significant customers and suppliers and will
evaluate their responses. The Company will continue to assess and evaluate
the potential impact of Year 2000 issues on these entities and expects to
complete this process by September 1999. Following is a summary of the status
of this project as of the date of this filing:
Trion Year 2000 Status
IT Systems Operating Equip. Products 3rd Party
Resolution Phase:
Assessment 100% 20% N/A 66%
Remediation 76% 20% N/A -
Implementation 75% 20% N/A -
Testing 40% 20% N/A -
Completion Date Sept. 99 Aug. 99 N/A July 99
Category Definitions
IT Systems - All software/hardware.
Operating Equipment - Equipment or machines with embedded chips.
Products - Not applicable (N/A) Y2K issue.
Third Party - Vendor/customer compliance verification.
The Company has employed third party providers in its efforts to address the
Year 2000 issue in conjunction with the Company's own information technology
staff. Excluding the costs for the Company's own information technology
personnel, the total cost of compliance is expected to be approximately
$288,300 (of which $119,400 will be a capital expenditure) with $126,000
having been expended through March 31, 1999. All costs (except capital) have
been and will be expensed as incurred and will be funded out of normal
operating cash flows.
Excluding any possible catastrophic events such as the loss of utilities or
banking, financial or communications services, the potential risks known to
the Company at this time are primarily limited to delays, disruptions or
losses resulting from information bottlenecks and the lack of computer
processing power. In order to mitigate the risk to the greatest extent
possible, the Company would be prepared to track mission-critical information
manually. Such information includes recording customer orders, purchasing
needed materials from suppliers, issuing payments for purchases/payroll, and
creating customer invoices/ collections. The Company believes its current
workforce and the employment pool available in the area is sufficiently
skilled to accommodate such a demand. Although the Company has few sole-
source components, in the case of vendors or suppliers that are found to be
non compliant, the Company will either ensure stocking levels of related
inventory items are increased or identify and certify alternative suppliers
prior to January 2000. The Company will continue to evaluate its contingency
planning activities as more information becomes available. At this time, the
total cost of the risks to the Company is not anticipated to have a material
adverse effect on the business, financial condition or results of operations
on the Company.
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Forward-Looking Information
The foregoing discussion contains forward-looking statements about the
Company's financial condition and results of operations, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's judgment only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements
to reflect events and circumstances that arise after the date hereof. Factors
that may cause the Company's actual results to differ materially from those
anticipated in forward-looking statements include the following: generally
adverse economic and industry conditions, including a decline in demand for
IAQ products or significant changes in preferences in or use of such products;
changes in the competitive environment, including increased competition in the
Company's primary markets and consolidation in the air quality industry;
economic or political changes in the countries in which the Company operates
or adverse trade regulations; and non-availability of resources for the
Company, or its suppliers and customers, to complete their respective Year
2000 compliance effectively.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the Registrant was held on
April 20, 1999.
(b) Directors elected at the meeting were James E. Heins, F. Trent
Hill, Jr. and Steven L. Schneider. Other continuing directors are
Grant R. Meyers, Samuel J. Wornom III, Joseph W. Deering, and
Seddon Goode, Jr.
(c) The only substantive matters voted upon at the meeting were the
election of three directors for a term of three years and an
amendment to the Trion, Inc. 1995 Non-Employee Director Stock Plan
to increase the number of shares which may be issued thereunder.
All nominees for directors as listed in the proxy statement were
elected with the following vote:
Nominees For Withheld
James E. Heins 5,731,235 88,686
F. Trent Hill, Jr. 5,793,643 26,278
Steven L. Schneider 5,748,591 71,330
The amendment to the Trion, Inc. 1995 Non-Employee Director Stock
Plan was Approved by a vote of 5,437,275 For, 365,299 Against
with 17,347 votes Abstaining.
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Item 6(a). Exhibits
The following exhibits are filed herewith:
10.1 Trion, Inc. 1995 Non-Employee Director Stock Plan (As
Amended December 10, 1998 and approved by the Shareholders
April 20, 1999)
27 Financial Data Schedule
Item 6(b). Report on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRION, INC.
