10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
o  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 of incorporation or organization)	(I.R.S. Employer Identification No.)
5208 N.E. 122nd Avenue
Portland, Oregon 97230
(Address of principal executive offices) (Zip Code)
(503) 257-8766
(Registrant’s telephone number, including area code)

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  ý  NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

YES o  NO ý

                Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

CLASS	OUTSTANDING AT JUNE 30, 2003
Common Stock	7,059,790

PART I—FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

TRM Corporation

Consolidated Balance Sheets

(In thousands)

	December 31, 2002			June 30, 2003
				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,127		$	4,409
Accounts receivable, net	6,084			5,221
Inventories, net	947			1,720
Prepaid expenses and other	778			1,075
Deferred tax asset	876			727
Total current assets	10,812			13,152
Equipment, less accumulated depreciation	67,916			66,160
Intangible assets	72			72
Other assets	1,773			1,528
Total assets	$	80,573		$	80,912
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,231		$	1,677
Accrued expenses	7,932			6,708
Income taxes payable	3			—
Current portion of litigation settlement	1,050			—
Current portion of long-term debt	21			3,022
Current portion of obligations under capital leases	1,508			2,088
Total current liabilities	12,745			13,495
Litigation settlement	738			—
Long-term debt	16,709			12,057
Obligations under capital leases	2,579			3,406
Deferred tax liability	2,203			3,254
Other long-term liabilities	128			104
Preferred dividends payable	3,377			4,127
Total liabilities	38,479			36,443
Shareholders’ equity:
Preferred stock, no par value
Authorized 5,000 shares; 1,778 shares issued and outstanding (liquidation preference $20,003)	$	19,798		$	19,798
Common stock, no par value
50,000 authorized; 7,060 shares issued and outstanding	19,026			19,026
Additional paid-in capital	63			63
Accumulated other comprehensive income (loss)	(738		)	486
Retained earnings	3,945			5,096
Total shareholders’ equity	42,094			44,469
Total liabilities and shareholders’ equity	$	80,573		$	80,912

See accompanying notes to consolidated financial statements.

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TRM Corporation

Consolidated Statements of Operations

(unaudited)

(In thousands, except per share data)

	Three Months Ended June 30,						Six Months EndedJune 30,
	2002			2003			2002			2003
Sales	$	21,556		$	24,366		$	42,172		$	46,780
Less discounts	3,866			4,151			7,360			7,877
Net sales	17,690			20,215			34,812			38,903
Cost of sales	11,079			11,950			21,647			23,036
Gross profit	6,611			8,265			13,165			15,867
Selling, general and administrative expense	6,810			6,264			13,265			12,063
Operating income (loss)	(199		)	2,001			(100		)	3,804
Interest expense	402			238			846			568
Other (income) expense, net	73			49			(1		)	262
Income (loss) before minority interest	(674		)	1,714			(945		)	2,974
Minority interest in losses of consolidated subsidiary	—			—			72			—
Income (loss) from continuing operations before income taxes	(674		)	1,714			(873		)	2,974
Provision (benefit) for income taxes	(270		)	566			(396		)	1,073
Income (loss) from continuing operations	(404		)	1,148			(477		)	1,901
Loss from discontinued operations	—			—			(264		)	—
Net income (loss)	$	(404	)	$	1,148		$	(741	)	$	1,901
Basic and diluted per share information:
Income (loss) from continuing operations	$	(404	)	$	1,148		$	(477	)	$	1,901
Preferred stock dividends	(375		)	(375		)	(750		)	(750		)
Income (loss) from continuing operations available to common shareholders	$	(779	)	$	773		$	(1,227	)	$	1,151
Weighted average common shares outstanding	7,060			7,060			7,060			7,060
Dilutive effect of stock options	—			37			—			19
Weighted average common shares outstanding, assuming dilution	7,060			7,097			7,060			7,079
Basic and diluted income (loss) per share:
From continuing operations	$	(.11	)	$	.11		$	(.17	)	$	.16
Discontinued operations	—			—			(.04		)	—
Net income (loss)	$	(.11	)	$	.11		$	(.21	)	$	.16

See accompanying notes to consolidated financial statements.

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TRM Corporation

Consolidated Statement of Shareholders’ Equity

(unaudited)

(In thousands)

	Comprehensive Income		Preferred			Common			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
			Shares	Amounts		Shares	Amounts
Balances, December 31, 2002			1,778	$	19,798	7,060	$	19,026	$	63	$	(738	)	$	3,945		$	42,094
Comprehensive income
Net income	$	1,901	—	—		—	—		—		—			1,901			1,901
Other comprehensive income, net of tax:
Foreign currency translation adjustment	1,224		—	—		—	—		—		1,224			—			1,224
Comprehensive income	$	3,125	—	—		—	—		—		—			—			—
Preferred stock dividends			—	—		—	—		—		—			(750		)	(750		)
Balances, June 30, 2003			1,778	$	19,798	7,060	$	19,026	$	63	$	486		$	5,096		$	44,469

See accompanying notes to consolidated financial statements.

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TRM Corporation

Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

	Six Months Ended June 30,
	2002			2003
Operating activities:
Net income (loss)	$	(741	)	$	1,901
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Restricted cash	(400		)	—
Depreciation and amortization	4,870			4,979
Minority interest in earnings of consolidated subsidiary	(72		)	—
Other	(6		)	—
Loss on disposal of equipment and vehicles	244			419
Changes in items affecting operations:
Accounts receivable	(550		)	102
Inventories	634			(732		)
Transfer of ATMs from equipment to inventories	—			1,474
Income tax receivable	(398		)	—
Prepaid expenses and other	(73		)	409
Accounts payable	(1,612		)	(598		)
Accrued expenses	1,069			(1,178		)
Income taxes payable	—			3
Deferred taxes	(79		)	1,213
Litigation settlement	—			(1,738		)
Total operating activities	2,886			6,254
Investing activities:
Proceeds from sale of equipment	115			468
Capital expenditures	(1,875		)	(1,732		)
Other	(336		)	(41		)
Total investing activities	(2,096		)	(1,305		)
Financing activities:
Borrowings on line of credit	10,271			8,128
Repayment of line of credit	(11,451		)	(24,779		)
Borrowings on term loan	—			15,000
Principal payments on capital lease obligations	(21		)	(874		)
Purchase of minority interest	(60		)	—
Total financing activities	(1,261		)	(2,525		)
Effect of exchange rate changes	59			(142		)
Net increase (decrease) in cash and cash equivalents	(412		)	2,282
Beginning cash and cash equivalents	1,598			2,127
Ending cash and cash equivalents	$	1,186		$	4,409
Supplemental disclosure of non-cash transactions:
Disposal of assets under a non-cash sales agreement:
Current assets	$	3		$	—
Non-current assets	3,145			—
Current liabilities	(203		)	—
Assets acquired under capital lease obligations	72			2,104

See accompanying notes to consolidated financial statements.

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TRM Corporation

Notes to Condensed Consolidated Financial Statements (unaudited)

1.Interim Financial Data:

The consolidated financial statements of TRM Corporation and its subsidiaries (collectively, "TRM" or the "Company") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments, consisting only of normal recurring adjustments, which, in the opinion of management, are necessary for a fair statement of the results of the interim periods.  These consolidated financial statements should be read in conjunction with the Company’s latest annual report to shareholders.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

2.Financial Statements Reclassification:

Reclassifications have been made to amounts in prior years to conform to the current year presentation.  These changes had no effect on previously reported results of operations or shareholders’ equity.

3.Net Income (Loss) Per Share:

Basic and diluted net income (loss) per share are based on the weighted average number of shares outstanding during each period, with diluted including the effect of potentially dilutive securities.  In calculating basic net income (loss) per share, dividends for preferred stock are deducted to arrive at income (loss) available for common shareholders.  For diluted net income (loss) per share, the calculation assumes the conversion of common stock equivalents including the conversion of preferred stock unless such conversion is antidilutive.  Weighted average common shares outstanding, assuming dilution, include the incremental shares that would be issued upon the assumed exercise of stock options.  For the three and six months ended June 30, 2003, approximately 1,258,000 of the Company’s stock options were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were equal to or greater than the average share price of the common shares, and therefore their inclusion would have been antidilutive.  In addition, preferred stock convertible into approximately 1,333,000 common shares was excluded from the calculation because its inclusion would also have been antidilutive.  These options and preferred stock could be dilutive in the future.

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4.Inventories (in thousands):

	December 31, 2002		June 30, 2003
			(unaudited)
Parts	$	934	$	919
ATMs held for resale	—		781
Paper	5		6
Toner and developer	8		14
Total	$	947	$	1,720

5.Long-term Debt:

In May 2003, the Company and its primary lender (Bank of America, N.A.) executed a new loan agreement refinancing the Company’s existing revolving loan.  The new facility includes a $15.0 million term loan maturing in March 2006, and a $4.0 million revolving line of credit maturing April 30, 2004.

As of June 30, 2003, the Company had a balance of $15.0 million outstanding pursuant to the term loan.  Interest is due monthly on the term loan, and principal is payable in quarterly installments of $750,000 starting September 30, 2003.  Interest on the term loan is at the bank’s prime rate plus 0.0% to 0.5% depending on the Company’s leverage ratio as defined in the loan agreement.  The Company also has the option of electing an alternative interest rate based on the bank’s LIBOR or IBOR rates.  As of June 30, 2003, interest on the term loan was 4.52%.

As of June 30, 2003, the Company did not have any outstanding borrowings under the revolving line of credit.  However, the bank had issued standby letters of credit on the Company’s behalf that totaled $1.65 million as of June 30, 2003, reducing the balance available under the line of credit to $2.35 million.  As described in the "Liquidity and Capital Resources" section of Item 2 of this report, these standby letters of credit guarantee the Company's performance as servicer of the TRM Inventory Funding Trust.

As of June 30, 2003, the Company was in compliance with all of its debt covenants.

6.Employee Stock Options:

In December 2002, the Financial Accounting Standards Board (FASB or the “Board”) issued Statement of Financial Accounting Standards No. 148 (SFAS 148), “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123.”  This Statement amends SFAS No. 123, “Accounting for Stock-Based Compensation” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  SFAS No. 148 provides for voluntary adoption of the fair value method for entities with fiscal years ending after December 15, 2002.  The Company has adopted the prominent disclosure provisions.  The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 (in thousands, except per share data).

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	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2003			2002			2003
Net income (loss), as reported	$	(404	)	$	1,148		$	(741	)	$	1,901
Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(41		)	(25		)	(81		)	(39		)
Pro forma net income (loss)	$	(445	)	$	1,123		$	(822	)	$	1,862
Net income (loss) per share-basic and diluted:
As reported	$	(.11	)	$	.11		$	(.21	)	$	.16
Pro forma	$	(.12	)	$	.11		$	(.22	)	$	.16

7.Segment Reporting (in thousands):

The Company has three reportable segments:  Photocopy, Automated Teller Machines (ATM) and S-3 Corporation.  Photocopy owns and maintains self-service photocopiers in retail establishments.  ATM owns and operates ATM machines in retail establishments. S-3 Corporation develops software to deliver products and services through ATMs.

The accounting policies of the segments are substantially the same as those described in Note 1 of the Company’s annual report on Form 10-K for the year ended December 31, 2002.  The Company evaluates each segment’s performance based on income or loss before interest, income taxes, and minority interest, excluding non-recurring charges.  Information regarding the operations of these reportable segments is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2003			2002			2003
Net Sales:
Photocopy	$	11,629		$	11,105		$	23,250		$	21,801
ATM	5,475			8,758			10,338			16,148
S-3 Corporation	586			352			1,224			954
	$	17,690		$	20,215		$	34,812		$	38,903
Income (loss) before interest, taxes and minority interest:
Photocopy	$	566		$	1,416		$	1,670		$	2,877
ATM	(893		)	742			(2,010		)	881
S-3 Corporation	55			(206		)	(23		)	(216		)
	$	(272	)	$	1,952		$	(363	)	$	3,542

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Reconciliation of total income (loss) before interest, taxes, and minority interest to consolidated income (loss) from continuing operations before income taxes follows (in thousands).

