-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G1qO0LWNoSvxJOwEUDe0YJDUterOOQ8kBzcInpB1HOPcO+jwaTHynQMahfJ5rukn /5WUgUy6qEsCFkTMlqxLqw== 0000893877-97-000535.txt : 19970922 0000893877-97-000535.hdr.sgml : 19970922 ACCESSION NUMBER: 0000893877-97-000535 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970918 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRM COPY CENTERS CORP CENTRAL INDEX KEY: 0000749254 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 930809419 STATE OF INCORPORATION: OR FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19657 FILM NUMBER: 97682614 BUSINESS ADDRESS: STREET 1: 5208 N E 122ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97230-1074 BUSINESS PHONE: 5032578766 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _______________ to _______________ Commission File Number 0-19657 ---------- TRM COPY CENTERS CORPORATION (Exact name of registrant as specified in its charter) Oregon 93-0809419 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 5208 N.E. 122nd Avenue Portland, Oregon 97230-1074 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 257-8766 ---------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of each class) 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 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of July 31, 1997 the aggregate market value of the registrant's Common Stock held by non affiliates of the registrant was $54.9 million. Solely for purposes of this calculation, the registrant has treated its Board of Directors and Executive Officers as affiliates. As of July 31, 1997, the number of shares of the registrant's Common Stock outstanding was 6,940,041. Documents incorporated by reference: Parts of registrant's 1997 Annual Report to Shareholders are incorporated by reference into Part II of this Report, and parts of registrant's Proxy Statement for the annual meeting of shareholders on October 28, 1997 are incorporated by reference into Part III of this report. ================================================================================ PART I ITEM 1. BUSINESS General As of August 1997, TRM Copy Centers Corporation owned and maintained nearly 35,000 self-service photocopiers in retail establishments such as pharmacies, stationery stores, hardware stores and gift shops in 73 metropolitan areas: 50 in the U.S., five in Canada, 15 in the U.K, two in France and one in Belgium. TRM installs, maintains and supplies its photocopiers and regularly monitors their usage. Each retail business collects payment from its customers, shares in the revenue generated by the Copy Center and benefits from any increase in walk-in traffic. The Company invoices and collects payment from each retailer monthly. Each Copy Center consists of a photocopier, a machine stand and advertising signs. Copy Centers are identifiable by the Company's trapezoidal yellow and black "TRM Copies" signs. TRM became the leading provider in self-service photocopying in many of the metropolitan areas it serves by focusing on service and convenience. The Company strives to conveniently locate high numbers of TRM Centers throughout its service areas. Operations by geographic area are presented in Note 12 to the Consolidated Financial Statements included in the Annual Report to Shareholders. The Company services its TRM Centers and provides all necessary supplies. The retail business supplies space and electrical power for the TRM Center and supervises its use. Consumers report the number of uses of the TRM Center to the retail business cashier, who collects payment. Each month, the retail business keeps a percentage of the TRM Center's revenue, which generally is based on a sliding scale related to usage, as recorded by the TRM Center's tamper-proof internal counter, and remits the remainder to TRM. All accounting, training, purchasing, billing and collection functions, as well as coordination of customer service, are centralized in the Company's offices in Portland, Oregon. Generally, the only personnel outside the Portland offices are service and sales personnel. TRM minimizes costs by buying large quantities of new photocopiers, by rebuilding used photocopiers and by centrally purchasing large quantities of parts, paper and toner. The Company believes that its centralized operating systems and standardized operating procedures enable it to efficiently open new geographies and to install and service thousands of TRM Centers. The Company is an Oregon corporation formed in 1982. From the end of fiscal 1992 through June 30, 1997, TRM opened operations in 18 U.S., three Canadian, 15 U.K., two French and one Belgian metropolitan areas. As used in this Annual Report, the terms "the Company" and "TRM" refer to TRM Copy Centers Corporation and its subsidiaries, unless the context requires otherwise. Locations Historically, TRM has focused its sales efforts on a small retail businesses. During fiscal year 1997 and going forward, the Company is expanding its corporate chain selling program to better address the retail industry as it continues to consolidate. The installed customer base is diversified such that no retail business accounts for a significant portion of revenues or profits. Further, TRM has diversified geographically to avoid dependence on one or more market areas. The Company does not believe that the presence of significant competition in any single geographic market would have a material adverse effect on the Company. As of June 30, 1997 the Company has established a local Service Center in 51 major metropolitan areas. Each of these Service Centers consists of leased premises generally staffed by a service manager and one or more service technicians and salespeople. TRM locates its Service Centers in sites convenient to the TRM Centers. Service Centers include a small warehouse for the storage of photocopiers, other components, spare parts, paper and toner. Eighteen of the most recently opened metropolitan areas (called "satellites") were opened with resources from existing Service Centers nearby and do not have stand-alone facilities. Further, the Company also has three small Service Centers where the service manager is the only technician. These small Service Centers are based in the managers' homes. Expansion TRM installed 9,233 additional TRM Centers, net of replacements and removals, from July 1, 1994 to June 30, 1997. In addition to installing 3,077 net TRM Centers in fiscal 1997, the Company focused on improving the profit 2 performance of the installed base of machines. During fiscal 1998, the Company plans to add between 3,000 and 4,000 additional TRM Centers in existing market areas and in new areas, and to continue to actively manage its installed base. The Company's planned expansion will require an increase in the number of installed photocopiers, Service Centers, service technicians, salespeople and customers. TRM uses both new and used photocopiers to fulfill the requirements of its expansion strategy. As of July 31, 1997, TRM had over 3,000 uninstalled photocopiers in its system (see "Photocopiers"), which along with the purchase of new machines are slotted for its expansion. The Company is purchasing new machines to use in high-volume, independent and chain locations (see discussion of NextGen under "New Products and Services Under Development"). The Company will open a new Service Center in each new geographic market as it is justified. The service technicians needed for the planned expansion will be trained at TRM's Technology Center in Portland. TRM sells the TRM Center concept to retail businesses through sales lead generation programs and local door-to-door solicitation using independent and Company sales representatives and service technicians. The Company is increasing its corporate sales efforts directed toward regional and country-wide retail chains. The Company has a program called "service selling" in selected North American cities. The program trains and rewards service technicians to sell the TRM program in their service areas. Field sales responsibilities and field operations are grouped together under the Chief Operating Officer. This allows for the sharing of management teams across the expanse of North America and for a coordinated effort to grow market share in established cities, particularly in North America. In actively managing the profit performance of the installed base, under-performing machines are removed and put back into stock to be redeployed at site which offer greater profit potential. Machines that are under-priced for the supporting copy volume are repriced to higher levels. During fiscal 1996 and 1997, machines were relocated and copy prices were raised at thousands of locations. The Company intends to continue to focus on its core photocopy business with controlled growth from new and existing U.S. market areas, international expansion and new products and services that can be delivered to its core customer base and similar consumers. New Products and Services Under Development The Company is positioned to add other products or services to further optimize the use of its in-place network of sales, service, distribution and support as well as its growing installed customer base. Although sales generated from additional products currently represent less than 5% of the total sales, the Company is actively testing multiple new products and services. During 1997, the Company concluded a twenty-month effort to select a new technology black and white copier ("NextGen") for further unit growth. NextGen is an important element in TRM's core programs for high-volume, independent retailer locations and larger retail chains. TRM's existing base of installed copy machines will continue to be used for the majority of convenience copying locations. Additional investments were made during 1997 in designing an add-on electronic and receipt printing module for the Company's photocopiers, which allows for stepped volume pricing (e.g., the first copy for 10(cent), copies 2-5 for 7(cent), etc.) . Market testing began during fiscal 1997 and is expected to continue in fiscal 1998. Also in 1997, the Company expanded its initial test of retailer-serviced coin-operated convenience copying with large format chain stores, where TRM's service quality and worldwide infrastructure is a key advantage, but where host cashiering is not a desired benefit. The Company also expanded its initial trial for marketing prepaid telephone cards (to our base of retailers). TRM's intent is to invest in developing and market testing these and other new products and services to identify those that clearly deserve to become country or system-wide offerings. TRM has had in place about 400 full-color copiers since 1992. While the Company does not intend to expand the number of Color Copy Centers during fiscal 1998, it is possible that the color program will be expanded at some point in the future. Competition A person seeking photocopy services has a variety of alternatives to a TRM Center. These alternatives include specialty full-service business centers and copy and print shops, coin-operated photocopiers and other photocopiers located within retail shops. Each of these alternatives may to some extent compete with the Company. The Company does not attempt to compete directly with most alternative suppliers of photocopy services. Instead, the Company seeks to distinguish itself by blanketing its service areas with large numbers of convenient photocopiers and by providing high quality service to those locations. 3 Full-service business centers and copy and print shops generally serve a market more interested in high volume and sophisticated copying than in convenience of location. Coin-operated photocopiers are sometimes located in smaller retail establishments similar to TRM's locations. While these coin-operated photocopiers provide an alternative to Copy Centers, the Company believes that they do not pose a significant competitive threat to the majority of TRM's retailers. As indicated under the caption "New Products and Services Under Development," the Company is testing coin-operated copying with major large format chains and retail stores, which have not been targeted by TRM up to the present time. The Company is aware of several self-service non-coin-operated photocopier businesses using the retail business concept. To the Company's knowledge, each is limited to a relatively small geographic market and a relatively small number of photocopiers. Because of barriers to entry in the Company's business, such as developing operating systems, establishing sources of supply and achieving economies of scale, the Company does not believe any of these competitors currently represents a significant threat. Personal copiers provide a substitute for Copy Centers. While these photocopiers have been on the market for a number of years, the Company does not believe that they have had a significant adverse effect on its business. The Company is unable to predict whether a technological or price breakthrough might increase sales of personal copiers and reduce demand for the Company's copy services. Computers with printers allow convenient production of multiple copies. The Company does not believe that computer printing will have a significant adverse effect on its Copy Center business. At present, computer duplicating is primarily used only for a document which is electronically resident on that particular computer and not for other paper originals. Both computer printers and personal copiers currently have per copy costs to the user which are similar to or higher than TRM's retail copy prices so they are not, in general, a lower cost alternative. Quarterly Seasonality Historically, the Company has experienced slightly higher than average production per TRM Center in its third and fourth fiscal quarters and slightly lower than average production per TRM Center in its first fiscal quarter. Photocopiers As of August 1997, TRM owned more than 38,000 new and used photocopiers. Nearly 35,000 of these photocopiers were revenue-producing Copy Centers in the field. Generally, new photocopiers are shipped direct from the manufacturer to a TRM Service Center. Used photocopiers are generally rebuilt at the Company's rebuilding facility in Portland, Oregon. The Company expects to continue to use both new and used photocopiers to expand its black and white copying business. Supply To date in North America, the Company has primarily used two similar discontinued models of used photocopiers originally manufactured by Ricoh Company, Ltd. and its affiliates. TRM bought these photocopiers from photocopier brokers and dealers. These two models of black and white photocopiers have not been manufactured since 1979 and 1982. During fiscal 1993, TRM developed a supply relationship with Mita Copystar America, Inc. (Mita), for black and white photocopiers and related products in North America. The resulting arrangement, as updated, contains no commitment to purchase any specific number of photocopiers. Subsequent to fiscal 1997 year end, the Company finalized an agreement with a major manufacturer for new, state-of-the-art black and white "NextGen" photocopiers in North America. During fiscal 1992, the Company developed a supply relationship with Ricoh Corporation (Ricoh) for full-color photocopiers and related products. TRM is not currently adding to its inventory of full-color copiers. Ricoh ships related products directly to the appropriate TRM Service Center as directed by the Company. The Company will continue to monitor and evaluate models of full-color photocopiers available for its use. Also during fiscal 1992, a supply arrangement was entered into with Mita Europe B.V. (Mita Europe) for black and white photocopiers and related products in Europe. Under this arrangement, photocopiers and related products are shipped from Mita Europe directly to the Company's European Service Centers. The Company continues to monitor and evaluate supplies of new and used photocopiers in Europe available for its use. Few of TRM's photocopiers have ever become mechanically obsolete. Because of their simplicity, the Company believes that its photocopiers are more dependable than many other models. 4 Parts The Company acquires a majority of the parts for its used photocopiers directly from various parts fabricators. Many parts are built to TRM's specifications. While TRM's strategy is to use multiple sources for its parts to reduce dependence on single sources, some parts are purchased from single sources. Temporary shortages, increased costs and quality control problems could result if parts from a single or limited source became unavailable. Currently, parts for the Mita photocopiers and the Ricoh full-color photocopiers are being supplied primarily by the photocopier manufacturers. The Company will continue to evaluate available sources of supply for parts. Paper Photocopy paper is purchased centrally by the Company's corporate offices and then shipped directly from the mills to the Service Centers. A number of paper companies are capable of producing the paper usable by the Company. The Company believes that sufficient paper should be available to supply the Company's expanding business. Toner The Company currently purchases liquid toner for its North American black and white rebuilt photocopiers directly from two manufacturers. The Company has confirmed that other acceptable sources are available and could obtain suitable toner on reasonable terms from other manufacturers, although some start-up delays could occur. Currently, toner for the Mita photocopiers and the Ricoh full-color photocopiers is being supplied primarily by the photocopier manufacturers. The Company will continue to evaluate available sources of supply for toner. Employees As of June 30, 1997, the Company had approximately 667 employees, most of whom were full-time. Approximately 419 are in field service, 189 are in sales, marketing, customer service, purchasing, billing and administration, and 21 are in training, production and warehouse functions. None of the Company's employees are represented by unions. The Company believes it has good relations with its employees. The Company currently engages about 38 independent contractors to sell the TRM program. Service Marks Most Copy Centers are identified by distinctive yellow and black trapezoidal signs bearing "TRM Copies" and "TRM Color Copies", and the program price. In France and Belgium, the Company does business under the names of FPC France Ltd. and FPC Belgium Limited, respectively. Most of TRM and FPC's signs are registered service marks. Copy Centers Investment Group, Ltd. The Company serves as general partner of Copy Centers Investment Group, Ltd., an Oregon limited partnership. The partnership was formed in 1983 to acquire certain Copy Centers from the Company. The partnership owns 79 Copy Centers in the states of Oregon and Washington. The Company receives a management fee of 25% of the gross revenue from these 79 Copy Centers, plus $20 per month for each of the 79 locations for accounting and administrative functions. The Company also owns a 1% interest in the profits and losses of the partnership. The partnership will terminate December 31, 1998 according to the partnership agreement. The partnership's operations do not constitute a material part of the business of the Company. Governmental Regulation The Company is not subject to significant governmental regulation. Local zoning and sign regulations occasionally prohibit a retail business from displaying the "TRM Copies" sign on an exterior wall or window. Local zoning and use restrictions may not allow opening a Copy Center in an otherwise desirable retail business. The Company does not expect such restrictions to have a material adverse effect on the Company's expansion plans. Forward-Looking Statements This Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to the Company's plans or expectations as to: future performance; growth opportunities; expansion; improvements in efficiencies and cost controls; new products and services; repricing machines; competition; paper costs and capital expenditures. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: business conditions in the market areas in which the Company operates; competitive factors; customer demand for the Company's services and the Company's 5 ability to execute its plans successfully. Any forward-looking statements, including other written or oral forward-looking statements made by the Company or persons acting on its behalf, should be considered in light of these factors and other factors referred to from time to time in the Company's press releases, periodic reports or communications with shareholders. ITEM 2. PROPERTIES The Company leases approximately 25,750 square feet of office space for its corporate offices in Portland, Oregon. The lease expires in 2010, with an option to renew for an additional five years. The Company leases 31,500 square feet for training, rebuilding, warehousing, the Portland Service Center and other office space under a lease that also expires in 2010. This facility is located next to the corporate offices. The Company leases warehouse space for 50 Service Centers outside Portland, Oregon. A Service Center typically consists of approximately 2,000 to 7,000 square feet of non-custom warehouse space. The leases typically run for three to twelve years, some with extensions available upon exercise of renewal options. The Company does not anticipate any difficulty in locating or, if necessary, relocating Service Centers. ITEM 3. LEGAL PROCEEDINGS The Company is subject to various claims and legal proceedings from time to time in the ordinary course of its business. There are no pending or threatened matters which in the Company's opinion would have a material effect on the Company's operations or its financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 6 PART II The information required by Part II is incorporated herein by reference from the TRM Copy Centers Corporation 1997 Annual Report to Shareholders as indicated below. Except for such information, the 1997 Annual Report to Shareholders is not to be deemed filed as part of this Report. Annual Report Page No. ------------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND Inside back RELATED STOCKHOLDER MATTERS cover ITEM 6. SELECTED FINANCIAL DATA 1 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 5-7 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA 8-18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III The information required by Part III is incorporated herein by reference from the indicated pages of the Company's definitive Proxy Statement dated September 12, 1997 for its 1997 annual meeting of shareholders. Proxy Statement Page No. --------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 3-5 ITEM 11. EXECUTIVE COMPENSATION 6-9 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 1-2 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 5 7 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements (incorporated by reference Annual Report from the Company's 1997 Annual Report to Page No. Shareholders): ------------- Consolidated Balance Sheets as of June 30, 1997 and 1996 8 Consolidated Statements of Operations for each of the three years in the period ended June 30, 1997 9 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30, 1997 10 Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 1997 11 Notes to Consolidated Financial Statements 12-18 Independent Auditors' Report 19 Form 10-K Page No. --------- 2. Financial Statement Schedules: Consent and Independent Auditors' Report on Financial Statement S-1 Schedule VIII -- Valuation and Qualifying Accounts S-2 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. Exhibits: The exhibits listed in the Index to Exhibits, which appears on page 10 herein, are filed as part of this Annual Report. (b) No reports on Form 8-K were filed by the Company during the last quarter of fiscal 1997. 8 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, in Portland, Oregon, on September 12, 1997. TRM COPY CENTERS CORPORATION By: /s/ FREDERIC P. STOCKTON ------------------------------------- Frederic P. Stockton President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Frederic P. Stockton his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on September 12, 1997 on behalf of the Registrant and in the capacities indicated: Signature Title - ---------------------------------- ---------------------------------- /s/ FREDERIC P. STOCKTON President, Chief Executive Officer - ---------------------------------- and Director Frederic P. Stockton /s/ FREDERICK O. PAULSELL Chairman of the Board and Director - ---------------------------------- Frederick O. Paulsell /s/ EDWIN S. CHAN Vice-Chairman of the Board and Director - ---------------------------------- Edwin S. Chan /s/ SHERMAN M. COE Director - ---------------------------------- Sherman M. Coe /s/ RALPH R. SHAW Director - ---------------------------------- Ralph R. Shaw /s/ MICHAEL D. SIMON Director - ---------------------------------- Michael D. Simon /s/ DONALD L. VAN MAREN Director - ---------------------------------- Donald L. Van Maren 9 EXHIBIT INDEX Exhibits - -------- 3.1 Restated Articles of Incorporation (Incorporated herein by reference to Exhibit 3.1 of Form 10-K for the fiscal year ended June 30, 1992) 3.2 Restated Bylaws 4.1 Articles V, VI and VII of the Restated Articles of Incorporation (See Exhibit 3.1) 4.2 Articles I, II, V, VII and X of the Restated Bylaws, as amended (See Exhibit 3.2) 10.1 Form of Indemnity Agreements with Registrant's directors and executive officers 10.2 Loan Agreement with United States National Bank of Oregon, dated March 31, 1997 10.3 a) Lease dated October 14, 1991 between Pacific Realty Associates, L. P. and Registrant (for Registrant's training facility in Portland, Oregon) (Incorporated herein by reference to Exhibit 10.7 of Form S-1 dated November 8, 1991 [No. 33-43829]) b) Lease amendment dated February 7, 1994, between Pacific Realty Associates, L.P. and Registrant (Incorporated herein by reference to Exhibit 10.7 of Form 10-K for the fiscal year ended June 30, 1994) c) Lease amendment dated August 10, 1994, between Pacific Realty Associates, L.P. and Registrant (Incorporated herein by reference to Exhibit 10.5 of Form 10-K for the fiscal year ended June 30, 1995) d) Lease dated August 10, 1994 between Pacific Realty Associates, L.P. and Registrant (for the Registrant's corporate headquarters in Portland, Oregon) (Incorporated herein by reference to Exhibit 10.4 of Form 10-K for the fiscal year ended June 30, 1995) 10.4 Restated 1986 Stock Incentive Plan (Incorporated herein by reference to Exhibit 10.8 of Form 10-K for the fiscal year ended June 30, 1994) 10.5 1996 Stock Option Plan 10.6 Employee Stock Purchase Plan (Incorporated herein by reference to Exhibit 28.1 of Form S-8 dated December 7, 1992 [No. 33-55370]) 10.7 Form of Stock Option Agreements: a) For option grants before fiscal 1994 (Incorporated herein by reference to Exhibit 10.9 of Form S-1 dated November 8, 1991 [No. 33-43829]) b) For option grants during fiscal 1994 (Incorporated herein by reference to Exhibit 10.10 of Form 10-K for the fiscal year ended June 30, 1994) c) For option grants during fiscal 1995 (Incorporated herein by reference to Exhibit 10.8 of Form 10-K for the fiscal year ended June 30, 1995) 10.8 Employment Agreements: a) Employment Agreement dated January 17, 1995 with Michael D. Simon (Incorporated herein by reference to Exhibit 10.9 of Form 10-K for the fiscal year ended June 30, 1995) b) Employment Agreement dated April 25, 1996 with Michael D. Simon (Incorporated herein by reference to Exhibit 10.9 of Form 10-K for the fiscal year ended June 30, 1996) c) Employment Agreement dated August 18, 1997 with Frederic P. Stockton 10.9 Executive Supplemental Retirement Agreement with Edwin S. Chan dated January 9, 1995 (Incorporated herein by reference to Exhibit 10.9 of Form 10-K for the fiscal year ended June 30, 1995) 13.1 Portions of the 1997 Annual Report to Shareholders 21.1 Subsidiaries of the Registrant 23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors (see Page S-1) 24.1 Power of Attorney (see Signature page) 27.1 Financial Data Schedule 10 Consent and Independent Auditors' Report on Financial Statement Schedule The Board of Directors TRM Copy Centers Corporation: The audits referred to in our report dated August 15, 1997 included the related financial statement schedule as of June 30, 1997 and for each year in the three-year period ended June 30, 1997, as listed in Item 14(a)(2) of Form 10-K of TRM Copy Centers Corporation. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We consent to the incorporation by reference on Form S-8 (Nos. 33-55370 and 33-74354) of TRM Copy Centers Corporation of our reports dated August 15, 1997, relating to the consolidated balance sheets of TRM Copy Centers Corporation and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, cash flows, and related schedule for each of the years in the three-year period ended June 30, 1997, which reports appear in the June 30, 1997 annual report incorporated by reference in Form 10-K of TRM Copy Centers Corporation. KPMG PEAT MARWICK LLP Portland, Oregon September 17, 1997 S-1 TRM COPY CENTERS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS Years ended June 30, 1995, 1996, and 1997 (In thousands) Balance at Charged to Charged to Balance at Beginning of costs and other Deductions - End of Period expenses accounts write offs Period -------------- ------------- ------------- ------------- ------------- Year ended June 30, 1995 Allowance for doubtful accounts............ $ 183 $ 344 $ -- $ (261) $ 266 ============== ============= ============= ============= ============= Year ended June 30, 1996 Allowance for doubtful accounts............ $ 266 $ 700 $ -- $ (679) $ 287 ============== ============= ============= ============= ============= Year ended June 30, 1997 Allowance for doubtful accounts............ $ 287 $ 835 $ -- $ (974) $ 148 ============== ============= ============= ============= =============
