-----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, RMK9YTcmZQNtwQkKdqD0I9mXxgdpd9CgsDfPJ4EkvLoeHXMhBZ67HjH6mVcKn6jN y4uyC1b0GCY5Qfd9kBOvUg== 0000893877-98-000629.txt : 19980929 0000893877-98-000629.hdr.sgml : 19980929 ACCESSION NUMBER: 0000893877-98-000629 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980928 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRM 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-K405 SEC ACT: SEC FILE NUMBER: 000-19657 FILM NUMBER: 98716008 BUSINESS ADDRESS: STREET 1: 5208 N E 122ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97230-1074 BUSINESS PHONE: 5032578766 FORMER COMPANY: FORMER CONFORMED NAME: TRM COPY CENTERS CORP DATE OF NAME CHANGE: 19940411 10-K405 1 ANNUAL REPORT ================================================================================ 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 For the fiscal year ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 0-19657 ---------- TRM CORPORATION (Exact name of registrant as specified in its charter) Oregon 93-0809419 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 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. [X] As of August 21, 1998 the aggregate market value of the registrant's Common Stock held by non affiliates of the registrant was $66.4 million. Solely for purposes of this calculation, the registrant has treated its Board of Directors and executive officers as affiliates. As of August 21, 1998, the number of shares of the registrant's Common Stock outstanding was 7,065,384. Documents incorporated by reference: Parts of registrant's Proxy Statement for the annual meeting of shareholders on November 16, 1998 are incorporated by reference into Part III of this report. ================================================================================ TRM CORPORATION TABLE OF CONTENTS Item Page No. No. - ---- ---- Part I 1. Business..................................................................2 2. Properties................................................................7 3. Legal Proceedings.........................................................7 4. Submission of Matters to a Vote of Security Holders.......................7 Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters....10 6. Selected Financial Data..................................................10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................11 8. Financial Statements and Supplemental Data...............................16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................................................16 Part III 10. Directors and Executive Officers of the Registrant.......................17 11. Executive Compensation...................................................17 12. Security Ownership of Certain Beneficial Owners and Management...........17 13. Certain Relationships and Related Transactions...........................17 Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........18 PART I ITEM 1. BUSINESS General As of June 1998, TRM Corporation (formerly TRM Copy Centers Corporation) owned and maintained over 33,000 self-service photocopiers in retail establishments such as multi-site retailers, pharmacies, stationery stores, hardware stores and gift shops in 73 metropolitan areas: 51 in the U.S., 5 in Canada, 15 in the U.K and 2 in France. 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 TRM Copy Center (as defined below) and benefits from any increase in walk-in traffic. The Company invoices and collects payment from each retailer monthly. Each TRM Copy Center consists of a photocopier, a machine stand, advertising signs and in some cases a coin-operated unit ("Copy Center" or "TRM Copy Center"). TRM Copy Centers are identifiable by the Company's trapezoidal yellow and black "TRM Copies" signs. TRM has become 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 Copy Centers throughout its service areas. Operations by geographic area are presented in Note 12 to the Consolidated Financial Statements included on page F-13 in this Form 10-K. The Company services its Copy Centers and provides all necessary supplies. The retail business supplies space and electrical power for the TRM Copy Center and supervises its use. Consumers report the number of uses of the TRM Copy Center to the retail business cashier, who collects payment. Each month, the retail business keeps a percentage of the TRM Copy Center's revenue, which generally is based on a sliding scale related to usage, as recorded by the TRM Copy 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 Team Headquarters in Portland, Oregon. Generally, the only personnel outside the Portland Team Headquarters are service and sales personnel. TRM minimizes costs by buying large quantities of new 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 in new geographic areas and to install and service thousands of TRM Copy Centers. The Company is an Oregon corporation formed in 1982. From the end of fiscal 1993 through June 30, 1998, TRM opened operations in 14 U.S., 2 Canadian, 13 U.K. and 2 French metropolitan areas. As part of a Special Meeting of Shareholders in June 1998, the Company's Shareholders voted to amend its Restated Articles of Incorporation to change the Company's corporate name from "TRM Copy Centers Corporation" to "TRM Corporation." As used in this Form 10-K, the terms "the Company" and "TRM" refer to TRM Corporation and its subsidiaries, unless the context requires otherwise. Recent Developments In September 1997, the Company's Board of Directors authorized the Company to repurchase up to 500,000 shares of its Common Stock through privately negotiated or open market purchases as market conditions dictate. To date, the Company has not repurchased any shares of Common Stock. With the growth in new technology black and white photocopier ("NextGen(TM)") programs, the Company has decided to retire and dispose of over half of its older model Savin photocopiers. In the third quarter of 1998, the Company recorded non-cash, special charges of $6.4 million relating to these under-performing assets of its Photocopy Division, as part of this strategic decision to eliminate low-volume Savin photocopiers. 2 Also in the third quarter of fiscal 1998, the Company entered into an agreement with ReadyCash Investment Partners, L.P. ("ReadyCash"), resulting in an equity investment of $20 million into TRM. In return, ReadyCash was issued 1,777,778 shares of Series A Preferred Stock and warrants to acquire 500,000 shares of Common Stock of the Company. The Company plans to use the proceeds of this investment to finance the formation of a new Automated Teller Machine (ATM) Division (see "New Products and Services Under Development," Management's Discussion and Analysis of Financial Condition and Results of Operations on page 11, and Note 4 to the Consolidated Financial Statements on page F-8). Locations Historically, TRM has focused its sales efforts on small independent retail businesses. During fiscal year 1998 and going forward, the Company is expanding its program of selling to large-format, multi-site retail establishments to better address the retail industry as it continues to consolidate. TRM's installed customer base is diversified and no single retailer 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, 1998, the Company has established a local Service Center (as defined below) in 52 major metropolitan areas. TRM locates its Service Centers in sites convenient to the concentration of TRM Copy Centers. Each of these Service Centers consists of leased premises generally staffed by a service center manager and one or more service technicians and sales representatives. Service Centers include a warehouse for the storage of photocopiers, other components, spare parts, paper and toner. Twenty-one metropolitan areas most recently entered by the Company were opened with resources from existing Service Centers nearby, most of which have storage unit facilities ("Service Center"). In conjunction with the expansion of multi-site retailer sales activities, the Company addressed the need to service customers in locations that were not accessible by existing TRM Service Centers. When the number of customer sites does not justify the addition of a new TRM Service Center, the Company contracts with a third-party service provider to install and service photocopiers at those sites. With this expanded network of third-party service providers, the Company believes it is positioned to effectively market to large multi-site retailers. The Company presently has service agreements in place for 327 TRM Copy Centers not presently serviced directly by TRM technicians. Expansion TRM installed 4,631 additional TRM Copy Centers, net of replacements and removals, from July 1, 1995 to June 30, 1998. During fiscal 1998, the Company removed 7,120 photocopiers and installed 6,000 photocopiers, for a net decrease of 1,120 photocopier machines. During fiscal 1999, the Company plans to add approximately 10,000 additional TRM Copy Centers in new and existing market areas. The Company intends to continue to actively manage its installed base by removing its low-performing sites and eliminating sites that fail to meet specified volume performance expectations. TRM's planned expansion will require an increase in the number of installed photocopiers and customers. Due to the improved efficiency of the NextGen(TM) technology, the Company believes this expansion will not require an increase in service center technicians. The Company believes its existing employee base can support the planned growth. The Company will open a Service Center in each new geographic market as it is justified. TRM uses both new and existing photocopiers to fulfill the requirements of its expansion strategy. The Company is purchasing new machines to use in high-volume, independent and multi-site locations (see discussion of NextGen(TM) under "New Products and Services Under Development"). TRM sells the TRM Copy Center concept to independent 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, national and international multi-site retail chains. Copy pricing is based on market competition, volume and retailer preference. Pricing decisions are made by the retailer based on the experience and recommendations of TRM for individual site pricing strategy. 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. 3 New Products and Services Under Development The Company is positioned to add other products or services to further optimize the use of its existing network of sales, service, distribution and support organizations 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 1998, the Company announced plans to form an ATM division ("ATM Division") using a $20 million equity investment by ReadyCash. The ATM Division will enable TRM to offer ATM services to its 25,000 customer relationships in North America, which in turn will increase utilization of the distribution and service organization already in place in the US and Canada. The exact organizational structure of the ATM Division is still in the development stage. Current activities include a search for key management as well as evaluation of potential acquisition opportunities. Additionally in fiscal 1998, the Company commenced the purchasing of thousands of NextGen(TM) copiers for further unit growth. NextGen(TM) is an important element in TRM's core programs for high-volume, independent retailer locations and larger retail chains. The Company places NextGen(TM) photocopiers in accordance with a 36-month commitment from the retailer and slightly different discount and billing arrangements. TRM's existing base of installed copy machines will continue to be used for many convenience copying locations. In fiscal 1998, the Company continued to expand its placement of retailer-serviced coin-operated convenience photocopiers with large format multi-site retailers, where TRM's service quality and worldwide infrastructure is a key advantage, but where host cashiering is not a desired benefit for the retailer. 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. Competition A person seeking photocopy services has a variety of alternatives to a TRM Copy Center. These alternatives include specialty full-service business centers, 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. 