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2003			2002			2003
Income (loss) before interest, taxes, and minority interest	$	(272	)	$	1,952		$	(363	)	$	3,542
Interest expense	(402		)	(238		)	(846		)	(568		)
Minority interest in losses of consolidated subsidiary	—			—			72			—
Add back loss from discontinued operations included in software development segment	—			—			264			—
Income (loss) from continuing operations before income taxes	$	(674	)	$	1,714		$	(873	)	$	2,974

8.New Accounting Standards:

In January 2003, the FASB issued FASB Interpretation No. 46 “Consolidation of Variable Interest Entities” (“FIN 46”).  FIN 46 addresses consolidation by business enterprises of variable interest entities.  Under that interpretation, certain entities known as Variable Interest Entities (“VIEs”) must be consolidated by the primary beneficiary of the entity.  The  primary beneficiary is generally defined as having the majority of the risks and rewards arising from the VIE.  For VIEs in which a significant (but not majority) variable interest is held, certain disclosures are required.  FIN 46 applies immediately to variable interest entities created after January 31, 2003, and applies in the first year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003.  The Company will adopt the provisions of FIN 46 in the third quarter of 2003 and is currently assessing the impact the adoption of this interpretation will have on its results of operations, financial position and cash flows. The Company believes that adoption of this interpretation will likely result in the consolidation of the TRM Inventory Funding Trust (as described in the "Liquidity and Capital Resources" section of Item 2 of this report) in the Company’s financial statements.  As of July 1, 2003 the consolidation of the TRM Inventory Funding Trust would result in an increase in long-term assets and liabilities of $31.0 million and have no effect on its results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”  SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  SFAS No. 149 is effective for the Company prospectively for contracts entered into or modified after June 30, 2003.  The Company does not believe that the adoption of this statement will have a material impact on its results of operations, financial position or cash flows, as the Company does not hold any derivative or hedging instruments.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.”  This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.  It requires that an issuer classify a financial

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instrument that is within its scope as a liability (or an asset in some circumstances).  Many of those instruments were previously classified as equity.  SFAS No. 150 is effective for the Company for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  The Company does not believe that adoption of SFAS No. 150 will have a material effect on its financial position, results of operations or cash flows.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Information in this quarterly report on Form 10-Q that is not historical in nature, including information about the Company’s goals, plans and expectations regarding expansion, capital expenditures, expanding the ATM business, revenues from the ATM business becoming a higher percentage of overall revenue, financing of capital expenditures, future cash flows from operations and obtaining long-term asset-based financing, 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.  We are including this statement for the purpose of invoking the safe-harbor protection of these sections.  These forward-looking statements are based on the belief of the Company’s management as well as assumptions made by, and information currently available to, the Company’s management.  Factors that could cause the actual results to differ materially from the forward-looking statements include, but are not limited to:  business conditions in the market areas in which the Company operates, competitive factors, customer demand for the Company’s services, the Company’s ability to execute its plans in each business segment successfully, the ability of the Company to successfully negotiate and enter into additional financing arrangements on favorable terms, the Company’s ability to expand its current relationships with retailers and broaden its distribution network, and the volatility of paper costs.  Many of these factors are not within the Company’s control.  Any forward-looking statements should be considered in light of these factors as well as risk factors and business conditions discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2002.  Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended.  The Company does not intend to update these forward-looking statements.

General

TRM Corporation and its subsidiaries (collectively "TRM" or the "Company") currently provide financial services and photocopy resources to consumers through an in-store retail network which exceeds 30,000 locations.  Financial services consist of surcharge based cash delivery and bank account balance inquiries through both owned and leased ATM/cash machines.  The Company also provides highly specialized contract software engineering to the financial services industry, focused upon ATM/Cash machine operations and communications.

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In June 2003, the Company’s ATM network had a total of 3,273 revenue-generating machines deployed throughout the United Kingdom and United States, representing an increase of 594 ATM machines (or 22%) when compared to the same month in 2002.  The ATM operations produced net sales of $16.1 million during the first six months of 2003, representing an increase of $5.8 million (or 56%) as compared to the same period in the prior year.  The Company believes that revenues generated from services delivered through its ATM network will represent a greater percentage of overall net sales in the future.

In June 2003, the Company had a total of 27,053 revenue-generating photocopiers in the United States, Canada and the United Kingdom.  This represented a decrease of 1,242 (or 4.4%) photocopiers when compared to the same month in 2002 and was the result of the elimination of unprofitable locations.  Photocopy net sales were $21.8 million for the six months ended June 30, 2003, down from $23.3 million during the same period in 2002.  This decrease in net sales was caused, in part, by the extreme weather conditions experienced in the Northeastern part of the United States during the first two months of 2003 as well as from the elimination of unprofitable sites.

The Company maintains and operates a number of service centers throughout the United States, Canada, and United Kingdom to support its photocopy and ATM networks.  As of June 30, 2003 the Company had 14 service centers in the United States, 4 in Canada and 1 in the United Kingdom.  This represented a decrease of 14 service centers when compared to the same date in 2002 and was the result of the Company’s effort to reduce overhead by consolidating sites.

S-3 Corporation generated $954,000 in sales for the six months ended June 30, 2003 as compared to $1.23 million over the same period in 2002, representing a decrease of $271,000 or 22%.  The decrease resulted from substantial completion of a development contract with NCR Corporation during the first quarter of 2003.

In May 2003, the Company and its primary lender (Bank of America, N.A.) executed a new loan agreement to refinance the Company’s revolving loan on substantially more favorable terms, including a reduction in interest rate from prime plus 200 basis points to a maximum of prime plus 50 basis points.  The new facility includes a $15.0 million three-year term loan, which matures in March 2006, and a $4.0 million revolving line of credit which matures April 30, 2004.  Interest is due monthly and principal is payable in quarterly installments of $750,000 starting September 30, 2003.

As further discussed under the heading “Liquidity and Capital Resources,” cash available for use in the Company’s United States ATM network was increased from $30.0 million to $50.0 million in April 2003.  The cash is made available to the Company by a trust that raises cash for this purpose by issuing commercial paper.

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Results of Operations

The following table sets forth, for the periods indicated, selected statement of operations data, expressed as a percentage of sales of each item on the Consolidated Statements of Operations (see page 3 of this quarterly report Form 10-Q).

	Three Months Ended				Six Months Ended
	June 30, 2002		June 30,2003		June 30, 2002		June 30, 2003
Sales	100.0	%	100.0	%	100.0	%	100.0	%
Sales discounts	17.9		17.0		17.5		16.8
Net sales	82.1		83.0		82.5		83.2
Cost of sales	51.4		49.1		51.3		49.3
Selling, general and administrative	31.6		25.7		31.5		25.8
Operating income (loss)	(0.9	)	8.2		(0.3	)	8.1
Interest expense, net	1.9		1.0		2.0		1.2
Other expense, net	0.3		0.2		—		0.5
Minority interest	—		—		0.2		—
Income (loss) from continuing operations before income taxes	(3.1	)	7.0		(2.1	)	6.4
Provision (benefit) for income taxes	(1.2	)	2.3		(0.9	)	2.3
Income (loss) from continuing operations	(1.9	)	4.7		(1.2	)	4.1
Loss from discontinued operations	—		—		(0.6	)	—
Net income (loss)	(1.9	)%	4.7	%	(1.8	)%	4.1	%

Three and Six Months ended June 30, 2003 Compared to Three and Six Months ended June 30, 2002

For the three and six month periods ended June 30, 2003, consolidated net sales increased by $2.5 million (14.3%) and $4.1 million (11.8%), respectively as compared to the same periods in 2002. These increases were due primarily to ATM unit expansion and higher pricing throughout the Company’s ATM network.

Net sales from the Company’s ATM business increased to $8.8 million and $16.1 million for the quarter and six months ended June 30, 2003, an increase of 60.0% and 56.2% respectively from the same periods in 2002. The Company experienced these significant increases in ATM net sales due to (1) the addition of ATM machines and increased withdrawal transactions, (2) an increase in net revenue per transaction, and (3) sales of ATM machines.  As of June 30, 2003, the Company had 594 or 22% more ATM machines in operation than at June 30, 2002.  Withdrawal transactions increased 26% to 3.9 million for the quarter ended June 30, 2003 from 3.1 million for the second quarter of 2002.  For the six months ended June 30, 2003, withdrawal transactions also increased 26% to 7.3 million, from 5.8 million for the first six months of 2002.  Gross surcharge (convenience fee) revenue per transaction increased 20% to $2.08 for the quarter ended June 30, 2003 from $1.73 for the second quarter of 2002, and also increased 20% for the six months ended June 30, 2003 to $2.07 from $1.73 for the first six months of 2002.  In addition, the Company had sales of ATM machines of $674,000 and $1.0 million in the second quarter and first six months of 2003, respectively.  The Company did not have any sales of ATM machines in the first six months of 2002.

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Photocopy net sales were down $0.5 million (4.5%) and $1.4 million (6.2%) for the quarter and six months ended June 30, 2003, respectively, as compared to the same periods in 2002.  Overall copy volumes decreased by 8.9% for the second quarter of 2003 compared to the second quarter of 2002, and decreased by 10.7% for the six months ended June 30, 2003 compared to the six months ended June 30, 2002.  During the second quarter of 2003 the average number of billed units decreased to 27,098 from 28,595 during the second quarter of 2002, a 5% decrease.  During the first six months of 2003 the average number of billed units decreased to 27,471, from 28,915 during the first six months of 2002, a 5% decrease.  The average copies per billed unit for the quarter also declined, to 8,540 in the second quarter of 2003 from 8,884 in the second quarter of 2002, a 4% decrease.  The average copies per billed unit for the first six months also declined, to 16,667 in the first six months of 2003 from 17,739 in the first six months of 2002, a 6% decrease.  The Company believes that the decrease in average copies per unit is attributable primarily to a decline in demand caused by advances in electronic media and increasing availability of printers and copiers in the home.  The Company has responded to this decrease by eliminating certain lower-volume, unprofitable photocopy locations.  The decrease was partially offset by price increases.  The average price per copy increased to $0.059 and $0.058 for the three and six month periods ending June 30, 2003 from $.056 for the same periods in 2002, an increase of 5.3% for the three months of 3.6% for the six months ended June 30, 2003.  Cumulative net sales per billed unit increased to $409.79 for the second quarter 2003 from $406.67 for the same period in 2002 as a result of the price increase.  For the six months ending June 30, 2003 cumulative net sales per billed unit decreased to $793.56 from $804.06 in the same period 2002 as a result of the overall decline in copy volume.

A billed unit is a unit that has generated an invoice during the month.  Due to the timing of installations, removals, or maintenance during any given billing period, billed units may differ slightly from the average number of units installed during a billing period.  The differences in units billed and the average number of units installed during a billing period does not result in material timing differences.

S-3 Corporation generated $352,000 and $954,000 in sales from contracted software engineering services for the quarter and six months ended June 30, 2003 compared with $586,000 and $1.23 million generated for the same periods in 2002.  The decrease resulted from substantial completion of a development contract with NCR Corporation during the first quarter of 2003.