S-2 EX-3.2 2 RESTATED BYLAWS BYLAWS OF TRM COPY CENTERS CORPORATION ARTICLE I SHAREHOLDERS: MEETINGS AND VOTING Section 1. PLACE OF MEETINGS Meetings of the shareholders of TRM COPY CENTERS CORPORATION, an Oregon corporation (the "Corporation") will be held at the principal office of the Corporation, or any other place, either within or without the state of Oregon, selected by the Board of Directors. Section 2. ANNUAL MEETINGS (a) The annual meeting of the shareholders will be held on the fourth Tuesday of October of each year, if not a legal holiday, and if a legal holiday then on the next succeeding business day, at such time as may be prescribed by the Board of Directors and specified in the notice of the meeting. At the annual meeting, the shareholders will elect by vote a Board of Directors from the persons nominated pursuant to paragraph (c) below, provided that if pursuant to the Articles of Incorporation staggered terms for directors are in effect, then only such members whose terms expire at such meeting shall be elected. The shareholders shall also consider reports of the affairs of the Corporation and transact such other business as may properly be brought before the meeting. (b) At the annual meeting of the shareholders, only such matters as shall have been properly brought before the meeting shall be considered and acted upon. To be properly brought before an annual meeting, a matter must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the meeting by or at the direction of the Board of Directors, or (iii) properly brought before the meeting by a shareholder. For any matter to be properly brought before the annual meeting by a shareholder, the shareholder must have given prior written notice to the Secretary of the Corporation which must be received at the principal executive offices of the Corporation not less than 30 days nor more than 60 days prior to the meeting. In the event that less than 30 days' notice of the date of the meeting is given or made to shareholders, notice by a shareholder shall be timely received if received not later than the close of business on the tenth day following the date on which such notice of the date of the annual meeting was mailed. A shareholder's notice to the Secretary in order to be valid must set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the matter proposed to be brought before the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in the matter. No matter shall be considered or acted upon at an annual meeting except in accordance with the procedures set forth in this Section 2. The presiding officer at any annual meeting shall determine whether any matter was properly brought before the meeting in accordance with the provisions of this section. If he shall determine that any matter has not been properly brought before the meeting, he shall so declare at the meeting and any such matter shall not be considered or acted upon. (c) At the annual meeting of shareholders, only those persons properly nominated shall be considered in the election for directors. To be properly nominated, a person must be (i) nominated by the Board of Directors or (ii) properly nominated by a shareholder. To be properly nominated by a shareholder, the shareholder must have given prior written notice of the nomination to the Secretary of the Corporation which must be received at the principal executive offices of the Corporation not less than 30 days nor more than 60 days prior to the meeting. In the event that less than 30 days' notice of the date of the meeting is given or made to shareholders, notice of the nomination by a shareholder shall be timely received if received not later than the close of business on the tenth day following the date on which such notice of the date of the annual meeting was mailed. A shareholder's notice of nomination to the Secretary in order to be valid must set forth as to each person the shareholder proposes to nominate to the Board of Directors (i) the information described by Items 401(a), (e) and (f) and Item 403(b) of Regulation S-K under the Securities Act of 1933, as amended, or successor provisions, (ii) the class and number of shares of the Corporation which are beneficially owned by the nominating shareholder, and (iii) any material interest of the shareholder or of the nominee in the Corporation. No nominee shall be considered for election as a director at an annual meeting except in accordance with the procedures set forth in this Section 2. The presiding officer at any annual meeting shall determine whether any nomination was properly brought before the meeting in accordance with the provisions of this section. If he shall determine that any person has not been properly nominated, he shall so declare at the meeting and any such nominee shall not be considered in the election. Section 3. SPECIAL MEETINGS (a) The Corporation will hold a special meeting of shareholders upon the call of the President or the Board of Directors, or if the holders of at least 10 percent of all votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date and deliver to the Secretary of the Corporation one or more written demands for the meeting describing the purpose or purposes for which it is to be held. (b) The circuit court of the county where the Corporation's principal office is located, or, if the principal office is not in Oregon, where the registered office of the Corporation is or was last located, may summarily order a special meeting to be held upon the application of a shareholder of the Corporation who signed a valid demand for a special meeting if notice of the special meeting was not given within 30 days after the date the demand was delivered to the Corporation's Secretary or if the special meeting was not held in accordance with the notice. Section 4. NOTICE OF MEETINGS (a) The Corporation will notify shareholders in writing of the date, time and place of each annual and special shareholders meeting not earlier than 60 days nor less than ten days before the meeting date. Unless Oregon law or the Articles of Incorporation require otherwise, the Corporation is required to give notice only to shareholders entitled to vote at the meeting. Such notice is effective when mailed if it is mailed postage prepaid and is correctly addressed to the shareholder's address shown in the Corporation's current record of shareholders. Unless required by law or by the Articles of Incorporation, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called. However, notice of a special meeting will include a description of the purpose or purposes for which the meeting is called. (b) If an annual or special shareholders meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before adjournment. However, if a new record date for the adjourned meeting is fixed, or is required by law to be fixed, notice of the adjourned meeting shall be given to persons who are shareholders as of the new record date. A determination of shareholders entitled to notice of or to vote at a shareholders meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. (c) A shareholder's attendance at a meeting waives objection to (i) lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and (ii) consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. Section 5. QUORUM AND VOTING REQUIREMENTS FOR VOTING GROUPS (a) Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless otherwise required by law or by the Articles of Incorporation, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. (b) In the absence of a quorum, a majority of those present in person or represented by proxy may adjourn the meeting from time to time until a quorum exists. Any business that might have been transacted at the original meeting may be transacted at the adjourned meeting if a quorum exists. Section 6. VOTING RIGHTS (a) The persons entitled to receive notice of and to vote at any shareholders meeting will be determined from the records of the Corporation on the close of business on the day before the mailing of the notice or on such other date not more than 70 nor less than 10 days before such meeting, as will be fixed in advance by the Board of Directors. (b) Except as otherwise provided in the Articles of Incorporation or by law, each outstanding share, regardless of class, is entitled to one vote on each matter voted on at a shareholders meeting. Only issued and outstanding shares are entitled to vote. (c) Unless otherwise provided in the Articles of Incorporation or by law, if a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action. (d) Unless otherwise provided in the Articles of Incorporation, directors are elected by a plurality of the votes cast by holders of the shares entitled to vote in the election at a meeting at which a quorum is present. Section 7. VOTING OF SHARES BY CERTAIN HOLDERS (a) If the name signed on a vote, consent, waiver or proxy appointment corresponds to the name of a shareholder, the Corporation, if acting in good faith, is entitled to accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder. If the name signed on a vote, consent, waiver or proxy appointment does not correspond to the name of its shareholder, the Corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder if: (i) The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity; (ii) The name signed purports to be that of an administrator, executor, guardian or conservator representing the shareholder and, if the Corporation requests, evidence of fiduciary status acceptable to the Corporation has been presented with respect to the vote, consent, waiver or proxy appointment; (iii) The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the Corporation requests, evidence of this status acceptable to the Corporation has been presented with respect to the vote, consent, waiver or proxy appointment; (iv) The name signed purports to be that of a pledgee, beneficial owner or attorney-in-fact of the shareholder and, if the Corporation requests, evidence acceptable to the Corporation of the signatory's authority to sign for the share-holder has been presented with respect to the vote, consent, waiver or proxy appointment; or (v) Two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co-owners. (b) Shares of the Corporation are not entitled to be voted if (i) they are owned, directly or indirectly, by another domestic or foreign corporation, and (ii) the Corporation owns, directly or indirectly, a majority of the shares entitled to be voted for directors of such other corporation. This paragraph does not limit the power of a corporation to vote any shares, including its own shares, held by it in a fiduciary capacity. (c) Redeemable shares are not entitled to be voted after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares. Section 8. PROXIES A shareholder may vote shares either in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by the shareholder's attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent of the Corporation authorized to tabulate votes. An appointment is valid for 11 months unless a longer period is expressly provided in the appointment form. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. Section 9. SHAREHOLDER LISTS (a) After fixing a record date for a meeting, the Corporation will prepare an alphabetical list of the names of all of its shareholders who are entitled to notice of the meeting. The list must be arranged by voting group, and within each voting group, by class or series of shares and show the address of and the number of shares held by each shareholder. (b) The shareholder list must be available for inspection by any shareholder, beginning two business days after notice of the meeting for which the list was prepared is given and continuing through the meeting. Such list will be kept on file at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder, or the shareholder's agent or attorney, is entitled on written demand to inspect and, subject to the requirements of law, to copy the list during regular business hours and at the shareholder's expense during the period it is available for inspection. (c) The Corporation will make the shareholder list available at the meeting, and any shareholder, or the shareholder's agent or attorney, is entitled to inspect the list at any time during the meeting or any adjournment. (d) Refusal or failure to prepare or make available the shareholder list does not affect the validity of action taken at the meeting. ARTICLE II DIRECTORS: MANAGEMENT Section 1. POWERS The Corporation will have a Board of Directors. All corporate powers will be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, the Board of Directors, subject to any limitation set forth in the Articles of Incorporation. Section 2. NUMBER AND QUALIFICATIONS The Board of Directors will consist of seven members, until the number has been changed by the Board of Directors by amendment of these Bylaws. In no event shall the number of directors be less than three. A decrease in the number of directors does not shorten an incumbent director's term. In the event the Board of Directors is divided into classes as set forth in Section 5 below, any increase in the number of directors shall be allocated by the Board of Directors among the three classes of directors so as to maintain equal classes to the extent possible. Without the unanimous consent of the existing Board of Directors, no more than two additional directors shall be added to the Board of Directors within any 12-month period. Without the unanimous consent of the Board of Directors, no person who is affiliated as an owner, director, officer or employee of a company or business deemed by the Board of Directors to be competitive with that of the Corporation shall be eligible to serve on the Board of Directors of the Corporation. Directors need not be residents of the state of Oregon or shareholders of the Corporation, unless required by the Articles of Incorporation. Section 3. ELECTION OF DIRECTORS The directors will be elected by ballot at the annual meeting of the shareholders. Section 4. TENURE OF OFFICE WITHOUT CLASSES If the Board of Directors consists of five or fewer members, the terms of all directors shall expire at the next annual shareholders meeting following their election. The term of a director elected to fill a vacancy expires at the next shareholders meeting at which directors are elected. Despite the expiration of a director's term, the director continues to serve until the director's successor is elected and qualifies or until there is a decrease in the number of directors. Subject to paragraph (c) of Section 6 of Article II, a director's term of office will begin immediately after election. SECTION 5. TENURE OF OFFICE WITH CLASSES 1. At any time when the Board of Directors shall consist of six or more members, in lieu of electing the entire number of directors annually, the Board of Directors of the Corporation shall be divided into three classes. The three classes shall consist of an equal number of directors to the extent possible. The initial designation of which current directors shall serve in which classes shall be made by the director then serving as Chairman of the Board. The classes shall be Class 1, Class 2 and Class 3. The term of office of directors of Class 1 shall expire at the first annual meeting of shareholders after their election, that of Class 2 shall expire at the second annual meeting after their election, and that of Class 3 shall expire at the third annual meeting after their election. When classification of directors is in effect, at each annual meeting of shareholders the number of directors equal to the number of the class whose term expires at the time of such meeting shall be elected to hold office until the third succeeding annual meeting. No classification of directors shall be effective in the event the authorized number of members of the Board is reduced to fewer than six. 2. If the Board of Directors is divided into classes and in the event of any increase or decrease in the authorized number of directors, then (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or upon his earlier resignation, removal from office or death; (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be allocated by the Board of Directors among the three classes of directors so as to maintain equal classes to the extent possible; and (iii) in the event such decrease in the authorized number of directors makes the total number of directors less than six, then the Board of Directors shall become declassified and the directors remaining in office shall continue their terms until the next annual meeting of shareholders, at which time all of said remaining directors shall be re-elected to one-year terms or until their successors are duly elected and qualified. Section 6. VACANCIES (a) A vacancy in the Board of Directors will exist upon the death, resignation or removal of any director or upon an increase in the number of directors. (b) Unless the Articles of Incorporation provide otherwise, if a vacancy occurs on the Board of Directors: (i) The shareholders may fill the vacancy, provided that the Board of Directors has not already done so; or (ii) The Board of Directors may fill the vacancy, provided the shareholders have not already done so. If the directors remaining in office constitute fewer than a quorum of the Board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. (c) A vacancy that will occur at a specific later date, by reason of a resignation effective at the later date or otherwise, may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. Section 7. RESIGNATION OF DIRECTORS A director may resign at any time by delivering written notice to the Board of Directors, its chairperson or the Corporation. Unless the notice specifies a later effective date, a resignation is effective at the earliest of the following: (a) when received; (b) five days after its deposit in the United States mail, as evidenced by the postmark, if mailed postage prepaid and correctly addressed; or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested and the receipt is signed by or on behalf of the addressee. Once delivered, a notice of resignation is irrevocable unless revocation is permitted by the Board of Directors. Section 8. REMOVAL OF DIRECTORS A director may be removed only for cause by the affirmative vote of the holders of not less than 75 percent of the outstanding shares of Common Stock. A director may be removed by the shareholders only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director. Section 9. MEETINGS (a) The Board of Directors may hold regular or special meetings in or out of the state of Oregon. (b) Annual meetings of the Board of Directors will be held without notice immediately following the adjournment of the annual meetings of the shareholders. (c) Unless the Articles of Incorporation provide otherwise, regular meetings of the Board of Directors may be held without notice of the date, time, place or purpose of the meeting. The Board of Directors may fix, by resolution, the time and place for the holding of regular meetings. (d) Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the President or any director. The person or persons who call a special meeting of the Board of Directors may fix the time and place of the special meeting. Section 10. NOTICE OF SPECIAL MEETINGS (a) Unless the Articles of Incorporation provide for a longer or shorter period, special meetings of the Board of Directors must be preceded by at least two days' notice of the date, time and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the Articles of Incorporation. The notice will be given orally, in person or by telephone, or delivered in writing either personally, by mail or by private carrier or by telegram. If in writing, such notice is effective at the earliest of the following: (a) when received; (b) five days after its deposit in the United States mail, as evidenced by the postmark, if it is mailed postage prepaid and is correctly addressed to the director's address shown in the Corporation's records; or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. If given orally, such notice is effective when communicated. (b) A director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting, or promptly upon the director's arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. (c) Notice of the time and place of holding an adjourned meeting need not be given if such time and place are fixed at the meeting adjourned. Section 11. QUORUM AND VOTE (a) Unless the Articles of Incorporation provide otherwise, a majority of the directors in office will constitute a quorum for the transaction of business. A majority of the directors, in the absence of a quorum, may adjourn from time to time but may not transact any business. (b) If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors unless the Articles of Incorporation require the vote of a greater number of directors. (c) A director of the Corporation who is present at a meeting of the Board of Directors, or is present at a meeting of a committee of the Board of Directors, when corporate action is taken, is deemed to have assented to the action taken unless (i) the director objects at the beginning of the meeting, or promptly upon the director's arrival, to holding the meeting or transacting business at the meeting, (ii) the director's dissent or abstention from the action taken is entered in the minutes of the meeting, or (iii) the director delivers written notice of dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. Section 12. COMPENSATION The Board of Directors may, by resolution, provide that the directors be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and provide that directors be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment will preclude any director from serving the Corporation in any other capacity and receiving compensation for that service. ARTICLE III COMMITTEES (a) Subject to law, the provisions of the Articles of Incorporation and these Bylaws, the Board of Directors may appoint such committees as may be necessary from time to time, consisting of such number of its members and having such powers as it may designate. Each such committee will have two or more members, who serve at the pleasure of the Board of Directors. (b) All actions of a committee will be reflected in minutes to be kept of such meetings and reported to the Board of Directors at the next succeeding meeting thereof. The provisions of Article II of these Bylaws governing meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors apply to committees and their members as well. (c) An executive committee may be appointed by the Board of Directors pursuant to the foregoing paragraphs. When appointed, the executive committee will have the power to exercise all authority of the Board of Directors except as may be expressly limited by law. (d) An audit committee shall be appointed by the Board of Directors. The audit committee shall have such members, duties and powers as may be necessary or appropriate to qualify such committee as an audit committee within the rules of the NASDAQ National Market System. ARTICLE IV OFFICERS Section 1. DESIGNATION; ELECTION; QUALIFICATION (a) The officers of the Corporation will be a President, a Secretary and such other officers and assistant officers as the Board of Directors will from time to time appoint, none of whom need be members of the Board of Directors. The officers will be elected by, and hold office at the pleasure of, the Board of Directors. A duly appointed officer may appoint one or more officers or assistant officers if such appointment is authorized by the Board of Directors. The same individual may simultaneously hold more than one office in the Corporation. (b) A vacancy in any office because of death, resignation, removal or any other cause will be filled in the manner prescribed in these Bylaws for regular appointments to such office. Section 2. COMPENSATION AND TERM OF OFFICE (a) The compensation and term of office of all the officers of the Corporation will be fixed by the Board of Directors. (b) The Board of Directors may remove any officer at any time, either with or without cause. (c) Any officer may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Unless the notice specifies a later effective date, a resignation is effective at the earliest of the following: (a) when received; (b) five days after its deposit in the United States mail, as evidenced by the postmark, if mailed postage prepaid and correctly addressed; or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested and the receipt is signed by or on behalf of the addressee. Once delivered, a notice of resignation is irrevocable unless revocation is permitted by the Board of Directors. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date, if the Board of Directors provides that the successor will not take office until the effective date. (d) This section will not affect the rights of the Corporation or any officer under any express contract of employment. Section 3. CHAIRMAN OF THE BOARD If the Corporation elects a Chairman of the Board, he or she will preside at all meetings of the Board of Directors and, if requested by the President, at meetings of the shareholders. The Chairman of the Board shall perform such other duties as may be prescribed by the Board of Directors from time to time. Section 4. PRESIDENT The President will be the chief executive officer and chief operating officer of the Corporation. The President will have general supervision, direction and control of the business and affairs of the Corporation. In the absence of the Chairman of the Board, the President will perform the duties and responsibilities of the Chairman of the Board. The President will be ex officio a member of all the standing committees (including the executive committee, if any), will have the general powers and duties of management usually vested in the office of president of a corporation and will have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. Section 5. VICE PRESIDENTS The Vice Presidents, if any, will perform such duties as the Board of Directors prescribes. In the absence or disability of the President, the President's duties and powers will be performed and exercised by a senior Vice President, as designated by the Board of Directors. Section 6. SECRETARY (a) The Secretary will keep or cause to be kept at the principal office, or such other place as the Board of Directors may order, a book of minutes of all meetings of directors and shareholders showing the time and place of the meeting, whether it was regular or special and, if special, how authorized, the notice given, the names of those present at directors' meetings, the number of shares present or represented at shareholders meetings and the proceedings thereof. (b) The Secretary will keep or cause to be kept, at the principal office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for such shares and the number and date of cancellation of certificates surrendered for cancellation. (c) The Secretary will give or cause to be given such notice of the meetings of the shareholders and of the Board of Directors as is required by these Bylaws. The Secretary will keep the seal of the Corporation, if any, and affix it to all documents requiring a seal, and will have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. Section 7. TREASURER The Treasurer, if any, will be responsible for the funds of the Corporation, and pay them out only on the checks of the Corporation signed in the manner authorized by the Board of Directors. Section 8. ASSISTANTS The Board of Directors may appoint or authorize the appointment of assistants to the Secretary or Treasurer, or both. Such assistants may exercise the powers of the Secretary or Treasurer, as the case may be, and will perform such duties as are prescribed by the Board of Directors. ARTICLE V CORPORATE RECORDS AND REPORTS - INSPECTION Section 1. RECORDS The Corporation will maintain all records required by law. All such records will be kept at its principal office, registered office or at any other place designated by the President of the Corporation, or as otherwise provided by law. Section 2. INSPECTION OF RECORDS All records of the Corporation will be open to inspection by the shareholders or the shareholders' agents or attorneys in the manner and to the extent required by law. Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, will be signed or endorsed by such person or persons and in such manner as will be determined from time to time by resolution of the Board of Directors. Section 4. EXECUTION OF DOCUMENTS The Board of Directors may, except as otherwise provided in these Bylaws, authorize any officer or agent of the Corporation to enter into any contract or execute any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee of the Corporation will have any power or authority to bind the Corporation by any contract or engagement outside of the ordinary course of business. ARTICLE VI CERTIFICATES AND TRANSFER OF SHARES Section 1. CERTIFICATES FOR SHARES (a) Certificates for shares will be in such form as the Board of Directors may designate, will designate the name of the Corporation and the state law under which the Corporation is organized, will state the name of the person to whom the shares represented by the certificate are issued, and will state the number and class of shares and the designation of the series, if any, the certificate represents. If the Corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences and limitations applicable to each class, the variations and rights, preferences and limitations determined for each series and the authority of the Board of Directors to determine variations for future series will be summarized on the front or back of each certificate, or each certificate may state conspicuously on its front or back that the Corporation will furnish shareholders with this information on request in writing and without charge. (b) Each certificate for shares must be signed, either manually or in facsimile, by the President or a Vice President and the Secretary or an Assistant Secretary of the Corporation. The certificates may bear the corporate seal or its facsimile. (c) If any officer who has signed a share certificate, either manually or in facsimile, no longer holds office when the certificate is issued, the certificate is nevertheless valid. (d) The Corporation will not issue certificates for fractional shares. Section 2. TRANSFER ON THE BOOKS Upon surrender to the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation will issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES In the event a certificate is represented to be lost, stolen or destroyed, a new certificate will be issued in place thereof upon such proof of the loss, theft or destruction and upon the giving of such bond or other security as may be required by the Board of Directors. Section 4. TRANSFER AGENTS AND REGISTRARS The Board of Directors may from time to time appoint one or more transfer agents and one or more registrars for the shares of the Corporation who will have such powers and duties as the Board of Directors will specify. Section 5. CLOSING STOCK TRANSFER BOOKS The Board of Directors may close the transfer books for a period not exceeding 70 days nor less than 10 days preceding any annual or special meeting of the shareholders or the day appointed for the payment of a dividend. ARTICLE VII GENERAL PROVISIONS Section 1. SEAL If the Corporation elects to have a corporate seal, such corporate seal will be circular in form and will have inscribed thereon the name of the Corporation and the state of its incorporation. Section 2. AMENDMENT OF BYLAWS (a) Except as otherwise provided by law or by the Articles of Incorporation, the Board of Directors may amend or repeal these Bylaws unless: (i) The Articles of Incorporation or Oregon law reserve this power exclusively to the shareholders in whole or in part; or (ii) The shareholders in amending or repealing a particular Bylaw provide expressly that the Board of Directors may not amend or repeal that Bylaw. (b) The Corporation's shareholders may amend or repeal these Bylaws even though these Bylaws may also be amended or repealed by the Board of Directors. (c) Whenever an amendment or new Bylaw is adopted, it will be copied in the minute book with the original Bylaws in the appropriate place. If any Bylaw is repealed, the fact of repeal and the date on which the repeal occurred will be stated in such book and place. Section 3. WAIVER OF NOTICE (a) A shareholder may at any time waive any notice required by law, the Articles of Incorporation or these Bylaws. Except as otherwise provided in paragraph (c) of Section 4 of Article I of these Bylaws, the waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the Corporation for inclusion in the minutes or filing with the corporate records. (b) A director may at any time waive any notice required by law, the Articles of Incorporation or these Bylaws. Except as otherwise provided in paragraph (b) of Section 8 of Article II of these Bylaws, the waiver must be in writing, must be signed by the director entitled to the notice, must specify the meeting for which notice is waived and must be filed with the minutes or appropriate records. Section 4. ACTION WITHOUT A MEETING (a) Action required or permitted by law to be taken at a shareholders meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Action taken under this Section 4 is effective when the last shareholder signs the consent, unless the consent specifies an earlier or later effective date. If not otherwise determined by law, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent. A consent signed under this Section 4 has the effect of a meeting vote and may be described as such in any document. (b) Unless the Articles of Incorporation or Bylaws provide otherwise, action required or permitted by law to be taken at a meeting of the Board of Directors, or at a meeting of a committee of the Board of Directors, may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one or more written consents describing the action taken, signed by each director and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this section is effective when the last director signs the consent, unless the consent specifies an earlier or later effective date. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. Section 5. TELEPHONIC MEETINGS Unless the Articles of Incorporation provide otherwise, the Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through, use of any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. ARTICLE VIII INDEMNIFICATION (a) The Corporation will indemnify to the fullest extent permitted by law, any person who is made, or threatened to be made, a party to or witness in, or is otherwise involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative, or otherwise (including any action, suit or proceeding by or in the right of the Corporation) by reason of the fact that: (i) the person is or was a director or officer of the Corporation or any of its subsidiaries; (ii) the person is or was serving as a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the Corporation or any of its subsidiaries; or (iii) the person is or was serving, at the request of the Corporation or any of its subsidiaries, as a director or officer, or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust or other enterprise. (b) The Corporation may indemnify its employees and other agents to the fullest extent permitted by law. (c) The expenses incurred by a director or officer in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative, or otherwise, which the director or officer is made or threatened to be made a party to or witness in, or is otherwise involved in, will be paid by the Corporation in advance at the written request of the director or officer, if the director or officer: (i) furnishes the Corporation a written affirmation of his or her good faith belief that he or she is entitled to be indemnified by the Corporation; and (ii) furnishes the Corporation a written under-taking to repay such advance to the extent that it is ultimately determined by a court that he or she is not entitled to be indemnified by the Corporation. Such advances will be made without regard to the person's ability to repay such expenses and without regard to the person's ultimate entitlement to indemnification under this Article or otherwise. (d) The rights of indemnification provided in this Article VIII will be in addition to any rights to which a person may otherwise be entitled under any articles of incorporation, bylaw, agreement, statute, policy of insurance, vote of shareholders or Board of Directors, or otherwise; will continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation; and will inure to the benefit of the heirs, executors and administrators of such person. (e) Any repeal of this Article VIII will be prospective only and no repeal or modification of this Article VIII will adversely affect any right or protection that is based upon this Article VIII and pertains to an act or omission that occurred prior to the time of such repeal or modification. ARTICLE IX TRANSACTIONS BETWEEN CORPORATION AND INTERESTED DIRECTORS (a) No transaction will be voidable by the Corporation solely because of a director's interest in the transaction if any one of the following is true: (i) The material facts of the transaction and the director's interest were disclosed or known to the Board of Directors or a committee of the Board of Directors, and the Board of Directors or committee authorized, approved or ratified the transaction; (ii) The material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and the shareholders authorized, approved or ratified the transaction; or (iii) The transaction was fair to the Corporation. (b) For purposes of this Article IX, a director of the Corporation has an indirect interest in a transaction if: (i) Another entity in which the director has a material financial interest or in which the director is a general partner is a party to the transaction; or (ii) Another entity of which the director is a director, officer or trustee is a party to the transaction and the transaction is or should be considered by the Board of Directors. (c) For purposes of paragraph (a)(i) of this Article IX, a conflict of interest transaction is authorized, approved or ratified if it receives the affirmative vote of a majority of the directors on the Board of Directors, or on the committee, who have no direct or indirect interest in the transaction. A transaction may not be authorized, approved or ratified under this Article IX by a single director. If a majority of the directors who have no direct or indirect interest in the transaction vote to authorize, approve or ratify the transaction, a quorum is present for the purpose of taking action under this Article IX. The presence of, or a vote cast by, a director with a direct or indirect interest in the transaction does not affect the validity of any action taken under paragraph (a)(i) of this Article IX if the transaction is otherwise authorized, approved or ratified as provided in paragraph (a) of this Article IX. (d) For purposes of paragraph (a)(ii) of this Article IX, a conflict of interest transaction is authorized, approved or ratified if it receives the vote of a majority of the shares entitled to be counted under this Article IX, voting as a single voting group. Shares owned by or voted under the control of a director who has a direct or indirect interest in the transaction, and shares owned by or voted under the control of an entity described in paragraph (b)(i) of this Article IX may be counted in a vote of shareholders to determine whether to authorize, approve or ratify a conflict of interest transaction under paragraph (a)(ii) of this Article IX. A majority of the shares, whether or not present, that are entitled to be counted in a vote on the transaction under this Article IX constitutes a quorum for the purpose of taking action under this Article IX. ARTICLE X LIMITATION OF DIRECTOR LIABILITY To the fullest extent permitted by law, no director of the Corporation will be personally liable to the Corporation or its shareholders for monetary damages for conduct as a director. For example, without limiting the generality of the foregoing, if the Oregon Revised Statutes are amended, after this Article X becomes effective, to authorize corporate action further eliminating or limiting the personal liability of directors of the Corporation, then the liability of directors of the Corporation will be eliminated or limited to the fullest extent permitted by the Oregon Revised Statutes, as so amended. No amendment or repeal of this Article X, nor the adoption of any provision of these Bylaws inconsistent with this Article X, nor a change in the law, will adversely affect any right or protection that is based upon this Article X and pertains to conduct that occurred prior to the time of such amendment, repeal, adoption or change. No change in the law will reduce or eliminate the rights and protections set forth in this Article X unless the change in the law specifically requires such reduction or elimination. As amended August 1997. EX-10.1 3 INDEMNITY AGREEMENT INDEMNITY AGREEMENT (Director and Officer) Date: AUGUST 25, 1997 Between: TRM COPY CENTERS CORPORATION "Corporation" And: FREDERIC P. STOCKTON "Director" WHEREAS, it is essential to the Corporation to retain and attract as directors and officers of the Corporation the most capable persons available and persons who have significant experience in business, corporate and financial matters; and WHEREAS, the Corporation has identified the Director as a person possessing the background and abilities desired by the Corporation and desires the Director to serve as a member of its Board of Directors and as an officer of the Corporation; and WHEREAS, the substantial increase in corporate litigation may, from time to time, subject directors and officers to burdensome litigation, the risks of which frequently far outweigh the advantages of serving in such capacities; and WHEREAS, in recent times the cost of directors' and officers' liability insurance has increased and the availability of such insurance has been severely limited; and WHEREAS, the Corporation and the Director recognize that serving as a director and officer of a corporation at times calls for subjective evaluations and judgments upon which reasonable persons may differ and that, in that context, it is anticipated and expected that directors and officers of corporations will and do from time to time commit actual or alleged errors or omissions in the good faith exercise of their corporate duties and responsibilities; and WHEREAS, it is now the express policy of the Corporation to indemnify its directors and officers to the fullest extent permitted by law; and WHEREAS, the Articles of Incorporation (the "Articles") and the Bylaws of the Corporation require indemnification of the directors and officers of the Corporation to the fullest extent permitted by the Oregon Business Corporation Act (the "Act"), and the Act expressly provides that the indemnification provisions set forth therein are not exclusive, and thereby contemplates that contracts may be entered into between the Corporation and directors and officers of the Corporation with respect to indemnification of directors and officers; and WHEREAS, the Corporation and the Director desire to articulate clearly in contractual form their respective rights and obligations with regard to the Director's service on behalf of the Corporation and with regard to claims for loss, liability, expense or damage which, directly or indirectly, may arise out of or relate to such service. NOW THEREFORE, the Corporation and the Director agree as follows: 1. Agreement to Serve. The Director shall serve as a director and officer of the Corporation for so long as the Director is duly elected or appointed or until the Director tenders a resignation in writing. 2. Definitions. As used in this Agreement: (a) The term "Proceeding" includes, without limitation, any threatened, pending or completed action, suit or proceeding, whether brought in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, in which the Director may be or may have been involved as a party, witness or otherwise, by reason of the fact that the Director is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not serving in such capacity at the time any liability or expense is incurred for which exculpation, indemnification or reimbursement can be provided under this Agreement. (b) The term "Expenses" includes, without limitation, expenses of investigations, judicial or administrative proceedings or appeals, attorney, accountant and other professional fees and disbursements and any expenses of establishing a right to indemnification under Section 12 of this Agreement, but shall not include amounts paid in settlement by the Director or the amount of judgments, penalties or fines against the Director. (c) References to "other enterprise" include, without limitation, employee benefit plans; references to "fines" include, without limitation, any excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Corporation" include, without limitation, any service as a director, officer, employee or agent that imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or its beneficiaries; and a person who acted in good faith and in a manner reasonably believed to be in the interest of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement. 2 3. Limitation of Liability. (a) To the fullest extent permitted by law, the Director shall have no monetary liability of any kind or nature with respect to the Director's conduct as a director in serving the Corporation or any of its subsidiaries, their respective shareholders, or any other enterprise at the request of the Corporation, except that this Section 3(a) shall not affect any liability of the Director for any of the following when demonstrated by clear and convincing evidence: (i) any breach of the Director's duty of loyalty to such corporations, shareholders or enterprises; (ii) any act or omission not in good faith or that involved intentional misconduct or a knowing violation of law; (iii) any transaction from which the Director derived an improper personal benefit; or (iv) any unlawful corporate distribution as defined in the Act (including dividends, stock repurchases and stock redemptions). (b) Without limiting the generality of (a) above and to the fullest extent permitted by law, the Director shall have no personal liability to the Corporation or any of its subsidiaries, their respective shareholders, or any other person claiming derivatively through the Corporation, regardless of the theory or principle under which such liability may be asserted, for: (i) punitive, exemplary or consequential damages; (ii) treble or other damages computed based upon any multiple of damages actually and directly proved to have been sustained; (iii) fees of attorneys, accountants, expert witnesses or professional consultants; or (iv) civil fines or penalties of any kind or nature whatsoever. 4. Indemnity in Third-Party Proceedings. The Corporation shall indemnify the Director in accordance with the provisions of this Section 4, if the Director is made, or is threatened to be made, a party to or witness in, any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor), against all Expenses, judgments, penalties, fines and amounts paid in settlement, actually and reasonably incurred by the Director in connection with such Proceeding if the conduct of the Director was in good faith and the Director reasonably believed that the Director's conduct was in the best interests of the Corporation, or at least not 3 opposed to its best interests, and, in the case of a criminal proceeding, the Director, in addition, had no reasonable cause to believe that the Director's conduct was unlawful. However, the Director shall not be entitled to indemnification under this Section 4 in connection with any Proceeding charging improper personal benefit to the Director in which the Director was adjudged liable on the basis that personal benefit was improperly received by the Director, unless and only to the extent that the court conducting such Proceeding or any other court of competent jurisdiction determines upon application that, despite the adjudication of liability, the Director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances. 5. Indemnity in Proceedings by or in the Right of the Corporation. The Corporation shall indemnify the Director in accordance with the provisions of this Section 5, if the Director is made, or is threatened to be made, a party to or witness in, any Proceeding by or in the right of the Corporation to procure a judgment in its favor, against all Expenses actually and reasonably incurred by the Director in connection with such Proceeding if the conduct of the Director was in good faith and the Director reasonably believed that the Director's conduct was in the best interests of the Corporation, or at least not opposed to its best interests. However, the Director shall not be entitled to indemnification under this Section 5 in connection with any Proceeding in which the Director has been adjudged liable to the Corporation, unless and only to the extent that the court conducting such Proceeding or any other court of competent jurisdiction determines upon application that, despite the adjudication of liability, the Director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances. 6. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that the Director has been successful, on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, the Corporation shall indemnify the Director against all Expenses actually and reasonably incurred by the Director in connection therewith. 7. Additional Indemnification. (a) Notwithstanding any limitation in Section 4, 5 or 6, the Corporation shall indemnify the Director to the fullest extent permitted by law, with respect to any Proceeding (including a Proceeding by or in the right of the Corporation to procure a judgment in its favor), against all Expenses, judgments, penalties, fines and amounts paid in settlement, actually and reasonably incurred by the Director in connection with such Proceeding. (b) For purposes of this Agreement, the meaning of the phrase "to the fullest extent permitted by law" shall include, but not be limited to: 4 (i) to the fullest extent authorized or permitted by any amendments to or replacements of the Act adopted after the date of this Agreement that increase the extent to which a corporation may indemnify or exculpate its directors and officers; and (ii) to the fullest extent permitted by the provision of the Act that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the Act. 8. Exclusions. Notwithstanding any provision in this Agreement, the Corporation shall not be obligated under this Agreement to make any indemnification in connection with any claim made against the Director: (a) for which payment is made to or on behalf of the Director under any insurance policy, except with respect to any excess amount to which the Director is entitled under this Agreement beyond the amount of payment under such insurance policy; (b) if a court having jurisdiction in the matter finally determines that such indemnification is not lawful under any applicable statute or public policy (and, in this respect, both the Corporation and the Director have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act of 1933 is against public policy and is, therefore, unenforceable and that claims for such indemnification should be submitted to appropriate courts for adjudication unless, in the opinion of counsel, the matter has been settled by controlling precedent); (c) in connection with any Proceeding (or part of any Proceeding) initiated by the Director, or any Proceeding by the Director against the Corporation or its directors, officers, employees or other persons entitled to be indemnified by the Corporation, unless (i) the Corporation is expressly required by law to make the indemnification, (ii) the Proceeding was authorized by the Board of Directors of the Corporation, or (iii) the Director initiated the Proceeding pursuant to Section 12 of this Agreement and the Director is successful in whole or in part in the Proceeding; or (d) for any liability for profits made from the purchase and sale by the Director of securities of the Corporation, which liability arises under Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar provision of any state statutory or common law. 9. Advances of Expenses. The Corporation shall pay the Expenses incurred by the Director in any Proceeding in advance of the final disposition of the Proceeding at the written request of the Director, if the Director: 5 (a) furnishes the Corporation a written affirmation of the Director's good faith belief that the Director is entitled to be indemnified under this Agreement; and (b) furnishes the Corporation a written undertaking to repay the advance to the extent that it is ultimately determined that the Director is not entitled to be indemnified by the Corporation. Such undertaking shall be an unlimited general obligation of the Director but need not be secured. Advances pursuant to this Section 9 shall be made no later than 10 days after receipt by the Corporation of the affirmation and undertaking described in Sections 9(a) and 9(b) above, and shall be made without regard to the Director's ability to repay the amount advanced and without regard to the Director's ultimate entitlement to indemnification under this Agreement. The Corporation may establish a trust, escrow account or other secured funding source for the payment of advances made and to be made pursuant to this Section 9 or of other liability incurred by the Director in connection with any Proceeding. 10. Nonexclusivity and Continuity of Rights. The indemnification, advancement of Expenses, and exculpation from liability provided by this Agreement shall not be deemed exclusive of any other rights to which the Director may be entitled under any other agreement, any articles of incorporation, bylaws, or vote of shareholders or directors, the Act, or otherwise, both as to conduct in the Director's capacity as a director or officer of the Corporation and as to conduct in other capacities. The indemnification under this Agreement shall continue as to the Director even though the Director may have ceased to be a director or officer of the Corporation or a director, officer, employee or agent of an enterprise related to the Corporation and shall inure to the benefit of the heirs, executors, administrators and personal representatives of the Director. 11. Procedure Upon Application for Indemnification. Any indemnification under Section 4, 5, 6 or 7 shall be made no later than 45 days after receipt of the written request of the Director, unless a determination is made within such 45-day period by (a) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the applicable Proceeding, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable) that the Director is not entitled to indemnification under this Agreement. 