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 retail establishments similar to TRM's locations. While these coin-operated photocopiers provide a similar service to TRM Copy Centers, the Company believes 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 placing coin-operated copying with major large format chains and retail stores. 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 to the Company's business. Personal copiers provide a substitute for TRM 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 4 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. The ATM business is and can be expected to remain highly competitive. While the Company's principal competition is expected to come from national and regional banks, the Company will also compete with other independent ATM companies. All of these competitors offer services similar to or substantially the same as those the Company expects to offer. As the Company enters the ATM business, such competition could prevent the Company from obtaining or maintaining desirable locations for its machines or could cause the Company to reduce its user fees generated by the ATMs and thereby reduce the Company's revenues and profits. The independent ATM business has become increasingly competitive as entities other than banks have entered the market with relatively few barriers to accomplish such entry. Quarterly Seasonality Historically, the Company has experienced slightly higher than average production per TRM Copy Center in its third and fourth fiscal quarters due to those quarters being tax season in the U.S. The Company experiences slightly lower than average production per TRM Copy Center in its first fiscal quarter as the European countries have extended holiday periods. Photocopiers As of June 30, 1998, TRM owned and maintained over 33,000 self-service photocopiers in retail establishments such as multi-site retailers, pharmacies, stationery stores, hardware stores and gift shops. Generally, new photocopiers are shipped direct from the manufacturer to a TRM Service Center. The Company expects to continue to use both new and existing photocopiers to expand its black and white copying business. Supply In fiscal 1998, the Company finalized an agreement with Konica Business Machines ("Konica") to purchase 7,500 new, state-of-the-art black and white NextGen(TM) photocopiers over a three year span. At June 30, 1998, the Company had purchased over 7,000 units under this agreement. 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. In the past, the Company primarily used two similar discontinued models of used photocopiers originally manufactured by Ricoh Company, Ltd. and its affiliates ("Savin" photocopiers). 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. A portion of the older model Savin copiers have been written-off in fiscal 1997 and 1998 as under-performing assets (see Note 4 to the Consolidated Financial Statements on page F-8 in this Form 10-K.) The remaining Savin photocopiers owned by the Company are in profitable locations. 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. Parts Currently, parts for Konica and Mita photocopiers are being supplied primarily by the photocopier manufacturers. The Company acquires a majority of the parts for its Savin 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. The Company will continue to evaluate available sources of supply for parts. 5 Paper Photocopy paper is purchased centrally by the Company's Team Headquarters 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 Currently, toner for Konica photocopiers is being supplied primarily by the photocopier manufacturer. The Company purchases toner for Mita photocopiers and liquid toner for its black and white rebuilt photocopiers located in North America directly from three 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. The Company will continue to evaluate available sources of supply for toner. Employees As of June 30, 1998, the Company had 593 employees, most of whom were full-time. 401 are in field service, 170 are in sales, marketing, customer service, purchasing, billing and administration, and 22 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 9 independent contractors to sell the TRM service program, which includes a machine and a service agreement. Service Marks Most TRM Copy Centers are identified by distinctive yellow and black trapezoidal signs bearing "TRM Copies" and the program price. In France the Company does business under the name of FPC France Ltd. TRM and FPC's signs are registered service marks. The Company registered "NextGen" as it relates to the new black and white technology photocopier the Company is purchasing and placing in service. 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's photocopier business 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. The Company believes ATM operations are not subject to any governmental regulation that will adversely effect the business of the Company's ATM Division. Various regulations have been proposed to reduce or eliminate amounts charged to users of ATMs. If any of these regulations are enacted in the jurisdictions where the company is considering placing ATMs, the Company's revenues would decline and the Company would be negatively impacted. The enactment of any such regulations may effectively prohibit the Company from placing ATMs in such jurisdiction. Forward-Looking Statements This Form 10-K and Annual Report include 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 goals, plans and expectations regarding: removing Savin photocopiers, establishing the ATM Division, effectively using a third-party network 6 of service providers, purchasing and installing additional NextGen(TM) photocopiers, expansion in existing and new markets, the Year 2000 Issue, and capital expenditures. Risk factors related to these forward looking statements are discussed in "Management's Discussion and Analysis" (see Forward-Looking Statements on page 15 of this Form 10-K.) ITEM 2. PROPERTIES The Company leases approximately 25,750 square feet of office space for its Team Headquarters in Portland, Oregon. The lease expires in 2010, with an option to renew for an additional five years. The Company also leases 31,500 square feet of space that serves as the Portland Service Center and is also used for training, warehousing and other office space under a lease that also expires in 2010. This facility is located next to the Team Headquarters. Such space is currently adequate for the Company's business. The Company leases warehouse space for 52 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 On June 24, 1998 the Company held a Special Meeting of Shareholders. The Shareholders took the actions described below. As of the record date for the Special Meeting, 7,056,811 shares of Common Stock were issued and outstanding. 1. The Shareholders voted to amend the Company's Restated Articles of Incorporation to change the Company's corporate name to "TRM Corporation," by the votes indicated below: Votes For: 5,927,184 Votes Against: 980 Votes Abstained: 3,300 2. The Shareholders voted to approve an amendment to the Company's Restated Articles of Incorporation to increase the authorized number of shares of Common Stock that the Company may issues from 10,000,000 to 50,000,000, by the votes indicated below: Votes For: 4,516,413 Votes Against: 1,414,583 Votes Abstained: 468 3. The Shareholders voted to approve an amendment to the Company's Restated Articles of Incorporation to create and determine the preferences, limitations and rights of a new series of Preferred Stock of the Company, to be designated "Series A Preferred Stock," by the votes indicated below: Votes For: 3,645,694 Votes Against: 25,960 Votes Abstained: 3,560 Broker Non-votes: 2,256,250 7 4. The Shareholders voted to approve the issuance and sale of 1,777,778 shares of the Series A Preferred Stock and warrants to purchase an aggregate of 500,000 shares of Common Stock of the Company at an exercise price of $15.00 a share (the "Warrants") to ReadyCash Investment Partners, L.P. (the "Purchaser") pursuant to a Preferred Stock and Warrants Purchase Agreement dated March 29, 1998 between the Company and the Purchaser (the "Purchase Agreement"), for an aggregate purchase price of $20,000,000, by the votes indicated below: Votes For: 3,669,374 Votes Against: 5,290 Votes Abstained: 550 Broker Non-votes: 2,256,250 5. The Shareholders elected each of Daniel G. Cohen, Edward E. Cohen, Joseph G. Denton, Kent B. Godfrey, Joel R. Mesznik and Kenneth L. Tepper by the votes, and for the terms indicated below, to serve on the Company's Board of Directors. All of the elections were effective upon closing of the issuance and sale of the Series A Preferred Stock and the Warrants to the Purchaser pursuant to the Purchase Agreement (the "Closing"). Daniel G. Cohen - Term expires in 1999 -------------------------------------- Votes For: 5,929,287 Votes Withheld: 2,177 Edward E. Cohen - Term expires in 2000 -------------------------------------- Votes For: 5,929,337 Votes Withheld: 2,127 Joseph G. Denton - Term expires in 1998 --------------------------------------- Votes For: 5,929,337 Votes Withheld: 2,127 Kent B. Godfrey - Term expires in 1998 -------------------------------------- Votes For: 5,929,337 Votes Withheld: 2,127 Joel R. Mesznik - Term expires in 1999 -------------------------------------- Votes For: 5,929,337 Votes Withheld: 2,127 Kenneth L. Tepper - Term expires in 1999 ---------------------------------------- Votes For: 5,929,337 Votes Withheld: 2,127 Frederick O. Paulsell, Michael D. Simon and Frederic P. Stockton's terms of office as directors continued after the meeting. 8 6. The Shareholders voted to amend the Company's 1996 Stock Option Plan (the "Plan") to increase the total number of shares of the Company's Common Stock reserved for issuance under the Plan from 700,000 to 1,200,000, by the votes indicated below: Votes For: 2,141,006 Votes Against: 1,534,558 Votes Abstained: 650 Broker Non-votes: 2,255,250 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been traded on the Nasdaq National Market System since December 18, 1991 under the symbol TRMM. Information with respect to the high and low sales prices for the Common Stock is set forth on the inside back cover of the Company's 1998 Annual Report to Shareholders and is incorporated by reference herein. At August 21, 1998 there were 200 shareholders of record of the Company's Common Stock and 7,065,384 shares were outstanding. The Company believes the number of beneficial owners is substantially greater than the number of record holders because a large portion of the Company's outstanding Common Stock is held of record in broker "street names" for the benefit of individual investors. The Company did not pay any dividends in fiscal 1997 or fiscal 1998. The Company intends to retain future earnings for use in its business and therefore does not anticipate paying cash dividends to Common Stock shareholders in the foreseeable future. On June 24, 1998, the Company issued and sold 1,777,778 shares of unregistered Series A Preferred Stock and Warrants to purchase 500,000 shares of Common Stock for net proceeds of approximately $19,853,000. The Company claims exemption from the registration of such shares under the Securities Act of 1933, as amended, in reliance on the exemption available under Section 4(2) thereof. Each share is convertible at any time at the option of the holder into .7499997 of a share of Common Stock. In addition, each share of Series A Preferred Stock is automatically converted into .7499997 shares of Common Stock if the price of Common Stock is at least $20.00 for a period of 90 consecutive days commencing after June 30, 1999. The conversion ratio and exercise prices are adjusted for any combination or subdivision of shares, stock dividend, stock split or recapitalization. The Series A Preferred Stock bears a dividend rate of 7.5%, payable quarterly. The Company intends to use the proceeds to form an ATM Division (see discussion of ATM under "New Products and Services Under Development"). ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below for, and as of the end of, each of the years in the five-year period ended June 30, 1998 have been derived from the audited financial statements of the Company. This data should be read in conjunction with the financial statements, related notes and other financial information included elsewhere in this report.