Sales discounts are the portion of revenue retained by retail customers and are based on revenues generated or transaction volumes.  Sales discounts as a percentage of sales (excluding sales of ATM machines) were 17.5% and 17.2% for the quarter and six months ended June 30, 2003, respectively, compared to 17.9% and 17.5% for the comparable periods in 2002.  Sales discounts in the ATM business decreased to 17.4% of sales (excluding sales of ATM machines) for the second quarter of 2003 from 18.4% for the second quarter of 2002 as a result of a decrease in the number of high discount contracts.  For the first six months, sales discounts in the ATM business have increased to 17.0% in 2003 from 16.9% in 2002.  Sales discounts in the photocopy business have decreased to 18.1% for the second quarter of 2003 from 18.5% for the second quarter of 2002.  For the first six months, sales discounts in the photocopy business have decreased to 18.0% in 2003 from 18.5% in 2002.  The decreases in sales discounts in the photocopy business are due primarily to moving customers to lower discount programs based upon review of their actual usage.  The reduced discounts as a percentage of sales provide the Company better recovery on the cost of low volume photocopiers.

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Costs of sales as a percentage of revenue decreased to 49.1% for the quarter ended June 30, 2003 from 51.4% for the second quarter of 2002, and decreased to 49.3% for the first six months of 2003 from 51.3% for the first six months of 2002.

Cost ofsalesin the ATM business increased by $1.3 million for the second quarter and by $2.4 million for the first six months of 2003.  The increase includes $681,000 in the second quarter and $990,000 in the first six months of 2003 for the cost of ATM machines sold and related commissions.  Cost ofsalesin the ATM business decreased as a percentage of sales to 48.2% for the second quarter of 2003 from 56.2% for the second quarter of 2002, and decreased to 48.5% for the first six months of 2003 from 56.0% for the first six months of 2002.  These percentage decreases resulted primarily from increases in revenue per transaction.  Excluding the cost of ATM machines sold and related commissions, cost of sales in the ATM business decreased to $1.12 and $1.15 per transaction for the second quarter and first six months of 2003, respectively, as compared to $1.20 per transaction in the second quarter and first six months of 2002.

Cost of sales for the photocopy business in the second quarter of 2003 decreased by $521,000 as compared to the same period in 2002 and $1.1 million for the first six months of 2003 as compared to the same periods in 2002.  As a percentage of sales, photocopy cost of sales decreased to 48.4% for the second quarter of 2003 from 49.6% for the second quarter of 2002, and decreased to 49.1% for the first six months of 2003 from 49.7% for the first six months of 2002.  The $521,000 decrease in photocopy cost of sales was caused primarily by a reduction of materials costs.  The decrease in the first six months of 2003 was primarily due to a $700,000 reduction in labor, most of which occurred during the first quarter.  On a per-copy basis, cost of sales increased slightly, to $.029 in the first six months of 2003 from $.028 in the first six months of 2002 primarily due to the lack of linear relationship between reductions in transaction volume and reductions in certain costs.

Selling, general and administrative costs decreased $546,000 for the second quarter and $1.2 million for the first six months of 2003 as compared to the same periods in 2002. These costs as a percentage of sales decreased to 25.7% from 31.6% for the quarter and decreased to 25.8% from 31.5% for the first six months of 2003 as compared to the comparable periods last year.   The decreases are primarily due to reductions in labor costs.  At the beginning of the third quarter 2002, the Company determined that it was overstaffed for current business demands and began a reduction in force throughout its operations. The United States reduction in force took place primarily in the second half of 2002; the United Kingdom reduction in force took place in the first quarter of 2003.  The result of these reductions was a decrease in selling, general and administrative labor of $771,000 for the quarter ended June 30, 2003 and $1.37 million for the six months ended June 30, 2003, as compared to the same periods in 2002.

Interest expense decreased $164,000 and $278,000 for the three and six month periods ending June 30, 2003 compared to the same periods in 2002.  The decrease in interest expense is due primarily to reduced interest rates on the Company’s bank borrowings.  Interest on bank borrowings during the first six months of 2003 ranged from 4.52% to 6.25%, down from a range of 6.75% to 8.25% during the first six months of 2002.  Outstanding bank borrowings during the six months ended June 30, 2003 ranged from $14.1 million to $17.3 million, compared to a range of $20.1 million to $21.8 million during the six months ended June 30, 2002.  The decrease in

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bank borrowings was partially offset by an increase in obligations under capital leases to $5.5 million at June 30, 2003, from $100,000 at June 30, 2002.

Other expense for the six months ended June 30, 2003 relates to losses on disposal of certain photocopiers and ATM machines removed from service in the United Kingdom offset by a refund for expenses incurred during 2000.

The Company's effective tax rate for the quarter ended June 30, 2003 was 33.0%, resulting in an income tax provision of $566,000, compared to an effective tax rate of 40.1% and an income tax benefit of $270,000 for the same period in 2002. The effective tax rate for the six months ended June 30, 2003 was 36.0%, resulting in an income tax provision of $1.073 million compared to an effective tax rate of 34.8% and an income tax benefit of $396,000 for the same period in 2002.

A reconciliation of the income tax provision (benefit) for the three and six months ended June 30, 2002 and 2003 is as follows:

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
Components of Effective Tax Rate	2002		2003		2002		2003
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Pretax Book Income	34.00	%	34.00	%	34.00	%	34.00	%
State Tax Net of Federal Benefit	4.80		3.35		4.80		3.23
Nondeductible Expenses	(0.40	)	0.22		(0.40	)	0.56
Foreign Rate Differential	3.26		1.24		(2.34	)	0.48
PY Perm True-Up	0.00		0.00		0.00		0.00
Change in Valuation Allowance	(0.76	)	(6.40	)	(0.46	)	(2.79	)
Other	0.00		0.00		0.00		0.00
Intercompany Interest US/UK	(0.80	)	0.61		(0.80	)	0.48
Total Effective Tax Rate	40.10	%	33.02	%	34.80	%	35.95	%

For the six months ended June 30, 2003, the Company had net income of $1.9 million, compared to a net loss of $741,000 for the six months ended June 30, 2002.  This improvement is primarily attributable to $2.7 million in increased gross profits and a $1.2 million reduction in selling, general and administrative expense, less the increase of $1.5 million in the provision for income taxes.

Liquidity and Capital Resources

During the six months ended June 30, 2003, TRM generated $6.3 million in cash flows from operations as compared to $2.9 million for the same period in 2002.  The Company has a working capital deficit that decreased to $343,000 at June 30, 2003 from $1.9 million at December 31, 2002.  Cash flows from the Company’s operating activities in the first six months of 2003 have allowed the Company to pay the litigation settlement accrued at the end of 2002, reduce long-term debt and reduce the working capital deficit by $1.6 million.

In May 2003, the Company and its primary lender (Bank of America, N.A.) executed a new loan agreement to refinance the Company’s revolving loan on substantially more favorable terms, including a reduction in interest rate from prime plus 200 basis points to a maximum of prime plus 50 basis points.  The new facility includes a $15,000,000 three year term loan, which matures in March 2006, and a $4,000,000 revolving line of credit which matures April 30, 2004.  Interest is due monthly and principal is payable in quarterly installments of $750,000 starting September 30, 2003.

In April 2003, DZ Bank AG, Deutsche Zentral-Genossenschaftsbank Frankfurt am Main (DZ Bank) approved a request to increase cash available for use in TRM’s USA ATM network

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from $30.0 million to $50.0 million.  The additional $20.0 million cash facility is available to support continued growth in the Company’s ATM network as may be needed from time to time.

On March 14, 2000, a Deposit Trust Agreement (“Agreement”) was entered into between GSS Holdings, Inc. as Depositor, Wilmington Trust Company as Owner Trustee, and TRM ATM Corporation (“Servicer”) as Administrator. By virtue of the Agreement, TRM Inventory Funding Trust (the “Trust”) was created.  Neither Servicer, TRM nor any affiliates have any ownership interest in the Trust.  The purpose of the Trust is to provide cash to be placed in the Company’s ATM machines (“Vault Cash”), through accessing commercial paper markets.  Undivided interests in the Trust (“Certificates”) are sold to individuals and entities, and the liability of repaying or redeeming the Certificates resides with the Trust. The Trust has the ability to sell the Certificates, borrow and repay funds and make other payments under the Loan and Servicing Agreement, and to engage the Servicer and other agents and contractors from time to time to perform all duties assigned under the Loan and Servicing Agreement.  Any risk with regard to the Trust or the ability of the Trust to repay the Certificates resides with the Trust and with GSS Holdings as the Depositor (equity investor in the amount of $15,000) and with Autobahn Funding Company LLC (equity investor in the amount of $1,485,000) in the Trust, rather than with Servicer, which merely serves as an administrator and servicer of the Trust.  Both GSS Holdings and Autobahn Funding Company LLC are parties related to DZ Bank and are independent of the Servicer and the Company.

As borrower under the Loan and Servicing Agreement, the Trust, including its equity holders, is the sole obligor for repayment of commercial paper holders.  In the event that the Liquidity Providers (currently DZ Bank serves as both Liquidity Agent and Liquidity Provider) would be required to provide monies, the Trust would be obligated to the Liquidity Provider for repayment of monies advanced under the Liquidity Purchase Agreement.  The obligation of the Trust is backed 97%  by cash in the ATM network and 3% by equity investment in the Trust.

When the Vault Cash is placed in the ATM, the Trust has a security interest in all of the fees and charges earned or received in connection with all revenue generating transactions initiated at ATMs. The Vault Cash at all times remains the property of the Trust, and the Trust is ultimately obligated to repay the Certificateholders.  At no time do the Certificateholders have recourse against the Servicer under the Loan and Servicing Agreement.  The Company maintains standby letters of credit totaling $1.65 million at June 30, 2003 to guarantee the performance of the Servicer; subcontractors maintain insurance on behalf of the Trust so as to ensure the cash is safe during delivery to ATM machines, and as a bailee, TRM ATM maintains insurance on behalf of the Trust for the time that the cash is in ATM machines.  TRM ATM has chosen to purchase insurance policies from A.M. Best rated insurance carriers in the amount of $1.95 million, with a deductible of $5,000 to $10,000 per incident, depending on the type of ATM locations.  In a similar fashion, the banks and armored car carriers maintain insurance to cover losses of cash due to theft while in the possession of those respective parties.  TRM ATM has assumed the risk of the insurance deductible, which is not considered significant or material.  The Company has a reserve recorded in its financial statements at December 31, 2002 and June 30, 2003 for deductible payments and losses that were not large enough to qualify for insurance coverage amounting to $10,000.  The commercial paper facility matures in 2007.

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The Trust incurs expenses, including lending bank’s program fees, correspondent banks’ analysis fees, servicing agent fees, certificate yield payment fees, discounts on the Trust’s commercial paper borrowings, and collateral agent fees.  As Servicer, TRM ATM reimburses the Trust for all such expenses except for the servicing agent fees that are retained by TRM ATM.  All of the TRM ATM convenience and interchange revenues are deposited by the ATM transaction processor into a primary deposit account owned by the Trust on a daily basis.  These deposits are considered collateral for ensuring that all Trust expenses to be reimbursed by TRM ATM are funded on a monthly basis.  Once a month, the Trust automatically transfers an amount, equal to the reimbursable fees owed by TRM ATM, into a secondary account, also owned by the Trust.  From this secondary account, the Trust then disburses payments directly to the appropriate parties in payment of the Trust’s expenses noted above.  After ensuring that TRM ATM has sufficiently funded its reimbursements to the Trust, TRM ATM, as Servicer has authority to transfer convenience and interchange revenues remaining in the Trust’s primary deposit account to TRM ATM.  Expenses reimbursed by TRM ATM to the Trust were $217,000 and $360,000 for the quarters ended June 30, 2002 and 2003, respectively, and $418,000 and $620,000 for the six months ended June 30, 2002 and 2003, respectively.