12. Enforcement. The Director may enforce any right to indemnification, advances or exculpation provided by this Agreement in any court of competent jurisdiction if (a) the Corporation denies the claim for indemnification, advances or exculpation, in whole or in part, or (b) the Corporation does not dispose of such claim within the time period required by this Agreement. It shall be a defense to any such enforcement action (other than an action brought to enforce a claim for advancement of Expenses pursuant to, and in compliance with, Section 9 of this Agreement) that the 6 Director is not entitled to indemnification or exculpation under this Agreement. However, except as provided in Section 13 of this Agreement, the Corporation shall have no defense to an action brought to enforce a claim for advancement of Expenses pursuant to Section 9 of this Agreement if the Director has tendered to the Corporation the affirmation and undertaking required thereunder. The burden of proving by clear and convincing evidence that indemnification or exculpation is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or exculpation is proper in the circumstances because the Director has met the applicable standard of conduct nor an actual determination by the Corporation (including its Board of Directors or independent legal counsel) that indemnification or exculpation is improper because the Director has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Director is not entitled to indemnification or exculpation under this Agreement or otherwise. The Director's Expenses incurred in connection with successfully establishing the Director's right to indemnification, advances or exculpation, in whole or in part, in any Proceeding shall also be indemnified by the Corporation. The termination of any Proceeding by judgment, order of court, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that (a) the Director is not entitled to indemnification under Section 4, 5 or 7 of this Agreement, or (b) the Director is not entitled to exculpation under Section 3 of this Agreement. 13. Notification and Defense of Claim. Not later than 30 days after receipt by the Director of notice of the commencement of any Proceeding, the Director shall, if a claim in respect of the Proceeding is to be made against the Corporation under this Agreement, notify the Corporation of the commencement of the Proceeding. The omission to notify the Corporation will not relieve the Corporation from any liability which it may have to the Director otherwise than under this Agreement. With respect to any Proceeding as to which the Director notifies the Corporation of the commencement: (a) The Corporation shall be entitled to participate in the Proceeding at its own expense. (b) Except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense of the Proceeding, with legal counsel reasonably satisfactory to the Director. The Director shall have the right to use separate legal counsel in the Proceeding, but the Corporation shall not be liable to the Director under this Agreement, including Section 9 above, for the fees and expenses of separate legal counsel incurred after notice from the Corporation of its assumption of the defense, unless (i) the Director reasonably concludes that there may be a conflict of interest between the Corporation and the Director in the conduct of the defense of the 7 Proceeding, or (ii) the Corporation does not use legal counsel to assume the defense of such Proceeding. The Corporation shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Corporation or as to which the Director has made the conclusion provided for in (i) above. (c) If two or more persons who may be entitled to indemnification from the Corporation, including the Director, are parties to any Proceeding, the Corporation may require the Director to use the same legal counsel as the other parties. The Director shall have the right to use separate legal counsel in the Proceeding, but the Corporation shall not be liable to the Director under this Agreement, including Section 9 above, for the fees and expenses of separate legal counsel incurred after notice from the Corporation of the requirement to use the same legal counsel as the other parties, unless the Director reasonably concludes that there may be a conflict of interest between the Director and any of the other parties required by the Corporation to be represented by the same legal counsel. (d) The Corporation shall not be liable to indemnify the Director under this Agreement for any amounts paid in settlement of any Proceeding effected without its written consent, which shall not be unreasonably withheld. The Director shall permit the Corporation to settle any Proceeding that the Corporation assumes the defense of, except that the Corporation shall not settle any action or claim in any manner that would impose any penalty or limitation on the Director without the Director's written consent. 14. Partial Indemnification. If the Director is entitled under any provisions of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, penalties, fines or amounts paid in settlement, incurred by the Director in connection with such Proceeding, but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Director for the portion of such Expenses, judgments, penalties, fines or amounts paid in settlement to which the Director is entitled. 15. Severability. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the remainder of this Agreement shall continue to be valid and the Corporation shall nevertheless indemnify the Director as to Expenses, judgments, penalties, fines and amounts paid in settlement, with respect to any Proceeding, to the fullest extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any applicable law. 16. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Director. The Director shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 8 17. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) upon delivery by hand to the party to whom the notice or other communication shall have been directed, or (b) on the third business day after the date on which it is mailed by certified or registered mail with postage prepaid, addressed as follows: (i) If to the Director, to the address indicated on the signature page of this Agreement. (ii) If to the Corporation, to the address of its principal offices. or to any other address as either party may designate to the other in writing. 18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 19. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws of the state of Oregon without regard to the principles of conflict of laws. 20. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns. IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly executed and signed as of the date first written above. CORPORATION: DIRECTOR: TRM COPY CENTERS CORPORATION Frederic P. Stockton By: ----------------------------------- ------------------------------------ Signature Title: Chairman -------------------------------- ------------------------------------ Address ------------------------------------ ------------------------------------ 9 EX-10.2 4 LOAN AGREEMENT LOAN AGREEMENT Dated as of: March 31, 1997 Parties: TRM Copy Centers (USA) Corporation ("TRM-USA") TRM Copy Centers Corporation ("TRM") FPC Belgium Limited ("FPC") And: UNITED STATES NATIONAL BANK OF OREGON ("Lender") RECITALS A. TRM-USA and U. S. Bank of Idaho (successor to West One Bank, Idaho) have entered into a Loan Agreement and promissory note in the amount of $26,000,000 ("Current TRM-USA Note"), each dated February 7, 1996, pursuant to which U. S. Bank of Idaho agreed to make a revolving loan and a term loan to TRM-USA in an aggregate amount of up to $26,000,000 (together with any other documents or instruments executed by USA in connection therewith, the "Current TRM-USA Documents"). B. TRM and Lender (successor to West One Bank, Oregon) have entered into a Business Loan Agreement and promissory note in the amount of $4,000,000 ("Current TRM Note"), each dated February 7, 1996, pursuant to which Lender agreed to make revolving loans to Borrower in an aggregate amount of up to $4,000,000 (together with any other documents or instruments executed in connection therewith, the "Current TRM Documents"). C. Subject to the terms and conditions of this Agreement, Lender has agreed to make revolving loans to Borrower in an aggregate amount of up to $30,000,000, which loans shall replace the credit accommodations described in Recitals A and B. The parties therefore agree as follows: ARTICLE I CERTAIN DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: "Access Laws" means the Americans With Disabilities Act of 1990; the Fair Housing Amendments Act of 1988; all other federal, state and local laws or ordinances related to disabled access; and all statutes, rules, regulations, ordinances, orders of governmental bodies and regulatory agencies and orders and decrees of any court adopted, enacted or issued with respect thereto; all as now existing or hereafter amended or adopted. "Borrower(s)" means either or both of TRM-USA and FPC. Page 1 "Default" means any Event of Default or any event which with the giving or notice of the passage of time, or both, would constitute an Event of Default. "Environmental Laws" means all local, state or federal laws, rules, regulations, or ordinances pertaining to Hazardous Substances and environmental regulation, contamination or clean-up including, without limitation, the federal statutes commonly known as CERCLA and RCRA and all other federal or state lien or environmental clean-up statutes, all as now existing or hereafter amended or adopted. "GAAP" means generally accepted accounting principles consistently applied. "Guarantor" means TRM. "Guaranty" means each guaranty of any obligations of Borrower to Lender heretofore, contemporaneously herewith or hereafter executed by any Guarantor or any other Person. "Hazardous Substances" means (a) any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, or a hazardous, toxic or radioactive substance (or designated by any similar term) by or for purposes of any applicable Environmental Law; (b) asbestos and any substance or compound containing asbestos; and (c) any other hazardous, toxic or dangerous waste, substance or material, including but not limited to gasoline, crude oil, fuel oil, diesel oil, and any other related petroleum products. "Loan Documents" means this Agreement, the Notes, the Guaranty and all other documents and instruments attached hereto, referred to herein or heretofore, contemporaneously herewith or hereafter executed or delivered to Lender by any Person in connection with any indebtedness of Borrower to Lender. "Loan Party" means each party hereto other than Lender. "Maximum FPC Amount" means, as of any date of determination, an amount equal to the lesser of (a) $2,000,000 or (b) $30,000,000 minus the then outstanding principal balance of the TRM-USA Note. "Maximum TRM-USA Amount" means, as of any date of determination, an amount equal to $30,000,000 minus the then outstanding principal balance of the FPC Note. "Note(s)" means either or both of the TRM-USA Note and the FPC Note. "Person" means an individual or entity, including without limitation a corporation, general or limited partnership, limited liability company, trust, unincorporated association, government or government agency. "Revolving Loan Review Date" means April 1, 2000. Tangible Net Worth" means for any Person the net book value of (a) all of such Person's assets exclusive of patents, trademarks, licenses, goodwill and other intangibles and of loans to and notes and receivables from officers, employees, directors, shareholders, partners and members of such Person minus (b) all of such Person's liabilities determined in accordance with GAAP. Page 2 ARTICLE II CURRENT INDEBTEDNESS 2.1 Promissory Notes. 2.1.1 The principal balance of the Current TRM-USA Note as of March 31, 1997 is $3,500,000. 2.1.2 The principal balance of the Current TRM Note as of the date hereof is $0. 2.2 Cancellation. TRM-USA and TRM agree that, as of the effective date hereof, all commitments of U. S. Bank of Idaho pursuant to the Current TRM-USA Documents and of United States National Bank of Oregon pursuant to the Current TRM Documents shall be automatically terminated and no further loans will be made by either Lender or U. S. Bank of Idaho under the Current TRM-USA Documents or the Current TRM Documents. ARTICLE III REVOLVING LOANS 3.1 Maximum Amount. Subject to the terms and conditions of this Agreement, the Notes and other Loan Documents, Lender agrees to make loans to TRM-USA and FPC on a revolving credit basis (each a "Revolving Advance" and collectively, "Revolving Loans"); provided, however, that (a) the aggregate principal amount of outstanding Revolving Loans shall at no time exceed $30,000,000; (b) the aggregate principal amount of outstanding Revolving Loans made to TRM-USA ("TRM-USA Loans") shall at no time exceed the Maximum TRM-USA Amount; and (c) the aggregate principal amount of outstanding Revolving Loans made to FPC ("FPC Loans") shall at no time exceed the Maximum FPC Amount. 3.2 Use of Proceeds. Borrower shall use the proceeds of the Revolving Loans for its short-term working capital needs. 3.3 Notes. 3.3.1 The TRM-USA Loans shall be evidenced by a promissory note executed by TRM-USA in the principal amount of $30,000,000 substantially in the form attached as Exhibit A ("TRM-USA Note"). 3.3.2 The FPC Loans shall be evidenced by a promissory note executed by FPC in the principal amount of $2,000,000, substantially in the form attached hereto as Exhibit B ("FPC Note"). 3.4 Interest. Interest on the unpaid principal balance of the Notes shall be due and payable at the times and at the rates set forth in the applicable Note. 3.5 Principal Payments. The principal balance of the Notes shall be due and payable on April 1, 2000. Page 3 3.6 Additional Payments. In addition to the payments otherwise required on the Notes, if at any time the outstanding principal balance of the TRM-USA Note exceeds the Maximum TRM-USA Amount or the outstanding principal balance of the FPC Note exceeds the Maximum FPC Amount, Borrower shall pay to Lender on demand an amount equal to the amount by which such principal balance exceeds the Maximum TRM-USA Amount or Maximum FPC Amount, as applicable. 3.7 Requests for Revolving Advances. Whenever either Borrower wishes to request a Revolving Advance, such Borrower shall give Lender notice thereof in accordance with the provisions of the applicable Note. 3.8 Loan Fee. Borrowers shall pay to Lender a fee in the amount of $35,000 for the Revolving Loans for the time period from the effective date hereof through April 1, 2000. 3.9 Representation and Warranty of Credit Availability. Each request by either Borrower for a Revolving Advance shall be deemed to be its representation and warranty that (a) such Revolving Advance may be made without exceeding the applicable maximum amount determined in accordance with the provisions of this Agreement; (b) no Default has occurred, or will occur as a result of making such Revolving Advance; and (c) all representations and warranties set forth in this Agreement are true, accurate and complete as of the date of such request. ARTICLE IV GUARANTY AND NEGATIVE PLEDGE 4.1 Guaranty. All present and future obligations of Borrower to Lender shall be guaranteed by Guarantor. Concurrently with execution of this Agreement, Guarantor shall execute and deliver a guaranty to Lender. 4.2 Negative Pledge. 4.2.1 Without the prior written consent of Lender, no Loan Party shall grant, create, assume or permit to exist any pledge, assignment for security purposes, encumbrance, mortgage, hypothecation, or any other security interest (including without limitation, any conditional sale or other title retention agreement and any financing or capital lease having substantially the same economic effect as any of the foregoing) in all or any portion of any real or personal property now owned or hereafter acquired by such Loan Party (collectively, "Property"). Page 4 ARTICLE V CONDITIONS PRECEDENT 5.1 Initial Conditions Precedent. The effectiveness of this Agreement is subject to satisfaction of each of the following conditions precedent concurrently with or prior to execution of this Agreement: 5.1.1 Lender shall have received executed originals of this Agreement, the Notes, the Guaranty, and each other Loan Document required by Lender. 5.1.2 Lender shall have received all documents and information Lender may request relating to the authority for and validity of this Agreement and the other Loan Documents, and to any other related matters, each in form and substance satisfactory to Lender. 5.1.3 Lender shall have received the fee required by Section 3.8. 5.1.4 Borrowers shall have irrevocably repaid all amounts owed to Lender and U.S. Bank of Idaho under the Current TRM-USA Note and the Current TRM Note (which repayment may be made with the proceeds of a Revolving Advance). 5.1.5 Lender shall have received such additional documents and information and each Loan Party shall have satisfied such additional requirements as Lender reasonably requires. 5.2 Conditions Precedent to each Revolving Advance. Lender's Agreement to make any Revolving Advance is subject to satisfaction of the following conditions on the date any loan is made. 5.2.1 No default shall have occurred or will occur as a result of the making of the Revolving Advance. 5.2.2 The representations and warranties in this Agreement shall be true and correct as of such date. ARTICLE VI REPRESENTATIONS AND WARRANTIES Each Loan Party hereby represents and warrants: 6.1 Existence and Power. It is a duly organized and validly existing corporation, is duly qualified and in good standing in each jurisdiction where the conduct of its business or the ownership of its properties requires such qualification, and has full power, authority and legal right to carry on its business as presently conducted, to own and operate its properties and assets, and to execute, deliver and perform the Loan Documents and all other documents to be executed and delivered by it. Page 5 6.2 Authorization. Its execution, delivery and performance of the Loan Documents and all documents to be executed, delivered or performed by it and any borrowing in connection therewith have been duly authorized by all necessary corporate action, do not contravene any law, regulation, rule or order binding on it or its articles of incorporation, and do not contravene the provisions of or constitute a default under any agreement or instrument to which it is a party or by which it may be bound or affected. 6.3 Litigation. There are no actions, proceedings, investigations, or claims pending against it, or to its knowledge, threatened against or affecting it, before any court or arbitrator or any governmental body or agency which would be likely to result in a judgment or order against it (in excess of insurance coverage) for more than $500,000 individually or in the aggregate. 6.4 Financial Condition. Its most recent balance sheet and related statements of income, retained earnings and changes in financial position heretofore delivered to Lender fairly present as of the date thereof its financial condition for the period then ended, all in accordance with GAAP. Since that date there have been no material adverse changes in its financial condition or operations, except as disclosed to Lender in writing. 6.5 Taxes. It has filed all tax returns and reports required of it, and has paid all taxes payable by it which have become due pursuant to such tax returns and all other taxes and assessments payable by it. 6.6 Other Agreements. It is not in breach of or in default under any agreement to which it is a party or which is binding on it or any of its assets, which such breach or default would have a material adverse effect on its financial condition or operations. 6.7 Good Title and Validity. It is the true and lawful owner of and has good title to all real and personal property which it now owns and it will have good title to all such property acquired hereafter, free of any security interests, liens or encumbrances. 6.8 Compliance with Laws. It is in compliance with all applicable federal, state, regional and local laws, regulations and ordinances, including without limitation all environmental permits, Environmental Laws and Access Laws. 6.9 ERISA and FLSA Compliance. Any employee pension benefit plan ("Plan") maintained for its employees which is subject to the Employment Retirement Income Security Act of 1974 and any regulations issued thereto complies in all material respects with ERISA and any other applicable laws and (a) such Plan has not incurred any material accumulated "funding deficiency" and (b) with respect to such Plan, no "reportable event" nor "prohibited transaction" has occurred. It is in full compliance with the Fair Labor Standards Act. 6.10 No Material Misstatements. No report, financial statement, representation or other information furnished by it to Lender contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Page 6 6.11 Enforceability. This Agreement constitutes, and each other Loan Document to which it is a party when executed and delivered to Lender will constitute a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms. ARTICLE VII FINANCIAL COVENANTS AND INFORMATION 7.1 Financial Covenants. Until payment and performance in full of all obligations of each Loan Party under the Loan Documents and termination of Lender's commitment to make Revolving Advances to Borrowers, each Loan Party agrees that: 7.1.1 Debt to Worth Ratio. TRM and its subsidiaries (the "TRM Companies") shall maintain, on a consolidated basis, a debt to Tangible Net Worth ratio not to exceed 1.0 to 1.0. 7.1.2 Current Ratio. The TRM Companies shall maintain, on a consolidated basis, a ratio of current assets to current liabilities of at least 1.50 to 1.0. As used herein "current assets" means the total assets of the TRM Companies that may property be classified as current assets in accordance with GAAP, but excluding all loans to and notes and receivables from officers, employees, directors and shareholders of the TRM Companies. 7.1.3 Minimum Tangible Net Worth. The TRM Companies shall maintain, on a consolidated basis, a minimum Tangible Net Worth of not less than $35,000,000. 7.2 Financial Information. 7.2.1 As soon as available and in any event within 90 days after the end of each of its fiscal years, Guarantor shall deliver to Lender the TRM Companies' consolidated audited balance sheet as at the end of such fiscal year; related statements of income, retained earnings and changes in financial position for such year; and report, if any to management by the accountant who prepared the financial statements, in each case certified by a certified public accountant acceptable to Lender. No document or report shall contain a disclaimer of opinion or adverse opinion except such as Lender in its sole discretion may determine to be immaterial. 7.2.2 As soon as available and in any event within 45 days after the end of each of its fiscal quarters, Guarantor shall deliver to Lender the TRM Companies' internally prepared consolidated balance sheet and related statements of income, retained earnings and changes in financial position as at the end of such quarter, and for the fiscal year to date. 7.2.3 Promptly after filing, Guarantor shall deliver to Lender a complete copy of each 10-K, 10-Q and each other document filed by any of the TRM Companies with the Securities and Exchange Commission. 7.2.4 From time to time, each Loan Party shall provide to Lender such information as Lender may reasonably request concerning the financial condition and business affairs of such Loan Party. Page 7 ARTICLE VIII AFFIRMATIVE COVENANTS Until payment and performance in full of all obligations of each Loan Party under the Loan Documents and termination of Lender's commitment to make Revolving Advances to Borrowers, each Loan Parry agrees that: 8.1. Inspection Rights. At any reasonable time, and from time to time, it will permit Lender to examine and make copies of and abstracts from its records and books of account, to visit its properties and to discuss its affairs, finances and accounts with any of its officers or representatives. 8.2 Keeping of Books and Records. It will keep adequate records and books of account in which complete entries will be made reflecting all material financial transactions, and except as otherwise specifically provided herein, will prepare all financial statements, computations and information required hereunder in accordance with GAAP. 8.3 Other Obligations. It will pay and discharge before the same shall become delinquent all indebtedness, taxes and other obligations for which it is liable or to which its income or property is subject and all claims for labor and materials or supplies which, if unpaid, might become by law a lien upon its assets, unless it is contesting the indebtedness, taxes, or other obligations in good faith and provision has been made to the reasonable satisfaction of Lender for the payment thereof in the event any such contest is determined adversely to it. 8.4 Insurance. It will provide, maintain and deliver to Lender policies of insurance upon its properties and operations, carried with companies acceptable to Lender, in such form and amounts and covering such risks as Lender may require, with loss payable to Lender. 8.5 ERISA Compliance. It will cause each Plan to comply in all material respects with ERISA and any other applicable laws, will promptly make all contributions necessary to meet the minimum funding standards set forth in ERISA and will promptly notify Lender of the occurrence of any "reportable event" (as defined in ERISA) or any other event which might constitute grounds for termination of any ERISA Plan. It will not terminate any ERISA Plan nor permit to exist any "termination event" (as defined in ERISA). 8.6 Compliance with Laws. It shall comply in all material respects with all federal, state, regional and local laws, regulations and ordinances (including but not limited to all Environmental Laws, Access Laws and the Fair Labor Standards Act) and promptly provide written notice to Lender of the receipt of any notice of violation thereof from any governmental authority which violation, alone or together with any other such violations, could reasonably be expected to have a material adverse effect on its business, assets, operations or condition, financial or otherwise. 8.7 Notification. Promptly after learning thereof, it will notify Lender in writing of: Page 8 8.7.1 The occurrence of any Default, and if such Default is then continuing, a certificate of its chief financial officer or other authorized officer setting forth the details thereof and the action which it is taking or proposes to take with respect thereto. 8.7.2 The occurrence of any release of any Hazardous Substances onto or affecting any of its property or any adjacent property, any Collateral, or any other environmental problem or liability with respect to any such property; and 8.7.3 The details of any claim, lien, litigation, administration proceeding or judgment involving $500,000 or more individually or in the aggregate threatened, instituted or completed against any Loan Party, or any assets of any Loan Party, including but not limited to any and all enforcement, cleanup, removal or other Governmental or regulatory proceedings pursuant to anv Environmental Laws. ARTICLE IX NEGATIVE COVENANTS Until payment and performance in full of all obligations of each Loan Party under the Loan Documents, and termination of Lender's commitment to make Revolving Advances to Borrowers, each Loan Party agrees that except with the written consent of Lender: 9.1 Liquidation, Merger. It shall not liquidate, dissolve or enter into any merger, consolidation or other combination. 9.2 Sale of Assets. It shall not sell, lease or dispose of any portion of its business or assets except in the ordinary course of business. 9.3 Guaranties, Etc. It shall not assume, guarantee, endorse or otherwise become directly or contingently liable for, nor obligated to purchase, pay or provide funds for payment of, any obligation or indebtedness of any other Person. 