Selected Financial Data (In thousands, except per share data) 1994 1995 1996 1997 1998 ---------------------------------------------------------------------- Year ended June 30: Sales $ 47,957 $ 60,544 $ 67,538 $ 69,881 $ 68,352 Net income (loss) 3,354 3,699 4,124 2,575 (582) Basic net income (loss) per share 0.53 0.58 0.64 0.39 (0.08) Diluted net income (loss) per share 0.49 0.53 0.57 0.35 (0.08) As of June 30: Working capital $ 8,523 $ 9,543 $ 8,860 $ 9,568 $ 21,937 Total assets 43,504 55,736 54,251 50,160 75,266 Long-term debt 9,500 14,238 8,128 400 -- Stockholders' equity 27,155 31,528 35,444 38,828 60,060
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Selected Operating Data 1994 1995 1996 1997 1998 ------------------------------------------------------------------------ TRM Copy Centers as of Year End 25,563 28,995 31,719 34,796 33,349
Selected Quarterly Financial Data (In thousands, except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1997 1998 1997 1998 1997 1998 1997 1998 ------------------------------------------------------------------------------------- Sales $ 16,577 $16,238 $17,347 $16,709 $18,023 $ 17,648 $17,934 $17,757 Gross profit 6,436 6,316 6,797 6,358 7,407 6,798 7,300 7,359 Net income (loss) 1,037 1,033 1,163 891 1,365 (3,173) (990) 667 Basic net income (loss) per share 0.16 0.15 0.18 0.13 0.20 (0.45) (0.14) 0.09 Diluted net income (loss) per share 0.14 0.14 0.16 0.12 0.19 (0.45) (0.14) 0.09
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TRM continues to expand in new and existing metropolitan service areas. The number of service areas the Company operates in has increased from 54 to 73 over the last three fiscal years and now includes 51 in the United States, 5 in Canada, 15 in the United Kingdom and 2 in France. The number of TRM Copy Centers has increased 15 percent over the same three year period, from 28,995 to 33,349. In addition to expanding, the Company is also focused on improving the profitability of the installed base of TRM Copy Centers. On June 24, 1998, the Company issued and sold to ReadyCash 1,777,778 shares of a new series of Preferred Stock of the Company, designated the "Series A Preferred Stock", and warrants (the "Warrants") to purchase 500,000 shares of the Company's Common Stock at an exercise price of $15.00 a share, for an aggregate purchase price of $20 million in cash. ReadyCash informed the Company that it obtained the funds used to purchase the Series A Preferred Stock and Warrants from its individual limited partners in the form of capital contributions. Each share of Series A Preferred Stock has one vote per share and votes together with the Common Stock on any and all matters submitted to the Company's shareholders for a vote, except to the extent Oregon law requires otherwise. In addition, each share of the Series A Preferred Stock is convertible at any time at the option of the holder into .7499997 fully paid and nonassessable shares of Common Stock and shall be automatically converted into shares of the Company's Common Stock on the same basis if the last bid price quoted in the Nasdaq System as of 4:00 p.m. for a share of the Company's Common Stock is at least $20.00 for a period of 90 consecutive calendar days commencing after June 30, 1999. The conversion ratio and the price at which the Series A Preferred Stock shall be automatically converted shall be appropriately adjusted for any combination or subdivision of shares, stock dividend, stock split or recapitalization. Results of Operations The following table sets forth, for the periods indicated, selected statement of operations data, expressed as a percentage of sales, and the percentage change in dollar amounts of each item on the Consolidated Statements of Operations (see page F-3 of this Form 10-K). 11
Percentage Change As a Percentage of Sales 1996-97 1997-98 1996 1997 1998 ---------------------------------------------------------------- Sales 3.5% (2.2)% 100.0% 100.0% 100.0% Sales discounts (0.4) (3.0) 17.4 16.7 16.6 Cost of sales 1.1 (0.2) 44.3 43.3 44.2 Selling, general and administrative 5.7 5.1 26.0 26.6 28.6 Non-cash stock compensation -- -- -- -- 1.7 Special charges -- 84.1 -- 5.8 9.3 ---------------------------------------------------------------- Operating income (loss) (36.4) (104.2) 12.3 7.6 (0.4) Interest expense, net (58.6) (82.8) 1.4 0.6 -- Other, net 55.2 (7.4) 0.7 1.0 1.0 ---------------------------------------------------------------- Income (loss) before income taxes (39.5) (122.9) 10.2 6.0 (1.4) Provision for income taxes (42.4) (123.4) 4.1 2.3 0.5 ---------------------------------------------------------------- Net income (loss) (37.6)% (122.6)% 6.1% 3.7% (0.9)% ================================================================
1998 Compared to 1997 Sales decreased by $1.5 million (2.2%) to $68.4 million for 1998 from $69.9 million for 1997. The decrease represents a 7.4 percent decrease in the average net sales per unit, offset by a 5.8 percent overall increase in the number of billed units. Sales in North America have declined 5.6 percent over the last fiscal year, while sales in Europe have increased 5.5 percent during the same period. The decline in North America represents a maturing market in the small, independent retail customer base and increasing market demand for new black and white technology photocopiers. The Company intends to turn the performance in North America around by installing thousands of NextGen(TM) photocopiers in existing sites and attracting new multi-site retail customers (see discussion of NextGen(TM) under "New Products and Services Under Development" and multi-site retailers under "Locations"). Sales for 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. The downward trend in sales discounts as a percentage of sales in 1998 and 1997 reflects changes made in business agreements with new customers over the periods. Cost of sales decreased $75,000 (0.2%) from 1997 to 1998. Offsetting factors resulted in relatively unchanged costs of sales compared to fiscal 1997. Costs of paper, toner and parts decreased by $751,000, but were offset by increased costs of $714,000 for copier machine depreciation and field and sales labor. The increased copier depreciation relates to the new Konica copier machines purchased and installed during the year. Selling, general and administrative expenses increased $956,000 (5.1%) from $18.6 million in 1997 to $19.5 million in 1998. Selling, general and administrative costs were 28.6 percent and 26.6 percent of sales for 1998 and 1997, respectively. Selling, general and administrative costs increased due to increased costs of medical, property and auto insurance, higher vehicle costs, increased legal and accounting fees, and increased office and administrative payroll costs. In conjunction with the sale of Series A Preferred Stock (see Note 8 to the Consolidated Financial Statements on page F-10), the Company amended certain Board members' stock option agreements to extend the exercise period for the options to ten years from June 24, 1998. Pursuant to APB No. 25, and due to the extension of the exercise period, the Company recognized $1.1 million as non-cash compensation expense in the year ended June 30, 1998. During 1998, the Company recorded a pre-tax special charge of $6.4 million ($3.9 million after tax) related to the write-down of certain under-performing assets of its Photocopy Division. The major components of the 1998 special 12 charge included the disposal of under-performing machines ($4.3 million), the disposal of replacement parts and inventory relating to under-performing machines ($1.5 million) and other charges related to the disposal of equipment ($600,000). Interest expense decreased 82.8 percent to $68,000 in 1998 from $396,000 in 1997. The decrease was due to reduced bank borrowings on the Company's revolving line of credit during 1998. The Company's effective tax rate for 1998 was 39.1 percent, resulting in an income tax benefit of $373,000, compared to an effective rate of 38.2 percent and an income tax provision of $1.6 million in 1997. The increase in the effective tax rate from 1997 to 1998 is due to an increase in permanent differences in the Company's income for financial and tax reporting. 1997 Compared to 1996 Sales increased by $2.3 million (3.5%) to $69.9 million for 1997 from $67.5 million for 1996. The increase was due primarily to a 10.9 percent increase in the number of revenue-generating photocopiers offset by a 6.0 percent decrease in average net sales per unit. Sales growth during 1997 came from the Company's foreign operations. Foreign sales grew to $25.9 million in 1997 from $22.0 million in 1996. Sales discounts decreased $52,000 (0.4%) from $11.7 million in 1996 to $11.6 million in 1997. Sales discounts as a percentage of sales decreased from 17.4 percent in 1996 to 16.7 percent in 1997. The downward trend in sales discounts as a percentage of sales reflects changes made in business agreements with new customers over the periods. Cost of sales increased $335,000 (1.1%) from 1996 to 1997. This was below the percentage increase in sales, despite growth in field service payroll, headcount additions for opening new TRM Service Centers, and copier depreciation costs. This was achieved because of lower paper costs and lower paper and toner usage under the Company's higher-copy-price programs. Selling, general and administrative expenses increased $1.0 million (5.7%) from $17.6 million in 1996 to $18.6 million in 1997. Selling, general and administrative costs were 26.6 percent and 26.0 percent of sales for 1997 and 1996, respectively. The increase in selling, general and administrative during 1997 was primarily due to 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, accounting charge of $4.1 million pretax ($2.5 million after tax). 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. It was concluded during 1997 that the initial equipment purchased in 1993 and 1994 to support the Company's color and business card business was technologically dated and that the full asset carrying amounts were not recoverable. Interest expense decreased 58.6 percent to $396,000 in 1997 from $957,000 in 1996. The Company reduced bank borrowings significantly from mid-1996 through 1997, resulting in the lower interest expense. The Company's effective tax rate for 1997 was 38.2 percent, resulting in an income tax provision of $1.6 million, compared to an effective rate of 40.1 percent and an income tax provision of $2.8 million in 1996. The decrease in the effective tax rate from 1996 to 1997 is due to income in the United Kingdom flowing through a United Kingdom subsidiary, effective for fiscal year 1997, and being taxed at a lower rate than income in the United States. Impact of Year 2000 The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any such software programs may recognize a date using "00" as the year 1900 rather than the year 2000. The Company relies on computer systems and software to operate its business, including applications used in account maintenance, purchasing, inventory management, finance and various administrative functions. Based on a recent assessment, the Company determined that it will be required to modify or replace significant portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose 13 significant operations problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send customer invoices, or engage in similar normal business activities. Since December 1997, the Company has been actively engaged in becoming Year 2000 compliant. As of August 1998, sixty percent of the Company's hardware and software system applications are Year 2000 compliant. The target date for full compliance is June 30, 1999. The Company's efforts have been divided into three phases. First, a Year 2000 discovery team was assembled to inventory all hardware, operating systems and software applications and provide upgrade and/or contingency recommendations. Second, all upgrade/contingency recommendations were compiled into a project action plan. Of the twenty-two non-compliant systems/applications identified, three have been upgraded or replaced, thirteen more are due for implementation by December 31, 1998, and six more will be replaced by an enterprise-wide information technology solution due to come on line during the fourth quarter of fiscal 1999. Third and finally, the Company re-prioritized existing information technology ("IT") projects to allocate programming resources to the Company's Year 2000 Issue. Independent of the Year 2000 project, the Company has initiated significant systems upgrades to enhance performance and reliability of many of its computer-based information systems. These upgrades will, as an additional benefit, rectify certain identified Year 2000 issues. The total IT budget for all systems activities is $1.5 million for fiscal 1999. Expenditures directly related to Year 2000 issues are estimated to be approximately $350,000. Expenditures for other planned systems upgrades, totaling $1,150,000, will address certain Year 2000 issues as a corollary benefit to the Company, but have been initiated primarily to enhance system reliability and capability. The Company will utilize both internal and external resources to reprogram, or replace, and test the software for the Year 2000 modifications. The Company continues to manage total IT expenses by re-prioritizing or curtailing less critical investments, incorporating Year 2000 readiness into previously planned system enhancements and using existing staff to implement its Year 2000 modifications. The Company intends to initiate communications with all of its significant service providers, lenders, and large customers to determine the extent to which the Company's interface systems are vulnerable in the event any of those third parties fail to remedy their own Year 2000 Issues. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and will not have an adverse effect on the Company's systems. Contingencies for systems scheduled for replacement include upgrades and service packs from manufacturers of third-party software as well as dedicated programming time from internal Information Systems staff to produce "Hot Fix" repairs to modify date integer fields and input masks to reflect long integer format. Currently, no other contingency plan has been developed. New Accounting Standards In June 1997, the Financial Accounting Standards Board ("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, if any, of adoption of SFAS No. 130. In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." This Statement established standards for reporting information about operating segments in annual financial statements. Operating segments are defined as components of an enterprise evaluated regularly by the Company's senior management in deciding how to allocate resources and in assessing performance. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. The Company has not evaluated the effect of adoption of SFAS No. 131, but does not believe it will significantly change the Company's consolidated financial reporting structure. In March 1998, the American Institute of Certified Public Accountants Accounting Standards Executive Committee issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal 14 Use" ("SOP 98-1.") SOP 98-1 is applicable to all nongovernmental entities and provides guidance on accounting for the costs of computer software developed or obtained for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company has not quantified the effect of adoption of SOP 98-1. Liquidity and Capital Resources During 1998 TRM generated $16.7 million in cashflows from operations and increased its net working capital from $9.6 million at June 30, 1997 to $21.9 million at June 30, 1998 (including cash and cash equivalents of $20.2 million). On June 24, 1998 the Company received $19.9 million, net of expenses, from the sale of Series A Preferred Stock described above. The Company also has a $30.0 million bank line of credit, with no borrowings outstanding at June 30, 1998. The Company was in compliance with all loan covenants at June 30, 1998. This credit facility expires on April 1, 2000. During 1998, the Company received extended payment terms on photocopier purchases. This resulted in a $5.4 million increase in accounts payable. This interest free financing may not be available in the future. During the twelve months ended June 30, 1998, the Company funded capital expenditures of $20.2 million primarily from cash generated from operations, bank borrowings and proceeds from equipment disposals and the sale of preferred stock. Capital expenditures increased by $15.6 million over the prior year due to increased purchases and installations of NextGen(TM) copiers ($14.3 million) and increased expenditures for other copiers ($4.5 million). Additional capital expenditures of $770,000, $400,000 and $185,000 were for vehicles, computer hardware and software, and other normal operating purposes, respectively. The Company currently anticipates capital expenditures of approximately $30 million during fiscal 1999. Approximately $15 million will be for acquiring photocopiers. The remainder will be for developing the ATM business and other general purposes including computer systems. The Company expects to finance these capital expenditures with cash generated from operations, bank borrowings and proceeds from the sale of Series A Preferred Stock. The Company expects that these sources will provide adequate cash to fund its expansion through at least June 30, 1999. Forward-Looking Statements Information in "Management's Discussion and Analysis," the letter to shareholders and elsewhere in this Annual Report and Form 10-K about the Company's goals, plans and expectations regarding: removing Savin photocopiers, establishing the ATM Division, effectively using a third-party network of service providers, purchasing and installing additional NextGen(TM) photocopiers, expansion in existing and new markets, the Year 2000 Issue, 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. Factors that could adversely affect the removal of Savin photocopiers include, but are not limited to, the availability of third-party brokers to purchase the photocopiers, the Company's ability to collect amounts due from third-party brokers, and the Company's ability to execute its removal and disposal plan. Factors that could adversely affect establishing the ATM Division include, but are not limited to, competition from existing ATM providers and new entrants into the ATM market, the Company's ability to attract and retain personnel necessary to execute its ATM business plan, the Company's ability to manage and achieve growth in a new line of business, changes in technology affecting ATM transactions, the Company's ability to expand its current relationships with retailers and broaden its distribution network, changes in consumer practices and preferences with respect to the location of, and use of, ATM's, and changes in the laws and regulations applicable to non-bank ATMs. Factors that could adversely affect the effectiveness of a third-party network of service providers include, but are not limited to, the availability of third-party service providers in the geographic areas needed, the Company's ability to negotiate contracts with the third-party service provider, and the service quality of the third-party service provider. Factors that could adversely affect the purchasing and installing additional NextGen(TM) photocopiers include, but are not limited to, changes in consumer practices and preferences with respect to the use of TRM's new photocopy machines, and the performance and profitability of NextGen(TM) photocopy machines, the Company's ability to purchase the additional photocopy machines, and the Company's ability to sell the variances in the NextGen(TM) program. Factors that could adversely affect expansion in existing and new markets include, but are not limited to, business conditions in the market areas the Company targets for expansion, competitive factors, customer demand for the Company's services and the Company's ability to execute its plans successfully. Factors that could adversely affect the Year 2000 Issue include, but are not limited to, unidentified issues in existing programs or underestimating the resources necessary to make any required modifications or conversions, the Company's ability to modify and/or convert the necessary systems and applications timely, and the continued availability of resources internally 15 and externally to implement the Year 2000 modifications. Factors that could adversely affect capital expenditures include, but are not limited to, the items described above regarding establishing the new ATM Division and purchasing additional NextGen(TM) photocopiers, the continued availability of a credit facility, and the Company's ability to negotiate favorable purchase agreements with ATM manufacturers. Any forward-looking statements should be considered in light of these factors. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The financial statements and supplementary data required by this item are included in this Report on Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 16 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 October 9, 1998 for its 1998 annual meeting of shareholders. Proxy Statement Page No. --------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 4-6 ITEM 11. EXECUTIVE COMPENSATION 8-13 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 1-3 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 7, 14 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Page in (a) 1. Financial Statements this Report. ------------ Reports of Independent Accountants F-1 Consolidated Balance Sheets as of June 30, 1998 and 1997 F-3 Consolidated Statements of Operations for each of the three years in the period ended June 30, 1998 F-4 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30, 1998 F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 1998 F-6 Notes to Consolidated Financial Statements F-7 2. Financial Statement Schedules: III -- Valuation and Qualifying Accounts F-15 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: Exhibit Number - ------- 3.1 a) Amendments to the Restated Articles of Incorporation b) Restated Articles of Incorporation 3.2 Restated Bylaws 4.1 Investors' Rights Agreement (Incorporated herein by reference to Exhibit 4.1 of Form 8-K dated July 9, 1998) 4.2 Articles V, VI and VII of the Restated Articles of Incorporation, as amended (See Exhibit 3.1) 4.3 Articles I, II, V, VII and X of the Restated Bylaws (See Exhibit 3.2) 10.1 Form of Indemnity Agreements with Registrant's directors and executive officers (Incorporated herein by reference to Exhibit 10.1 of Form 10-K for the fiscal year ended June 30, 1997) 10.2 Loan Agreement with United States National Bank of Oregon, dated March 31, 1997 (Incorporated herein by reference to Exhibit 10.2 of Form 10-K for the fiscal year ended June 30, 1997) 18 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 Restated 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 (Incorporated herein by reference to Exhibit 10.8 of Form 10-K for the fiscal year ended June 30, 1997) d) Employment Agreement dated September 18, 1997 with Paul M. Brown 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) 10.10 Preferred Stock and Warrants Purchase Agreement dated March 29, 1998 between the Company and ReadyCash Investment Partners, L.P. (Incorporated herein by reference to Exhibit 10 of Form 10-Q for the quarter ended March 31, 1998) 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 (b) No reports on Form 8-K were filed by the Company during the last quarter of fiscal 1998. 19 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 28, 1998. TRM 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 28, 1998 on behalf of the Registrant and in the capacities indicated: Signature Title - ---------------------------------- ---------------------------------- /s/ FREDERIC P. STOCKTON - ---------------------------------- President, Chief Executive Officer Frederic P. Stockton and Director /s/ EDWARD E. COHEN - ---------------------------------- Chairman of the Board and Director Edward E. Cohen /s/ DANIEL G. COHEN - ---------------------------------- Director Daniel G. Cohen /s/ JOSEPH G. DENTON - ---------------------------------- Director Joseph G. Denton /s/ KENT B. GODFREY - ---------------------------------- Director Kent B. Godfrey /s/ JOEL R. MESZNIK - ---------------------------------- Director Joel R. Mesznik /s/ FREDERICK O. PAULSELL - ---------------------------------- Director Frederick O. Paulsell /s/ MICHAEL D. SIMON - ---------------------------------- Director Michael D. Simon /s/ KENNETH L. TEPPER - ---------------------------------- Director Kenneth L. Tepper 20 EXHIBIT INDEX Exhibit Number - ------- 3.1 a) Amendments to the Restated Articles of Incorporation b) Restated Articles of Incorporation 3.2 Restated Bylaws 4.1 Investors' Rights Agreement (Incorporated herein by reference to Exhibit 4.1 of Form 8-K dated July 9, 1998) 4.2 Articles V, VI and VII of the Restated Articles of Incorporation, as amended (See Exhibit 3.1) 4.3 Articles I, II, V, VII and X of the Restated Bylaws (See Exhibit 3.2) 10.1 Form of Indemnity Agreements with Registrant's directors and executive officers (Incorporated herein by reference to Exhibit 10.1 of Form 10-K for the fiscal year ended June 30, 1997) 10.2 Loan Agreement with United States National Bank of Oregon, dated March 31, 1997 (Incorporated herein by reference to Exhibit 10.2 of Form 10-K for the fiscal year ended June 30, 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 Restated 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 (Incorporated herein by reference to Exhibit 10.8 of Form 10-K for the fiscal year ended June 30, 1997) d) Employment Agreement dated September 18, 1997 with Paul M. Brown 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) 10.10 Preferred Stock and Warrants Purchase Agreement dated March 29, 1998 between the Company and ReadyCash Investment Partners, L.P. (Incorporated herein by reference to Exhibit 10 of Form 10-Q for the quarter ended March 31, 1998) 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 Independent Auditors' Report To the Board of Directors and Stockholders of TRM Corporation (formerly TRM Copy Centers Corporation): We have audited the accompanying consolidated balance sheets of TRM Corporation (formerly TRM Copy Centers Corporation) and subsidiaries as of June 30, 1998 and 1997, 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, 1998. 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 Corporation and subsidiaries as of June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1998, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Portland, Oregon August 17, 1998 F-1 Independent Auditors' Report The Board of Directors TRM Corporation (formerly TRM Copy Centers Corporation) Under date of August 17, 1998, we reported on the consolidated balance sheets of TRM Corporation (formerly TRM Copy Centers Corporation) as of June 30, 1998 and 1997, and the related consolidated statements of operations, retained earnings, and cash flows for each of the years in the three-year period ended June 30, 1998, which are included in Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule, as listed in Item 14(a)(2) for Form 10-K of TRM 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, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Portland, Oregon August 17, 1998 F-2
Consolidated Balance Sheets (In thousands) June 30, 1997 1998 ------------------------------- Assets Current assets: Cash and cash equivalents $ 2,528 $ 20,177 Accounts receivable, net 7,704 7,423 Income tax receivable -- 949 Inventories (note 2) 4,611 3,809 Prepaid expenses and other 1,399 1,240 ------------------------------- Total current assets 16,242 33,598 Equipment and vehicles, less accumulated depreciation (notes 3 and 4) 33,872 41,624 Other assets 46 44 ------------------------------- $ 50,160 $ 75,266 =============================== Liabilities and Stockholders' Equity Current liabilities: Checks in transit $ 1,409 $ 553 Accounts payable 1,568 7,005 Accrued expenses (note 5) 3,697 4,103 ------------------------------- Total current liabilities 6,674 11,661 Long-term debt (note 6) 400 -- Deferred income taxes (note 7) 4,258 3,545 ------------------------------- Total liabilities 11,332 15,206 Commitments (note 11) -- -- Stockholders' equity (notes 8 and 9): Preferred stock, no par value. Authorized 5,000 shares; 1,778 and 0 shares issued and outstanding -- 19,853 Common stock, no par value. Authorized 50,000 and 10,000 shares; issued and outstanding 7,057 and 6,931 shares 16,601 18,617 Retained earnings 22,279 21,697 Cumulative translation adjustment (52) (107) ------------------------------- Total stockholders' equity 38,828 60,060 ------------------------------- $ 50,160 $ 75,266 =============================== See accompanying notes to consolidated financial statements.