The Company’s United Kingdom ATM business obtains Vault Cash under an agreement with a local bank.  Vault Cash obtained under the program remains the property of the bank; however, the Company is insured against risk of loss while the cash is in or being distributed to its ATM network.

The Company expects that operations will continue for 2003, with the realization of assets, and discharge of liabilities in the ordinary course of business.  The Company believes that its prospective needs for working capital, capital expenditures and debt service will be met from cash flows generated by operations.

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A summary of the Company’s contractual commitments and obligations at June 30, 2003 is as follows:

	Payments Due by Period
Contractual obligations	Total		2003		2004-2005		2006-2007		After 5 years
Long-term bank debt	$	15,079	$	1,511	$	6,044	$	7,524	$	—
Capital lease obligations	5,494		1,114		3,436		826		118
Operating leases	8,036		1,410		4,381		1,334		911
Total contractual cash obligations	$	28,609	$	4,035	$	13,861	$	9,684	$	1,029

Critical Accounting Policies

The Company’s critical accounting policies for the six months ended June 30, 2003 are consistent with those discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2002.

New Accounting Standards

In January 2003, the FASB issued FASB Interpretation No. 46 “Consolidation of Variable Interest Entities” (“FIN 46”).  FIN 46 addresses consolidation by business enterprises of variable interest  entities.  Under that interpretation, certain entities known as Variable Interest Entities (“VIEs”) must be consolidated by the primary beneficiary of the entity.  The  primary beneficiary is generally defined as having the majority of the risks and rewards arising from the VIE.  For VIEs in which a significant (but not majority) variable interest is held, certain disclosures are required.  FIN 46 applies immediately to variable interest entities created after January 31, 2003, and applies in the first year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003.  The Company will adopt the provisions of FIN 46 in the third quarter of 2003 and is currently assessing the impact the adoption of this interpretation will have on its results of operations, financial position and cash flows. The Company believes that adoption of this interpretation will likely result in the consolidation of the TRM Inventory Funding Trust in the Company’s financial statements. As of July 1, 2003 the consolidation of the TRM Inventory Funding Trust would result in an increase in long-term assets and liabilities of $31.0 million and have no effect on its results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”  SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  SFAS No. 149 is effective for the Company prospectively for contracts entered into or modified after June 30, 2003.  The Company does not believe that the adoption of this

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statement will have a material impact on its results of operations, financial position or cash flows, as the Company does not hold any derivative or hedging instruments.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.”  This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.  It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).  Many of those instruments were previously classified as equity.  SFAS No. 150 is effective for the Company for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  The Company does not believe that adoption of SFAS No. 150 will have a material effect on its financial position, results of operations or cash flows.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates, which could impact its results of operations and financial condition.

Interest Rate Risk.  The Company maintains an investment portfolio that is comprised solely of money market funds.  The income earned from these money market funds is subject to changes in interest rates.  Interest income was $25,000 and $48,000 for the three and six month periods ended June 30, 2003, respectively, and $15,000 and $41,000 for the same periods in 2002, respectively.  An immediate 10% change in interest rates would not have a material effect on the Company’s net income.  Additionally, the Company is exposed to interest rate risk related to its credit facility.  The Company’s $15.0 million term loan bears interest at a variable rate.  A 10% change in the interest rate from the June 30, 2003 rate would increase or decrease the Company’s interest expense by approximately $17,000 per quarter.

Foreign Currency Risk.The Company has international subsidiaries subject to foreign currency rate exposure.  The Company pays the expenses of its international operations in local currencies, namely, the British pound and Canadian dollar.  The international operations are subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility.  Accordingly, future results could be materially and adversely affected by changes in these or other factors.

The Company is also exposed to foreign exchange rate fluctuations as they relate to revenues and operating expenses as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation.  Because exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall expected profitability.  To date, the Company’s exposure to exchange rate volatility has not been significant.  Foreign exchange rate transactions resulted in a gain of $8,000 for the three months ended June 30, 2003 and a loss of $4,500 for the six months ended June 30, 2003.  Foreign exchange rate transaction losses, net of gains were $6,800 and $27,800 for the three months and six months ended June 30, 2002.

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                If foreign currency rates were to fluctuate by 10% from rates at June 30, 2003, the Company’s financial position would be materially affected.  Assuming a 10 percent appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at June 30, 2003, the potential change in the fair value of foreign currency-denominated assets and liabilities in each entity would aggregate approximately $2.6 million.  No assurance can be given that changes in foreign currency rates will not have a material impact on the Company’s results of operations in the future.

The Company does not hold or issue derivative commodity instruments or other financial instruments for trading purposes.

ITEM 4.  CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures.  The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its chief executive officer and principal accounting officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rules 13a – 15(e) and 15d – 15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)).  Based upon that evaluation, the chief executive officer and principal accounting officer concluded that as of June 30, 2003 the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b)  Changes in internal controls.  There were no changes in the Company’s internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect these internal controls over financial reporting.

PART II—OTHER INFORMATION

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 17, 2003, at the Company’s annual meeting of shareholders, the holders of the Company’s outstanding common stock and Series A Preferred Stock took the actions described below.  As of the record date for the annual meeting, 7,059,790 shares of common stock and 1,777,778 shares of Series A Preferred Stock were issued and outstanding.  Each share of preferred stock is entitled to one vote per share and votes together with the common stock as one class.

The shareholders elected each of Edward E. Cohen, Slavka B. Glaser, and Dr. Alan D. Schreiber to serve on the Company’s Board of Directors for the next three years, and elected

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Nancy Alperin and Lance Laifer to serve on the Company’s Board of Directors for one year, by the votes indicated below:

	For	Withheld
Edward E. Cohen	5,789,065	702,603
Slavka B. Glaser	5,229,883	1,261,785
Alan D. Schreiber, M.D.	5,788,933	702,735
Nancy Alperin	5,788,933	702,735
Lance Laifer	5,788,883	702,785

Daniel G. Cohen, Hersh Kozlov, Harmon S. Spolan and Kenneth Lewis Tepper will continue their terms of office as directors.

Additionally, the shareholders ratified the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors for the 2003 fiscal year.  The result of the votes was 6,477,195 for and 13,723 against.  No other business came before the meeting or any adjournment thereof.

ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K.

(a)Exhibits

10.1	Business Loan Agreement dated as of May 15, 2003, between Bank of America, N.A., and TRM Corporation.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
32.2	Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

(b)Reports on Form 8-K.

Current report on Form 8-K dated May 5, 2003 reporting the Company’s results of operations for the quarter ended March 31, 2003, filed with the Securities and Exchange Commission.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TRM CORPORATION
Date:  August 14, 2003	By:	/s/ Rebecca J. Demy
	Rebecca J. Demy
	Principal Accounting Officer

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EX-10.1

Exhibit 10.1

BUSINESS LOAN AGREEMENT

This Agreement dated as of May 15, 2003, is between Bank of America, N.A. (the “Bank”) and TRM Corporation (the “Borrower”).

1.FACILITY NO. 1:  LINE OF CREDIT AMOUNT AND TERMS

1.1Line of Credit Amount.

(a)During the availability period described below, the Bank will provide a line of credit to the Borrower.  The amount of the line of credit (the “Facility No. 1 Commitment”) is Four Million Dollars ($4,000,000.00).

(b)This is a revolving line of credit.  During the availability period, the Borrower may repay principal amounts and reborrow them.

(c)The Borrower agrees not to permit the principal balance outstanding to exceed the Facility No. 1 Commitment.  If the Borrower exceeds this limit, the Borrower will immediately pay the excess to the Bank upon the Bank’s demand.

1.2Availability Period.  The line of credit is available between the date of this Agreement and April 30, 2004, or such earlier date as the availability may terminate as provided in this Agreement (the “Facility No. 1 Expiration Date”).

1.3Repayment Terms.

(a)The Borrower will pay interest on May 31, 2003 and then on the last day of each month  thereafter until payment in full of any principal outstanding under this line of credit.

(b)The Borrower will repay in full all principal and any unpaid interest or other charges outstanding under this line of credit no later than the Facility No. 1 Expiration Date.

1.4Interest Rate.

(a)The interest rate is a rate per year equal to the Bank’s Prime Rate.

(b)The Prime Rate is the rate of interest publicly announced from time to time by the Bank as its Prime Rate.  The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans.  The Bank may price loans to its customers at, above, or below the Prime Rate.  Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank’s Prime Rate.

1.5Letters of Credit.

(a)During the availability period, at the request of the Borrower, the Bank will issue:

(i)Commercial letters of credit with a maximum maturity not to extend more than 365 days beyond the Facility No. 1 Expiration Date.

(ii)Standby letters of credit with a maximum maturity not to extend more than 365 days beyond the Facility No. 1 Expiration Date.

(b)The amount of the letters of credit outstanding at any one time (including the drawn and unreimbursed amounts of the letters of credit) may not exceed Three Million Dollars ($3,000,000.00).

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(c)In calculating the principal amount outstanding under the Facility No. 1 Commitment, the calculation shall include the amount ofany letters of credit outstanding, including amounts drawn on any letters of credit and not yet reimbursed.

(d)The Borrower agrees:

(i)Any sum drawn under a letter of credit may, at the option of the Bank, be added to the principal amount outstanding under this Agreement.  The amount will bear interest and be due as described elsewhere in this Agreement.

(ii)If there is a default under this Agreement, to immediately prepay and make the Bank whole for any outstanding letters of credit.

(iii)The issuance of any letter of credit and any amendment to a letter of credit is subject to the Bank’s written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank.

(iv)To sign the Bank’s form Application and Agreement for Commercial Letter of Credit or Application and Agreement for Standby Letter of Credit, as applicable.

(v)To pay any issuance and/or other fees that the Bank notifies the Borrower will be charged for issuing and processing letters of credit for the Borrower.

(vi)To allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges.

(vii)Borrower agrees to pay the Bank a non-refundable fee equal to the Applicable Margin for LIBOR/IBOR Rate described in Section 2.9 less 50 basis points per annum applied to the outstanding undrawn amount of each standby letter of credit.  Such fee shall be calculated and payable on the date each letter of credit is issued, and on the anniversary date of the letter of credit, if any, calculated on the basis of the face amount outstanding on the day the fee is calculated, and utilizing the Applicable Margin in effect on such date.

2.FACILITY NO. 2:  TERM LOAN AMOUNT AND TERMS

2.1Loan Amount.  The Bank agrees to provide a term loan to the Borrower in the amount of Fifteen Million Dollars ($15,000,000.00) (the “Facility No. 2 Commitment”).

2.2Availability Period.  The loan is available in one disbursement from the Bank as soon as reasonably practical after the execution of this Agreement and satisfaction of the Conditions described in Section 6.

2.3Repayment Terms.

(a)The Borrower will pay all accrued but unpaid interest on May 31, 2003 and then on the last day of each month thereafter and upon payment in full of the principal of the loan.

(b)The Borrower will repay principal in 10 successive quarterly installments of Seven Hundred Fifty Thousand Dollars ($750,000.00) starting September 30, 2003.  On March 31, 2006, the Borrower will repay the remaining principal balance plus any interest then due.

(c)The Borrower may prepay the loan in full or in part at any time in an amount not less than One Hundred Thousand Dollars ($100,000.00).  The prepayment will be applied to the most remote payment of principal due under this Agreement.  A prepayment may result in a prepayment fee under Section 2.7 or Section 2.8.

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2.4Interest Rate.