9.4 Loans and Investments. It shall not make or contract to make any loan to any Person or purchase or otherwise acquire the capital stock, or any interest in, any Person. 9.5 Type of Business. It shall not make any material change in the character of its business. 9.6 Structure. It shall not make any material change in its corporate structure. ARTICLE X DEFAULT 10.1 Events of Default. The occurrence of any of the following shall constitute an Event of Default under this Agreement, each Note and each of the other Loan Documents: Page 9 10.1.1 Any default in the payment of anv portion of any principal, interest, fees or any other amount when due under this Agreement, any Note or any other Loan Document. 10.1.2 Any other default in the performance of or compliance with any term of this Agreement, anv other Loan Document, or any other agreement between Lender and any Loan Party. 10.1.3 Any indebtedness of any Loan Party under any note, indenture, agreement, undertaking or obligation of any kind to any Person, including Lender, becomes due by acceleration or otherwise and is not paid. 10.1.4 Any Guaranty shall cease to be, or shall be asserted by any Person not to be, in full force and effect. 10.1.5 Any warranty, representation, statement, or information made or furnished to Lender by or on behalf of any Loan Party proves to have been false or misleading in any material respect when made or furnished or when deemed made or furnished or becomes false or misleading at any time thereafter. 10.1.6 The commencement of any proceeding under any bankruptcy or insolvency laws by or against, appointment of a receiver for any part of the property of, assignment for the benefit of creditors of, insolvency or business failure of, or any attachment, seizure or levy on any property of, any Loan Party. 10.1.7 The dissolution or liquidation of any Loan Party or any Loan Party takes any action to authorize dissolution or liquidation. 10.1.8 The interruption or cessation of a material portion of anv Loan Party's ordinary business operations. 10.1.9 Any judgment, writ of attachment or similar process in an amount in excess of $500,000 individually or in the aggregate is entered or filed against any Loan Party or any property of any Loan Party and remains unpaid, unvacated, unbonded or unstayed for a period of 30 days or more. 10.1.10 The failure of any Loan Party to provide Lender with financial information promptly when requested. 10.1.11 Any material adverse change, as determined solely by Lender, in the financial condition or management of any Loan Party, or Lender reasonably deems itself insecure with respect to the payment or performance of the obligations of any Loan Party to Lender. 10.2 Consequences of Default; Lender's Rights and Remedies. Time is of the essence of this Agreement. 10.2.1 Upon the occurrence of any Event of Default and at any time thereafter Lender may, at its sole option, do any one or more of the following: (a) Without notice to any Loan Party, declare the entire outstanding balance of principal and interest on the Notes and other Loan Documents immediately due and payable, Page 10 whereupon the same shall become immediately due and payable without presentment, demand, protest or other requirements of any kind, all of which are expressly waived by each Loan Party; and (b) Exercise any and all other rights and remedies provided in the Loan Documents and in any related agreements and documents. and as otherwise provided by law. 10.2.2 Notwithstanding any right to cure events of default provided in any Note or any of the other Loan Documents, each Loan Party agrees that such Loan Party shall have only such cure rights as may be set forth herein. ARTICLE XI ARBITRATION 11.1 Arbitration of Claims. Either Lender or any Loan Party may require that all disputes, claims, counterclaims, and defenses, including those based on or arising from any alleged tort ("Claims") relating in any way to this Agreement, any loan, any of the Loan Documents, or any transaction of which this Agreement is a part (each a "Credit"), be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and Title 9 of the U.S. Code. All Claims will be subject to the statutes of limitation applicable if they were litigated. This provision is void if the Credit, at the time of the proposed submission to arbitration, is secured by real property located outside of Oregon or Washington, or if the effect of the arbitration procedure (as opposed to any Claims of any Loan Party) would be to materially impair Lender's ability to realize on anv Collateral securing the Credit. 11.2 Arbitrators. If arbitration occurs and each party's Claim is less than $100,000, one neutral arbitrator will decide all issues; if any party's Claim is $100,000 or more three neutral arbitrators will decide all issues. All arbitrators will be active Oregon State Bar members in good standing. All arbitration hearings will be held in Portland, Oregon. In addition to all other powers, the arbitrator(s) shall have the exclusive right to determine all issues of arbitrability. Judgment on any arbitration award may be entered in any court with jurisdiction. 11.3 Other Remedies. If any party institutes any judicial proceeding relating to any Credit, such action shall not be a waiver of the right to submit any Claim to arbitration. In addition, each has the right before, during, and after any arbitration to exercise any number of the following remedies, in any order or concurrently: (a) setoff, (b) self-help repossession; (c) judicial or non-judicial foreclosure against real or personal property collateral; (d) provisional remedies, including injunction, appointment of receiver, attachment, claim and delivery and replevin. 11.4 Governing Provision. Each Loan Party agrees that, notwithstanding any contrary provision of any Note or any of the other Loan Documents, the provisions of this Article shall govern the arbitration of all matters described herein. Page 11 ARTICLE XII MISCELLANEOUS 12.1 No Waiver by Lender. No failure or delay of Lender in exercising any right, power or remedy under this Agreement or any Loan Document shall operate as a waiver of such right, power or remedy of Lender or of any other night. A waiver of any provision of any Loan Document shall not constitute a waiver of or prejudice Lender's right otherwise to demand strict compliance with that provision or any other provision. Any waiver, permit, consent or approval of any kind or character on the part of Lender must be in writing and shall be effective only to the extent specifically set forth in such writing. 12.2 Costs and Fees. Without limiting any other provisions of this Agreement, Borrower hereby agrees to pay Lender on demand an amount equal to all costs and expenses incurred by Lender in connection with the negotiation, preparation, execution, administration and enforcement of the Loan Documents, including without limitation all recording costs, filing fees, costs of appraisals, collateral audits, costs of perfecting, maintaining and defending Lender's security interest in any collateral and fees of in-house and outside counsel. 12.3 Notices. Except as otherwise specifically set forth in any Loan Document, all notices, requests and demands hereunder shall be in writing, and shall be deemed to have been given when hand-delivered, when deposited in the mail as first class, registered or certified mail postage prepaid, or when sent by telecopier, addressed as set forth below; provided, however, that any request for a Revolving Advance shall not be effective until received by Lender. Any party may at any time change its address for notices by giving notice of such change to the other parties. If to any Loan Party: If to Lender: TRM Copy Centers Corporation United States National Bank of Oregon 5208 NE 122nd Avenue Oregon Corporate Banking Portland, OR 97203-1074 111 SW 5th Avenue (T-4) Portland, OR 97204 12.4 Collection Costs and Attorney Fees. Whether or not litigation or arbitration is commenced, each Loan Party promises to pay all costs of collecting any amounts which may become due to Lender under any of the Loan Documents. Without limiting the foregoing, if litigation or arbitration is commenced to enforce or construe any term of any of the Loan Documents, the prevailing party shall be entitled to recover from the other parry all costs thereof, including but not limited to such sums as the court or arbitrator(s) may adjudge reasonable as attorney fees at trial, in any appellate proceeding, proceeding under the bankruptcy code or receivership and post-judgment attorney fees incurred in enforcing any judgment. 12.5 Integration; Conflicting Terms. This Agreement together with the other Loan Documents comprises the entire agreement of the parties on the subject matter hereof and supersedes and replaces all prior agreements, oral and written, on such subject matter. If any term of any of the other Loan Documents expressly conflicts with the provisions of this Agreement, the Page 12 provisions of this Agreement shall control; provided, however, that the inclusion of supplemental rights and remedies of Lender in any of the other Loan Documents shall not be deemed a conflict with this Agreement. 12.6 Assignment and Participation. Lender may from time to time assign or sell participating interests in all or any part of its interest in this Agreement, the Notes and the other Loan Documents. 12.7 Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, except that Borrowers may not assign or transfer any of their rights or obligations under any Loan Document without the prior written consent of Lender. 12.8 Partial Invalidity. If any provision of this Agreement or any of the Loan Documents is held invalid under any applicable laws, such invalidity shall not affect any other provision of this Agreement that can be given effect without the invalid provision. 12.9 Governing Law. Except to the extent that Lender has greater rights and remedies under federal law, this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Oregon without regard to conflicts of law principles. 12.10 Additional Acts. Upon request by Lender, each Loan Party will from time to time provide such information, execute such documents and do such acts as may reasonably be required by Lender in connection with any indebtedness or obligations of any of them to Lender. 12.11 Documents Satisfactory to Lender. All information, documents and instruments required to be executed or delivered to Lender shall be in form and substance satisfactory to Lender. 12.12 Exhibits. All Exhibits referred to herein are attached hereto and hereby incorporated by reference as if fully set forth herein. 12.13 Recitals. The Recitals are hereby incorporated by reference as if fully set forth herein. 12.14 Computations. All interest rates and fees referred to herein shall be computed on the basis of a 360-day year and applied to the actual number of days elapsed. 12.15 References. 12.15.1 References to any Loan Document shall mean such Loan Document as amended, modified, supplemented or extended from time to time and any number of substitutions, renewals and replacements thereof or therefor. 12.15.2 References to governmental laws, statutes, ordinances, rules and regulations shall be construed as including all amendments, consolidations and replacements thereof or therefor. Page 13 12.16 Counterparts. This Agreement may be executed in any number of counterparts. Each signed counterpart shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 12.17 Disclosure. Under Oregon law, most agreements promises and commitments made by lenders after October 3, 1989, concerning loans and other credit extensions which are not for personal, family or household purposes or secured solely by the borrower's residence must be in writing, express consideration and be signed by the lender to be enforceable. Each Loan Party acknowledges receipt of a copy of this Agreement TRM COPY CENTERS (USA FPC BELGIUM LIMITED CORPORATION By: Michael Simon By: Michael Simon -------------------------- -------------------------- Title: Pres & CEO Title: Pres & CEO ----------------------- ----------------------- TRM COPY CENTERS CORPORATION UNITED STATES NATIONAL BANK OF OREGON By: Michael Simon By: -------------------------- -------------------------- Title: Pres & CEO Title: ----------------------- ----------------------- Page 14 ALTERNATIVE RATE OPTIONS PROMISSORY NOTE (PRIME RATE, LIBOR) $30,000,000 Dated as of March 31, 1997 TRM COPY CENTERS (USA) CORPORATION ("Borrower") UNITED STATES NATIONAL BANK OF OREGON ("Lender") 1. PROMISE TO PAY. For value received Borrower promises to pay to Lender or order at PL-7, Oregon Commercial Loan Servicing, 555 S.W. Oak Street, Portland, OR 97204, the principal sum of $30,000,000 or so much thereof as may be outstanding from time to time, with interest thereon as provided herein. 2. MAXIMUM PRINCIPAL BALANCE. This note is given to evidence Borrower's obligation to repay all sums which Lender may from time to time advance to Borrower ("Advances") under a revolving line of credit. The unpaid principal balance of all Advances outstanding under this note ("Principal Balance") at any one time shall not exceed $30,000,000 minus the then outstanding principal balance of the FPC Note. However, subject to the terms and conditions of the Loan Agreement and this note, Advances may be borrowed, repaid and reborrowed and the aggregate Advances loaned hereunder may exceed such maximum amount. 3. LOAN AGREEMENT. This note is the TRM-USA Note referred to in the Loan Agreement between Borrower, FPC Belgium Limited, TRM Copy Centers Corporation, and Lender dated as of March 31, 1997 (together with any amendments, modifications, supplements, extensions, renewals, substitutions or replacements thereof or therefor, the "Loan Agreement") and is subject to all terms and conditions of and entitled to the benefits of the Loan Agreement. Capitalized terms used herein without definition shall have the meanings given to such terms in the Loan Agreement. 4. INTEREST RATE. The interest rate on the Principal Balance outstanding may vary from time to time pursuant to the provisions of this note. Subject to the provisions of this note, Borrower shall have the option from time to time of choosing to pay interest at the rate or rates and for the applicable periods of time based on the rate options provided herein; provided, however, that once Borrower notifies Lender of the rate option chosen in accordance with the provisions of this note, such notice shall be irrevocable. The rate options are the Prime Borrowing Rate and the LIBOR Borrowing Rate, each as defined herein. (a) Definitions. The following terms shall have the following meanings: "Business Day" means any day other than a Saturday, Sunday, or other day that commercial banks in Portland, Oregon or New York City are authorized or required by law to Page 1 of 7 close; provided, however that when used in connection with a LIBOR Rate, LIBOR Amount or LIBOR Interest Period such term shall also exclude any day on which dealings in U.S. dollar deposits are not carried on in the London interbank market. "LIBOR Amount" means each principal amount for which Borrower chooses to have the LIBOR Borrowing Rate apply for any specified LIBOR Interest Period. "LIBOR Interest Period" means as to any LIBOR Amount, a period of seven days or one, two, three or six months commencing on the date the LIBOR Borrowing Rate becomes applicable thereto; provided, however, that: (i) the first day of each LIBOR Interest Period must be a Business Day; (ii) no LIBOR Interest Period shall be selected which would extend beyond April 1, 2000; (iii) no LIBOR Interest Period shall extend beyond the date of any principal payment required under Section 6 of this note, unless the sum of the Prime Rate Amount, plus LIBOR Amounts with LIBOR Interest Periods ending on or before the scheduled date of such principal payment, plus principal amounts remaining unborrowed under a line of credit, equals or exceeds the amount of such principal payment; (iv) any LIBOR Interest Period which would otherwise expire on a day which is not a Business Day, shall be extended to the next succeeding Business Day, unless the result of such extension would be to extend such LIBOR Interest Period into another calendar month, in which event the LIBOR Interest Period shall end on the immediately preceding Business Day; and (v) any LIBOR Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Interest Period) shall end on the last Business Day of a calendar month. "LIBOR Rate" means, for any LIBOR Interest Period, the rate per annum (computed on the basis of a 360-day year and the actual number of days elapsed and rounded upward to the nearest 1/16 of 1%) quoted by Lender as its LIBOR Rate, based on Lender's determination, on the basis of such factors as Lender deems relevant, of the rate of interest at which U.S. dollar deposits would be offered to Lender in the London interbank market at approximately 11 a.m. London time on the date which is two Business Days prior to the first day of such LIBOR Interest Period for delivery on the first day of such LIBOR Interest Period for the number of months therein; provided, however, that the LIBOR Rate shall be adjusted to take into account the maximum reserves required to be maintained for Eurocurrency liabilities by banks during each such LIBOR Interest Period as specified in Regulation D of the Board of Governors of the Federal Reserve System or any successor regulation. "Prime Rate" means the rate of interest which Lender from time to time establishes as its prime rate and is not, for example, the lowest rate of interest which Lender collects from any borrower or class of borrowers. When the Prime Rate is applicable under Section 4(b) or 8, the interest rate hereunder shall be adjusted without notice effective on the day the Prime Rate changes, but in no event shall the rate of interest be higher than allowed by law. "Prime Rate Amount" means any portion of the Principal Balance bearing interest at the Prime Borrowing Rate. Page 2 of 7 (b) The Prime Borrowing Rate. (i) The Prime Borrowing Rate is a per annum rate equal to the Prime Rate. (ii) Whenever Borrower desires to use the Prime Borrowing Rate option, Borrower shall give Lender notice orally or in writing in accordance with Section 11 of this note, which notice shall specify the requested effective date (which must be a Business Day) and principal amount of the Advance or increase in the Prime Rate Amount, and whether Borrower is requesting a new Advance or conversion of a LIBOR Amount to the Prime Borrowing Rate. (iii) Subject to Section 8 of this note, interest shall accrue on the unpaid Principal Balance at the Prime Borrowing Rate unless and except to the extent that the LIBOR Borrowing Rate is in effect. (c) The LIBOR Borrowing Rate. (i) The LIBOR Borrowing Rate is the LIBOR Rate plus 1.20% per annum. (ii) Borrower may obtain LIBOR Borrowing Rate quotes from Lender between 8:00 a.m. and 10:00 a.m. (Portland, Oregon time) on any Business Day. Borrower may request an Advance, conversion of any portion of the Prime Rate Amount to a LIBOR Amount or a new LIBOR Interest Period for an existing LIBOR Amount, at such rate only by giving Lender notice in accordance with Section 4(c)(iii) before 10:00 a.m. (Portland, Oregon time) on such day. (iii) Whether Borrower desires to use the LIBOR Borrowing Rate option, Borrower shall give Lender irrevocable notice (either in writing or orally and promptly confirmed in writing) between 8:00 a.m. and 10:00 a.m. (Portland, Oregon time) two (2) Business Days prior to the desired effective date of such rate. Any oral notice shall be given by, and any written notice or confirmation of an oral notice shall be signed by, the person(s) authorized in Section 11 of this note, and shall specify the requested effective date of the rate, LIBOR Interest Period and LIBOR Amount, and whether Borrower is requesting a ne Advance at the LIBOR Borrowing Rate, conversion of all or any portion of the Prime Rate Amount to a LIBOR Amount, or a new LIBOR Interest Period for an outstanding LIBOR Amount. Notwithstanding any other term of this note, Borrower may elect the LIBOR Borrowing Rate in the minimum principal amount of $500,000 and in multiples of $100,000 above such amount. (iv) If at any time the LIBOR Rate is unascertainable or unavailable to Lender or if LIBOR Rate loans become unlawful, the option to select the LIBOR Borrowing Rate shall terminate immediately. If the LIBOR Borrowing Rate is then in effect, (A) it shall terminate automatically with respect to all LIBOR Amounts (i) on the last day of each then applicable LIBOR Interest Period, if Lender may lawfully continue to maintain such loans, or (ii) immediately if Lender may not lawfully continue to maintain such loans through such day, and (B) subject to Section 8, the Prime Borrowing Rate automatically shall become effective as to such amounts upon such termination. Page 3 of 7 (v) If at any time after the date hereof (A) any revision in or adoption of any applicable law, rule, or regulation or in the interpretation or administration thereof (i) shall subject Lender or its Eurodollar lending office to any tax, duty, or other charge, or change the basis of taxation of payments to Lender with respect to any loans bearing interest based on the LIBOR Rate, or (ii) shall impose or modify any reserve, insurance, special deposit, or similar requirements against assets of, deposits with or for the account of, or credit extended by Lender or its Eurodollar lending office, or impose on Lender or its Eurodollar lending office any other condition affecting any such loans, and (B) the result of any of the foregoing is (i) to increase the cost to Lender of making or maintaining any such loans or (ii) to reduce the amount of any sum receivable under this note by Lender or its Eurodollar lending office, Borrower shall pay Lender within 15 days after demand by Lender such additional amount as will compensate Lender for such increased cost or reduction. The determination hereunder by Lender of such additional amount shall be conclusive in the absence of manifest error. If Lender demands compensation under this Section 4(c)(v), Borrower may upon three (3) Business Days' notice to Lender pay the accrued interest on all LIBOR Amounts, together with any additional amounts payable under Section 4(c)(vi). Subject to Section 8, upon Borrower's paying such accrued interest and additional costs, the Prime Borrowing Rate immediately shall be effective with respect to the unpaid principal balance of such LIBOR Amounts. (vi) Borrower shall pay to Lender, on demand, such amount as Lender reasonably determines (determined as though 100% of the applicable LIBOR Amount had been funded in the London interbank market) is necessary to compensate Lender for any direct or indirect losses, expenses, liabilities, costs, expenses or reductions in yield to Lender, whether incurred in connection with liquidation or reemployment of funds or otherwise, incurred or sustained by Lender as a result of: (A) any payment or prepayment of a LIBOR Amount, termination of the LIBOR Borrowing Rate or conversion of a LIBOR Amount to the Prime Borrowing Rate on a day other than the last day of the applicable LIBOR Interest Period (including as a result of acceleration or a notice pursuant to Section 4(c)(v)); or (B) any failure of Borrower to borrow, continue or prepay any LIBOR Amount or to convert any portion of the Prime Rate Amount to a LIBOR Amount after Borrower has given a notice thereof to Lender. (vii) If Borrower chooses the LIBOR Borrowing Rate, Borrower shall pay interest based on such rate, plus any other applicable taxes or charges hereunder, even though Lender may have obtained the funds loaned to Borrower from sources other than the London interbank market. Lender's determination of the LIBOR Borrowing Rate and any such taxes or charges shall be conclusive in the absence of manifest error. (viii) Notwithstanding any other term of this note, Borrower may not select the LIBOR Borrowing Rate if an Event of Default hereunder has occurred and is continuing. 5. COMPUTATION OF INTEREST. All interest will be computed at the applicable rate based on a 360-day year and applied to the actual number of days elapsed. However, interest accruing under the Prime Borrowing Rate Index Option shall be computed on the basis of a year of 365 days for the actual days elapsed. Page 4 of 7 6. PAYMENT SCHEDULE. (a) Principal. Principal shall be paid on April 1, 2000. (b) Interest. Interest shall be paid on the first day of April, 1997 and on the same day of each month thereafter prior to maturity and at maturity. 7. PREPAYMENT. (a) Prepayments of all or any part of the Prime Rate Amount may be made at any time without penalty. (b) Except as otherwise specifically set forth herein, Borrower may not prepay all or any part of any LIBOR Amount or terminate any LIBOR Borrowing Rate, except on the last day of the applicable LIBOR Interest Period. (c) Principal prepayments will not postpone the date of or change the amount of any regularly scheduled payment. At the time of any principal prepayment, all accrued interest, fees, costs and expenses shall also be paid. 8. DEFAULT. Any Event of Default described in the Loan Agreement shall be an Event of Default hereunder. Upon the occurrence of an Event of Default, Lender may declare the entire unpaid Principal Balance on this note and all accrued unpaid interest immediately due and payable, without notice. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the interest rate on this note to a rate equal to the Prime Borrowing Rate plus 5%. The interest rate will not exceed the maximum rate permitted by applicable law. In addition, if any payment of principal or interest is 19 or more days past due, Borrower will be charged a late charge of 5% of the delinquent payment. 9. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND. Holder's records shall, at any time, be conclusive evidence of the unpaid Principal Balance and interest owing on this note. Notwithstanding any other provisions of this note, if the unpaid Principal Balance of this note, at any time, exceeds $30,000,000 minus the then outstanding principal balance of the FPC Note, Borrower shall immediately pay to Lender the amount of such excess. 10. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this note against any and all of such accounts. Page 5 of 7 11. REQUESTS FOR ADVANCES. (a) Any Advance may be made or interest rate option selected upon the request of Borrower (if an individual), any of the undersigned (if Borrower consists of more than one individual), any person or persons authorized in subsection (b) of this Section 11, and any person or persons otherwise authorized to execute and deliver promissory notes to Lender on behalf of Borrower. (b) Borrower hereby authorizes any 1 of the following individuals to request Advances and to select interest rate options: Robert A. Bruce, Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- Linda A. Haas, Corporate Controller - -------------------------------------------------------------------------------- Rosemary H. Evans, Treasurer - -------------------------------------------------------------------------------- unless Lender is otherwise instructed in writing. (c) All Advances shall be disbursed by deposit directly to Borrower's account number 240-0306698 at main branch of Lender, or by cashier's check issued to Borrower. (d) Borrower agrees that Lender shall have no obligation to verify the identity of any person making any request pursuant to this Section 11 and Borrower assumes all risks of the validity and authorization of such requests. In consideration of Lender agreeing, at its sole discretion, to make Advances upon such requests, Borrower promises to pay holder, in accordance with the provisions of this note, the Principal Balance together with interest thereon and other sums due hereunder, although any Advances may have been requested by a person or persons not authorized to do so. 12. NOTICES. Any notice hereunder may be given as set forth in Section 12.3 of the Loan Agreement. 