F-3
Consolidated Statements of Operations (In thousands, except per share data) Fiscal year ended June 30, 1996 1997 1998 ------------------------------------------------ Sales $ 67,538 $ 69,881 $ 68,352 Less discounts 11,728 11,676 11,331 ------------------------------------------------ Net sales 55,810 58,205 57,021 Cost of sales 29,930 30,265 30,190 ------------------------------------------------ Gross profit 25,880 27,940 26,831 Selling, general and administrative expense 17,569 18,569 19,525 Non-cash stock compensation (note 8) -- -- 1,146 Special charges (note 4) -- 4,088 6,380 ------------------------------------------------ Operating income (loss) 8,311 5,283 (220) Interest expense 957 396 68 Other expense, net 464 720 667 ------------------------------------------------ Income (loss) before income taxes 6,890 4,167 (955) Provision (benefit) for income taxes (note 7) 2,766 1,592 (373) ------------------------------------------------- Net income (loss) $ 4,124 $ 2,575 $ (582) ================================================= Basic net income (loss) per share: Shares outstanding 6,451 6,666 6,992 ================================================ Net income (loss) per share $ 0.64 $ 0.39 $ (0.08) ================================================ Diluted net income (loss) per share: Shares outstanding 7,262 7,285 6,992 ================================================ Net income (loss) per share $ 0.57 $ 0.35 $ (0.08) ================================================ See accompanying notes to consolidated financial statements.
F-4
Consolidated Statements of Stockholders' Equity (In thousands) Cumulative Preferred Stock Common Stock Retained Translation Shares Amount Shares Amount Earnings Adjustment Total --------------------------------------------------------------------------------------- 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 Tax benefit of stock options -- -- -- 96 -- -- 96 Issuance of stock to employees -- -- 6 53 -- -- 53 Purchase of outstanding shares -- -- (27) (279) -- -- (279) 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 Exercise of stock options -- -- 114 571 -- -- 571 Tax benefit of stock options -- -- -- 201 -- -- 201 Issuance of stock to employees -- -- 12 98 -- -- 98 Issuance of preferred stock 1,778 $19,853 -- -- -- -- 19,853 Non-cash stock compensation -- -- -- 1,146 -- -- 1,146 Foreign currency translation adjustment -- -- -- -- -- (55) (55) Net loss -- -- -- -- (582) -- (582) --------------------------------------------------------------------------------------- Balances, June 30, 1998 1,778 $19,853 7,057 $ 18,617 $ 21,697 $ (107) $60,060 See accompanying notes to consolidated financial statements.
F-5
Consolidated Statements of Cash Flows (In thousands) Fiscal year ended June 30, 1996 1997 1998 -------------------------------------------- Operating activities: Net Income (Loss) 4,124 2,575 (582) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,101 5,591 5,953 Loss on disposal of equipment and vehicles 40 234 175 Non-cash stock compensation -- -- 1,146 Special charges -- 4,088 6,380 Changes in items affecting operations: Accounts receivable (529) (440) 281 Inventories 1,292 566 (692) Income Taxes Receivable -- -- (949) Prepaid expenses and other 146 (189) 5 Accounts payable 306 (231) 5,437 Accrued expenses 70 324 229 Deferred income taxes 817 (311) (713) --------------------------------------------- Total operating activities 11,367 12,207 16,670 --------------------------------------------- Investing activities: Proceeds from sale of equipment 146 456 1,780 Capital expenditures (5,494) (4,562) (20,155) Other 44 (33) 2 -------------------------------------------- Total investing activities (5,304) (4,139) (18,373) --------------------------------------------- Financing activities: Change in checks in transit (484) 471 (856) Principal payments on borrowings (9,636) (7,728) (3,527) Proceeds from borrowings 3,526 -- 3,127 Net proceeds from issuance of preferred stock -- -- 19,853 Net proceeds from issuance of common stock 274 387 870 -------------------------------------------- Total financing activities (6,320) (6,870) 19,467 -------------------------------------------- Effect of exchange rate changes 375 457 (115) --------------------------------------------- Net increase in cash and cash equivalents 118 1,655 17,649 Beginning cash and cash equivalents 755 873 2,528 -------------------------------------------- Ending cash and cash equivalents $ 873 $ 2,528 $ 20,177 ============================================ See accompanying notes to consolidated financial statements.
F-6 Notes to Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies: Description of Business TRM Corporation (formerly TRM Copy Centers Corporation), headquartered in Portland, Oregon, as its primary business, owns, supplies and maintains over 33,000 self-service photocopiers in large-format, multi-site retailer locations, pharmacies, stationery stores, hardware stores, convenience stores and other retail establishments in the United States, Canada, the United Kingdom, France. 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 and cash equivalents, 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. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. 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 $156,000 at June 30, 1997 and 1998, respectively. Inventories Inventories are stated at the lower of FIFO cost or market. Equipment and Vehicles Equipment and vehicles are recorded at cost plus amounts required to place equipment in service. 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 F-7 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. 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 fiscal 1998, the Company recorded $1.1 million of non-cash compensation expense related to the revision of stock options of certain retiring members of the Company's Board of Directors. In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company has provided the required footnote disclosures (see note 8). Statements of Cash Flows Supplemental Information Income taxes paid were approximately $2,465,000, $1,635,000 and $1,171,000 for the fiscal years 1996, 1997 and 1998, 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 potential common shares outstanding during the periods. Dilutive potential common shares consist of options to purchase stock (using the treasury stock method). 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. Risks and Uncertainties The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Based on a recent assessment, the Company determined that it will be required to modify or replace significant portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operations problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send customer invoices, or engage in similar normal business activities. 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 previously 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 adoption of SFAS No. 128 in fiscal 1998 did not have a significant impact on the Company's reported diluted EPS. F-8 In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes 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. 2. Inventories (in thousands): June 30, 1997 1998 -------------------------- Paper $ 1,231 $ 1,019 Toner and developer 692 629 Parts 2,688 2,161 -------------------------- $ 4,611 $ 3,809 ========================== 3. Equipment and Vehicles (in thousands): June 30, 1997 1998 -------------------------- Photocopiers $ 45,232 $ 50,741 Furniture and fixtures 1,899 1,436 Computer equipment 1,381 1,834 Vehicles 5,109 4,680 -------------------------- 53,621 58,691 Accumulated depreciation 19,749 17,067 -------------------------- $ 33,872 $ 41,624 ========================== 4. Special Charges: 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. During 1997, the Company recognized a non-cash impairment charge of $4,088,000 pretax ($2,526,000 and $0.35 per share after tax). 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. It was concluded during 1997 that the equipment purchased in 1993 and 1994 to support the Company's color and business card businesses was technologically dated and that the full asset carrying amounts were not recoverable. In addition, the Company entered an agreement with a major copier manufacturer to purchase a new generation black and white copier ("NextGen(TM)") to expand its core black and white photocopy business. During 1998 new management joined the Company and evaluated the performance of assets in the Photocopy Division. With the growth of the NextGen(TM) photocopy program, the Company has decided to retire over half of its older Savin photocopiers at low-volume locations, resulting in the recording of special charges as noted hereafter: F-9 Disposal of under-performing machines $4,324 Disposal of replacement parts and inventory relating to under-performing machines 1,494 Other 562 ------ Total special charges $6,380 ====== 5. Accrued Expenses (in thousands): June 30, 1997 1998 -------------------------- Accrued payroll expenses $ 2,550 $ 2,918 Customer security deposits 250 218 Accrued taxes other than income 475 330 Other accrued expenses 422 637 -------------------------- $ 3,697 $ 4,103 ========================== 6. Bank Borrowings (in thousands): June 30, 1997 1998 -------------------------- Bank revolving loan, unsecured, maximum limit of $30.0 million $ 400 $ -- 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. 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: Income (loss) before income taxes is as follows (in thousands): 1996 1997 1998 ------------------------------------------- United States $ 6,730 $ 1,223 $ (3,900) Foreign 160 2,944 2,945 ------------------------------------------- $ 6,890 $ 4,167 $ (955) =========================================== F-10 The components of income tax expense (benefit) are as follows (in thousands): 1996 1997 1998 ------------------------------------------- Current: Federal $ 1,459 $ 1,074 $ (537) State 424 459 -- Foreign 66 370 877 Deferred: Federal 564 (1,097) (598) State 164 (320) (384) Foreign 89 1,106 269 ------------------------------------------- $ 2,766 $ 1,592 $ (373) =========================================== Deferred income taxes arise primarily from different depreciation calculations used for financial statement and income tax purposes. The effective tax rate differs from the federal statutory tax rate as follows: 1996 1997 1998 ------------------------------------------- Statutory federal rate 34.0% 34.0% 34.0% State taxes, net of federal benefit 5.9 7.6 5.0 Benefit of foreign tax rates -- (4.1) (5.1) Other 0.2 0.7 5.2 -------------------------------------------- 40.1% 38.2% 39.1% ============================================ 8. Stockholders' Equity: Preferred Stock On June 24, 1998 the Company issued and sold 1,777,778 Series A Preferred Shares and Warrants to purchase 500,000 shares of Common Stock for net proceeds of approximately $19.9 million. Each share of Preferred Stock has one vote, and votes together with the Common Stock as a single class on all matters. Each share is convertible at any time at the option of the holder into .7499997 of a share of Common Stock. In addition, each share of Preferred Stock is automatically converted into .7499997 shares of Common Stock if the price of Common Stock is at least $20.00 for a period of 90 consecutive days commencing after June 30, 1999. The conversion ratio and exercise prices are adjusted for any combination or subdivision of shares, stock dividend, stock split or recapitalization. Dividends on the Series A Preferred Shares are cumulative from the date of original issuance and are payable quarterly in March, June, September and December of each year, commencing June 1998, at the rate of 7-1/2% per annum. In the event of any liquidation, dissolution or winding up of the affairs of the Company, each holder of Series A Preferred Stock shall be paid the aggregate Liquidation Value, $11.25 per share, plus all accumulated and unpaid dividends to the date of liquidation, dissolution or winding up of affairs before any payment to holders of Junior Securities. In conjunction with closing the preferred share transaction, the Company amended certain retiring Board members' stock option agreements to extend the exercise period for the options to ten years from June 24, 1998. Pursuant to APB No. 25, and due to the extension of the exercise period, $1.1 million was recognized as non-cash compensation expense in the year ended June 30, 1998. F-11 Common Stock On June 24, 1998 the Company announced shareholder approval of an amendment to the Company's Restated Articles of Incorporation increasing the number of authorized shares of common stock from 10,000,000 shares to 50,000,000 shares. Common Stock Warrants On June 24, 1998 the Company granted Warrants to purchase 500,000 shares of Common Stock at $15.00 a share. The Warrants are exercisable in whole or in increments of at least 75,000 shares and expire as to 200,000 shares three years after the date of grant and as to 300,000 shares seven years after the date of grant. The Warrants may be exercised by the payment of cash, by payment in shares of Common Stock, or on a cashless basis whereby the Company will issue the number of shares of Common Stock equal in value to the difference between the fair market value of the Warrant shares and the exercise price. Common Stock Options 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, which provided for the granting of a maximum of 700,000 options to purchase common shares to key employees of the Company. In June 1998, shareholders of the Company approved increasing the maxinum options in the 1996 Plan from 700,000 to 1,200,000, bringing the total shares of common stock for issuance under stock option plans to 2,500,000. 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.