(a)The interest rate is a rate per year equal to the Bank’s Prime Rate, plus the Applicable Margin as defined below.

2.5Optional Interest Rates.  Instead of the interest rate based on the rate stated in the paragraph entitled “Interest Rate” above, the Borrower may elect the optional interest rates listed below for this Facility No. 2 during interest periods agreed to by the Bank and the Borrower.  The optional interest rates shall be subject to the terms and conditions described later in this Agreement.  Any principal amount bearing interest at an optional rate under this Agreement is referred to as a “Portion.”  The following optional interest rates are available:

(a)The LIBOR Rate plus the Applicable Margin as defined below.

(b)The IBOR Rate plus the Applicable Margin as defined below.

2.6Optional Rates.  Each optional interest rate is a rate per year.  Interest will be paid on the last day of each month during the interest period.  At the end of any interest period, the interest rate will revert to the Bank’s Prime Rate plus the Applicable Margin as defined below, unless the Borrower has designated another optional interest rate for the Portion.  No Portion will be converted to a different interest rate during the applicable interest period.  Upon the occurrence of an event of default under this Agreement, the Bank may terminate the availability of optional interest rates for interest periods commencing after the default occurs.

2.7LIBOR Rate.  The election of LIBOR Rates shall be subject to the following terms and requirements:

(a)The interest period during which the LIBOR Rate will be in effect will be one, two, or three months.  The first day of the interest period must be a day other than a Saturday or a Sunday on which the Bank is open for business in New York and London and dealing in offshore dollars (a “LIBOR Banking Day”).  The last day of the interest period and the actual number of days during the interest period will be determined by the Bank using the practices of the London inter-bank market.

(b)Each LIBOR Rate Portion will be for an amount not less than One Million Dollars ($1,000,000.00).

(c)The “LIBOR Rate” means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent.  (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.)

LIBOR Rate =	London Inter-Bank Offered Rate
		(1.00 - Reserve Percentage)

Where,

(i)“London Inter-Bank Offered Rate” means the interest rate at which the Bank’s London Banking Center, London, Great Britain, would offer U.S. dollar deposits for the applicable interest period to other major banks in the London inter-bank market at approximately 11:00 a.m. London time two (2) London Banking Days before the commencement of the interest period.  A “London Banking Day” is a day on which the Bank’s London Banking Center is open for business and dealing in offshore dollars.

(ii)“Reserve Percentage” means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent.  The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages.

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(d)The Borrower shall irrevocably request a LIBOR Rate Portion no later than 12:00 noon Portland time on the LIBOR Banking Day preceding the day on which the London Inter-Bank Offered Rate will be set, as specified above.  For example, if there are no intervening holidays or weekend days in any of the relevant locations, the request must be made at least three days before the LIBOR Rate takes effect.

(e)The Bank will have no obligation to accept an election for a LIBOR Rate Portion if any of the following described events has occurred and is continuing:

(i)Dollar deposits in the principal amount, and for periods equal to the interest period, of a LIBOR Rate Portion are not available in the London inter-bank market; or

(ii)the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate Portion.

(f)Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid and a prepayment fee as described below.  A “prepayment” is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement.

(g)The prepayment fee shall be in an amount sufficient to compensate the Bank for any loss, cost or expense incurred by it as a result of the prepayment, including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained.  The Borrower shall also pay any customary administrative fees charged by the Bank in connection with the foregoing.  For purposes of this paragraph, the Bank shall be deemed to have funded each Portion by a matching deposit or other borrowing in the applicable interbank market, whether or not such Portion was in fact so funded.

2.8IBOR Rate.  The election of IBOR Rates shall be subject to the following terms and requirements:

(a)The interest period during which the IBOR Rate will be in effect will be no shorter than 7 days and no longer than 90 days.  The last day of the interest period will be determined by the Bank using the practices of the offshore dollar inter-bank market.

(b)Each IBOR Rate Portion will be for an amount not less than One Million Dollars ($1,000,000.00).

(c)The “IBOR Rate” means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent.  (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.)

IBOR Rate =	IBOR Base Rate
		(1.00 - Reserve Percentage)

Where,

(i)“IBOR Base Rate” means the interest rate at which the Bank’s Grand Cayman Banking Center, Grand Cayman, British West Indies, would offer U.S. dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank market.

(ii)“Reserve Percentage” means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent.  The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages.

(d)The Bank will have no obligation to accept an election for an IBOR Rate Portion if any of the following described events has occurred and is continuing:

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(i)Dollar deposits in the principal amount, and for periods equal to the interest period, of an IBOR Rate Portion are not available in the offshore dollar inter-bank market; or

(ii)the IBOR Rate does not accurately reflect the cost of an IBOR Rate Portion.

(e)Each prepayment of an IBOR Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee as described below.  A “prepayment” is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement.

(f)The prepayment fee shall be in an amount sufficient to compensate the Bank for any loss, cost or expense incurred by it as a result of the prepayment, including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained.  The Borrower shall also pay any customary administrative fees charged by the Bank in connection with the foregoing.  For purposes of this paragraph, the Bank shall be deemed to have funded each Portion by a matching deposit or other borrowing in the applicable interbank market, whether or not such Portion was in fact so funded.

2.9Applicable Margin.  The Applicable Margin shall be the following amounts per annum, based upon the Leverage Ratio (as defined in the “Covenants” section of this Agreement) on a rolling four quarter basis, as set forth in the most recent compliance certificate received by the Bank as required in the Covenants section:

		Applicable Margin (in basis points per annum)
Pricing Level	Leverage Ratio	Offshore Applicable Margin	Prime Rate Applicable Margin
1	>2.00x	325 bps	50 bps
2	>1.50x but <2.00x	295 bps	25 bps
3	>1.00x but <1.50x	265 bps	0 bps
4	<1.00x	235 bps	0 bps

The Applicable Margin shall be in effect from the date the most recent compliance certificate is received by the Bank until the date the next compliance certificate is received; provided, however, that if the Borrower fails to timely deliver the next compliance certificate, the Applicable Margin from the date such compliance certificate was due until the date such compliance certificate is received by the Bank shall be the highest pricing level set forth above.

Notwithstanding the foregoing, until the Bank receives the compliance certificate as of June 30, 2003, the Applicable Margin shall be as indicated for pricing level 1.  Thereafter, until the Bank receives the compliance certificate as of September 30, 2003, the Applicable Margin shall be as specified for the Leverage Ratio actually achieved or for pricing level 3, whichever results in the greatest Applicable Margin.  Thereafter, the Applicable Margin shall reflect the Leverage Ratio actually achieved.

3.FEES AND EXPENSES

3.1Fees.

(a)Loan Fee.

(i)The Borrower agrees to pay a loan fee on Facility No. 1 in the amount of Ten Thousand Dollars ($10,000.00).  This fee is due on the date of this Agreement.

(ii)The Borrower agrees to pay a loan fee on Facility No. 2 in the amount of Fifty Six Thousand Two-Hundred Fifty Dollars ($56,250.00).  This fee is due on the date of this Agreement.

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(b)Waiver Fee.  If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement, the Borrower will, at the Bank’s option, pay the Bank a fee for each waiver or amendment in an amount advised by the Bank at the time the Borrower requests the waiver or amendment.  Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrower.  The Bank may impose additional requirements as a condition to any waiver or amendment.

(c)Late Fee.  To the extent permitted by law, the Borrower agrees to pay a late fee in an amount not to exceed four percent (4%) of any payment that is more than fifteen (15) days late.  The imposition and payment of a late fee shall not constitute a waiver of the Bank’s rights with respect to the default.

(d)Unused Commitment Fee.  The Borrower agrees to pay a fee on any difference between the Facility No. 1 Commitment and the amount of credit it actually uses, determined by the average of the daily amount of credit outstanding during the specified period.  The fee will be calculated at 0.35% per year.  The calculation of credit outstanding shall include the undrawn amount of letters of credit.  This fee shall be paid quarterly in arrears.

3.2Expenses.  The Borrower agrees to immediately repay the Bank for expenses that include, but are not limited to, filing, recording and search fees, appraisal fees, title report fees, and documentation fees.

3.3Reimbursement Costs.

(a)The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement.  Expenses include, but are not limited to, reasonable attorneys’ fees, including any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law.

(b)The Borrower agrees to reimburse the Bank for the cost of periodic field examinations of the Borrower’s books, records and collateral, and appraisals of the collateral, at such intervals as the Bank may reasonably require, not to exceed one per year while loan is not in default.  The actions described in this paragraph may be performed by employees of the Bank or by independent appraisers.

4.COLLATERAL

4.1Personal Property.  The Borrower’s obligations to the Bank under this Agreement will be secured by personal property the Borrower now owns or will own in the future as listed below.  The collateral is further defined in security agreement(s) executed by the Borrower.  In addition, all personal property collateral securing this Agreement shall also secure all other present and future obligations of the Borrower (or, if there is more than one Borrower, any one of them) to the Bank (excluding any consumer credit covered by the federal Truth in Lending law, unless the Borrower has otherwise agreed in writing or received written notice thereof).  All personal property collateral securing any other present or future obligations of the Borrower (or, if there is more than one Borrower, any one of them) to the Bank shall also secure this Agreement.

(a)Machinery and Equipment.

(b)Inventory.

(c)Receivables.

(d)Stock and other securities as follows:  100% of the shares of stock or other equity interests in TRM Copy Centers (USA) Corporation, 100% of the shares of stock or other equity interests in TRM ATM Corporation, and 65% of the shares or other equity interests of TRM (ATM) Ltd.

Regulation U of the Board of Governors of the Federal Reserve System places certain restrictions on loans secured by margin stock (as defined in the Regulation).  The Bank and the Borrower

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shall comply with Regulation U.  If any of the collateral is margin stock, the Borrower shall provide to the Bank a Form U-1 Purpose Statement.

(e)Patents, trademarks and other general intangibles.

4.2Lent Collateral.  The Borrower’s obligation to the Bank under this agreement will be secured by personal property now owned or owned in the future by TRM Copy Centers (USA) Corporation and TRM ATM Corporation as listed below.  The collateral is further defined in security agreements executed by such corporations.

(a)Machinery and Equipment.

(b)Inventory.

(c)Receivables.

(d)Patents, trademarks and other general intangibles.

(e)Applicable to TRM Copy Centers (USA) Corporation only, 65% of the shares of stock or other equity interests in TRM Copy Centres (Canada) Ltd. and TRM Copy Centres (U.K.) Ltd. The foregoing are called “Material Foreign Subsidiaries.”

4.3Subsidiary Guaranties.  The Borrower’s obligations to the Bank under this Agreement will be guaranteed by TRM Copy Centers (USA) Corporation and TRM ATM Corporation.

The foregoing are called “Guarantors.”

5.DISBURSEMENTS, PAYMENTS AND COSTS

5.1Disbursements and Payments.

(a)Each payment by the Borrower will be made in immediately available funds by direct debit to a deposit account as specified below or by mail to the address shown on the Borrower’s statement or at one of the Bank’s banking centers in the United States.

(b)Each disbursement by the Bank and each payment by the Borrower will be evidenced by records kept by the Bank.  In addition, the Bank may, at its discretion, require the Borrower to sign one or more promissory notes.

5.2Telephone and Telefax Authorization.

The Bank may honor telephone or telefax instructions for advances or repayments or for the designation of optional interest rates and telefax requests for the issuance of letters of credit given, or purported to be given, by any one of the individuals authorized to sign loan agreements on behalf of the Borrower, or any other individual designated by any one of such authorized signers.

(a)Advances will be deposited in and repayments will be withdrawn from account number 28011-01047 owned by Borrower, or such other of the Borrower’s accounts with the Bank as designated in writing by the Borrower.