13. ATTORNEY FEES. Whether or not litigation or arbitration is commenced, Borrower promises to pay all costs of collecting overdue amounts. Without limiting the foregoing, in the event that holder consults an attorney regarding the enforcement of any of its rights under this note or any document securing the same, or if this note is placed in the hands of an attorney for collection or if suit or litigation is brought to enforce this note or any document securing the same, Borrower promises to pay all costs thereof including such additional sums as the court or arbitrator(s) may adjudge reasonable as attorney fees, including without limitation, costs and attorney fees incurred in any appellate court, in any proceeding under the bankruptcy code, or in any receivership and post-judgment attorney fees incurred in enforcing any judgment. 14. WAIVERS; CONSENT. Each party hereto, whether maker, co-maker, guarantor or otherwise, waives diligence, demand, presentment for payment, notice of non-payment, protest and notice of protest and waives all defenses based on suretyship or impairment of collateral. Without notice to Borrower and without diminishing or affecting Lender's rights or Borrower's obligations hereunder, Lender may deal in any manner with any person who at any time is liable for, or provides any real or personal property collateral for, any indebtedness of Borrower to Page 6 of 7 Lender, including the indebtedness evidenced by this note. Without limiting the foregoing, Lender may, in its sole discretion: (a) make secured or unsecured loans to Borrower and agree to any number of waivers, modifications, extensions and renewals of any length of such loans, including the loan evidenced by this note; (b) impair, release (with or without substitution of new collateral), fail to perfect a security interest in, fail to preserve the value of, fail to dispose of in accordance with applicable law, any collateral provided by any person; (c) sue, fail to sue, agree not to sue, release, and settle or compromise with, any person. 15. ARBITRATION. Either Lender or Borrower may require that all disputes, claims, counterclaims and defenses, including those based on or arising from any alleged tort, relating in any way to this note or any transaction of which this note is a part, be settled by binding arbitration in accordance with the provisions of Section 11.1 of the Loan Agreement. 16. GOVERNING LAW. This note stall be governed by and construed and enforced in accordance with the laws of the State of Oregon without regard to conflicts of law principles; provided, however, that to the extent that Lender has greater rights or remedies under Federal law, this provision shall not be deemed to deprive Lender of such rights and remedies as may be available under Federal law. 17. DISCLOSURE. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE. BORROWER HEREBY ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS DOCUMENT. TRM COPY CENTERS (USA) CORPORATION MICHAEL SIMON Pres & CEO - ---------------------------------------- By Title - ---------------------------------------- By Title Page 7 of 7 ALTERNATIVE RATE OPTIONS PROMISSORY NOTE (PRIME RATE, LIBOR) $2,000,000 Dated as of March 31, 1997 FPC BELGIUM LIMITED ("Borrower") UNITED STATES NATIONAL BANK OF OREGON ("Lender") 1. PROMISE TO PAY. For value received Borrower promises to pay to Lender or order at PL-7, Oregon Commercial Loan Servicing, 555 S.W. Oak Street, Portland, OR 97204, the principal sum of $2,000,000 or so much thereof as may be outstanding from time to time, with interest thereon as provided herein. 2. MAXIMUM PRINCIPAL BALANCE. This note is given to evidence Borrower's obligation to repay all sums which Lender may from time to time advance to Borrower ("Advances") under a revolving line of credit. The unpaid principal balance of all Advances outstanding under this note ("Principal Balance") at any one time shall not exceed the lesser of (a) $2,000,000 or (b) $30,000,000 minus the then outstanding principal balance of the TRM-USA Note. However, subject to the terms and conditions of the Loan Agreement and this note, Advances may be borrowed, repaid and reborrowed and the aggregate Advances loaned hereunder may exceed such maximum amount. 3. LOAN AGREEMENT. This note is the FPC Note referred to in the Loan Agreement between Borrower, TRM Copy Centers (USA) Corporation, TRM Copy Centers Corporation, and Lender dated as of March 31, 1997 (together with any amendments, modifications, supplements, extensions, renewals, substitutions or replacements thereof or therefor, the "Loan Agreement") and is subject to all terms and conditions of and entitled to the benefits of the Loan Agreement. Capitalized terms used herein without definition shall have the meanings given to such terms in the Loan Agreement. 4. INTEREST RATE. The interest rate on the Principal Balance outstanding may vary from time to time pursuant to the provisions of this note. Subject to the provisions of this note, Borrower shall have the option from time to time of choosing to pay interest at the rate or rates and for the applicable periods of time based on the rate options provided herein; provided, however, that once Borrower notifies Lender of the rate option chosen in accordance with the provisions of this note, such notice shall be irrevocable. The rate options are the Prime Borrowing Rate and the LIBOR Borrowing Rate, each as defined herein. (a) Definitions. The following terms shall have the following meanings: Page 1 of 7 "Business Day" means any day other than a Saturday, Sunday, or other day that commercial banks in Portland, Oregon or New York City are authorized or required by law to close; provided, however that when used in connection with a LIBOR Rate, LIBOR Amount or LIBOR Interest Period such term shall also exclude any day on which dealings in U.S. dollar deposits are not carried on in the London interbank market. "LIBOR Amount" means each principal amount for which Borrower chooses to have the LIBOR Borrowing Rate apply for any specified LIBOR Interest Period. "LIBOR Interest Period" means as to any LIBOR Amount, a period of seven days or one, two, three or six months commencing on the date the LIBOR Borrowing Rate becomes applicable thereto; provided, however, that: (i) the first day of each LIBOR Interest Period must be a Business Day; (ii) no LIBOR Interest Period shall be selected which would extend beyond April 1, 2000; (iii) no LIBOR Interest Period shall extend beyond the date of any principal payment required under Section 6 of this note, unless the sum of the Prime Rate Amount, plus LIBOR Amounts with LIBOR Interest Periods ending on or before the scheduled date of such principal payment, plus principal amounts remaining unborrowed under a line of credit, equals or exceeds the amount of such principal payment; (iv) any LIBOR Interest Period which would otherwise expire on a day which is not a Business Day, shall be extended to the next succeeding Business Day, unless the result of such extension would be to extend such LIBOR Interest Period into another calendar month, in which event the LIBOR Interest Period shall end on the immediately preceding Business Day; and (v) any LIBOR Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Interest Period) shall end on the last Business Day of a calendar month. "LIBOR Rate" means, for any LIBOR Interest Period, the rate per annum (computed on the basis of a 360-day year and the actual number of days elapsed and rounded upward to the nearest 1/16 of 1%) quoted by Lender as its LIBOR Rate, based on Lender's determination, on the basis of such factors as Lender deems relevant, of the rate of interest at which U.S. dollar deposits would be offered to Lender in the London interbank market at approximately 11 a.m. London time on the date which is two Business Days prior to the first day of such LIBOR Interest Period for delivery on the first day of such LIBOR Interest Period for the number of months therein; provided, however, that the LIBOR Rate shall be adjusted to take into account the maximum reserves required to be maintained for Eurocurrency liabilities by banks during each such LIBOR Interest Period as specified in Regulation D of the Board of Governors of the Federal Reserve System or any successor regulation. "Prime Rate" means the rate of interest which Lender from time to time establishes as its prime rate and is not, for example, the lowest rate of interest which Lender collects from any borrower or class of borrowers. When the Prime Rate is applicable under Section 4(b) or 8, the interest rate hereunder shall be adjusted without notice effective on the day the Prime Rate changes, but in no event shall the rate of interest be higher than allowed by law. Page 2 of 7 "Prime Rate Amount" means any portion of the Principal Balance bearing interest at the Prime Borrowing Rate. (b) The Prime Borrowing Rate. (i) The Prime Borrowing Rate is a per annum rate equal to the Prime Rate. (ii) Whenever Borrower desires to use the Prime Borrowing Rate option, Borrower shall give Lender notice orally or in writing in accordance with Section 11 of this note, which notice shall specify the requested effective date (which must be a Business Day) and principal amount of the Advance or increase in the Prime Rate Amount, and whether Borrower is requesting a new Advance or conversion of a LIBOR Amount to the Prime Borrowing Rate. (iii) Subject to Section 8 of this note, interest shall accrue on the unpaid Principal Balance at the Prime Borrowing Rate unless and except to the extent that the LIBOR Borrowing Rate is in effect. (c) The LIBOR Borrowing Rate. (i) The LIBOR Borrowing Rate is the LIBOR Rate plus 1.20% per annum. (ii) Borrower may obtain LIBOR Borrowing Rate quotes from Lender between 8:00 a.m. and 10:00 a.m. (Portland, Oregon time) on any Business Day. Borrower may request an Advance, conversion of any portion of the Prime Rate Amount to a LIBOR Amount or a new LIBOR Interest Period for an existing LIBOR Amount, at such rate only by giving Lender notice in accordance with Section 4(c)(iii) before 10:00 a.m. (Portland, Oregon time) on such day. (iii) Whether Borrower desires to use the LIBOR Borrowing Rate option, Borrower shall give Lender irrevocable notice (either in writing or orally and promptly confirmed in writing) between 8:00 a.m. and 10:00 a.m. (Portland, Oregon time) two (2) Business Days prior to the desired effective date of such rate. Any oral notice shall be given by, and any written notice or confirmation of an oral notice shall be signed by, the person(s) authorized in Section 11 of this note, and shall specify the requested effective date of the rate, LIBOR Interest Period and LIBOR Amount, and whether Borrower is requesting a new Advance at the LIBOR Borrowing Rate, conversion of all or any portion of the Prime Rate Amount to a LIBOR Amount, or a new LIBOR Interest Period for an outstanding LIBOR Amount. Notwithstanding any other term of this note, Borrower may elect the LIBOR Borrowing Rate in the minimum principal amount of $500,000 and in multiples of $100,000 above such amount. (iv) If at any time the LIBOR Rate is unascertainable or unavailable to Lender or if LIBOR Rate loans become unlawful, the option to select the LIBOR Borrowing Rate shall terminate immediately. If the LIBOR Borrowing Rate is then in effect, (A) it shall terminate automatically with respect to all LIBOR Amounts (i) on the last day of each then applicable LIBOR Interest Period, if Lender may lawfully continue to maintain such loans, or (ii) immediately if Lender may not lawfully continue to maintain such loans through such day, and Page 3 of 7 (B) subject to Section 8, the Prime Borrowing Rate automatically shall become effective as to such amounts upon such termination. (v) If at any time after the date hereof (A) any revision in or adoption of any applicable law, rule, or regulation or in the interpretation or administration thereof (i) shall subject Lender or its Eurodollar lending office to any tax, duty, or other charge, or change the basis of taxation of payments to Lender with respect to any loans bearing interest based on the LIBOR Rate, or (ii) shall impose or modify any reserve, insurance, special deposit, or similar requirements against assets of, deposits with or for the account of, or credit extended by Lender or its Eurodollar lending office, or impose on Lender or its Eurodollar lending office any other condition affecting any such loans, and (B) the result of any of the foregoing is (i) to increase the cost to Lender of making or maintaining any such loans or (ii) to reduce the amount of any sum receivable under this note by Lender or its Eurodollar lending office, Borrower shall pay Lender within 15 days after demand by Lender such additional amount as will compensate Lender for such increased cost or reduction. The determination hereunder by Lender of such additional amount shall be conclusive in the absence of manifest error. If Lender demands compensation under this Section 4(c)(v), Borrower may upon three (3) Business Days' notice to Lender pay the accrued interest on all LIBOR Amounts, together with any additional amounts payable under Section 4(c)(vi). Subject to Section 8, upon Borrower's paying such accrued interest and additional costs, the Prime Borrowing Rate immediately shall be effective with respect to the unpaid principal balance of such LIBOR Amounts. (vi) Borrower shall pay to Lender, on demand, such amount as Lender reasonably determines (determined as though 100% of the applicable LIBOR Amount had been funded in the London interbank market) is necessary to compensate Lender for any direct or indirect losses, expenses, liabilities, costs, expenses or reductions in yield to Lender, whether incurred in connection with liquidation or re-employment of funds or otherwise, incurred or sustained by Lender as a result of: (A) any payment or prepayment of a LIBOR Amount, termination of the LIBOR Borrowing Rate or conversion of a LIBOR Amount to the Prime Borrowing Rate on a day other than the last day of the applicable LIBOR Interest Period (including as a result of acceleration or a notice pursuant to Section 4(c)(v)); or (B) any failure of Borrower to borrow, continue or prepay any LIBOR Amount or to convert any portion of the Prime Rate Amount to a LIBOR Amount after Borrower has given a notice thereof to Lender. (vii) If Borrower chooses the LIBOR Borrowing Rate, Borrower shall pay interest based on such rate, plus any other applicable taxes or charges hereunder, even though Lender may have obtained the funds loaned to Borrower from sources other than the London interbank market. Lender's determination of the LIBOR Borrowing Rate and any such taxes or charges shall be conclusive in the absence of manifest error. (viii) Notwithstanding any other term of this note, Borrower may not select the LIBOR Borrowing Rate if an Event of Default hereunder has occurred and is continuing. 5. COMPUTATION OF INTEREST. All interest will be computed at the applicable rate based on a 360-day year and applied to the actual number of days elapsed. However, interest accruing under the Prime Borrowing Rate Index Option shall be computed on the basis of a year of 365 days for the actual days elapsed. Page 4 of 7 6. PAYMENT SCHEDULE. (a) Principal. Principal shall be paid on April 1, 2000. (b) Interest. Interest shall be paid on the first day of April, 1997 and on the same day of each month thereafter prior to maturity and at maturity. 7. PREPAYMENT. (a) Prepayments of all or any part of the Prime Rate Amount may be made at any time without penalty. (b) Except as otherwise specifically set forth herein, Borrower may not prepay all or any part of any LIBOR Amount or terminate any LIBOR Borrowing Rate, except on the last day of the applicable LIBOR Interest Period. (c) Principal prepayments will not postpone the date of or change the amount of any regularly scheduled payment. At the time of any principal prepayment, all accrued interest, fees, costs and expenses shall also be paid. 8. DEFAULT. Any Event of Default described in the Loan Agreement shall be an Event of Default hereunder. Upon the occurrence of an Event of Default, Lender may declare the entire unpaid Principal Balance on this note and all accrued unpaid interest immediately due and payable, without notice. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the interest rate on this note to a rate equal to the Prime Borrowing Rate plus 5%. The interest rate will not exceed the maximum rate permitted by applicable law. In addition, if any payment of principal or interest is 19 or more days past due, Borrower will be charged a late charge of 5% of the delinquent payment. 9. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND. Holder's records shall, at any time, be conclusive evidence of the unpaid Principal Balance and interest owing on this note. Notwithstanding any other provisions of this note, if the unpaid Principal Balance of this note, at any time, exceeds the lesser of (a) $2,000,000 or (b) $30,000,000 minus the then outstanding principal balance of the TRM-USA Note, Borrower shall immediately pay to Lender the amount of such excess. 10. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this note against any and all of such accounts. Page 5 of 7 11. REQUESTS FOR ADVANCES. (a) Any Advance may be made or interest rate option selected upon the request of Borrower (if an individual), any of the undersigned (if Borrower consists of more than one individual), any person or persons authorized in subsection (b) of this Section 11, and any person or persons otherwise authorized to execute and deliver promissory notes to Lender on behalf of Borrower. (b) Borrower hereby authorizes any 1 of the following individuals to request Advances and to select interest rate options: Robert A. Bruce, Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- Linda A. Haas, Corporate Controller - -------------------------------------------------------------------------------- Rosemary H. Evans, Treasurer - -------------------------------------------------------------------------------- unless Lender is otherwise instructed in writing. (c) All Advances shall be disbursed by deposit directly to Borrower's account number 240-0007-155 at main branch of Lender, or by cashier's check issued to Borrower. (d) Borrower agrees that Lender shall have no obligation to verify the identity of any person making any request pursuant to this Section 11 and Borrower assumes all risks of the validity and authorization of such requests. In consideration of Lender agreeing, at its sole discretion, to make Advances upon such requests, Borrower promises to pay holder, in accordance with the provisions of this note, the Principal Balance together with interest thereon and other sums due hereunder, although any Advances may have been requested by a person or persons not authorized to do so. 12. NOTICES. Any notice hereunder may be given as set forth in Section 12.3 of the Loan Agreement. 13. ATTORNEY FEES. Whether or not litigation or arbitration is commenced, Borrower promises to pay all costs of collecting overdue amounts. Without limiting the foregoing, in the event that holder consults an attorney regarding the enforcement of any of its rights under this note or any document securing the same, or if this note is placed in the hands of an attorney for collection or if suit or litigation is brought to enforce this note or any document securing the same, Borrower promises to pay all costs thereof including such additional sums as the court or arbitrator(s) may adjudge reasonable as attorney fees, including without limitation, costs and attorney fees incurred in any appellate court, in any proceeding under the bankruptcy code, or in any receivership and post-judgment attorney fees incurred in enforcing any judgment. 14. WAIVERS; CONSENT. Each party hereto, whether maker, co-maker, guarantor or otherwise, waives diligence, demand, presentment for payment, notice of non-payment, protest and notice of protest and waives all defenses based on suretyship or impairment of collateral. Without notice to Borrower and without diminishing or affecting Lender's rights or Borrower's obligations hereunder, Lender may deal in any manner with any person who at any time is liable Page 6 of 7 for, or provides any real or personal property collateral for, any indebtedness of Borrower to Lender, including the indebtedness evidenced by this note. Without limiting the foregoing, Lender may, in its sole discretion: (a) make secured or unsecured loans to Borrower and agree to any number of waivers, modifications, extensions and renewals of any length of such loans, including the loan evidenced by this note; (b) impair, release (with or without substitution of new collateral), fail to perfect a security interest in, fail to preserve the value of, fail to dispose of in accordance with applicable law, any collateral provided by any person; (c) sue, fail to sue, agree not to sue, release, and settle or compromise with, any person. 15. ARBITRATION. Either Lender or Borrower may require that all disputes, claims, counterclaims and defenses, including those based on or arising from any alleged tort, relating in any way to this note or any transaction of which this note is a part, be settled by binding arbitration in accordance with the provisions of Section 11.1 of the Loan Agreement. 16. GOVERNING LAW. This note stall be governed by and construed and enforced in accordance with the laws of the State of Oregon without regard to conflicts of law principles; provided, however, that to the extent that Lender has greater rights or remedies under Federal law, this provision shall not be deemed to deprive Lender of such rights and remedies as may be available under Federal law. 17. DISCLOSURE. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE. BORROWER HEREBY ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS DOCUMENT. FPC BELGIUM LIMITED MICHAEL SIMON Pres. - ----------------------------------- By Title - ----------------------------------- By Title Page 7 of 7 EX-10.5 5 1996 STOCK OPTION PLAN TRM COPY CENTERS CORPORATION 1996 STOCK OPTION PLAN 1. Purpose. The purpose of this 1996 Stock Option Plan (the "Plan") is to enable TRM Copy Centers Corporation (the "Company") to attract and retain the services of selected key employees, consultants, independent contractors, officers and directors of the Company. 2. Shares Subject to the Plan. Subject to adjustment as provided below and in paragraph 9, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be issued under the Plan shall not exceed 700,000 shares plus any shares that were available for grant or subject to outstanding options under the Company's Restated 1986 Stock Incentive Plan (the "1986 Plan") on the effective date of the Plan and are not issued under the 1986 Plan due to termination or cancellation of such options. If an option granted under the Plan expires, terminates or is cancelled, the unissued shares subject to such option shall again be available under the Plan. 3. Effective Date and Duration of Plan. (a) Effective Date. The Plan shall become effective when adopted by the Board of Directors; provided, however, that prior to shareholder approval of the Plan, any grants shall be subject to and conditioned on approval of the Plan by a majority of the votes cast at a meeting of shareholders at which a quorum is present. Options may be granted under the Plan at any time after the effective date and before termination of the Plan. (b) Duration. The Plan shall continue in effect until all shares available for issuance under the Plan have been issued and all restrictions on such shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to options then outstanding under the Plan. Termination shall not affect any outstanding options. 4. Administration. (a) Except as specified in paragraph 4(b) the Plan shall be administered by the Board of Directors of the Company, which shall determine and designate from time to time the individuals to whom option grants shall be made and all terms and conditions of the grants. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt and amend rules and regulations relating to administration of the Plan, accelerate any exercise date, provide for automatic acceleration upon the occurrence of specified events, waive or modify any restriction applicable to grants (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. (b) The Board of Directors, if it so determines, may delegate to a committee of the Board of Directors constituting of one or more members (the "Committee") any or all authority for administration of the Plan; provided, however, that only the Board of Directors may amend or terminate the Plan as provided in paragraphs 3 and 11. If a Committee is appointed, all references to the Board of Directors in the Plan shall mean and relate to such Committee except as limited by the immediately preceding sentence and unless the context requires otherwise. A-1 5. Types of Awards; Eligibility; Limitations on Certain Awards. The Board of Directors may, from time to time, take the following actions, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6(a) and 6(b); (ii) grant options other than Incentive Stock Options ("Nonstatutory Stock Options") as provided in paragraphs 6(a) and 6(c); and (iii) grant foreign qualified options as provided in paragraph 7. Any such grants may be made to employees, consultants, independent contractors, officers and directors, provided, however, that only employees of the Company shall be eligible to receive Incentive Stock Options under the Plan. Except as for options granted pursuant to paragraph 8, the Board of Directors shall select the individuals to whom grants shall be made and shall specify the action taken with respect to each individual to whom a grant is made. The Board of Directors may not reprice outstanding options, other than adjustments made pursuant to paragraph 9. No individual may be granted options under the Plan for more than an aggregate of 300,000 shares of Common Stock in any calendar year. 6. Option Grants. (a) General Rules Relating to Options. (i) Terms of Grant. With respect to each option grant (except for options granted pursuant to paragraph 8), the Board of Directors shall determine the number of shares subject to the option, the option price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Nonstatutory Stock Option. (ii) Exercise of Options. Except as provided in paragraphs 6(a)(iv) and 8 or as determined by the Board of Directors, no option granted under the Plan may be exercised unless at the time of such exercise the optionee is employed by or in the service of the Company or any subsidiary of the Company and shall have been so employed or provided such service continuously since the date such option was granted. Absence on leave or on account of illness or disability under rules established by the Board of Directors shall not, however, be deemed an interruption of employment or service for this purpose. Unless otherwise determined by the Board of Directors, vesting of options shall not continue during an absence on leave (including an extended illness) or on account of disability. Except as provided in paragraphs 6(a)(iv), 8 and 9, options granted under the Plan may be exercised from time to time over the period stated in each option in such amounts and at such times as shall be prescribed by the Board of Directors, provided that options shall not be exercised for fractional shares. Unless otherwise determined by the Board of Directors, if the optionee does not exercise an option in any one year with respect to the full number of shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent year during the term of the option. (iii) Nontransferability. Each Incentive Stock Option and, unless otherwise determined by the Board of Directors, each other option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and each option by its terms shall be exercisable during the optionee's lifetime only by the optionee; provided, however, that a Nonstatutory Stock Option shall also be transferable pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act. A-2 (iv) Termination of Employment or Service. (A) General Rule. Unless otherwise determined by the Board of Directors, except as provided in paragraph 8, in the event the employment or service of the optionee with the Company or a subsidiary terminates for any reason other than because of physical disability or death as provided in subparagraphs 6(a)(iv)(B) and (C), the option may be exercised at any time prior to the expiration date of the option or the expiration of three months