SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant X Filed by a Party other than the Registrant Check the
appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TRM COPY CENTERS CORPORATION
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: Set forth the amount on which the
filing fee is calculated and state how it was determined.
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PRELIMINARY COPY
TRM COPY CENTERS CORPORATION
5208 N.E. 122nd Avenue
Portland, Oregon 97230
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Notice of Special Meeting of Shareholders
June 29, 1998
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To Our Shareholders:
A special meeting of the shareholders of TRM Copy Centers Corporation, an
Oregon corporation (the "Company"), will be held on Monday, June 29, 1998 at 9
a.m. at the U.S. Bancorp Tower, 41st Floor, John Elorriaga Auditorium, 111 SW
Fifth Avenue, Portland, Oregon 97204, for the following purposes:
1.(a) To approve amendments to the Company's Restated Articles of
Incorporation (the "Restated Articles Amendments") that will (i)
change the Company's corporate name to "TRM Corporation," (ii)
increase the authorized number of shares of Common Stock that the
Company may issue from 10,000,000 to 50,000,000, and (iii) create and
determine the preferences, limitations and rights of a new series of
Preferred Stock of the Company, to be designated "Series A Preferred
Stock."
(b) To approve the issuance and sale of 1,777,778 shares of the Series A
Preferred Stock and warrants to purchase an aggregate of 500,000
shares of Common Stock of the Company at an exercise price of $15.00
a share (the "Warrants") to ReadyCash Investment Partners, L.P. (the
"Purchaser") pursuant to a Preferred Stock and Warrants Purchase
Agreement dated March 29, 1998 between the Company and the Purchaser
(the "Purchase Agreement"), for an aggregate purchase price of
$20,000,000.
2. To elect six directors to serve for the terms described in the proxy
statement and until their successors are elected to fill the
vacancies created by the resignation of four directors of the Company
and the increase in the number of directors of the Company from seven
to nine as contemplated by the Purchase Agreement. All of the
elections will be effective upon closing of the issuance and sale of
the Series A Preferred Stock and the Warrants to the Purchaser
pursuant to the Purchase Agreement (the "Closing").
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3. To amend the Company's Stock Option Plan (the "Plan") to increase the
total number of shares of the Company's Common Stock reserved for
issuance under the Plan from 700,000 to 1,200,000.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
All shareholders are invited to attend the meeting. Holders of record of
the Company's Common Stock at the close of business on May 15, 1998 are entitled
to notice of and to vote at the meeting.
By Order of the Board of Directors
Paul M. Brown
Secretary
Portland, Oregon
May 25, 1998
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special
meeting, please promptly sign and date your enclosed proxy and return it in the
postage paid envelope.
A shareholder who completes and returns the proxy and subsequently attends
the meeting may elect to vote in person, since a proxy may be revoked at any
time before it is voted. Retention of the proxy is not necessary for admission
to the meeting.
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TRM COPY CENTERS CORPORATION
PROXY STATEMENT
Special Meeting of Shareholders
June 29, 1998
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The mailing address of the principal executive offices of the Company is
5208 N.E. 122nd Avenue, Portland, Oregon 97230-1074. The approximate date this
proxy statement and the accompanying proxy form are first being sent to
shareholders is May 25, 1998.
Upon written request to Mr. Paul M. Brown, Secretary, any person whose
proxy is solicited by this proxy statement will be provided, without charge, a
copy of the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1997 and the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended September 30, 1997, December 31, 1997 and March 31, 1998.
SOLICITATION AND REVOCABILITY OF PROXY
The enclosed proxy is solicited on behalf of the Board of Directors of TRM
Copy Centers Corporation, an Oregon corporation (the "Company"), for use at the
Special Meeting of Shareholders to be held on June 29, 1998 and at any
adjournment thereof (the "Special Meeting"). The Company will bear the cost of
preparing and mailing the proxy, proxy statement, and any other material
furnished to shareholders by the Company in connection with the Special Meeting.
Proxies will be solicited by use of the mails, and officers and employees of the
Company may also solicit proxies by telephone or personal contact. Copies of
solicitation materials will be furnished to fiduciaries, custodians, and
brokerage houses for forwarding to beneficial owners of the stock held in their
names. [The Company has retained Corporate Investor Communications, Inc. to
assist in the solicitation of proxies from brokers and other nominees at an
estimated cost of [$3,000].]
Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. The proxy may be revoked
by filing with the Company, attention Mr. Paul M. Brown, Secretary, an
instrument of revocation or a duly executed proxy bearing a later date. The
proxy may also be revoked by voting in person at the meeting. A shareholder who
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attends the meeting, however, is not required to revoke the proxy and vote in
person. All valid, unrevoked proxies will be voted at the Special Meeting in
accordance with the instructions given.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The Company's Common Stock ("Common Stock") is currently the only
outstanding authorized voting security of the Company. The record date for
determining holders of Common Stock entitled to vote at the Special Meeting is
May 15, 1998. On that date, there were [6,984,141] shares of Common Stock
outstanding, entitled to one vote per share. The Common Stock does not have
cumulative voting rights.
The following table sets forth certain information regarding the beneficial
ownership as of May 15, 1998 of the Common Stock by (i) each person known by the
Company to own beneficially more than 5 percent of the Common Stock, (ii) each
director or person nominated to become a director of the Company, (iii) each
executive officer of the Company named in the Summary Compensation Table, and
(iv) all executive officers and directors as a group. Except as otherwise noted,
the persons listed below have sole investment and voting power with respect to
the Common Stock owned by them.
<TABLE>
<CAPTION>
Shares
Beneficial Owner Address Beneficially Owned (1) Percent
- ---------------- ------- ---------------------- -------
<S> <C> <C> <C>
Frederick O. Paulsell c/o 5208 NE 122nd Avenue 917,242 13.1%
(2)(10) Portland, OR 97230-1074
Laifer Capital 45 West 45th Street, 9th Floor 1,052,900 15.1%
Management, Inc. (3) New York, NY 10036
Safeco Corporation(4) 4333 Brooklyn Ave., NE 1,030,350 14.8%
Seattle, WA 98185
Edwin S. Chan (5)(10) c/o 5208 NE 122nd Avenue 562,423 8.1%
Portland, OR 97230-1074
Wellington Management 75 State Street 554,500 7.9%
Company, LLP (6) Boston, MA 02109
Marcia W. Zech 3041 60th Avenue, SE 480,430 6.9%
Mercer Island, WA 98040
Dimensional Fund 1299 Ocean Avenue, 11th Floor 399,500 5.7%
Advisors, Inc. (8) Santa Monica, CA 90401
Michael D. Simon 329,420 4.7%
Donald L. Van Maren 157,769 2.3%
(9)(10)
Sherman M. Coe(10) 152,288 2.3%
Robert A. Bruce(10) 45,863 *
James W. Perris 31,148 *
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Daniel G. Cohen(11) 1521 Locust Street, 10th Floor * *
Philadelphia, PA 19102
Edward E. Cohen 1521 Locust Street, 10th Floor * *
Philadelphia, PA 19102
[Others]
Danial J. Tierney 22,641 *
Directors and executive 2,223,794 31.8%
officers as a group (___
persons)
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(footnotes on following page)
* Represents less than 1 percent.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission (the "SEC"), and includes voting power
and dispositive power with respect to shares. Shares are held with sole
voting and dispositive power unless otherwise indicated. Shares of Common
Stock subject to options currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage for the person
holding such options, but are not deemed outstanding for computing the
percentage for any other person. The numbers of shares that may be obtained
upon exercise of options that are currently exercisable or exercisable
within 60 days of May 15, 1998 are as follows: [Mr. Paulsell, 92,500
shares; Mr. Chan, 10,000 shares; Mr. Simon, 323,336 shares; Mr. Van Maren,
31,000 shares; Mr. Coe, 46,500 shares; Mr. Bruce, 40,000 shares; Mr.
Perris, 30,000 shares; Mr. Tierney, 22,000 shares; and all executive
officers and directors as a group, 2,223,794 shares.]
(2) The information excludes shares owned by Mr. Paulsell's children, all of
whom are adults. The information also excludes 480,430 shares owned by Mr.
Paulsell's former wife, Marcia W. Zech. Mr. Paulsell disclaims beneficial
ownership of all such shares.
(3) This information is based upon a Schedule 13D filed with the SEC on October
16, 1997, reporting that Laifer Capital Management, Inc. ("Laifer") had (i)
sole voting power with respect to 707,400 shares and shared voting power
with respect to no shares and (ii) sole dispositive power with respect to
707,400 shares and shared dispositive power with respect to 345,000 shares.