A summary of stock option activity follows: Shares Weighted Average Under Option Price Range Exercise Price -------------------------------------- ----------------------------- 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 1,048,550 $ 2.00 - $ 10.625 $ 6.29 Options granted 437,500 $ 9.00 - $ 14.50 $ 9.99 Options exercised (113,850) $ 4.00 - $ 10.375 $ 5.01 Options canceled (32,700) $ 6.25 - $ 10.625 $ 8.39 ---------------------------------------------------------------- Balance, June 30, 1998 (990,075 exercisable, 361,500 available for grant under the Plans) 1,339,500 $ 2.00 - $ 14.50 $ 7.56 ================================================================
F-12
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, 1998 Contractual Life Price at June 30, 1998 Price - ----------------------------------------------------------------------------------------------------------------------- $ 2.00 to $ 7.50 599,500 6.4 $ 4.45 505,100 $ 4.21 $ 9.00 to $ 9.875 470,500 9.3 $ 9.69 336,100 $ 9.71 $ 10.00 to $ 14.50 269,500 8.3 $ 10.75 148,875 $ 10.37 - ----------------------------------------------------------------------------------------------------------------------- $ 2.00 to $ 14.50 1,339,500 7.8 $ 7.56 990,075 $ 7.00 =======================================================================================================================
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, except for $1,146,000 in fiscal 1998 for the extension of the exercise period for certain directors. 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 $757,000 or $0.11 per share for the year ended June 30, 1998, and approximately $180,000 or $0.02 per share for the year ended June 30, 1997. The weighted-average grant-date fair value of options granted during fiscal 1998 was $2.75 per share using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, volatility of 36.80%, risk-free interest rate of 5.52% and an expected life of four years. 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 effects of applying SFAS No. 123 for providing pro-forma disclosure for 1998 and 1997 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 $240,000 for fiscal 1996, $260,000 for fiscal 1997 and $270,000 for fiscal 1998. 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, 65,927 shares have been purchased, and 34,073 shares remain available for purchase as of June 30, 1998. F-13 10. Related Party Transactions: Two members of the Company's Board of Directors served as consultants to the Company on various aspects of the Company's business and strategic issues in fiscal 1997 and 1998 and were paid $60,000 and $66,000, respectively. 11. Commitments: The Company leases vehicles and office and warehouse space in several locations under operating leases. Minimum lease payments are as follows: $2,195,000, $1,968,000, $1,729,000, $1,319,000 and $1,018,000 for fiscal years 1999, 2000, 2001, 2002 and 2003, respectively, and $3,647,000 thereafter. Rental expense for fiscal years 1996, 1997 and 1998 was $1,921,000, $2,358,000 and $2,818,000, respectively. In fiscal 1998, the Company entered an agreement with Konica Business Machines ("Konica") to purchase 7,500 new, state-of-the-art black and white NextGen(TM) photocopiers over a three year span. At June 30, 1998, the Company had purchased over 7,000 units under this agreement. 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 hereafter (in thousands).
Sales Operating Income (Loss) Assets ----------------------------------- --------------------------------- ----------------------------------- 1996 1997 1998 1996 1997 1998 1996 1997 1998 - ---------------------------------------------------------------------------------------------------------------------------------- United States $ 45,559 $ 43,949 $ 41,563 $ 5,717 $ 1,416 $ (5,281) $ 31,527 $ 26,451 $ 51,544 Foreign: Europe 17,575 21,389 22,566 2,310 3,383 4,873 19,786 20,869 20,332 Other 4,404 4,543 4,223 284 484 188 2,938 2,840 3,390 - ---------------------------------------------------------------------------------------------------------------------------------- $ 67,538 $ 69,881 $ 68,352 $ 8,311 $ 5,283 $ (220) $ 54,251 $ 50,160 $ 75,266 ==================================================================================================================================
F-14
TRM Corporation (formerly TRM Copy Centers Corporation) and Subsidiaries Schedule III - Valuation and Qualifying Accounts Years ended June 30, 1996, 1997 and 1998 (In thousands) Balance at Charged to Charged to Balance at Beginning of Costs and Other Deductions - End of Period Expenses Accounts Write Offs Peiod -------------------------------------------------------------------------------- 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 ================================================================================ Year ended June 30, 1998 Allowance for doubtful accounts $ 148 $ 771 $ --- $ (763) $ 156 ================================================================================ Reserve for deposit $ 100 $ 200 $ --- $ --- $ 300 ================================================================================
F-15 Independent Auditors' Consent The Board of Directors TRM Corporation (formerly TRM Copy Centers Corporation): We consent to the incorporation by reference on Form S-8 (Nos. 33-55370 and 33-74354) of TRM Corporation of our reports dated August 17, 1998, relating to the consolidated balance sheets of TRM Corporation and subsidiaries as of June 30, 1998 and 1997, 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, 1998, which reports appear in the June 30, 1998 Form 10-K of TRM Corporation. KPMG PEAT MARWICK LLP Portland, Oregon September 18, 1998 S-1 EX-3.1A 2 AMENDMENTS TO RESTATED ARTICLES OF INCORPORATION AMENDMENTS TO THE RESTATED ARTICLES OF INCORPORATION OF TRM COPY CENTERS CORPORATION 1. Article I of the Restated Articles of Incorporation is hereby amended to read in its entirety as follows: "ARTICLE I The name of this Corporation is TRM Corporation." 2. The first sentence of Article III of the Restated Articles of Incorporation is hereby amended to read in its entirety as follows: "1. The authorized capital stock of the Corporation shall consist of 50 million shares of Common Stock, no par value, and 5 million shares of Preferred Stock no par value." 3. The Company's Restated Articles of Incorporation is hereby amended to add the following section at the end of Article III: "2. Series A Preferred Stock. This Article III.2 sets forth the designation, preferences, limitations and relative rights of a series of Preferred Stock of the Corporation as determined by the Board of Directors of the Corporation pursuant to its authority under ORS 60.134 and Article III.1 above. The shares of such series shall be designated Series A Preferred Stock ("Series A Preferred") and the number of shares constituting such series shall be 1,777,778. Section A. Dividends. (i) When and as declared by the Corporation's Board of Directors and to the extent permitted under the Oregon Business Corporation Act, the Corporation will pay preferential cumulative dividends to the holders of the Series A Preferred as provided in this Section A. Except as otherwise provided herein, dividends on each share of Series A Preferred will accrue on a daily basis at the rate of seven and one-half percent (7 1/2%) per annum of the Liquidation Value thereof, determined on a quarterly basis, from and including the date of issuance of such share of Series A Preferred to and including the earlier of (a) the date on which the Liquidation Value of such share of Series A Preferred plus any accrued and unpaid dividends thereon is paid to the holder thereof upon any liquidation, dissolution or winding up of the Corporation (b) the date on which such share of Series A Preferred is converted into Common Stock. Such dividends will accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. The date on which the Corporation initially issues any share of Series A Preferred will be deemed to be its "date of issuance" regardless of the number of times transfer of such share of Series A Preferred is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such share of Series A Preferred. To the extent not paid on March 31, June 30, September 30, and December 31 of each year beginning on September 30, 1998 (the "Dividend Payment Date"), all dividends which have accrued on each share of Series A Preferred outstanding during the three-month period (or other period in the case of the initial Dividend Payment Date) shall be accumulated and shall remain accumulated dividends with respect to each such share of Series A Preferred until paid. If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series A Preferred, such payment will be distributed ratably among the holders of the Series A Preferred on the basis of the amount of accrued and unpaid dividends with respect to the shares of Series A Preferred owned by each such holder. (ii) The Corporation shall not pay dividends (other than dividends payable in shares of Common Stock) upon the Common Stock unless and until it has paid dividends upon the Series A Preferred as set forth in Section A(i). In the event that the Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property) other than dividends payable in shares of Common Stock, the Corporation shall also declare and pay to the holders of the Series A Preferred at the same time that it declares and pays such dividends to the holders of the Common Stock the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of the Series A Preferred had all of the outstanding Series A Preferred been converted immediately prior to the record date for such dividend, or, if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section B. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, each holder of Series A Preferred shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all Series A Preferred held by such holder (plus all accrued or declared dividends unpaid thereon), and the holders of Series A Preferred shall not be entitled to any further payment. If, upon any such liquidation, dissolution or winding up of the Corporation, the Corporation's assets to be distributed among the holders of the Series A Preferred are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid hereunder, then the entire assets to be distributed to the Corporation's stockholders shall be distributed pro rata among such Series A Preferred holders based upon the aggregate Liquidation Value of all Series A Preferred held by each such holder (plus all accrued or declared dividends unpaid thereon). At least 30 days prior to any liquidation, dissolution or winding up of the Corporation, the Corporation shall give written notice of such event to each record holder of Series A Preferred, specifying the amount of liquidation proceeds per share to be distributed to the holders of the Series A Preferred and to the holders of the Common Stock. For purposes of this Section B, a liquidation, dissolution or winding up of this Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of this Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of this Corporation; or (B) a sale of all or substantially all of the assets of this Corporation. In any of such events, if the consideration received by this corporation is other than cash, the value of such consideration will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such quotation system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by this Corporation and the holders of at least a majority of the voting power of all then outstanding shares of the Series A Preferred. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by this corporation and the holders of at least a majority of the voting power of all then outstanding shares of the Series A Preferred. This Corporation shall give each holder of record of Series A Preferred written notice of such impending transaction not later than twenty (20) days prior to the shareholders' meeting called to approve such transaction, if any, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section B, and this Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after this Corporation has given the first notice provided for herein or sooner than ten (10) days after this Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Series A Preferred that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Series A Preferred. Section C. Voting Rights. (i) The holders of Series A Preferred shall have no right to vote on matters to be voted on by the stockholders of the Corporation except as provided in this Section C and as otherwise expressly required by applicable law; provided that in any event, each holder of Series A Preferred shall be entitled to notice of all stockholder meetings at the same time and in the same manner as notice is given to the stockholders entitled to vote at any such meeting. (ii) The holders of Series A Preferred shall be entitled to vote, together as a single class with the holders of the Common Stock and the other classes of the Corporation's capital stock voting with the Common Stock, on all matters submitted to the stockholders for a vote with each share of Series A Preferred having one vote and shall be entitled to notice of each stockholders meeting in accordance with the Bylaws of the Corporation. Section D. Conversion. 1. Right to Convert. (i) Subject to the terms and conditions of this Section D, each holder of Series A Preferred shall have the right, at its option, to convert each share of the Series A Preferred held by such holder at any time into .7499997 fully paid and nonassessable shares of Common Stock. 