after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. (B) Termination Because of Physical Disability. Unless otherwise determined by the Board of Directors, except as provided in paragraph 8, in the event of the termination of employment or service because of physical disability (within the meaning of Section 22(e)(3) of the Code), the option may be exercised at any time prior to the expiration date of the option or the expiration of 12 months after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. (C) Termination Because of Death. Unless otherwise determined by the Board of Directors, except as provided in paragraph 8, in the event of the death of an optionee while employed by or providing service to the Company or a subsidiary, the option may be exercised at any time prior to the expiration date of the option or the expiration of 12 months after the date of such death, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination and only by the person or persons to whom such optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution of the state or country of domicile at the time of death. (D) Amendment of Exercise Period Applicable to Termination. The Board of Directors, at the time of grant or at any time thereafter, may extend the 90-day and 12-month exercise periods any length of time not later than the original expiration date of the option, and may increase the portion of an option that is exercisable, subject to such terms and conditions as the Board of Directors may determine. (E) Failure to Exercise Option. To the extent that the option of any deceased optionee or of any optionee whose employment or service terminates is not exercised within the applicable period, all further rights to purchase shares pursuant to such option shall cease and terminate. (v) Purchase of Shares. Unless the Board of Directors determines otherwise, shares may be acquired pursuant to an option granted under the Plan only upon receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise, specifying the number of shares as to which the optionee desires to exercise the option and the date on which the optionee desires to complete the transaction, which shall not be more than 30 days after receipt of the notice, and if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the optionee's present intention to acquire the shares for investment and not with a view to distribution. On or before the date specified for completion of the purchase of shares pursuant to an option, the optionee must have paid the Company the full purchase price of such shares in cash or, with the consent of the Board of Directors, in whole or in part, in Common Stock of the Company valued at fair market value. The fair market value of Common Stock provided in payment of the purchase price shall A-3 be the closing price of the Common Stock as reported in The Wall Street Journal on the day preceding the date that the option is exercised, or such other reported value of the Common Stock as shall be specified by the Board of Directors. No shares shall be issued until full payment therefor has been made. Each optionee who has exercised an option shall immediately upon notification of the amount due, if any, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the optionee fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable law. With the consent of the Board of Directors an optionee may satisfy this obligation, in whole or in part, by having the Company withhold from the shares to be issued upon the exercise that number of shares that would satisfy the withholding amount due or by delivering Common Stock to the Company to satisfy the withholding amount. Upon the exercise of an option, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option. (b) Incentive Stock Options. Incentive Stock Options shall be subject to the following additional terms and conditions: (i) Limitation on Amount of Grants. No employee may be granted Incentive Stock Options under the Plan if the aggregate fair market value, on the date preceding the date of grant, of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by that employee during any calendar year under the Plan and under any other incentive stock option plan (within the meaning of Section 422 of the Code) of the Company or any parent or subsidiary of the Company exceeds $100,000. (ii) Limitations on Grants to 10 Percent Shareholders. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company only if the option price is at least 110 percent of the fair market value of the Common Stock subject to the option on the date preceding the date it is granted, as described in paragraph 6(b)(iv), and the option by its terms is not exercisable after the expiration of five years from the date it is granted. (iii) Duration of Options. Subject to paragraphs 6(a)(ii) and 6(b)(ii), Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it is granted. (iv) Option Price. The option price per share shall be determined by the Board of Directors at the time of grant. Except as provided in paragraph 6(b)(ii), the option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be deemed to be the closing price of the Common Stock as reported in The Wall Street Journal on the day preceding the date the option is granted, or if there has been no sale on that date, on the last preceding date on which a sale occurred, or such other value of the Common Stock as shall be specified by the Board of Directors. A-4 (v) Limitation on Time of Grant. No Incentive Stock Option shall be granted on or after the tenth anniversary of the date the Plan was adopted by the Board of Directors. (vi) Conversion of Incentive Stock Options. The Board of Directors may at any time without the consent of the optionee convert an Incentive Stock Option to a Nonstatutory Stock Option. (vii) Limit on Shares. Subject to adjustment as provided in paragraph 9, the total number of Common Shares that may be issued under the Plan upon exercise of Incentive Stock Options shall not exceed 700,000 plus up to 200,000 shares that may become available from the 1986 Plan. (c) Nonstatutory Stock Options. Nonstatutory Stock Options, other than options granted pursuant to paragraph 8, shall be subject to the following additional terms and conditions: (i) Option Price. The option price for Nonstatutory Stock Options shall be determined by the Board of Directors at the time of grant and may be any amount determined by the Board of Directors not less than 100% of the fair market value in the date preceding the date of grant. The fair market value of such shares shall be deemed to be the closing price of the Common Stock as reported in The Wall Street Journal on the valuation date, or if there has been no sale on that date, on the last preceding date on which a sale occurred, or such other reported value of the Common Stock, or average closing prices for a period of up to 10 trading dates including or preceding the valuation date, as shall be specified by the Board of Directors. (ii) Duration of Options. Nonstatutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors. 7. Foreign Qualified Option Grants. Options under the Plan may be granted to such officers and employees of the Company and its subsidiaries and such other persons described in paragraph 1 residing in foreign jurisdictions as the Board of Directors may determine from time to time. The Board of Directors may adopt such supplements to the Plan as may be necessary to comply with the applicable laws of such foreign jurisdictions and to afford participants favorable treatment under such laws; provided, however, that no option shall be granted under any such supplement with terms which are more beneficial to the participants than the terms permitted by the Plan. 8. Option Grants to Nonemployee Directors. (a) Grants to Nonemployee Directors. Immediately after the close of each annual shareholder meeting (commencing with the 1996 annual meeting), each person then serving as a Nonemployee Director, including any such person who is elected at such meeting, shall automatically be granted a Nonstatutory Stock Option to purchase 5,000 shares of Stock. A "Nonemployee Director" is a director of the Company who is not an employee of the Company or of any parent or subsidiary of the Company on the date the option is granted. (b) Additional Grants to Nonemployee Directors Who Serve on Executive Committee. Immediately after the close of each annual shareholder meeting (commencing with the 1996 annual meeting), each person who is then serving as a Nonemployee Director and who also is serving on the Executive Committee of the Board of Directors shall automatically be granted a Nonstatutory Stock Option to purchase an additional 2,500 shares of Stock. A-5 (c) Terms of Options. The exercise price for options granted under this paragraph 8 shall be the fair market value of the shares covered by the option on the date preceding the date of grant, determined pursuant to paragraph 6(b)(iv). Each such option shall have a 10-year term from the date of grant, unless earlier terminated as provided in 6(a)(iv). Each such option shall become fully exercisable one year after the date of grant, subject to earlier exercise pursuant to paragraph 9. If an optionee ceases to be a director of the Company for any reason, including death or disability, the exercise of the option shall be subject to 6(a)(iv). Options may be exercised in accordance with paragraph 6. Options granted under this paragraph 8 shall be governed by all other applicable provisions of the Plan. 9. Changes in Capital Structure. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any reorganization, merger, consolidation, plan of exchange, recapitalization, reclassification, stock split-up, combination of shares or dividend payable in shares, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options or portions thereof then unexercised, shall be exercisable, so that the optionee's proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. In the event of dissolution of the Company or a merger, consolidation or plan of exchange affecting the Company, in lieu of providing for options as provided above in this paragraph 9 or in lieu of having the options continue unchanged, the Board of Directors, may, in its sole discretion, provide a 30-day period prior to such event during which optionees shall have the right to exercise options in whole or in part without any limitation on exercisability and upon the expiration of such 30-day period all unexercised options and stock appreciation rights shall immediately terminate. 10. Corporate Mergers, Acquisitions, etc. The Board of Directors may also grant options under the Plan having terms, conditions and provisions that vary from those specified in this Plan provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options granted by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary is a party. 11. Amendment of Plan. The Board of Directors may at any time, and from time to time, modify or amend the Plan in such respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in paragraphs 6(a)(iv) and 9 however, no change in an option already granted shall be made without the written consent of the holder of such award. Current Nasdaq rules and IRS rules would require shareholder approval of certain amendments to the 1996 Plan. 12. Approvals. The obligations of the Company under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws. 13. Employment and Service Rights. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of the Company or any subsidiary or interfere in any way with the right of the Company or any subsidiary by whom such A-6 employee is employed to terminate such employee's employment at any time, for any reason, with or without cause, or to decrease such employee's compensation or benefits, or (ii) confer upon any person engaged by the Company any right to be retained or employed by the Company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company. 14. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date of issue to the recipient of a stock certificate for such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. 15. Applicable Law. The law of the State of Oregon will govern all matters relating to this Plan except to the extent it is superseded by the laws of the United States. A-7 EX-10.8 6 EMPLOYMENT AGREEMENT Fred Stockton 2096 Wellington Drive West Linn, Oregon 97068 Phone: (503) 650-6097 Fax: (503) 656-4015 E-mail: fstockton@hevanet.com August 18, 1997 Mr. Frederick O. Paulsell, Jr. Olympic Capital Partners 1325 Fourth Avenue Suite 1900 Seattle, Washington 98101-2505 Dear Fred, I am extremely pleased to be joining the TRM team. Thank you for selecting me as the new President and Chief Executive Officer. I look forward to working closely with you, as we direct TRM's future growth. The purpose of this correspondence is to outline the agreement we reached concerning the terms of my employment. 1. Salary * $210,000 per year * An annual salary review by the Board of Directors. 2. Bonus * A $60,000 bonus will be paid if the company achieves the earnings target that has been established for the 1998 fiscal year. * An additional $60,000 bonus may be earned based on the achievement of additional performance criteria to be established by the Board of Directors. 3. Stock Options * The initial grant will be 200,000 shares, with an opportunity for additional grants in the future. * The shares will granted with a ten-year period to exercise options. * Vesting of shares will be 25% per year for four years. * Automatic acceleration of vesting to 100% will take place if a change in control of the company occurs. 1 Frederick O. Paulsell August 18, 1997 Page 2 of 2 4. Other Benefits * A company owned vehicle, comparable to the vehicle provided in my last position, will be provided for my use. * The company will pay any expenses I incur related to COBRA insurance, until my family can be covered by the company's benefit plans, without any exclusion for pre-existing conditions or required waiting periods. * Vacation accruals will be based on four weeks per year beginning with the first day of employment. * If my employment is terminated, the company will provide me with a severance benefit, beginning on the first day of employment, with an amount equal to three months salary at the time of termination. At the end of each subsequent three-month period, that benefit will increase by an additional one-month's salary, until a maximum benefit of twelve-months has been earned. If a change in control of the company takes place and I am terminated, the full twelve-months will be owed. Please review what I have written above and see if it is consistent with your understanding of our agreement. If you agree with the above I request that you confirm that agreement in writing to me. Sincerely, FRED STOCKTON Fred Stockton cc: Michael Simon EX-13.1 7 PORTIONS OF THE 1997 ANNUAL REPORT
Selected Financial Data (In thousands, except per share data) 1997* 1996 1995 1994 1993** - -------------------------------------------------------------------------------------------------------------------------------- Year ended June 30: Sales $ 69,881 $ 67,538 $ 60,544 $ 47,957 $ 38,774 Net income 2,575 4,124 3,699 3,354 3,236 Net income per share 0.35 0.57 0.53 0.49 0.47 As of June 30: Working capital $ 9,568 $ 8,860 $ 9,543 $ 8,523 $ 5,667 Total assets 50,160 54,251 55,736 43,504 30,323 Long-term debt 400 8,128 14,238 9,500 850 Stockholders' equity 38,828 35,444 31,528 27,155 23,704
Selected Quarterly Financial Data 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (In thousands, except per share data) 1997 1996 1997 1996 1997 1996 1997* 1996 - --------------------------------------------------------------------------------------------------------------------------------- Sales $ 16,577 $ 15,716 $ 17,347 $ 16,727 $ 18,023 $ 17,394 $ 17,934 $ 17,701 Gross profit 6,436 5,788 6,797 6,263 7,407 6,659 7,300 7,170 Net income (loss) 1,037 844 1,163 910 1,365 1,077 (990) 1,293 Net income (loss) per share 0.14 0.12 0.16 0.13 0.19 0.15 (0.13) 0.18
* In the fourth quarter of fiscal 1997, the Company recorded a non-cash, non-recurring accounting charge for the impairment of long-lived assets. Absent the charge, net income and net income per share would have been:
4th Quarter 1997 Fiscal Year 1997 - -------------------------------------------------------------------------------- Net income $ 1,536 $ 5,101 Net income per share $ 0.21 $ 0.70 ** In the first quarter of fiscal 1994, the Company retroactively adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Accordingly, selected data for periods prior to fiscal 1994 described above as net income, net income per share and stockholders' equity were adjusted retroactively.
Management's Discussion and Analysis TRM continues to expand in new and existing metropolitan service areas. The number of service areas served has increased from 50 to 72 over the last three fiscal years and now includes 49 in the United States, 5 in Canada, 15 in the United Kingdom, 2 in France and 1 in Belgium. TRM Centers have increased 36 percent over the three year period, from 25,563 to 34,796. In addition to expanding, the Company is also focused on improving the profit performance of the installed base of TRM Centers. Results of Operations The percentage of change in dollar amounts and the percentage of sales represented by each item on the Consolidated Statements of Operations (page 9 of this Annual Report) follow:
Percentage Change As a Percentage of Sales - ----------------------------------------------------------------------------------------------------- 1996-97 1995-96 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- Sales 3.5% 11.6% 100.0% 100.0% 100.0% Sales discounts (0.4) 5.3 16.7 17.4 18.4 Cost of sales 1.1 11.4 43.3 44.3 44.3 Selling, general and administrative 5.7 17.1 26.6 26.0 24.8 Impairment of long-lived assets 100.0 -- 5.8 -- -- - ----------------------------------------------------------------------------------------------------- Operating income (36.4) 10.2 7.6 12.3 12.5 Interest expense, net (58.6) 1.3 (0.6) (1.4) (1.6) Other, net 55.2 (1.3) (1.0) (0.7) (0.8) - ----------------------------------------------------------------------------------------------------- Income before income taxes (39.5) 12.4 6.0 10.2 10.1 Provision for income taxes (42.4) 13.9 2.3 4.1 4.0 - ----------------------------------------------------------------------------------------------------- Net income (37.6%) 11.5% 3.7% 6.1% 6.1% - -----------------------------------------------------------------------------------------------------
The 1997 sales growth of 3.5 percent was due primarily to a 10.9 percent increase in the number of billed units offset by a 6.0 percent decrease in average net sales per unit. Sales growth during 1997 came primarily from the Company's foreign operations. Foreign sales grew to $25.9 million in 1997 from $22.0 million in 1996 and $15.7 million in 1995. Heavy investments in new city openings and in new copiers in Europe in 1994 and 1995 are now resulting in higher sales. The Company's business model in the more well-established U.S. operations differs from that in its foreign operations. In the U.S., the primary focus over the last three years has been on learning how to better manage the installed base of copiers. In actively managing the profit performance of the U.S. installed base, under-performing machines were removed and put back into stock to be redeployed at better sites. Locations with copy pricing too low to be profitable at their existing copy volumes were repriced to higher levels. The majority of the machines repriced showed increased profits and lower sales per unit. This and the declining performance of test installations of color copiers and business card equipment, referred to under "Impairment of long-lived assets," contributed to a decrease in U.S. sales during 1997. The Company plans to begin using new state-of-the-art black and white copiers to grow the installed base for the next several years. Further, after two years of opening cities attached to existing service centers, the Company has now resumed opening stand-alone cities with three domestic locations opening since October 1996. Also, much progress has been made on establishing a corporate chain selling program at TRM to better address the retailer consolidation of the 1990's. This aggressive new program, along with the NextGen black and white copier discussed below, are both expected to contribute toward increasing U.S. sales going forward. During 1996, sales growth was 11.6 percent and billed unit growth was 8.9 percent. The number of billed units and average sales per unit were significantly affected by the aggressive unit growth in Europe, where average machine performance is above the Company's average. To date, sales from products not related to black and white photocopying have been insignificant, amounting to less than 5 percent of total sales. Sales discounts are the portion of revenue retained by retail customers. They generally vary at individual retail businesses depending on volume--the higher the volume, the greater the discount and vice versa. The downward trend in sales discounts as a percentage of sales in 1997 and 1996 reflects changes made in business agreements with new customers over the periods. Cost of sales increased 1.1 percent from 1996 to 1997. This was below the percentage increase in sales, despite growth in field service payroll, headcount additions for opening new cities, and copier depreciation costs that were above the level of sales growth. This was achieved because of lower paper costs worldwide and lower paper and toner usage under the Company's higher-copy-price programs. Comparing 1996 to 1995, cost of sales increased 11.4 percent. This was primarily due to higher paper costs, though the Company mitigated the adverse impact of higher paper costs on cost of sales through its active program to raise copy prices at thousands of locations. This had a decreasing influence on the number of copies made due to expected demand elasticity. The increase in cost of sales was also affected by higher field service and field sales payroll costs. The rate of growth in selling, general and administrative expense decreased significantly, from 17.1 to 5.7 percent, from 1996 to 1997. During 1996, significant investments were made in people and systems. Key additions were made across all levels of the management team. Investments in our computerized management information systems were also made and continued throughout 1997. The increase in selling, general and administrative expense during 1997 was primarily due to higher employee health care costs in the U.S. and higher expansion and start-up expenses in both the U.S. and Europe. During 1997, the Company recorded a non-cash, non-recurring accounting charge of $4.1 million pretax ($2.5 million and $0.35 per share after tax), which reflected the Company's application of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." As discussed with "Sales" above, the Company determined that this action was necessary after reviewing the affected asset categories. This charge included impairment write downs of equipment in three categories: color copiers, custom business card printing components and certain older generation black and white copiers. Though the Company continues to support its installed color copier and business card units and expects to pursue other equipment offerings in these two product categories, it was concluded during 1997 that the initial equipment purchased in 1993 and 1994 for market testing was technologically dated and that the full asset carrying amounts were not recoverable. In addition, the Company recently finalized an agreement with a major copier manufacturer to purchase a new-generation black and white copier to grow the core business. The Company intends to use these new, state-of-the-art copiers to grow the installed base for the next several years. In light of this, the equipment write down included a provision for the impairment of older generation black and white copiers which are needed in the service centers to support the installed base, but are no longer expected to be placed as incremental revenue generating units. From mid-1996 through 1997, the Company was able to reduce bank borrowings significantly, which resulted in the lower interest expense. Interest costs were higher in 1995 and early 1996 because the Company incurred bank borrowings to help fund its aggressive unit expansion. The effective tax rate declined from 40.1% in 1996 to 38.2% in 1997 due to income in the United Kingdom now flowing through a United Kingdom subsidiary and being taxed at a lower statutory rate than domestic income. The change in effective tax rates between 1995 and 1996 was not significant. In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share." SFAS No. 128 requires public companies with complex capital structures to present both basic and diluted earnings per share ("EPS") on the face of the income statement. The presentation of basic EPS replaces the presentation of primary EPS currently required by Accounting Principles Board ("APB") No. 15, "Earnings Per Share." Basic EPS is calculated as income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted EPS (previously referred to as fully diluted EPS) is calculated using the "if converted" method for convertible securities and the treasury stock method for options and warrants as prescribed by APB No. 15. This statement is effective for financial statements issued for interim and annual periods ending after December 15, 1997. The Company does not believe the adoption of SFAS No. 128 in fiscal 1998 will have a significant impact on the Company's reported diluted EPS. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which established requirements for disclosure of comprehensive income. The objective of SFAS No. 130 is to report all changes in equity that result from transactions and economic events other than transactions with owners. Comprehensive income is the total of net income and all other non-owner changes in equity. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of earlier financial statements for comparative purposes is required. The Company has not quantified the effect of adoption of SFAS No. 130. Liquidity and Capital Resources During 1997 and 1996, cash flow from operations fully funded capital expenditures of $4.6 and $5.5 million, respectively, and allowed for repayment of $7.7 and $9.6 million, respectively, in bank borrowings. This level of capital expenditures was below the $13.3 million spent in 1995 because the Company focused on removing and redeploying low-performing customer placements and working through available inventories of copiers in North America during 1996 and 1997. The primary sources of capital for expansion in 1995 were cash from operating activities and bank borrowings. As of June 30, 1997, $400,000 was outstanding under a $30.0 million unsecured revolving bank loan. This line expires in April 2000. Interest only is due until April 1, 2000, at which time no additional borrowings will be available, and the loan balance outstanding will be due and payable. Under this arrangement, the Company has interest rate alternatives to choose from, including the bank's reference rate and LIBOR-based rates. The Company currently anticipates capital expenditures of $8 to $10 million during fiscal 1998. The Company expects to finance these capital expenditures with cash generated from operations and with bank borrowings. The Company expects that these sources will provide adequate cash to fund its expansion through at least June 30, 1998. Forward-Looking Statements Information in "Management's Discussion and Analysis," the letter to shareholders and elsewhere in this Annual Report about the Company's goals, plans and expectations regarding: future operations, growing the installed base; opening service areas; selling to corporate chains; installing next generation black and white copiers; addressing the color copying and business card printing markets and capital expenditures constitutes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: business conditions in the market areas in which the Company operates, competitive factors, consumer demand for the Company's services and the Company's ability to execute its plans successfully. Any forward-looking statements should be considered in light of these factors.