The shares beneficially owned by Laifer include 563,400 shares beneficially
owned by Laifer in its capacity as general partner of and investment
adviser to Hilltop Partners, L.P. and 489,500 shares beneficially owned by
Laifer in its capacity as investment adviser to various other clients.
(4) This information is based upon a Schedule 13G dated March 3, 1998 and filed
with the SEC, disclaiming beneficial ownership of these shares. The shares
are beneficially owned by registered investment companies for which a
subsidiary of Safeco Corporation serves as an adviser. Because of its
ownership or control of one or more investment companies which directly own
shares, Safeco Corporation is considered an indirect beneficial owner.
(5) The information provided includes 30,641 shares owned by Mr. Chan's wife
and minor children.
(6) This information is based upon a Schedule 13G dated February 11, 1998 and
filed with the SEC, reporting that Wellington Management Company, LLP had
(i) sole voting power with respect to
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no shares and shared voting power with respect to 513,500 shares and (ii)
sole dispositive power with respect to no shares and shared dispositive
power with respect to all 554,500 shares.
(7) This information is based upon a Schedule 13G dated February 17, 1998 and
filed with the SEC, reporting that Marcia W. Zech had (i) sole voting power
with respect to 480,430 shares and shared voting power with respect to no
shares and (ii) sole dispositive power with respect to 480,430 shares and
shared dispositive power with respect to no shares. The information
provided excludes shares owned by Mrs. Zech's children and other relatives,
all of whom are adults. The information also excludes 912,092 shares
beneficially owned by her former husband, Frederick O. Paulsell. Mrs. Zech
disclaims beneficial ownership of all such shares.
(8) This information is based upon a Schedule 13G dated February 10, 1998 and
filed with the SEC, reporting that Dimensional Fund Advisors, Inc. had (i)
sole voting power with respect to 261,600 shares and shared voting power
with respect to no shares and (ii) sole dispositive power with respect to
all 399,500 shares.
(9) Mr. Van Maren's shares are held jointly with his wife.
(10) Messrs. Paulsell, Chan, Van Maren and Coe have entered into a Voting
Agreement dated April 3, 1998 with the Company (the "Voting Agreement")
pursuant to which each of such individuals agrees to vote all of his shares
in favor of the transactions contemplated by the Purchase Agreement.
(11) Mr. Daniel G. Cohen is the majority shareholder and an officer and director
of the general partner of the Purchaser. Pursuant to the Purchase Agreement
between the Purchaser and the Company, and subject to the terms and
conditions therein, the Company will (a) issue and sell to the Purchaser
shares of Series A Preferred Stock of the Company representing
approximately 20 percent of the voting power of the Company's then
outstanding capital stock and convertible into 1,333,333 shares of the
Company's Common Stock, and (b) grant the Purchaser warrants to purchase a
total of 500,000 shares of the Company's Common Stock at an exercise price
of $15.00 a share.
</TABLE>
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PROPOSAL 1: APPROVAL OF PROPOSED TRANSACTIONS PURSUANT TO THE
PURCHASE AGREEMENT BETWEEN THE COMPANY AND READYCASH
INVESTMENT PARTNERS, L.P.
(a) The Restated Articles Amendments
The proposed Restated Articles Amendments will (i) change the Company's
corporate name to "TRM Corporation," (ii) increase the authorized number of
shares of Common Stock of the Company from 10,000,000 to 50,000,000, and (iii)
create and determine the preferences, limitations and rights of a new series of
Preferred Stock of the Company, to be designated the "Series A Preferred Stock,"
as more fully described below. A copy of the Restated Articles Amendments are
attached as Appendix I to this proxy statement, and all references to and
summaries of the Restated Articles Amendments in this proxy statement are
qualified in their entirety by reference to the Restated Articles Amendments.
Shareholders are urged to read the Restated Articles Amendments carefully and in
their entirety.
Change of the Company's corporate name to "TRM Corporation"
In 1991, the Company changed its corporate name to "TRM Copy Centers
Corporation," because the Company at that time believed that name accurately
reflected the Company's principal business of owning and maintaining
self-service photocopiers in retail establishments.