(b)The Borrower will indemnify and hold the Bank harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions the Bank reasonably believes are made by any individual authorized by the Borrower to give such instructions.  This paragraph will survive this Agreement’s termination, and will benefit the Bank and its officers, employees, and agents.

5.3Direct Debit (Pre-Billing).

(a)The Borrower agrees that the Bank will debit deposit account number 28011-01047 owned by Borrower, or such other of the Borrower’s accounts with the Bank as designated in writing by the

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Borrower (the “Designated Account”) on the date each payment of principal and interest and any fees from the Borrower becomes due (the “Due Date”).

(b)Prior to each Due Date, the Bank will mail to the Borrower a statement of the amounts that will be due on that Due Date (the “Billed Amount”).  The bill will be mailed a specified number of calendar days prior to the Due Date, which number of days will be mutually agreed from time to time by the Bank and the Borrower.  The calculations in the bill will be made on the assumption that no new extensions of credit or payments will be made between the date of the billing statement and the Due Date, and that there will be no changes in the applicable interest rate.

(c)The Bank will debit the Designated Account for the Billed Amount, regardless of the actual amount due on that date (the “Accrued Amount”).  If the Billed Amount debited to the Designated Account differs from the Accrued Amount, the discrepancy will be treated as follows:

(i)If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy.  The Borrower will not be in default by reason of any such discrepancy.

(ii)If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy.

Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding.  The Bank will not pay the Borrower interest on any overpayment.

(d)The Borrower will maintain sufficient funds in the Designated Account to cover each debit.  If there are insufficient funds in the Designated Account on the date the Bank enters any debit authorized by this Agreement, the Bank may reverse the debit.

5.4Banking Days.  Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday, Sunday or other day on which commercial banks are authorized to close, or are in fact closed, in the state where the Bank’s lending office is located, and, if such day relates to amounts bearing interest at an offshore rate (if any), means any such day on which dealings in dollar deposits are conducted among banks in the offshore dollar interbank market.  All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day.  All payments received on a day which is not a banking day will be applied to the credit on the next banking day.

5.5Interest Calculation.  Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed.  This results in more interest or a higher fee than if a 365-day year is used.  Installments of principal which are not paid when due under this Agreement shall continue to bear interest until paid.

5.6Default Rate.  Upon the occurrence of any default under this Agreement, all amounts outstanding under this Agreement, including any interest, fees, or costs which are not paid when due, will at the option of the Bank bear interest at a rate which is 4.0 percentage point(s) higher than the rate of interest otherwise provided under this Agreement.  This may result in compounding of interest.  This will not constitute a waiver of any default.

6.CONDITIONS

The Bank must receive the following items, in form and content acceptable to the Bank, before it is required to extend any credit to the Borrower under this Agreement:

6.1Conditions to First Extension of Credit.  Before the first extension of credit:

(a)Authorizations.  If any Borrower or any guarantor is anything other than a natural person, evidence that the execution, delivery and performance by such Borrower and/or such guarantor of this Agreement and any instrument or agreement required under this Agreement have been duly authorized.

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(b)Governing Documents.  A copy of the Borrower’s organizational documents.

(c)Guaranties.  Guaranties signed by TRM Copy Centers (USA) Corporation and TRM ATM Corporation.

(d)Security Agreements.  (i) Original security agreements signed by Borrower, TRM ATM Corporation and by TRM Copy Centers (USA) Corporation, (ii) original pledge agreements signed by Borrower and TRM Copy Centers (USA) Corporation covering all of the equity securities of the Guarantors, (iii) original pledge agreements signed by TRM Copy Centers (USA) Corporation covering sixty-five percent (65%) of the equity securities of the Material Foreign Subsidiaries, and (iv) such assignments, financing statements, fixture filings and delivery of pledged securities indorsed in blank, which the Bank requires in connection with such security agreements and pledge agreement, all in form and substance satisfactory to Bank.

(e)Perfection and Evidence of Priority. Financing statements and fixture filings (and any collateral in which the Bank requires a possessory security interest), together with evidence that the security interests and liens in favor of the Bank are valid, enforceable, and prior to all others’ rights and interests, except those the Bank consents to in writing.

(f)Payment of Fees.  Payment of all accrued and unpaid expenses incurred by the Bank as required by the paragraph entitled “Reimbursement Costs.”

(g)Insurance.  Evidence of insurance coverage, as required in the “Covenants” section of this Agreement.

(h)Legal Opinion.  Written opinions from the Borrower’s legal counsel, covering such matters as the Bank may require.  The legal counsel and the terms of the opinion must be acceptable to the Bank.

(i)Good Standing.  Certificates of good standing or existence for the Borrower and each Guarantor from its state or country of formation.

(j)Other Items.  Any other items that the Bank reasonably requires.

7.REPRESENTATIONS AND WARRANTIES

When the Borrower signs this Agreement, and until the Bank is repaid in full, the Borrower makes the following representations and warranties.  Each request for an extension of credit constitutes a renewal of these representations and warranties as of the date of the request:

7.1Formation.  If any Borrower is anything other than a natural person, it is duly formed and existing under the laws of the state where organized.

7.2Authorization.  This Agreement, and any instrument or agreement required hereunder, are within the Borrower’s powers, have been duly authorized, and do not conflict with any of its organizational papers.

7.3Enforceable Agreement.  This Agreement is a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable.

7.4Good Standing.  In each state in which the Borrower does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes, except where failure to do any of the foregoing is not reasonably likely to result in a material adverse impact to the Borrower or the collateral.

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7.5No Conflicts.  This Agreement does not conflict with any law, agreement, or obligation by which the Borrower is bound, except where such conflict would not result in a material adverse impact to the Borrower or the collateral.

7.6Financial Information.  All financial and other information that has been or will be supplied to the Bank is sufficiently complete to fairly present in all material respects the Borrower’s (and any guarantor’s) financial condition, including all material contingent liabilities.  Since the date of the most recent financial statement provided to the Bank, there has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Borrower (or any guarantor).  If any Borrower is comprised of the trustees of a trust, the foregoing representations shall also pertain to the trustor(s) of the trust.

7.7Lawsuits.  There is no lawsuit, tax claim or other dispute pending or, to Borrower’s knowledge, threatened against the Borrower which, if lost, would impair the Borrower’s financial condition or ability to repay the loan, except as have been disclosed in writing to the Bank.

7.8Collateral.  All collateral required in this Agreement is owned by the grantor of the security interest free of any title defects or any liens or interests of others, except those disclosed on Schedule 7.8 attached.

7.9Permits, Franchises.  The Borrower possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged, except where such failure would not result in a material adverse impact to the Borrower or the collateral.

7.10Other Obligations.  The Borrower is not in default on any material obligation for borrowed money, any material purchase money obligation or any other material lease, commitment, contract, instrument or obligation, except as have been disclosed in writing to the Bank.

7.11Tax Matters.  The Borrower has no knowledge of any pending material assessments or material adjustments of its income tax for any year and all taxes due have been paid, except as have been disclosed in writing to the Bank.

7.12No Event of Default.  There is no event which is, or with notice or lapse of time or both would be, a default under this Agreement.

7.13Insurance.  The Borrower has obtained, and maintained in effect, the insurance coverage required in the “Covenants” section of this Agreement.

7.14Location of Borrower.  Borrower’s place of business (or, if any Borrower has more than one place of business, its chief executive office) is located at the address listed under the Borrower’s signature on this Agreement. Borrower and each Guarantor is an Oregon corporation.

7.15Tax Shelter Regulations.  Borrower does not intend to treat the loans and/or letters of credit as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4).  In the event Borrower determines to take any action inconsistent with such intention, it will promptly notify Bank.  If Borrower so notifies the Bank, Borrower acknowledges that the Bank may treat the loans and/or letters of credit as part of a transaction that is subject to Treasury Regulation Section 301.6112-1, and the Bank will maintain the lists and other records required by such Treasury Regulation.

8.COVENANTS

The Borrower agrees, so long as credit is available under this Agreement and until the Bank is repaid in full:

8.1Use of Proceeds.

(a)To use the proceeds of Facility No. 1 as described in Section 10.11 and for general business purposes.

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(b)To use the proceeds of Facility No. 2 as described in Section 10.11 and for general business purposes.

8.2Financial Information.  To provide the following financial information and statements in form and scope reasonably acceptable to the Bank, and such additional information as requested by the Bank from time to time:

(a)Within 120 days of the fiscal year end, the annual financial statements of Borrower, certified and dated by an authorized financial officer.  These financial statements must be audited (with an opinion satisfactory to the Bank) by a Certified Public Accountant acceptable to the Bank.  The statements shall be prepared on a consolidated basis.

(b)Copies of the Form 10-K Annual Report for Borrower within 120 days of Borrower’s fiscal year end.

(c)Within 30 days of the period’s end, monthly financial statements of Borrower, certified and dated by an authorized financial officer.  The statements shall be prepared on a consolidated basis and will also include consolidating and/or divisional financial statements.

(d)Copies of the Form 10-Q Quarterly Report for Borrower within 45 days of quarter end.

(e)Financial projections for the subsequent two fiscal years, specifying the assumptions used in creating the projections.  The projections shall be provided to the Bank no less often than 60 days after the end of each fiscal year.

(f)Within the period(s) provided in (a) and (d) above, a compliance certificate of the Borrower signed by an authorized financial officer of the Borrower setting forth (i) the information and computations (in sufficient detail) to establish that the Borrower is in compliance with all financial covenants at the end of the period covered by the financial statements then being furnished and (ii) whether there existed as of the date of such financial statements and whether there exists as of the date of the certificate, any default under this Agreement and, if any such default exists, specifying the nature thereof and the action the Borrower is taking and proposes to take with respect thereto.

(g)If Borrower notifies the Bank of any intention to treat loans and/or letters of credit as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4), a duly completed copy of IRS Form 8886 or any successor form.

8.3Minimum Tangible Net Worth.  To maintain on a consolidated basis Tangible Net Worth equal to at least the sum of the following:

(a)Forty Million Dollars ($40,000,000.00); plus

(b)the sum of 50% of net income after income taxes (without subtracting losses) earned in each quarterly accounting period commencing after March 31, 2003; plus

(c)75% of net proceeds from any equity securities issued after the date of this Agreement; plus

(d)any increase in stockholders’ equity resulting from the conversion of debt securities to equity securities after the date of this Agreement.

“Tangible Net Worth” means the value of total assets (including leaseholds and leasehold improvements and reserves against assets but excluding goodwill, patents, trademarks, trade names, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors, employees, shareholders, members or managers) less total liabilities, including but not limited to accrued and deferred income taxes.

Compliance with this covenant will be determined at the end of each quarter.

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8.4Minimum Fixed Charge Coverage Ratio.  To maintain on a consolidated basis a Fixed Charge Coverage Ratio of at least 1.50:1.00.

“Fixed Charge Coverage Ratio” means the ratio of (a) the sum of EBITDA, less taxes, dividends, and unfunded capital expenditures to (b) the sum of current portion of long-term debt, plus interest expense. In computing EBITDA for the purpose of this and the following covenant, commercial paper/cash securitization expense will be treated as an operating expense and not treated as interest.  The following one-time additions to EBITDA relating to non-cash charges taken in the fourth quarter of 2002 shall be made in calculating EBITDA for any period in which such additions are applicable:

(a)Mita inventory adjustment, $1,930,258;

(b)Redundancy accrual, $686,211;

(c)Litigation settlement reserve, $1,788,000;

(d)Vehicle lease provision, $400,000.

This ratio will be calculated at the end of each fiscal quarter, using the results of that quarter and the 3 immediately preceding fiscal quarters.