2. Conversion Procedure. (i) Except as otherwise provided herein, each conversion of Series A Preferred shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Series A Preferred to be converted have been surrendered at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Series A Preferred). At such time as such conversion has been effected, the rights of the holder of such Series A Preferred as such holder shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. (ii) The conversion rights of each share of Series A Preferred shall terminate on the date the Corporation has paid to the holder of such share the Liquidation Value thereof (plus all accrued or declared dividends unpaid thereon). (iii) As soon as possible after a conversion has been effected (but in any event within three business days in the case of subparagraph (a) below), the Corporation shall deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment in an amount equal to all accrued dividends unpaid with respect to each share of Series A Preferred converted into Conversion Stock, which have not been paid prior thereto, plus the amount payable under subparagraph (vii) below with respect to such conversion; and (c) a certificate representing any shares of Series A Preferred which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (iv) If the Corporation is not permitted under applicable law to pay any portion of the accrued dividends on the shares of Series A Preferred being converted into Conversion Stock, the Corporation shall pay such dividends to the converting holder as soon thereafter as funds of the Corporation are legally available for such payment. At the request of any such converting holder, the Corporation shall provide such holder with written evidence of its obligation to such holder. (v) The issuance of certificates for shares of Conversion Stock upon any conversion of Series A Preferred shall be made without charge to the holders thereof for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the shares which are being converted. (vi) The Corporation shall not close its transfer books against the transfer of Conversion Stock issued or issuable upon conversion of Series A Preferred in any manner which interferes with the timely conversion of the Series A Preferred. The Corporation shall assist and cooperate with any holder of Series A Preferred required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Series A Preferred hereunder (including, without limitation, making any filings required to be made by the Corporation). (vii) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subparagraph, be deliverable upon any conversion of Series A Preferred, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. (viii) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Series A Preferred, such number of shares of Common Stock issuable upon conversion of all outstanding Series A Preferred. All shares of stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to ensure that all such shares may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of such stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action which would cause the number of authorized but unissued shares of Common Stock to be less than the required number of such shares to be reserved hereunder. 3. Conversion Adjustments. (i) In order to prevent dilution of the conversion rights granted hereunder, the conversion ratio provided for in Section D.1 shall be subject to adjustment from time to time pursuant to this Section D.3. (ii) Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the conversion ratio provided for in Section D.1 in effect immediately prior to such subdivision shall be proportionately increased, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the conversion ratio provided for in Section D.1 in effect immediately prior to such combination shall be proportionately decreased. 4. Notices. (i) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all holders of Series A Preferred, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Corporation shall give written notice to all holders of Series A Preferred at least 20 days prior to the date on which the Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any dissolution or liquidation. 5. Automatic Conversion. All of the outstanding Series A Preferred shall be automatically converted into Conversion Stock upon the closing of the date as of which the Share Price of the Common Stock for a period of 90 consecutive calendar days commencing after June 30, 1999 is at least $20.00 (as appropriately adjusted for any combination or subdivision of shares, stock dividend, stock split or other recapitalization). Section E. Purchase Rights. If at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase Rights"), then each holder of Series A Preferred shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Conversion Stock acquirable upon conversion of such holder's Series A Preferred immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Section F. Registration of Transfer. The Corporation shall keep at its principal office a register for the registration of Series A Preferred. Upon the surrender of any certificate representing shares of Series A Preferred at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series A Preferred represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of shares of Series A Preferred as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance (but not including any transfer taxes). Section G. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series A Preferred, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Series A Preferred represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. Section H. Definitions. "Common Stock" means the Common Stock, no par value, of the Corporation, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of any stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation. "Conversion Stock" means shares of Common Stock issuable upon conversion of Series A Preferred; provided that if there is a change such that the securities issuable upon conversion of Series A Preferred are issued by an entity other than the Corporation or there is a change in the class of securities so issuable, then the term "Conversion Stock" shall mean one share of the security issuable upon conversion of the Series A Preferred if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. "Convertible Securities" means any stock or securities convertible into or exchangeable for any equity securities of the Company. "Junior Securities" means any of the Corporation's capital stock or other equity securities other than the Series A Preferred. "Liquidation Value" of any share of Series A Preferred as of any particular date shall be equal to $11.25 (as such amount is equitably adjusted for subsequent stock splits, stock combinations, stock dividends and recapitalizations affecting the Series A Preferred). "Market Price" of any security means the average of the closing prices of such security's sales on all securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being determined and the 20 consecutive business days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined jointly by the Corporation and the holders of a majority of the Series A Preferred. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Corporation and the holders of a majority of the Series A Preferred. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees and expenses of such appraiser. "Options" means any rights or options to subscribe for or purchase equity securities or Convertible Securities. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Share Price" means the closing price on a day of sales of the Common Stock on the securities exchange on which the Common Stock may be listed, or if on any day the Common Stock is not listed on any securities exchange, the last bid price quoted in the NASDAQ System as of 4:00 P.M., New York time on such day, or if on any day the Common Stock is not quoted in the NASDAQ System, the last bid price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization. Section I. Notices. Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices, attention: Paul Brown, Chief Financial Officer and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder)." Amendment 1 dated: September 11, 1998. Amendment 2 and 3 dated: June 24, 1998 EX-3.1B 3 RESTATED ARTICLES OF INCORPORATION RESTATED ARTICLES OF INCORPORATION FOR TRM COPY CENTERS CORPORATION (Formerly known as All Copy Corporation) ARTICLE I Effective on the filing of these Restated Articles of Incorporation, the name of this Corporation is changed from ALL COPY CORPORATION to TRM COPY CENTERS CORPORATION. Its duration shall be perpetual. ARTICLE II The purpose for which the Corporation is organized is to engage in any lawful activity for which corporations may be organized under the Oregon Business Corporation Act. ARTICLE III The authorized capital stock of the Corporation shall consist of 10 million shares of Common Stock, no par value, and 5 million shares of Preferred Stock, no par value. The Common Stock shall have unlimited voting rights, and shall be entitled to receive the net assets of the Corporation upon dissolution, subject to any specific voting rights or right to distributions upon dissolution that may be set forth in the terms of any shares of Preferred Stock established by amendment to these Restated Articles. The Board of Directors of the Corporation may determine, in whole or in part, the preferences, limitations, and relative rights of the Preferred Stock before the issuance of any shares of such class of stock. The Preferred Stock may be issued from time to time in one or more series as determined by the Board of Directors pursuant to authority hereby vested in it, each series to be appropriately designated, prior to the issue of any shares thereof, by some distinguishing letter, number or title. All shares of the same series of Preferred Stock shall be identical in every particular and, except as otherwise stated with respect to the particular preferences, limitations and relative rights in the resolution or resolutions creating any series, identical with respect to other series of Preferred Stock. The designation and terms of any series of Preferred Stock shall be fixed and determined by the Board of Directors and set forth in an amendment to these Restated Articles to be filed with the Secretary of State before the issuance of any shares of any such series. The Board of Directors may from time to time increase the authorized number of shares of any series of Preferred Stock already created by providing that any unissued shares of Preferred Stock shall constitute part of such series, or may decrease (but not below the number of shares thereof then outstanding) the number of shares of any series of Preferred Stock already created by providing that any unissued shares previously assigned to such series shall no longer constitute a part thereof. The Board of Directors is further empowered to classify or reclassify any unissued Preferred Stock by fixing or altering the terms thereof and by assigning all or any portion thereof to an existing or newly created series from time to time before the issuance of such stock. ARTICLE IV 1. The number of directors of the Corporation shall be fixed as provided by the Bylaws and may be changed from time to time by amending the Bylaws, as therein provided, but the number of directors shall be not less than three. The Board of Directors is authorized to increase the number of persons to comprise the Board of Directors in any period between annual shareholder meetings by the affirmative vote of a majority of the directors. In the event the Board of Directors is divided into classes, such additional director or 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, the number of directors shall not be increased by more than two 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. 2. 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. 3. 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 2 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. 4. A director of the Corporation may be removed only for cause by the affirmative vote of the holders of not less than 75 percent of the outstanding shares of voting stock. ARTICLE V 1. The affirmative vote of the holders of not less than 75 percent of all outstanding voting stock, voting as one class, shall be required for the approval or authorization of any "business combination" (as hereinafter defined) with any person or entity which, as of the record date for the determination of the shareholders entitled to notice of and to vote upon such matter, is the beneficial owner of 5 percent or more of the outstanding voting stock of the Corporation (hereinafter a "Major Shareholder"). Any such 75 percent vote in order to constitute due and valid authorization under this Article must include the affirmative vote of not less than 51 percent of the voting stock held by persons other than the Major Shareholder. 2. For purposes of this Article, the term "business combination" shall mean: (a) any merger or consolidation (whether in a single transaction or a series of related transactions) of the Corporation or any subsidiary of the Corporation with or into any Major Shareholder; or (b) the sale, exchange, distribution to shareholder, pledge, mortgage (or use of other security device to create a lien upon) or lease of 10 percent or more of the consolidated assets of the Corporation and its subsidiaries to any Major Shareholder, or the purchase, exchange, lease or other acquisition by the Corporation or any of its subsidiaries of 10 percent or more of the consolidated assets of a Major Shareholder, in either case in a single transaction or a series of related transactions, excluding, however, any dividend or distribution paid or made or any transaction with shareholders, which, in each case, is pro rata to all holders of a class or series of shares of the Corporation or any of its subsidiaries, provided that there is no increase in the Major Shareholder's proportionate share of any class or series of shares of the Corporation or of the voting stock of the Corporation; or (c) the issuance of securities of the Corporation (or warrants, options or other rights to purchase the same, but specifically excluding any stock options and any related purchases of shares pursuant to such options granted under any employee stock option 3 plan adopted by the Board of Directors) to, the reclassification or recapitalization of the securities of the Corporation owned by, or the exchange of securities of the Corporation with, a Major Shareholder in any transaction in which all shareholders of the same class or series of shares are not treated identically on a per-share basis; or (d) any other transaction with a Major Shareholder for which approval of the shareholders of this Corporation is required by law or by any agreement between the Corporation and any national securities exchange or the National Association of Securities Dealers, Inc., or rule of any such exchange or Association; or (e) any contract or agreement providing for any of the foregoing. 