The Company has determined that expansion into new products and services is
a key business strategy. The Company is internally reorganizing its operations
to better facilitate this expansion, creating an Automated Teller Machine (ATM)
division and a photocopy division. In response to this strategy, on April ___,
1998, the Board of Directors of the Company resolved that the Company's
corporate name in its Restated Article of Incorporation should be changed to
"TRM Corporation," a name the Board believes will better reflect the breadth of
the Company's business after the completion of its financing transaction with
the Purchaser.
Increase in Authorized Shares of Common Stock
The Company's Restated Articles of Incorporation currently provide that the
authorized capital stock of the Company consists of 10,000,000 shares of Common
Stock and 5,000,000 shares of Preferred Stock. As of May 15, 1998, the Company
had [6,984,141] shares of Common Stock issued and outstanding and [________]
shares of Common Stock were issuable pursuant to the outstanding stock options.
In addition, 1,333,333 shares of Common Stock would be issuable upon the
conversion of the Series A Preferred Stock proposed to be issued to the
Purchaser pursuant to the Purchase Agreement and 500,000 shares of Common Stock
would be issuable on the exercise of the Warrants proposed to be granted to the
Purchaser pursuant to the Purchase Agreement.
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Accordingly, it is necessary to increase the authorized number of shares of
Common Stock to enable the Company to satisfy all of its obligations to issue
shares of Common Stock after the completion of the transactions contemplated by
the Purchase Agreement. The Board of Directors also believes that additional
shares of Common Stock need to be authorized to provide the Company with
flexibility in future capital financings, in financing potential acquisitions
and in potential stock dividends. For this reason, on ________, 1998, the Board
of Directors approved an amendment to the Company's Restated Articles of
Incorporation to increase the number of authorized shares of Common stock from
10,000,000 to 50,000,000.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock the Company now has authorized.
Other than as described above, the Company currently has no plans, arrangements
or understanding regarding the issuance of any of the additional shares of
Common Stock for which authorization is sought. Holders of Common Stock do not
have preemptive rights to subscribe for additional securities (if any) which may
be issued by the Company.
Designation of Series A Preferred Stock
The proposed Restated Articles Amendments will create and determine the
preferences, limitations and rights of a new series of Preferred Stock,
designated the Series A Preferred Stock ("Series A Preferred"), as described
below. The Restated Articles Amendments authorize the issuance of up to
1,777,778 shares of the Series A Preferred. The following is a summary of the
preferences, limitations and rights of the Series A Preferred.
Dividends. Each share of Series A Preferred is entitled to preferential,
cumulative dividends equal to 7 1/2 percent per annum of $11.25 (the
"Liquidation Value"), when, as and if declared for payment by the Company's
Board of Directors and to the extent permitted under the Oregon law. Such
dividends will accrue on March 31, June 30, September 30 and December 31 of each
year beginning September 30, 1998, whether or not declared and whether or not
there are profits, surplus or other fund of the Company legally available for
the payment of dividends. If at any time the Company pays less than the total
amount of dividends then accrued with respect to the Series A Preferred, such
payment will be distributed ratably among the holders of the Series A Preferred.
The Company shall not pay dividends (other than dividends payable in shares of
Common Stock) upon the Common Stock unless and until it has paid dividends upon
the Series A Preferred as set forth above. Whenever the Company declares or pays
any dividends upon the Common Stock (whether payable in cash, securities or
other property) other than dividends payable in shares of Common Stock, the
Company shall also declare and pay to the holders of the Series A Preferred at
the same time the dividends that would have been declared and paid with respect
to the Common Stock issuable upon conversion of the Series A Preferred had all
of the outstanding Series A Preferred been converted immediately prior to the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined.
Liquidation. Upon any liquidation, dissolution or winding up of the
Company, each holder of Series A Preferred is entitled to be paid, before any
distribution or payment is made to any holders of
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Common Stock, an amount of cash equal to the aggregate Liquidation Value of all
shares of Series A Preferred held by such holder, plus all accrued or declared
dividends unpaid thereon. If, upon any such liquidation, dissolution or winding
up of the Company, the Company's assets to be distributed among the holders of
the Series A Preferred are insufficient to permit payment to such holders of the
entire amount that they are entitled to be paid, then the entire assets to be
distributed to the Company's shareholders will be distributed pro rata among
such Series A Preferred holders based up on the aggregate Liquidation Value of
all Series A Preferred held by each such holder, plus all accrued or declared
dividends unpaid thereon. Pursuant to the Restated Articles Amendment, a sale of
substantially all of the assets of the Company or a reorganization, merger,
consolidation or other transaction that results in the transfer of 50 percent or
more of the outstanding voting power of the Company will be treated as a
liquidation, dissolution or winding up of the Company.