8.5Maximum Leverage Ratio.  To maintain on a consolidated basis a Leverage Ratio of less than 2.25:1.0 from the date of this Agreement through September 30, 2003 and less than 2.00:1.0 thereafter.

“Leverage Ratio” means the ratio of Funded Debt to EBITDA.

“Funded Debt” means all outstanding indebtedness for borrowed money and other interest-bearing indebtedness, including current and long term indebtedness.

This ratio will be calculated at the end of each fiscal quarter, using the results of that quarter and the 3 immediately preceding fiscal quarters.

8.6Accounts Payable Days.  To maintain at the end of each quarter, on a consolidated basis, Accounts Payable Days at or below 50 days.  “Accounts Payable Days” is the number calculated by dividing trade accounts payable outstanding at the end of any quarter by the cost of goods sold for the 12 month period ended at the end of such quarter multiplied by 365.  Depreciation shall not be included in cost of goods sold for purposes of this calculation.

8.7Out of Facility No. 1 Period.  To reduce the amount of advances outstanding under Facility No. 1 to 0 for a period of at least 30 consecutive days in each Line-Year. “Line-Year” means the period between the date of this Agreement and the date one year thereafter and each subsequent one-year period (if any).  For purposes of this Section, “Advances” does not include undrawn amount of outstanding letters of credit.

8.8Other Debts.  Not to have outstanding or incur any direct or contingent liabilities or lease obligations (other than those to the Bank), or become liable for the liabilities of others (or to permit any subsidiary of Borrower  to do so) without the Bank’s written consent.  This does not prohibit:

(a)Acquiring goods, supplies, or merchandise on normal trade credit.

(b)Endorsing negotiable instruments received in the usual course of business.

(c)Obtaining surety bonds in the usual course of business.

(d)Liabilities, lines of credit and leases in existence on the date of this Agreement disclosed in writing to the Bank.

(e)Liabilities for the purchase or lease of equipment if such purchase or lease is not restricted by the restriction on capital expenditures set forth below.

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(f)Unsecured liabilities not exceeding $2,500,000 in any fiscal year.

8.9Other Liens.  Not to create, assume, allow or permit any security interest or lien (including judicial liens) on property it now or later owns, or permit any subsidiary of Borrower to do so except:

(a)Liens and security interests in favor of the Bank.

(b)Liens for taxes not yet due.

(c)Liens outstanding on the date of this Agreement disclosed in writing to the Bank.

(d)Carrier’s, warehousemen’s, mechanics’, materialmen’s or other like liens arising in the ordinary course of business, which are not overdue for a period of more than 60 days, or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable person.

(e)Attachment, judgment or similar liens arising in connection with litigation or other legal proceedings (and not otherwise an Event of Default hereunder) in the ordinary course of business that are currently being contested in good faith by appropriate proceedings, and for which adequate reserves have been set aside.

(f)Purchase money liens or security interest in connection with the purchase or lease of equipment not restricted by the restriction on capital expenditures set forth below.

8.10Maintenance of Assets.

(a)Not to sell, assign, lease, transfer or otherwise dispose of any part of the Borrower’s business or the Borrower’s assets except in the ordinary course of the Borrower’s business, as in a sale of copiers that are obsolete and have been fully depreciated, nor permit any of its subsidiaries to do so.

(b)Not to sell, assign, lease, transfer or otherwise dispose of any assets for less than fair market value, or enter into any agreement to do so nor permit any of its subsidiaries to do so.

(c)Not to enter into any sale and leaseback agreement covering any of its fixed assets nor permit any of its subsidiaries to do so, unless proceeds from such transaction are used to reduce the outstanding balance of Facility No. 2.

(d)To maintain and preserve all rights, privileges, and franchises the Borrower now has and cause its subsidiaries to do so.

(e)To make any repairs, renewals, or replacements to keep the Borrower’s properties in good working condition and cause its subsidiaries to do so.

8.11Investments.  Not to have any existing, or make any new,  investments in any individual or entity, or make any capital contributions or other transfers of assets to any individual or entity, or permit any of its subsidiaries to do so, without the Bank’s permission, which permission shall not be unreasonably withheld, except for:

(a)Existing investments disclosed to the Bank in writing.

(b)Investments in the Borrower’s current subsidiaries.

(c)Investments in any of the following:

(i)certificates of deposit;

(ii)U.S. treasury bills and other obligations of the federal government;

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8.12Loans.  Not to make any loans, advances or other extensions of credit to any individual or entity, or permit any of its subsidiaries to do so except for:

(a)Existing extensions of credit disclosed to the Bank in writing.

(b)Extensions of credit to the Borrower’s current subsidiaries.

(c)Extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business to non-affiliated entities.

8.13Dividends-Stock Repurchases.  Not to declare or pay any dividends on any of its capital stock except dividends payable in capital stock of Borrower, and not to purchase or redeem any of its capital stock in excess of $1,500,000 in any fiscal year.

8.14Additional Negative Covenants.  Not to, without the Bank’s written consent, do any of the following things or permit any of Borrower’s subsidiaries to do such things:

(a)engage in any material business activities substantially different from the Borrower’s, Guarantor’s or Material Foreign Subsidiary’s present business.

(b)liquidate or dissolve the Borrower’s, Guarantor’s or Material Foreign Subsidiary’s business, except that a Guarantor or Material Foreign Subsidiary may liquidate if its assets are transferred to Borrower or another Guarantor or Material Foreign Subsidiary.

(c)enter into any consolidation, merger, or other combination, or become a partner in a partnership, a member of a joint venture, or a member of a limited liability company without written consent of Bank.

(d)sell, assign, lease, transfer or otherwise dispose of any material part of the Borrower’s or any Guarantor’s or Material Foreign Subsidiary’s business or the Borrower’s or any Guarantor’s or Material Foreign Subsidiary’s assets except in the ordinary course of the Borrower’s or Guarantor’s or Material Foreign Subsidiary’s business, and except that Borrower, Guarantors and Material Foreign Subsidiaries may dispose of their presently owned Savin liquid toner copy machines.

(e)acquire or purchase a business or its assets.

(f)voluntarily suspend its business for more than 7 days in any 30-day period.

(g)pledge or mortgage of assets of Borrower or any Guarantor or Material Foreign Subsidiary, except as permitted above.

(h)except for loans or capital contributions specifically permitted herein, transfer money or assets to TRM ATM Corporation or any other affiliate whose business is utilizing ATM machines.

(i)to expend or become obligated to expend for capital expenditures more than the sum of $2,500,000 in fiscal year 2003 or more than $5,000,000 in any fiscal year thereafter.

8.15Notices to Bank.  To promptly notify the Bank in writing of:

(a)Any lawsuit over One Million Dollars ($1,000,000.00) against the Borrower (or any guarantor or, if any Borrower is comprised of the trustees of a trust, any trustor).

(b)Any substantial dispute between any governmental authority and the Borrower (or any guarantor or, if any Borrower is comprised of the trustees of a trust, any trustor).

(c)Any event of default under this Agreement, or any event which, with notice or lapse of time or both, would constitute an event of default.

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(d)Any material adverse change in the Borrower’s (or any guarantor’s, or, if any Borrower is comprised of the trustees of a trust, any trustor’s) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit.

(e)Any change in the Borrower’s name, legal structure, place of business, or chief executive office if the Borrower has more than one place of business.

(f)Any actual material contingent liabilities of any Borrower (or any guarantor or, if any Borrower is comprised of the trustees of a trust, any trustor), and any such material contingent liabilities which are reasonably foreseeable.

8.16Insurance.

(a)General Business Insurance.  To maintain insurance as is usual for the business it is in.

(b)Insurance Covering Collateral.  To maintain all risk property damage insurance policies covering the tangible property comprising the collateral.  Each insurance policy must be in an amount reasonably acceptable to the Bank.  The insurance must be issued by an insurance company reasonably acceptable to the Bank and must include a lender’s loss payable endorsement in favor of the Bank in a form reasonably acceptable to the Bank.

(c)Business Interruption Insurance.  To maintain a business interruption insurance policy in an amount, and with an insurer acceptable to the Bank, and with the Bank named as an additional loss payee.

(d)Flood Insurance.  If any improved real property collateral is located in a designated flood hazard area, or becomes located in a designated flood hazard area after the date of this Agreement as a result of any re-mapping of flood insurance maps by the Federal Emergency Management Agency, the Borrower will be required to maintain flood insurance on the real property and on any tangible personal property collateral located on the real property.

(e)Evidence of Insurance.  Upon the request of the Bank, to deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force.

8.17Compliance with Laws.  To comply in all material respects with the laws (including any fictitious name statute), regulations, and orders of any government body with authority over the Borrower’s business.

8.18ERISA Plans.  Promptly during each year, to pay and cause any subsidiaries to pay contributions adequate to meet at least the minimum funding standards under ERISA with respect to each and every Plan; file each annual report required to be filed pursuant to ERISA in connection with each Plan for each year; and notify the Bank within ten (10) days of the occurrence of any Reportable Event that might constitute grounds for termination of any capital Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any Plan.  “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.  Capitalized terms in this paragraph shall have the meanings defined within ERISA.

8.19Books and Records.  To maintain adequate books and records.

8.20Audits.  To allow the Bank and its agents to inspect the Borrower’s properties and examine, audit, and make copies of books and records at any reasonable time.  If any of the Borrower’s properties, books or records are in the possession of a third party, the Borrower authorizes that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the Bank’s requests for information concerning such properties, books and records.

8.21Perfection of Liens.  To help the Bank perfect and protect its security interests and liens, and reimburse it for related costs it incurs to protect its security interests and liens.

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8.22Cooperation.  To take any action reasonably requested by the Bank to carry out the intent of this Agreement.

9.DEFAULT AND REMEDIES

If any of the following events of default occurs, the Bank may do one or more of the following: declare the Borrower in default, stop making any additional credit available to the Borrower, and require the Borrower to repay its entire debt immediately and without prior notice.  In addition, if any event of default occurs, the Bank shall have all rights, powers and remedies available under any instruments and agreements required by or executed in connection with this Agreement, as well as all rights and remedies available at law or in equity.  If an event of default occurs under the paragraph entitled  “Bankruptcy,” below, with respect to any Borrower, then the entire debt outstanding under this Agreement will automatically be due immediately.

9.1Failure to Pay.  The Borrower fails to make a payment under this Agreement when due other than an interest payment or a payment of fees or expenses.

9.2Failure to Pay Interest.  The Borrower fails to make an interest payment or a payment of fees or expenses under this Agreement within three calendar days of the date when due.

9.3Other Bank Agreements.  The Borrower (or any Obligor) or any of the Borrower’s subsidiaries fails to meet the conditions of, or fails to perform any obligation under any other agreement the Borrower (or any Obligor) or any of the Borrower’s subsidiaries has with the Bank or any affiliate of the Bank.  If in the Bank’s opinion the breach is capable of being remedied, the breach will not be considered an Event of Default under this Agreement for a period of 30 days; provided however, the Bank will not be obligated to extend any additional credit to the Borrower during such 30-day period.  For purposes of this Agreement, “Obligor” shall mean any Guarantor, any party pledging collateral to the Bank.

9.4Cross-default.  Any default occurs under any agreement in connection with any credit greater than One Million Dollars ($1,000,000.00) that the Borrower (or any Obligor) or any of the Borrower’s subsidiaries has obtained from anyone other than Bank else or which the Borrower (or any Obligor) or any of the Borrower’s subsidiaries has guaranteed, if the default is not cured within 30 days; provided however, the Bank will not be obligated to extend any additional credit to the Borrower during such 30-day period.

9.5False Information.  The Borrower or any Obligor has given the Bank false or misleading information or representations.