Consolidated Balance Sheets June 30, (In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------ Assets Current assets: Cash $ 2,528 $ 873 Accounts receivable, net 7,704 7,264 Inventories (note 2) 4,611 5,253 Prepaid expenses and other 1,399 1,580 - ------------------------------------------------------------------------------------------------------------ Total current assets 16,242 14,970 Equipment and vehicles, less accumulated depreciation (notes 3 and 4) 33,872 39,172 Other assets 46 109 - ------------------------------------------------------------------------------------------------------------ $ 50,160 $ 54,251 - ------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity Current liabilities: Checks in transit $ 1,409 $ 938 Accounts payable 1,568 1,799 Accrued expenses (note 5) 3,697 3,373 - ------------------------------------------------------------------------------------------------------------ Total current liabilities 6,674 6,110 Long-term debt (note 6) 400 8,128 Deferred income taxes (note 7) 4,258 4,569 - ------------------------------------------------------------------------------------------------------------ Total liabilities 11,332 18,807 Commitments (note 11) -- -- Stockholders' equity (notes 8 and 9): Preferred stock, no par value. Authorized 5,000 shares; no shares issued and outstanding -- -- Common stock, no par value. Authorized 10,000 shares; issued and outstanding 6,931 and 6,484 shares 16,601 16,214 Retained earnings 22,279 19,704 Cumulative translation adjustment (52) (474) - ------------------------------------------------------------------------------------------------------------ Total stockholders' equity 38,828 35,444 $ 50,160 $ 54,251 - ------------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations Fiscal year ended June 30, (In thousands, except per share data) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Sales $ 69,881 $ 67,538 $ 60,544 Less discounts 11,676 11,728 11,138 - ------------------------------------------------------------------------------------------------------------ Net sales 58,205 55,810 49,406 Cost of sales 30,265 29,930 26,857 - ------------------------------------------------------------------------------------------------------------ Gross profit 27,940 25,880 22,549 Selling, general and administrative expense 18,569 17,569 15,006 Impairment of long-lived assets (note 4) 4,088 -- -- - ------------------------------------------------------------------------------------------------------------ Operating income 5,283 8,311 7,543 Interest expense 396 957 945 Other expense, net 720 464 470 - ------------------------------------------------------------------------------------------------------------ Income before income taxes 4,167 6,890 6,128 Provision for income taxes (note 7) 1,592 2,766 2,429 - ------------------------------------------------------------------------------------------------------------ Net income $ 2,575 $ 4,124 $ 3,699 - ------------------------------------------------------------------------------------------------------------ Net income per share $ 0.35 $ 0.57 $ 0.53 Weighted average common and common equivalent shares outstanding 7,337 7,262 6,934 - ------------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity Cumulative Common Stock Retained Translation (In thousands) Shares Amount Earnings Adjustment Total - --------------------------------------------------------------------------------------------------------------- Balances, June 30, 1994 6,390 $ 15,822 $ 11,881 $ (548) $ 27,155 Exercise of stock options 27 55 -- -- 55 Issuance of stock to employees 15 63 -- -- 63 Foreign currency translation adjustment -- -- -- 556 556 Net income -- -- 3,699 -- 3,699 - --------------------------------------------------------------------------------------------------------------- Balances, June 30, 1995 6,432 15,940 15,580 8 31,528 Exercise of stock options 36 137 -- -- 137 Tax benefit of stock options -- 26 -- -- 26 Issuance of stock to employees 16 111 -- -- 111 Foreign currency translation adjustment -- -- -- (482) (482) Net income -- -- 4,124 -- 4,124 - --------------------------------------------------------------------------------------------------------------- Balances, June 30, 1996 6,484 16,214 19,704 (474) 35,444 Exercise of stock options 468 517 -- -- 517 Purchase of outstanding shares (27) (279) -- -- (279) Tax benefit of stock options -- 96 -- -- 96 Issuance of stock to employees 6 53 -- -- 53 Foreign currency translation adjustment -- -- -- 422 422 Net income -- -- 2,575 -- 2,575 - --------------------------------------------------------------------------------------------------------------- Balances, June 30, 1997 6,931 $ 16,601 $ 22,279 $ (52) $ 38,828 - --------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows Fiscal year ended June 30, (In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Operating activities: Net income $ 2,575 $ 4,124 $ 3,699 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,591 5,101 4,623 Loss on disposal of equipment and vehicles 234 40 18 Impairment of long-lived assets 4,088 -- -- Changes in items affecting operations: Accounts receivable (440) (529) (1,789) Inventories 566 1,292 (2,318) Prepaid expenses and other (189) 146 745 Accounts payable (231) 306 240 Accrued expenses 324 70 1,161 Deferred income taxes (311) 817 687 - ------------------------------------------------------------------------------------------------------------ Total operating activities 12,207 11,367 7,066 Investing activities: Proceeds from sale of equipment 456 146 130 Capital expenditures (4,562) (5,494) (13,259) Other (33) 44 (17) - ------------------------------------------------------------------------------------------------------------ Total investing activities (4,139) (5,304) (13,146) Financing activities: Change in checks in transit 471 (484) 1,033 Principal payments on borrowings (7,728) (9,636) (7,337) Proceeds from borrowings -- 3,526 12,075 Net proceeds from issuance of common stock 387 274 118 - ------------------------------------------------------------------------------------------------------------ Total financing activities (6,870) (6,320) 5,889 Effect of exchange rate changes 457 375 283 Net increase in cash 1,655 118 92 Beginning cash 873 755 663 - ------------------------------------------------------------------------------------------------------------ Ending cash $ 2,528 $ 873 $ 755 - ------------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies: Description of Business TRM Copy Centers Corporation, headquartered in Portland, Oregon, as its primary business, owns, supplies and maintains nearly 35,000 self-service photocopiers in pharmacies, stationery stores, hardware stores, convenience stores and other retail establishments in the United States, Canada, the United Kingdom, France and Belgium. Each retail establishment collects payment from its customers, shares in the revenue of the photocopier and benefits from any increase in customer traffic within the store. Principles of Consolidation The consolidated financial statements include the accounts of the parent and its subsidiary companies (the Company). All significant intercompany accounts and profits have been eliminated. Assets and liabilities of foreign operations are translated into U.S. dollars at current exchange rates. Income and expense accounts are translated into U.S. dollars at average rates of exchange prevailing during the periods. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are taken directly to a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in income and have been immaterial to date. Fair Value of Financial Instruments Financial instruments, including cash, accounts receivable, checks in transit and accounts payable, approximate fair market value because of the short maturity for these instruments. Fair value approximates carrying value of the Company's borrowings under its long-term debt arrangements based upon interest rates available for the same or similar loans. Revenue Recognition and Accounts Receivable A portion of each copy sale is retained by the retail business, generally depending on copy volume. The Company invoices each retailer via monthly billings based on usage at the program price per copy less the applicable discount (the amount retained by the retailer). Total sales activity and discount amounts are recorded separately in the accounting records and in the consolidated statements of operations to arrive at net sales. Accounts receivable are shown net of allowance for doubtful accounts of $148,000 and $287,000 at June 30, 1997 and 1996, respectively. Inventories Inventories are stated at the lower of FIFO cost or market. Equipment and Vehicles Equipment and vehicles are recorded at cost. Depreciation begins when the asset is placed in service and is generally recorded using the straight-line method over the estimated remaining useful lives of the related assets as follows: Photocopiers and other centers 5-10 years Furniture and fixtures 5-7 years Computer equipment 5 years Vehicles 5 years Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities, and are measured by applying enacted tax rates and laws to the taxable years in which such differences are expected to reverse. Statements of Cash Flows Supplemental Information Income taxes paid were approximately $1,635,000, $2,465,000 and $1,075,000 for the fiscal years 1997, 1996 and 1995, respectively. Interest paid does not materially differ from interest expense. Net Income Per Share Net income per share is computed based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the periods. Common stock equivalents consist of options to purchase stock (using the treasury stock method). Stock-Based Compensation The Company applies APB No. 25, "Accounting for Stock Issued to Employees," and the related interpretations in accounting for stock-based compensation plans. In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company has provided the required footnote disclosures (see note 8). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Effect of Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share," which requires companies with complex capital structures that have publicly held common stock or common stock equivalents to present both basic and diluted earnings per share ("EPS") on the face of the income statement. The presentation of basic EPS replaces the presentation of primary EPS currently required by APB No. 15, "Earnings Per Share." This statement is effective for financial statements issued for interim and annual periods ending after December 15, 1997. The Company does not believe the adoption of SFAS No. 128 in fiscal 1998 will have a significant impact on the Company's reported diluted EPS. 2. Inventories: June 30, (In thousands) 1997 1996 - ------------------------------------------------------------------------------- Paper $ 1,231 $ 1,505 Toner and developer 692 828 Parts 2,688 2,920 - ------------------------------------------------------------------------------- $ 4,611 $ 5,253 - ------------------------------------------------------------------------------- 3. Equipment and Vehicles: June 30, (In thousands) 1997 1996 - ------------------------------------------------------------------------------- Photocopiers and other centers $ 45,232 $ 47,918 Furniture and fixtures 1,899 1,787 Computer equipment 1,381 1,392 Vehicles 5,109 5,950 - ------------------------------------------------------------------------------- 53,621 57,047 Accumulated depreciation 19,749 17,875 $ 33,872 $ 39,172 - ------------------------------------------------------------------------------- 4. Impairment of Long-Lived Assets: The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," during fiscal 1997. This new accounting standard requires long-lived assets to be reviewed for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The Company recognized a non-cash, non-recurring impairment charge of $4,088,000 pretax ($2,526,000 and $0.35 per share after tax), in fiscal 1997 as a result of adopting this new accounting standard. This charge included impairment write downs of equipment in three categories: color copiers, custom business card printing components and certain older generation black and white copiers. Though the Company continues to support its installed color copier and business card units and plans to pursue other equipment offerings in these two product categories, it was concluded during 1997 that the initial equipment purchased in 1993 and 1994 was technologically dated and that the full asset carrying amounts were not recoverable. In addition, the Company recently finalized an agreement with a major copier manufacturer to purchase a new generation black and white copier to grow the core business. The Company intends to use these new, state-of-the-art copiers to grow the installed base for the next several years. In light of this, the equipment write down included a provision for the impairment of older generation black and white copiers, which are needed in the service centers to support the installed base, but are no longer expected to be placed as incremental revenue-generating units. 5. Accrued Expenses: June 30, (In thousands) 1997 1996 - ------------------------------------------------------------------------------- Accrued payroll expenses $ 2,550 $ 2,443 Customer security deposits 250 276 Other accrued expenses 897 654 - ------------------------------------------------------------------------------- $ 3,697 $ 3,373 - ------------------------------------------------------------------------------- 6. Bank Borrowings: June 30, (In thousands) 1997 1996 - ------------------------------------------------------------------------------- Bank revolving loan, unsecured, maximum limit of $30.0 million $ 400 $ 8,128 - ------------------------------------------------------------------------------- The revolving loan agreement calls for monthly payments of interest only until expiration on April 1, 2000, or as renegotiated. At that time, no additional borrowings will be available, and the outstanding loan balance will be due and payable. The arrangement allows the Company to choose from interest rate alternatives based on the bank's reference rate or on LIBOR. It also calls for a loan fee which was paid at the date of the loan and is being amortized over the life of the loan. The interest rate applicable to bank borrowings as of June 30, 1997 was 8.5%. The loan agreement contains certain restrictive covenants as to working capital, total liabilities and stockholders' equity. The Company is in compliance with the covenants. 7. Income Taxes: Deferred income taxes arise primarily from different depreciation calculations used for financial statement and income tax purposes. Income before income taxes is as follows:
(In thousands) 1997* 1996 1995 - ----------------------------------------------------------------------------------- United States $ 1,223 $ 6,730 $ 5,907 Foreign 2,944 160 221 - ----------------------------------------------------------------------------------- $ 4,167 $ 6,890 $ 6,128 - ----------------------------------------------------------------------------------- * During 1997, the Company recorded a non-cash, non-recurring accounting charge of $4,088,000 pretax ($2,526,000 and $0.35 per share after tax), for the impairment of long-lived assets (see note 4).
The components of income tax expense are as follows:
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------- Current: Federal $ 1,074 $ 1,459 $ 1,250 State 459 424 401 Foreign 370 66 91 Deferred: Federal (1,097) 564 578 State (320) 164 100 Foreign 1,106 89 9 - ----------------------------------------------------------------------------------- $ 1,592 $ 2,766 $ 2,429 - -----------------------------------------------------------------------------------
The effective tax rate differs from the federal statutory tax rate as follows:
1997 1996 1995 - ------------------------------------------------------------------------------------ Statutory federal rate 34.0% 34.0% 34.0% State taxes, net of federal benefit 7.6 5.9 5.9 Benefit of foreign tax rates (4.1) -- -- Other 0.7 0.2 (0.3) - ------------------------------------------------------------------------------------ 38.2% 40.1% 39.6% - ------------------------------------------------------------------------------------
8. Stockholders' Equity: The Company reserved 1,300,000 shares of common stock for issuance under an incentive and nonqualified stock option plan established in 1986 (the "1986 Plan"). In October 1996, the 1996 Stock Option Plan (the "1996 Plan") was approved by shareholders of the Company. The 1996 Plan provides for the granting of a maximum of 700,000 options to purchase common shares to key employees of the Company. Under both plans ("the Plans"), incentive stock options are granted at no less than 100% of the fair market value per share of the common stock. Nonqualified stock options under the 1986 Plan were granted at prices determined by the Board of Directors, while grants under the 1996 Plan are granted at no less than 100% of fair market value. The options are exercisable over a period of ten years from the date of grant. Generally, the options vest over five years. In fiscal 1995, 300,000 option shares were granted at fair market value outside the Plans. These options vested over two years and are exercisable for five years after the last vesting date. A summary of stock option activity follows:
Shares Weighted Average Under Option Price Range Exercise Price - ---------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1995 1,237,650 $ .25 - $ 7.375 $ 3.22 Options granted 196,500 $ 6.375 - $ 10.625 $ 9.92 Options exercised (36,100) $ .25 - $ 6.375 $ 4.05 Options canceled (15,000) $ 4.125 - $ 6.375 $ 6.02 - ---------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1996 1,383,050 $ .25 - $ 10.625 $ 4.12 Options granted 146,500 $ 9.875 - $ 10.375 $ 10.28 Options exercised (468,200) $ .25 - $ 6.75 $ 1.11 Options canceled (12,800) $ 6.25 - $ 10.625 $ 7.01 - ---------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1997 (653,954 exercisable, 566,300 available for grant under the Plans) 1,048,550 $ 2.00 - $ 10.625 $ 6.29 - ----------------------------------------------------------------------------------------------------------------------
A summary of stock options outstanding follows:
Options Outstanding Options Exercisable Weighted Weighted Weighted Number Average Average Number Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Price at June 30, 1997 Contractual Life Price at June 30, 1997 Price - -------------------------------------------------------------------------------------------------------------- $2.00 to $ 6.00 545,750 6.1 $ 3.90 497,750 $3.87 $6.25 to $ 7.50 176,800 7.7 $ 6.43 66,899 $6.39 $9.25 to $10.625 326,000 9.3 $ 10.22 89,305 $9.99 - -------------------------------------------------------------------------------------------------------------- $2.00 to $10.625 1,048,550 7.4 $ 6.29 653,954 $4.96 - --------------------------------------------------------------------------------------------------------------
The Company applies APB No. 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had compensation cost for the Company's stock option and stock purchase plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced by approximately $180,000 or $0.02 per share for the year ended June 30, 1997, and approximately $48,000 or $0.01 per share for the year ended June 30, 1996. The weighted-average grant-date fair value of options granted during fiscal 1997 was $4.13 per share using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, volatility of 39.60%, risk-free interest rate of 6.40% and an expected life of four years. The weighted-average grant-date fair value of options granted during fiscal 1996 was $4.24 per share using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, volatility of 43.65%, risk-free interest rate of 6.46% and an expected life of four years. The effects of applying SFAS No. 123 for providing pro-forma disclosure for 1997 and 1996 are not likely to be representative of the effects on reported net earnings and earnings per share for future years since options vest over several years and additional awards may be made. 9. Benefit Plans: Profit Sharing Retirement Plan On January 1, 1990, the Company established a profit sharing retirement plan for eligible U.S. employees. The Plan has profit sharing and 401(k) components. The Company's contribution under the profit sharing portion of the Plan is discretionary. Under the 401(k) part of the Plan, each employee may contribute, on a pretax basis, up to 20% of the employee's gross earnings, subject to certain limitations. The Company also has supplemental retirement plans in Canada and the United Kingdom. The Company accrued profit sharing contributions of $260,000 for fiscal 1997, $240,000 for fiscal 1996 and $230,000 for fiscal 1995. Employee Stock Purchase Plan The Company's Employee Stock Purchase Plan permits each eligible employee to purchase shares of common stock through payroll deductions, not to exceed 10% of the employee's compensation. The purchase price of the shares is the lower of 85% of the fair market value of the stock at the beginning of each six-month offering period or 85% of the fair market value at the end of such period. Amounts accumulated through payroll deductions during the offering period are used to purchase shares on the last day of the offering period. Of the 100,000 shares authorized to be issued under the Plan, 53,694 shares have been purchased, and 46,306 shares remain available for purchase as of June 30, 1997. 10. Related Party Transactions: A company in which the Chairman of the Board is a partner provided approximately $57,000 in consulting services to the Company during fiscal 1997. Two members of the Company's Board of Directors also served as consultants to the Company on various aspects of the Company's business and strategic issues in fiscal 1997 and 1996 and were paid $60,000 and $32,000, respectively. 11. Lease Commitments: The Company leases vehicles and office and warehouse space in several locations under operating leases. Minimum lease payments are as follows: $2,015,000, $1,836,000, $1,246,000, $1,001,000 and $894,000 for fiscal years 1998, 1999, 2000, 2001 and 2002, respectively, and $4,623,000 thereafter. Rental expense for fiscal years 1997, 1996 and 1995 was $2,358,000, $1,921,000 and $1,757,000, respectively. 12. Operations by Geographic Areas: The Company operates in one industry segment as a service company maintaining and supporting its programs, which have been developed and placed with retail establishments. Information about the Company's domestic and foreign operations are presented below.
Sales Operating Income Assets (In thousands) 1997 1996 1995 1997* 1996 1995 1997* 1996 1995 - ----------------------------------------------------------------------------------------------------------------- United States $ 43,949 $ 45,559 $ 44,814 $ 1,416 $ 5,717 $ 6,779 $ 26,451 $ 31,527 $ 33,858 Foreign: Europe 21,389 17,575 11,677 3,383 2,310 389 20,869 19,786 19,330 Other 4,543 4,404 4,053 484 284 375 2,840 2,938 2,548 - ----------------------------------------------------------------------------------------------------------------- $ 69,881 $ 67,538 $ 60,544 $ 5,283 $ 8,311 $ 7,543 $ 50,160 $ 54,251 $ 55,736 - ----------------------------------------------------------------------------------------------------------------- * During fiscal 1997, the Company recorded a non-cash, non-recurring accounting charge for the impairment of long-lived assets. Before the accounting charge, United States Operating Income and Assets for fiscal 1997 would have been $5,185,000 and $30,221,000, respectively. The effect on foreign Operating Income and Assets was not significant.
Independent Auditors' Report The Board of Directors and Stockholders TRM Copy Centers Corporation: We have audited the accompanying consolidated balance sheets of TRM Copy Centers Corporation and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended June 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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 provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TRM Copy Centers Corporation and subsidiaries as of June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1997, in conformity with generally accepted accounting principles. Portland, Oregon August 15, 1997
CORPORATE DIRECTORY BOARD OF DIRECTORS LEGAL COUNSEL FORM 10-K Frederick O. Paulsell Stoel Rives LLP A copy of the Company's Annual Report Chairman of the Board Suite 2300 on Form 10-K, as filed with the Partner, Olympic Capital 900 S.W. Fifth Avenue Securities and Exchange Commission, Partners, P.L.L.C. Portland, Oregon 97204 will be made available without charge Telephone: (503) 224-3380 upon written request to Investor Edwin S. Chan Relations, TRM Copy Centers Corporation, Vice Chairman INDEPENDENT AUDITORS 5208 N.E. 122nd Avenue, Portland, Retired President and KPMG Peat Marwick LLP Oregon 97230-1074. Chief Executive Officer Suite 2000 1211 S.W. Fifth Avenue COMMON STOCK Sherman M. Coe Portland, Oregon 97204 TRM Copy Centers Corporation's common Vice President, Gene Juarez Telephone: (503) 221-6500 stock, of which there are approximately Salons, Inc. 3,000 beneficial owners, trades on the CORPORATE OFFICES Nasdaq National Market under the symbol Ralph R. Shaw TRM Copy Centers Corporation TRMM. The Company has not paid dividends Chairman 5208 N.E. 122nd Avenue on its common stock and has no plans to ShawVentures, L.L.C. Portland, Oregon 97230-1074 do so in the near future. Telephone: (503) 257-8766 Michael D. Simon Facsimile: (503) 251-5473 STOCK PRICE HISTORY Retired President and The following table sets forth the high Chief Executive Officer STOCK TRANSFER AGENT and low sale prices for the last two Registrar and Transfer Company fiscal years. Frederic P. Stockton 10 Commerce Drive President and Cranford, New Jersey High Low Chief Executive Officer 07016-3572 ------------------------------------ Corporate Secretary Telephone: (908) 272-8511 Fiscal 1996: 1st Quarter $ 8 3/8 $ 6 1/4 Donald L. Van Maren ANNUAL MEETING 2nd Quarter 11 3/8 7 3/8 Private Investor, The annual meeting of stockholders 3rd Quarter 11 1/2 10 Retired Doctor of Optometry of TRM Copy Centers Corporation 4th Quarter 11 1/2 10 5/8 will be held at the U.S. Bancorp Tower, 41st Floor, John Elorriaga Fiscal 1997: EXECUTIVE OFFICERS Auditorium, 111 S.W. Fifth Avenue, 1st Quarter $11 1/2 $ 9 1/4 Frederic P. Stockton Portland, Oregon 97204, on 2nd Quarter 11 9 3/8 President and October 28, 1997, at 9 a.m. 3rd Quarter 11 1/2 9 1/4 Chief Executive Officer 4th Quarter 11 1/8 9 11/16 Corporate Secretary James W. Perris Chief Operating Officer and Vice President of Operations Danial J. Tierney Vice President of Corporate Sales
EX-21.1 8 SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 Subsidiaries of TRM Copy Centers Corporation State or Place Subsidiary of Incorporation - ---------- ---------------- TRM Copy Centers (USA) Corporation Oregon TRM Copy Centres (Canada) Ltd.* Canada TRM Copy Centres (U.K.) Limited.* U.K. FPC France Ltd.* Oregon FPC Belgium Limited* Oregon BisCard Corporation Oregon *TRM Copy Centres (Canada) Ltd., TRM Copy Centres (U.K.) Ltd., FPC France Ltd. and FPC Belgium Limited are subsidiaries of TRM Copy Centers (USA) Corporation. EX-27.1 9 FINANCIAL DATA SCHEDULES
5 1,000 YEAR JUN-30-1997 JUN-30-1997 2,528 0 7,852 148 4,611 16,242 53,621 19,749 50,160 6,674 400 0 0 16,601 0 50,160 58,205 58,205 30,265 30,265 720 0 396 4,167 1,592 2,575 0 0 0 2,575 .35 .35
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