Voting Rights. Each share of the Series A Preferred shall have one vote per
share and shall vote with the Common Stock as one class on any matter submitted
to the Company's shareholders for a vote.
Conversion. Each share of Series A Preferred is convertible at any time by
the holder of such Series A Preferred into .7499997 fully paid and nonassessable
shares of Common Stock. The conversion ratio of .7499997 will be adjusted
proportionately in the case of a stock split, stock dividend, recapitalization,
reverse stock split or otherwise. If the closing price per share of Common Stock
on the securities exchange on which the Common Stock is listed, or the last bid
price quoted in the NASDAQ System as of 4:00 p.m. if the shares are not listed
on any exchange, is at least $20.00 (as appropriately adjusted for any
combination of subdivision of shares, stock dividend, stock split or
recapitalization) for a period of 90 consecutive calendar days commencing after
June 30, 1999, all of the outstanding Series A Preferred will be automatically
converted into shares of Common Stock at the conversion ratio set forth above.
Purchase Rights. If at any time the Company grants, issues or sells any
stock or securities convertible into or exchangeable for any equity securities
of the Company, or rights or options to subscribe for or purchase equity
securities, or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of the Common Stock (the "Purchase Rights"), then
each holder of Series A Preferred is entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock (or other security, if so changed) issuable upon conversion of such
holder's Series A Preferred immediately before the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
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(b) The Issuance and Sale of the Series A Preferred and the Warrants
Pursuant to the Purchase Agreement and Related Transactions
The Transaction
Pursuant to the Purchase Agreement, the Company proposes to issue and sell
to the Purchaser for an aggregate purchase price of $20,000,000 cash (i)
1,777,778 shares of the Series A Preferred, and (ii) warrants to purchase
500,000 shares of the Company's Common Stock at an exercise price of $15.00 a
share (the "Warrants"), as more fully described below (the "Transaction"). The
closing of the Transaction (the "Closing") is subject to certain terms and
conditions described below. Upon the completion of the Transaction, the
Purchaser will hold approximately 20 percent of the then outstanding voting
power of the Company. Upon conversion and exercise of the Warrants, the
Purchaser will hold approximately 21 percent of the outstanding shares of the
Company's Common Stock on a fully-diluted basis. Upon the Closing, Mr. Daniel G.
Cohen and Mr. Edward E. Cohen will become directors of the Company and Mr.
Edward E. Cohen will be elected Chairman of the Board of Directors.
Background and Purpose of the Transaction
The Company is currently redirecting its basic business strategy to focus
on attractive opportunities that capitalize on the Company's core strengths. One
of these core strengths, and the Company's strategic asset, is its customer base
of over 35,000 retail locations, as well as the fully- developed sales and
distribution system that has been developed by the Company to manage and support
that customer base.
The Company has recently identified the automated teller machine (ATM)
business as one that is rapidly growing in response to consumer demand for
convenient access to cash. In addition, the Company believes it is
well-positioned to aggressively enter the ATM business through the utilization
of Company's existing customer base and sales and distribution system.
Accordingly, on March 29, 1998, the Company announced its intention to form a
new ATM division.
The purpose of the Transaction is to enable the Company to finance the
formation and development of its new ATM division. The Company intends to use
its current distribution system to deploy, service and support the Company's
ATMs. The Company believes that its current customer base as well as sales
opportunities in the growing ATM market will provide a significant source of
successful locations from which to launch the new ATM division. In addition, the
Company believes that its present business relationships in Canada, the United
Kingdom, France and Belgium will provide significant opportunity to expand the
ATM market in foreign countries. Because of the sales, support and distribution
system already in place for it copier products, the Company believes that the
ATM division will provide a new source of revenue without a major increase in
service and distribution costs.
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The Purchase Agreement
On March 29, 1998, the Company and the Purchaser entered into the Purchase
Agreement, which sets forth the terms and conditions of the Transaction. The
following is a summary of the material provisions of the Purchase Agreement.