3. For purposes of this Article, the term "person" or "entity" shall mean: (a) any individual, corporation, partnership or other person; (b) any other party which is an "affiliate" or "associate" (as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on October 31, 1991), of any person or entity described in subparagraph 3(a) above; (c) any other party with which any person or entity described in subparagraph 3(a) above or any of its affiliates or associates have any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of shares of the Corporation; and (d) the predecessors, successors or assigns of any entity described in subparagraphs 3(a), (b) or (c) above in any transaction or series of transactions not involving a public offering of the shares of the Corporation within the meaning of the Securities Act of 1933. 4. The super-majority voting requirements of this Article shall not be applicable to any business combination (i) approved by resolution of the Board of Directors prior to the time that the Major Shareholder became such, (ii) approved by the affirmative vote of a majority of the Continuing Directors, or (iii) solely between the Corporation and any other corporation or entity in which 50 percent or more of the voting stock or interest is owned by the Corporation, if the shareholders of the Corporation retain their proportionate voting and equity interests in the surviving entity. The term "Continuing Director" for purposes of this Article shall mean a director (i) who is and has been a director for at least two consecutive years immediately preceding the date of the vote, (ii) who was a member of the Board of Directors of the Corporation immediately prior to the time that any person or entity with whom a business combination is to be consummated became a Major Shareholder, or (iii) who is a director designated (before his initial election as a director) as a Continuing Director by a two-thirds vote of the then Continuing Directors. All references to a vote of 4 the Continuing Directors shall mean a vote of the total number of Continuing Directors of the Corporation. 5. Beneficial ownership for purposes of this Article shall be deemed to include all shares which would be determined to be beneficially owned (whether directly by such person or entity or indirectly through any affiliate or otherwise) under Rule 13d-3 of the Securities and Exchange Commission as in effect on October 31, 1991, as well as all shares of the Corporation which such person or entity has the right to acquire, pursuant to any agreement or otherwise. 6. The determination of whether a proposed business combination is within the scope of this Article, including without limitation, (i) the number of shares of stock beneficially owned by any person; (ii) whether a person is an affiliate or associate of another; (iii) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in this Article; (iv) whether the assets subject to any business combination are a substantial part of the relevant corporation's assets; (v) whether a proposed transaction is subject to the provisions of this Article; and (vi) such other matters with respect to which a determination is required under this Article, shall be made by a two-thirds majority of the Continuing Directors. Any such determination shall be conclusive and binding for all purposes of this Article. 7. During the time a Major Shareholder exists, a resolution to voluntarily dissolve the Corporation shall be adopted only upon (i) the consent of the holders of all of the Corporation's outstanding voting stock; or (ii) the affirmative vote of at least two-thirds of the total number of the Continuing Directors, and the affirmative vote of the holders of at least 75 percent of the outstanding shares of voting stock. If no Major Shareholder exists, this section 7 shall not apply. 8. The shareholder vote, if any, required for any business combination not expressly subject to the super-majority voting provisions of this Article shall be such vote as may otherwise be required by applicable law and any other applicable provisions of these Restated Articles of Incorporation. 9. Notwithstanding the foregoing provisions, in the event of any business combination with any person or entity which is a Major Shareholder, the requisite vote of the holders of the outstanding shares of voting stock necessary to approve the transaction shall be 75 percent unless the terms of the transaction are such that all of the Corporation's shareholders of the same class are to receive as a result of the business combination the identical and highest price on a per-share basis in exchange for their shares as was received by any other former shareholder of the Corporation of such class whose shares were acquired during the preceding 9-month period by the Major Shareholder with whom the business combination is to be consummated. 5 ARTICLE VI Notwithstanding any of the provisions of these Restated Articles of Incorporation or the Bylaws of the Corporation, and notwithstanding the fact that some lesser percentage may be allowed by law, any amendment, change or repeal of Articles IV, V or this Article VI, or any other amendment of these Restated Articles of Incorporation which would have the effect of modifying or permitting circumvention of the provisions of Articles IV, V and VI, shall require the affirmative vote of 75 percent of the outstanding shares of voting stock of the Corporation. ARTICLE VII 1. The Corporation shall indemnify its directors, officers, employees and agents to the full extent and under the circumstances permitted by the Oregon Business Corporation Act. 2. To the fullest extent permitted by law, no director of this Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for conduct as a director. No amendment or repeal of this Article VII, nor the adoption of any provision of these Restated Articles of Incorporation inconsistent with this Article VII, shall adversely affect any right or protection of a director based upon this Article VII and existing at the time of such amendment or repeal. No change in the law shall reduce or eliminate the rights and protections applicable at the time this provision shall become effective unless the change in the law shall specifically require such reduction or elimination. If the Oregon Business Corporation Act is amended, after this Article VII shall become effective, to authorize corporate action further eliminating or limiting the personal liability of directors, officers, employees or agents, then the liability of directors, officers, employees or agents of this Corporation shall be eliminated or limited to the fullest extent permitted by the Oregon Business Corporation Act, as so amended. 3. No contract or other transaction between the Corporation and one or more of its directors or between the Corporation and any other corporation, firm, association or entity in which one or more of its directors are directors or officers or are financially interested, shall be either void or voidable because of such relationship or interest or because such director or directors are present at the meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction or because his or their votes are counted for such purposes, if: (i) the fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors; or (ii) the fact of such relationship or interest is disclosed or known to the 6 shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent; or (iii) the contract or transaction is fair and reasonable to the Corporation. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof which authorizes or ratifies such contract or transaction. ARTICLE VIII No shareholder shall have any preemptive right to acquire unissued or treasury shares of the Corporation or securities convertible into such shares or carrying a right to subscribe to or acquire such shares. ARTICLE IX No shareholder shall have the right to cumulate votes in respect of the election of directors. 7 EX-3.2 4 BYLAWS RESTATED 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 nine 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 (a) 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. (b) 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 or by mail, private carrier, telegram, electronic mail or facsimile transmission. If in writing, such notice is effective at the earliest of the following: (a) when received; or (b) when mailed if it is mailed postpaid and is correctly addressed to the director's address shown in the corporation's records. 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. ARTICLE XI OREGON CONTROL SHARE ACT Sections 60.801 to 60.816 of the Oregon Business Corporation Act, known as the "Oregon Control Share Act," do not apply to acquisitions of the Corporation's voting shares (as defined in the Oregon Control Share Act). As amended March 29, 1998. EX-10.5 5 RESTATED 1996 STOCK OPTION PLAN [Company Logo] TRM COPY CENTERS CORPORATION RESTATED 1996 STOCK OPTION PLAN 1. Purpose. The purpose of this Restated 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 1,200,000 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. [Logo] TRM Copy Centers Corporation 1996 Restated Stock Option Plan Page 2 of 7 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. [Logo] TRM Copy Centers Corporation 1996 Restated Stock Option Plan Page 3 of 7 (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 [Logo] TRM Copy Centers Corporation 1996 Restated Stock Option Plan Page 4 of 7 market value of Common Stock provided in payment of the purchase price shall 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 [Logo] TRM Copy Centers Corporation 1996 Restated Stock Option Plan Page 5 of 7 Stock as shall be specified by the Board of Directors. (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 [Logo] TRM Copy Centers Corporation 1996 Restated Stock Option Plan Page 6 of 7 to purchase an additional 2,500 shares of Stock. (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. [Logo] TRM Copy Centers Corporation 1996 Restated Stock Option Plan Page 7 of 7 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 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. EX-10.8(D) 6 LETTER AGREEMENT/PAUL M. BROWN, JR. Paul M. Brown, Jr. 680 River Pointe Dr. Eugene, OR 97408 541-334-6975 FAX 541-334-0477 September 18, 1997 Mr. Fred Stockton Chief Executive Officer TRM Copy Centers Corporation 5208 NE 122nd Ave. Portland, OR 97230 Dear Fred: We have discussed our mutual interest in my joining TRM Copy Centers Corporation. I have summarized the terms of our arrangement, in order to ensure that we do not have any misunderstandings. Start Date: September 22, 1997 Title: Vice President - Finance, Chief Financial Officer Base Compensation: $120,000 per year. Base compensation shall be reviewed annually. Incentive Compensation: Incentive compensation shall be based on yet-to-be- determined performance criteria, but which shall be mutually agreed-upon. Incentive potential shall be $30,000 during fiscal 1998 (the period ended June 30, 1998). Similar or enhanced incentives will be initiated in future years. Stock Options: 100,000 non-qualified stock options shall be issued effective as of my employment start date, with the exercise price equal to 100 percent of the market price at that date, vesting ratably at 20% per year and expiring 10 years from date of grant. It is understood that the Board of Directors will review opportunities for additional stock option grants to executive management in future years, based on performance. Vacation and Holiday: Standard employee benefits, except that two weeks will also be provided during the first year of employment. Other Employee Benefits: Standard employee benefits. 1 Fred Stockton TRM Copy Centers Corporation September 18, 1997 Executive Benefits: Consistent with other executives' benefits. Relocation Costs: Household moving costs will be paid by TRM Copy Centers Corporation. The maximum moving costs to be reimbursed are $10,000. Out-of-town Living Expenses: Reasonable reimbursement for "out-of-town" costs while I am living in Portland and my residence is in Eugene, for the first 90 days, or until my family is able to move to the Portland area (whichever comes first). Continuing Education Costs: Continuing education will be paid by TRM for at least 40 hours per year of training, as required to keep current CPA certification, which qualifies for credit by the State of Oregon licensing division and by OSCPA and AICPA continuing education requirements. Additional training for SEC reporting will also be paid by TRM, as needed for continued proficiency. Severance: If I am terminated for any reason other than "for cause," I will receive the following separation provisions: o 6 months' salary continuation if terminated within one year of joining the Company. After one years' employment, salary continuation increases by 1 month for each year of employment, up to 12 months total salary continuation. o Earned but unpaid incentive compensation will be paid upon separation. o Health insurance continuation for the duration of the salary continuation period. o 100% vesting of all outstanding stock options, whose terms shall not expire sooner than the normal expiration date as if I had continued as an employee throughout their term. Change in Control: o If the Company should experience a "Change in Control," as evidenced by an increase in ownership which would require reporting under Regulation 14A of the Securities and Exchange Act of 1934, then all options outstanding as of the date of such 2 Fred Stockton TRM Copy Centers Corporation September 18, 1997 Change in Control, continued: change in control shall become 100% vested and shall not expire sooner than their normal expiration date as if I had continued as an employee throughout their term. I hope that this summary fairly reflects our discussion and understanding. If you have any questions or if your understanding is different from this, please call me immediately. Best regards, PAUL M. BROWN JR. Paul M. Brown, Jr. Received and approved by: RALPH R. SHAW - ---------------------------------- ---------------------------------- Ralph R. Shaw Date Chairman of the Compensation Committee FREDERICK O. PAULSELL - ---------------------------------- ---------------------------------- Frederick O. Paulsell Date Chairman of the Board, Member of the Compensation Committee FREDERIC P. STOCKTON 9/18/97 - ---------------------------------- ---------------------------------- Frederic P. Stockton Date President and CEO EX-21.1 7 SUBSIDIARIES OF TRM CORPORATION Exhibit 21.1 Subsidiaries of TRM Corporation (formerly 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 8 FINANCIAL DATA SCHEDULES
5 1,000 YEAR JUN-30-1998 JUN-30-1998 20,177 0 7,579 156 3,809 33,598 58,691 17,067 75,266 11,661 0 0 19,853 18,617 0 75,266 57,021 57,021 30,190 30,190 667 0 68 (955) (373) (582) 0 0 0 (582) (.08) (.08)
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