(Registrant)
Date: May 14, 1999 /s/ Steven L. Schneider
Steven L. Schneider
President and
Chief Executive Officer
Date: May 14, 1999 /s/ Calvin J. Monsma
Calvin J. Monsma
Vice President and
Chief Financial Officer
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EXHIBIT 10.1
TRION, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK PLAN
(As Amended December 10, 1998 and approved by the Shareholders April 20, 1999)
Article I. General
1.01 Purpose. The purposes of the 1995 Non-Employee Director Stock
Plan (hereinafter referred to as the "Plan") are to promote the interests of
the Company and its shareholders by attracting, retaining and providing an
incentive to Non-Employee Directors by giving them the opportunity to acquire
a proprietary interest in the Company and an increased personal interest in
its continued successful performance and progress.
1.02 Adoption and Term. The Plan was first approved by the Board
effective as of January 16, 1995, and approved by the Company's shareholders
at the annual meeting of shareholders held in 1995. An amendment to the Plan
which increased the number of shares from 30,000 to 45,000 was approved by the
Board on December 10, 1998, subject to approval by the Company's Shareholders
at the Annual meeting on April 20, 1999. The Plan shall terminate without
further action at the close of business of April 18, 2000.
1.03 Definitions. As used herein the following terms have the
following meanings:
(a) Affiliate means any parent or subsidiary corporation of the
Company within the meaning of Section 424(e) and (f), respectively, of the
Code.
(b) Annual Award means the shares of Common Stock issued pursuant to
the Plan in payment of the Annual retainer.
(c) Annual Meeting Date means, as to any particular year, the date on
which the annual meeting of the Company's shareholders is held.
(d) Annual Retainer means, as to any particular year, the dollar
amount of the retainer for such year payable to Non-Employee Directors as
determined by the Board, excluding for this purpose any fees payable for
attendance at meetings of the Board or of a committee of the Board.
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(e) Board means the Board of Directors of the Company.
(f) Code means the Internal Revenue Code of 1986, as amended.
References to a section of the Code shall include that section and any
comparable section or sections of any future legislation that amends,
supplements or supersedes said section.
(g) Common Stock means the $0.50 par value common stock of the
Company.
(h) Company means Trion, Inc., a Pennsylvania corporation, and any
successor thereto.
(i) Director means a member of the Board.
(j) Employee means any employee of the Company or an Affiliate.
(k) Exchange Act means the Securities Exchange Act of 1934, as
amended.
(l) Fair Market Value means, on any date, the closing sale price of
one share of Common Stock, as reported in the NASDAQ National Market System or
any national securities exchange on which the Common Stock is then listed, as
published in the Wall Street Journal or another newspaper of general
circulation, as of such date or, if there were no sales reported as of such
date, as of the last date preceding such date as of which a sale was reported.
In the event that the Common Stock is not listed on the NASDAQ National
Market System or a national securities exchange, Fair Market Value shall be
determined in good faith by the Board in its sole discretion.
(m) Non-Employee Director means a Director who is not an Employee.
(n) Plan means this Trion, Inc. 1995 Non-Employee Director Stock Plan,
as it may hereafter be amended from time to time.
(o) Subsidiary means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
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1.04 Number of Shares. Subject to adjustment in accordance with
Section 5.01, up to 45,000 shares of Common Stock in the aggregate shall be
available for Annual Awards under the Plan. Such shares may be authorized and
unissued shares or shares which shall have been issued and subsequently
reacquired by the Company.
Article II. Administration
2.01 The Board. The Plan shall be administered by the Board. Subject
to the provisions of the Plan, the Board shall interpret the Plan, promulgate,
amend and rescind rules and regulations relating to the Plan and make all
other determinations necessary or advisable for its administration.