Representations and Warranties. The Purchase Agreement contains
representations and warranties of the Company that are customary in transactions
of this nature, including representations and warranties regarding corporate
organization, authority and qualification to do business; the number of
authorized and outstanding shares of Common Stock; the existence and
qualification of the Company's subsidiaries; authority to execute and deliver
and the enforceability of the Purchase Agreement, and all other agreements
related to the Transaction to which the Company is a party; the absence of any
breach by the Company of a material agreement, instrument, law, statute,
regulation, order or judgment; the accuracy of the Company's financial
statements contained in the Purchase Agreement; the absence of undisclosed
liabilities and material adverse changes since December 31, 1997; the Company's
good and marketable title to the material assets used in its business; the
timely and accurate filing of all tax returns by the Company; the enforceability
and validity of all material contracts, agreements, and instruments; validity of
the Company's intellectual property rights; the status of pending or threatened
litigation; the Company's brokers' fee; the governmental consents that may be
required to consummate the Transaction; compliance by the Company with all labor
and employment laws and the Company's labor relations; the Company's employee
benefit plans; the Company's compliance with laws and government regulations;
the timely and accurate filing by the Company of all documents and reports as
required by the Securities Exchange Act of 1934; and the absence of any untrue
statement of material fact or omission of a material fact in the Purchase
Agreement and all exhibits, schedules, attachments and other documents supplied
to the Purchaser on behalf of the Company with respect to the Transaction.
Representations and Warranties of the Purchaser. The Purchase Agreement
also contains representations and warranties by the Purchaser regarding its
authority to enter into the Purchase Agreement; the enforceability of Purchase
Agreement against the Purchaser; the purchase of the Series A Preferred Shares
and the Warrants for its own account and not with a view to a distribution; the
completion of its "due diligence" investigation and receipt of all necessary
information for it to decide whether to purchase the Series A Preferred and the
Warrants; its adequate investment experience and capability to evaluate the
merits and risks of investing the Series A Preferred and the Warrants; the
absence of a brokerage commission; and the Company's understanding of the legal
restrictions on the transferability of the Series A Preferred.
Covenants. In the Purchase Agreement, the Company agrees (i) to hold a
shareholder meeting by July 7, 1998, (ii) to obtain from certain shareholders an
agreement to vote their shares in favor the Transaction, (iii) to execute a
Stock Option Agreement (as described below), (iv) to increase the authorized
capital stock to permit the issuance of all shares of Common Stock issuable
pursuant to the exercise of the Warrants, all outstanding stock options and the
conversion of the Series A Preferred, and (v) to expand the size of the Board of
Directors from seven members to nine, elect Edward E.
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Cohen and Daniel G. Cohen as directors, and elect Edward E. Cohen as Chairman of
the Board of Directors.
Indemnification. In the Purchase Agreement, the Company agrees to indemnify
the Purchaser and each other holder of the Series A Preferred or the Warrants,
and all of their partners, shareholders, officers, directors, employees and
agents (collectively, the "Indemnitees"), from and against any and all actions,
causes of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and reasonable expenses in connection therewith, and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by the Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in this Purchase Agreement, the Warrants, the
Investors' Rights Agreement (as defined below) or any other certificate,
instrument or document contemplated thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Purchase Agreement, the
Warrants, the Investor's Rights Agreement or any other certificate, instrument
or document contemplated thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Purchase Agreement or
any other instrument, document or agreement executed pursuant hereto by any of
the Indemnitees, other than a cause of action, suit or claim brought or made by
a person affiliated with the Indemnitee or by or on behalf of the Company,
except for any such Indemnified Liabilities arising on account of the particular
Indemnitee's gross negligence or willful misconduct.
Termination. The Purchase Agreement may be terminated by the Company if the
shareholders of the Company have approved the Transaction and the Closing does
not occur on or before July 10, 1998. In the Purchase Agreement, the Company
agreed to pay the Purchaser $1,000,000 in the event that (a) the Transaction is
not completed (except if such failure is due to a material breach of the
Purchase Agreement) and (b) any of the following events occur prior to December
31, 1998: (i) the Company becomes a party to a transaction in which an investor
acquires 20 percent or more of the Company's equity securities or (ii) the
Company becomes a party to a merger (other than a merger with one of its
subsidiaries), a transaction in which a majority of its Common Stock is
transferred, or a transaction in which substantially all of its assets are sold.