9.6Bankruptcy.  The Borrower, any Obligor, or any general partner of the Borrower or of any Obligor files a bankruptcy petition, a bankruptcy petition is filed against any of the foregoing parties, or the Borrower, any Obligor, or any general partner of the Borrower or of any Obligor makes a general assignment for the benefit of creditors.

9.7Receivers.  A receiver or similar official is appointed for a substantial portion of the Borrower’s or any Obligor’s business, or the business is terminated, or, if any Obligor is anything other than a natural person, such Obligor is liquidated or dissolved.

9.8Lien Priority.  The Bank fails to have an enforceable first lien (except for any prior liens to which the Bank has consented in writing) on or security interest in any property given as security for this Agreement (or any guaranty).

9.9Judgments.  Any judgments or arbitration awards are entered against the Borrower or any Obligor, or the Borrower or any Obligor enters into any settlement agreements with respect to any litigation or arbitration, in an aggregate amount of One Million Dollars ($1,000,000.00) or more in excess of any insurance coverage, and such award or settlement is not satisfied within 30 days after such settlement or the entry of such judgment or award; provided, however, the Bank will not be obligated to extend any additional credit to the Borrower during such 30-day period.

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9.10Material Adverse Change.  A material adverse change occurs, or is reasonably likely to occur, in the Borrower’s (or any Obligor’s) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit of the Borrower and its subsidiaries as a whole.

9.11Government Action.  Any government authority takes action that the Bank believes materially adversely affects the Borrower’s or any Obligor’s financial condition or ability to repay.

9.12Default under Related Documents, Revocation of Guaranty.  Any default occurs under any guaranty, subordination agreement, security agreement, deed of trust, mortgage, or other document required by or delivered in connection with this Agreement or any such document is no longer in effect, or any Guarantor revokes or disavows its Guaranty or purports to do so.

9.13ERISA Plans.  Any one or more of the following events occurs with respect to a Plan of the Borrower subject to Title IV of ERISA, provided such event or events could reasonably be expected, in the judgment of the Bank, to subject the Borrower to any tax, penalty or liability (or any combination of the foregoing)  which, in the aggregate, could have a material adverse effect on the financial condition of the Borrower:

(a)A reportable event shall occur under Section 4043(c) of ERISA with respect to a Plan.

(b)Any Plan termination (or commencement of proceedings to terminate a Plan) or the full or partial withdrawal from a Plan by the Borrower or any ERISA Affiliate.

9.14Other Breach Under Agreement.  The Borrower fails to meet the conditions of, or fails to perform any obligation under, any term of this Agreement not specifically referred to in this Article.  This includes any failure or anticipated failure by the Borrower to comply with any financial covenants set forth in this Agreement, whether such failure is evidenced by financial statements delivered to the Bank or is otherwise known to the Borrower or the Bank.  If in the Bank’s opinion the breach is capable of being remedied, the breach will not be considered an Event of Default under this Agreement for a period of 30 days; provided however, the Bank will not be obligated to extend any additional credit to the Borrower during such 30-day period.

9.15Loss of Access to Cash.  For a period of more than two consecutive days the Borrower does not have access to cash to service its ATM machines at the present level, regardless of what causes such loss of access to cash.

10.ENFORCING THIS AGREEMENT; MISCELLANEOUS

10.1GAAP.  Except as otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under generally accepted accounting principles, consistently applied.

10.2Oregon Law.  This Agreement is governed by Oregon law.

10.3Successors and Assigns.  This Agreement is binding on the Borrower’s and the Bank’s successors and assignees.  The Borrower agrees that it may not assign this Agreement without the Bank’s prior consent.  The Bank may sell participations in or assign this loan, and may exchange financial information about the Borrower with actual or potential participants or assignees.  If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against the Borrower.

10.4Arbitration and Waiver of Jury Trial.

(a)This paragraph concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this agreement (including any renewals, extensions or modifications); or (ii) any document related to this agreement (collectively a “Claim”).  For the purposes of this arbitration provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of the Bank involved in the servicing, management or administration of any obligation described or evidenced by this agreement.

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(b)At the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U. S. Code) (the “Act”).  The Act will apply even though this agreement provides that it is governed by the law of a specified state.

(c)Arbitration proceedings will be determined in accordance with the Act, the applicable rules and procedures for the arbitration of disputes of JAMS or any successor thereof (“JAMS”), and the terms of this paragraph.  In the event of any inconsistency, the terms of this paragraph shall control.

(d)The arbitration shall be administered by JAMS and conducted, unless otherwise required by law, in any U. S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this agreement.  All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators.  All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing.  However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days.  The arbitrator(s) shall provide a concise written statement of reasons for the award.  The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.

(e)The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. For purposes of the application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit.  Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s).  The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement.

(f)This paragraph does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g)The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(h)BY AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM.  FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO LIMIT THIS AGREEMENT TO ARBITRATE, TO THE EXTENT ANY CLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF SUCH CLAIM.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.

10.5Severability; Waivers.  If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced.  The Bank retains all rights, even if it makes a loan after default.  If the Bank waives a default, it may enforce a later default.  Any consent or waiver under this Agreement must be in writing.

10.6Attorneys’ Fees.  The Borrower shall reimburse the Bank for any reasonable costs and attorneys’ fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Agreement and any other documents executed in connection with this Agreement, and in connection with any amendment, waiver, “workout” or restructuring under this Agreement.  In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator.  In the event that any case is commenced by or against the Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys’ fees incurred by the Bank related to the preservation, protection,

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or enforcement of any rights of the Bank in such a case.  As used in this paragraph, “attorneys’ fees” includes the allocated costs of the Bank’s in-house counsel.

10.7Confidentiality.  Bank shall use any confidential non-public information concerning Borrower and its subsidiaries that is furnished to it by or on behalf of Borrower and its subsidiaries in connection with this Agreement (collectively, “Confidential Information”) solely for the purpose of evaluating and providing products and services to them, and administering and enforcing this Agreement and related documents, and it will hold the Confidential Information in confidence.  Notwithstanding the foregoing, Bank may disclose Confidential Information to (i) any governmental agency or regulatory body having or claiming to have authority to regulate or oversee any aspect of the Bank’s business in connection with the exercise of such authority or claimed authority; (ii) the extent necessary or appropriate to effect or preserve Bank’s security or to enforce any right or remedy in connection with any claims asserted by or against Bank; (iii) representatives whom it determines need to know such information for the purposes set forth in this Section; and (iv) any bank or financial institution or other entity to which Bank has assigned or desires to assign an interest or participation in this Agreement or the advances, provided that any such recipient of Confidential Information agrees to keep such Confidential Information confidential as specified herein.  For purposes hereof, the term “Confidential Information” shall not include information that is in Bank’s possession prior to its being provided by or on behalf of Borrower, and shall not include information which is or becomes publicly available other than through a breach hereof by the Bank, or information that becomes available to the Bank on a non-confidential basis.  Notwithstanding anything herein to the contrary, “Confidential Information” shall not include, and the Bank may disclose to any and all persons, without limitation of any kind, any information with respect to the “tax treatment” and “tax structure” (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Bank relating to such tax treatment and tax structure; provided that with respect to any document or similar item that in either case contains information concerning the tax treatment of tax structure of the transaction as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to the tax treatment or tax structure of the loans, letters of credit and transactions contemplated hereby.

10.8One Agreement.  This Agreement and any related security or other agreements required by this Agreement, collectively:

(a)represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit;

(b)replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and

(c)are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them.

In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail.  Any reference in any related document to a “promissory note” or a “note” executed by the Borrower and dated as of the date of this Agreement shall be deemed to refer to this Agreement, as now in effect or as hereafter amended, renewed, or restated.

10.9Indemnification.  The Borrower will indemnify and hold the Bank harmless from any loss, liability, damages, judgments, and costs of any kind relating to or arising directly or indirectly out of (a) this Agreement or any document required hereunder, (b) any credit extended or committed by the Bank to the Borrower hereunder, and (c) any litigation or proceeding related to or arising out of this Agreement, any such document, or any such credit.  This indemnity includes but is not limited to attorneys’ fees (including the allocated cost of in-house counsel).  This indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys, and assigns.  This indemnity will survive repayment of the Borrower’s obligations to the Bank.  All sums due to the Bank hereunder shall be obligations of the Borrower, due and payable immediately without demand.  The foregoing indemnity shall not, as to any indemnitee, be available to the extent that such loss, liability, damages, judgments or costs are determined by court of competent jurisdiction by final and non-appealable judgment to have resulted from the gross negligence or willful misconduct of such indemnitee.

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10.10Notices.  Unless otherwise provided in this Agreement or in another agreement between the Bank and the Borrower, all notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the signature page of this Agreement, or sent by facsimile to the fax numbers listed on the signature page, or to such other addresses as the Bank and the Borrower may specify from time to time in writing.  Notices and other communications shall be effective (i) if mailed, upon the earlier of receipt or five (5) days after deposit in the U.S. mail, first class, postage prepaid, (ii) if telecopied, when transmitted, or (iii) if hand-delivered, by courier or otherwise (including telegram, lettergram or mailgram), when delivered.

10.11Existing Agreement.  This Agreement supersedes the Third Amended and Restated Business Loan Agreement dated as of July 21, 2000, as amended, and the proceeds of the Facilities described in this Agreement shall be used to pay off all obligations under such Third Amended and Restated Business Loan Agreement, except that any letters of credit issued pursuant thereto shall be deemed issued pursuant to this Agreement and shall be controlled hereby.

10.12Headings.  Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement.

10.13Counterparts.  This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement.

10.14Oral Agreements.  UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER’S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.

This Agreement is executed as of the date stated at the top of the first page.

Bank of America, N.A.				TRM Corporation
By	/s/ Eric Eidler			By	/s/ Kenneth Lewis Tepper
Typed Name			Eric Eidler	Typed Name			Kenneth Lewis Tepper
Title		Senior Vice President		Title		President and Chief Executive Officer
Address where notices to the Bank are to be sent:				Address where notices to the Borrower are to be sent:
Oregon Commercial Banking #04614				5208 N.E. 122nd Avenue
121 S.W. Morrison Street, Suite 1700				Portland, OR 97230
Portland, OR 97204
Facsimile: (503) 275-1391				Telephone: (503) 257-8766
				Facsimile: (800) 219-7805

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE SECURITES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Kenneth L. Tepper, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of TRM Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	(Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986);
	(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit commitee of the registrant's board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:  August 14, 2003	/s/ Kenneth Lewis Tepper
	Kenneth Lewis Tepper
	Chief Executive Officer

2

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14
OF THE SECURITES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Rebecca J. Demy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of TRM Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	(Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986);
	(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit commitee of the registrant's board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:  August 14, 2003	/s/ Rebecca J. Demy
	Rebecca J. Demy
	Principal Accounting Officer

2

EX-32.1

Exhibit 32.1

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
OF TRM CORPORATION
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Kenneth L. Tepper, Chief Executive Officer of TRM Corporation (the “Company”), hereby certify that the accompanying Quarterly Report of the Company on Form 10-Q for the quarterly period ended June 30, 2003 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  August 14, 2003	/s/ Kenneth Lewis Tepper
	Kenneth Lewis Tepper
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF
PRINCIPAL ACCOUNTING OFFICER
OF TRM CORPORATION
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Rebecca J. Demy, Principal Accounting Officer of TRM Corporation (the “Company”), hereby certify that the accompanying Quarterly Report of the Company on Form 10-Q for the quarterly period ended June 30, 2003 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  August 14, 2003	/s/ Rebecca J. Demy
	Rebecca J. Demy
	Principal Accounting Officer