Interpretation and construction of any provision of the Plan by the Board
shall be final and conclusive. Notwithstanding the foregoing, the Board shall
have or exercise no discretion with respect to the selection of persons
eligible to receive Annual Awards hereunder, the determination of the number
of Annual Awards to be granted to any person or any other aspect of Plan
administration with respect to which such discretion is not permitted in order
for grants of Annual Awards to be exempt under Rule 16b-3 under the Exchange
Act.
Article III. Participation
3.01 Participants. Each Non-Employee Director shall participate in the
Plan on the terms and conditions hereinafter set forth.
Article IV. Grant of Annual Awards
4.01 Grant of Annual Awards. As of each Annual Meeting Date, each
individual elected, reelected or continuing as a Non-Employee Director shall
automatically receive an Annual Award of shares of Common Stock in an amount
determined in accordance with Section 4.02. Receipt of the Annual Award shall
constitute complete and full satisfaction of any obligation of the Company to
pay the Annual Retainer.
4.02 Number of Shares. The number of shares of Common Stock covered by
an Annual Award shall be equal to 100% of the Annual Retainer divided by the
Fair Market Value of the Common Stock at the close of business on the eleventh
day prior to the Annual Meeting Date. Any fraction of a share shall be
rounded down to the next whole share so that no fractional shares of Common
Stock are issued.
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Article V. Miscellaneous
5.01 Adjustments to Reflect Capital Changes. The number and kind of
shares available for Annual Awards subsequently granted under the Plan shall
be appropriately adjusted to reflect any stock dividend, stock split,
combination or exchange of shares, recapitalization, merger, consolidation or
other change in capitalization of the Company with a similar substantive
effect upon the Plan or the Annual Awards granted under the Plan.
5.02 Termination and Amendment. The Board shall have the right and the
power to terminate the Plan at any time. The Board shall have complete power
and authority to amend the Plan at any time; provided, however, that the Board
shall not, without the affirmative approval of the shareholders of the
Company, increase the number of shares of Common Stock available for Annual
Awards hereunder or make any other amendment which requires shareholder
approval under Rule 16b-3 under the Exchange Act, unless the Board determines
that such compliance is no longer desired, or under any other applicable law;
and provided, further, that the Board shall not amend more than once every six
months any provisions which may not be so amended in order for grants of
Annual Awards to be exempt under Rule 16b-3 under the Exchange Act, other than
amendments to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, or the rules thereunder. For purposes of this section,
an amendment to the Plan shall be deemed to have the affirmative approval of
the shareholders of the Company if such amendment shall have been submitted
for a vote by the shareholders at a duly called and constituted meeting of
such shareholders at which a quorum is present and a majority of the votes
cast with respect to such amendment at such meeting shall have been cast in
favor of such amendment.
5.03 Requirements of Law. The issuance of Common Stock pursuant to an
Annual Award shall be subject to all applicable laws, rules and regulations
and to such approval by governmental agencies as may be required.
5.04 No Guarantee of Membership. Nothing in the Plan shall confer upon
a Non-Employee Director any right to continue to serve as a Director.
5.05 Governing Law. The Plan and all determinations made and actions
taken pursuant to the Plan shall be governed by the laws of the Commonwealth
of Pennsylvania, other than the conflict of laws provision of such laws, and
shall be construed in accordance therewith.
- -4-
<p>
5.06 No Strict Construction. No rule of strict construction shall be
implied against the Company, the Board, or any other person in the
interpretation of any of the terms of the Plan, any Annual Award granted under
the Plan or any rule or procedure established by the Board.
5.07 Compliance with Rule 16b-3. It is intended that the Plan be
applied and administered in compliance with Rule 16b-3. If any provision of
the Plan would be in violation of Rule 16b-3 if applied as written, such
provision shall not have effect as written and shall be given effect so as to
comply with Rule 16b-3, as determined by the Board. The Board is authorized
to amend the Plan to comply with Rule 16b-3, as it may be amended from time to
time, and to make any other such amendments or modifications as it deems
necessary or appropriate to better accomplish the purposes of the Plan in
light of any amendments made to Rule 16b-3.
- -5-
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<PERIOD-END> MAR-31-1999
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