Closing Conditions. The obligation of the Purchaser to purchase and pay for
the Series A Preferred and Warrants at the Closing is subject to the
satisfaction of various conditions, including, (i) the accuracy of the
representations and warranties of the Company in all material respects at the
Closing, (ii) the performance by the Company in all material respects of all of
its covenants under the Purchase Agreement, (iii) the adoption, execution and
filing with the Secretary of State of the Restated Articles Amendment, (iv) the
execution of the Investors' Rights Agreement between the Company and the
Purchaser, (v) the receipt of all required consents and approvals of any
governmental or regulatory agency, including expiration or termination of the
waiting period for any filing required under the Hart- Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Filing"), (vi) the approval of
the Transaction by the shareholders of the Company, (vii) the delivery of a
legal opinion to the Purchaser regarding certain matters, and (viii) the
execution and delivery of certain closing documents and certificates customary
in a transaction of this nature.
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The obligation of the Company to issue and sell the Preferred Stock and
Warrants at the Closing is subject to the satisfaction of the various
conditions, including (i) the accuracy of the representations and warranties of
the Purchaser in all material respects at the Closing, (ii) the performance by
the Purchaser in all material respects of its covenants under the Purchase
Agreement (iii) the receipt of all approvals required from any governmental or
regulatory agency, including the expiration or termination of the waiting period
for the HSR Filing, and (iii) the approval of the Transaction by the Company's
shareholders.
Stock Option Agreement
In consideration for the execution and delivery of the Purchase Agreement,
the Company granted to the Purchaser an option to purchase, on one occasion
only, up to an aggregate of 698,414 shares of the Company's Common Stock at a
price of $11.25 a share (the "Option"). The Purchaser may exercise the Option in
whole or in part upon the occurrence of one of the following events on or prior
to September 29, 1998: (i) the Company becomes a party to a merger in which it
is not the surviving party; (ii) the Company becomes a party to a transaction in
which it sells substantially all of its assets; or (iii) the Company becomes a
party to a transaction in which a majority of its Common Stock is transferred to
another party. However, the Option may not be exercised at any time when the
Purchaser is in material breach of its agreements in the Purchase Agreement. The
Option terminates upon either (i) the Closing or (ii) the passage of ten days
following the occurrence of one of the aforementioned events.
Investors' Rights Agreement.
At the Closing, the Company will enter into the Investors' Rights Agreement
(the "Investors' Rights Agreement") with the Purchaser. The Investors' Rights
Agreement will give the holders of 50 percent or more of the Common Stock issued
or issuable upon the conversion of the Series A Preferred and the exercise of
the Warrants (the "Registrable Securities") the right to require the Company, up
to three times and at the Company's expense (except for underwriter's discounts
and commissions), to register the offering and sale of the Registrable
Securities under the Securities Act of 1933, as amended (the "Act"). The holders
of Registrable Securities will also have unlimited rights to have Registrable
Securities registered under the Act for resale on a Form S-3, to the extent the
Company would then be eligible to use that form for such an offering.
Additionally, if the Company proposes to register an offering of its stock or
other securities solely for cash under the Act and other than pursuant to an
employee benefit plan, holders of Registrable Securities may include their
Registrable Securities in such offering subject to the terms and conditions set
forth in the Investors' Rights Agreement. The Investors' Rights Agreement also
requires the Company to indemnify the holders of Registrable Securities against
certain liabilities that may be incurred in connection with an offering pursuant
to the Investors' Rights Agreement pursuant to any federal or state securities
law. Pursuant to the Investors' Rights Agreement, the Company will also be
required to provide the holders of the Series A Preferred with periodic
financial and other information about the Company.
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Also, the Investors' Rights Agreement provides that if the Company proposes
to offer for sale additional shares of Common Stock or any other class of stock
(other than shares issued in connection with a compensation plan for employees,
directors or consultants, or in connection with an acquisition of all or a
portion of another entity), the Company is obligated to first offer such shares
to the Purchaser at the same price and on the same terms as those set forth in
the offer.
The Purchaser's rights under the Investors' Rights Agreement may be
assigned only to an affiliate or to a transferee of at least 250,000 shares of
Registrable Securities, and the right of first offer shall expire whenever the
Purchaser or its assignee no longer holds at least 250,000 shares of the Series
A Preferred.
The Warrants
Pursuant to the Purchase Agreement, the Company will grant to the Purchaser
the Warrants which give the holder the right to purchase 500,000 shares of
Common Stock at $15.00 a share. The Warrants may be exercised in whole or in
increments of at least 75,000 shares and expire as to 200,000 shares three years
after the date of grant and as to 300,000 shares seven years after the date of
grant. The Warrants may be exercised by the payment of cash, by payment in
shares of Common Stock, or on a cashless basis whereby the Company will issue
the number of shares of Common Stock equal in value to the difference between
the fair market value of the Warrant shares and the exercise price. The number
and exercise price per share of the Warrants are subject to adjustment from time
to time upon the occurrence of a recapitalization, a merger, reorganization or
similar transaction, or upon the receipt of a dividend or other distribution
with respect to the Common Stock of the Company. The Warrants may only be
assigned in whole to a party that is an "accredited investor" within the meaning
of the rules of the Securities and Exchange Commission.
Opinion of Financial Advisor
The Company retained Pacific Crest Securities, Inc. ("Pacific Crest") to
act as exclusive financial advisor to the Company in connection with the
proposed transaction with the Purchaser. In connection with this engagement, the
Company requested Pacific Crest to render an opinion as to the fairness, from a
financial point of view, of the $20,000,000 Series A Preferred Stock investment
by the Purchaser in the Company.
At a meeting of the Company's Board of Directors on March 17, 1998, Pacific
Crest delivered its oral opinion that, as of such date and based upon the
matters described therein, the consideration to be paid by the Purchaser to the
Company pursuant to the Purchase Agreement is fair to the Company from a
financial point of view. Pacific Crest's oral opinion was subsequently confirmed
by a written opinion as of the same date; no material differences exist between
Pacific Crest's oral and written opinions. Pacific Crest was not requested to
and will not deliver an updated opinion as of any date subsequent to March 17,
1998. Pacific Crest's opinion is directed only to the financial terms of the
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Transaction and does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote at the Special Meeting.
Pacific Crest is not expressing any opinion as to the price at which the
Common Stock will trade subsequent to the Transaction. The complete text of the
March 17, 1998 opinion (the "Pacific Crest Opinion"), which sets forth the
assumptions made, matters considered and limitations on the review undertaken by
Pacific Crest, is attached to this proxy statement as Appendix II, and the
summary of the Pacific Crest Opinion set forth in this proxy statement is
qualified in its entirety by reference to the Pacific Crest Opinion. The
Company's shareholders are urged to read the Pacific Crest Opinion carefully and
in its entirety for a description of the procedures followed, the factors
considered and the assumptions made by Pacific Crest.
Pacific Crest received a fee of $75,000 for the delivery of the Pacific
Crest Opinion and advisory services. The Company has also reimbursed Pacific
Crest for certain of its reasonable out-of-pocket expenses and indemnified it
against certain liabilities relating to or arising out of services performed by
Pacific Crest as financial advisor to the Company.
Pacific Crest is an investment banking firm frequently engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and other purposes. Pacific Crest was retained by the
Company's Board of Directors to act as the Company's financial advisor in
connection with the Transaction based on Pacific Crest's experience as a
financial advisor in mergers and acquisitions, as well as Pacific Crest's
familiarity with companies in the financial services and retail industries. In
the normal course of its business, Pacific Crest may actively trade the equity
securities of the Company for its own account or for the account of its
customers and, therefore, may at any time hold a long or short position in such
securities.
Reasons for Submitting Certain Matters to a Shareholder Vote
The creation and determination of the preferences, limitations and rights
of the Series A Preferred, the completion of the Transaction and the election of
directors to fill the vacancies created by the resignation of four of the
current directors of the Company and the increase in the size of the Company's
Board from seven to nine effective upon the Closing as contemplated by Proposal
2 (described below), do not require the approval of the Company's shareholders
under Oregon law. The Company is seeking shareholder approval of these matters
to comply with the rules of the Nasdaq Stock Market, on which the Company's
Common Stock is listed for trading under the symbol "TRMM." The Bylaws of the
Nasdaq Stock Market require shareholder approval of an issuance of securities by
a listed company that will result in a change of control of the issuer. The
Company has been informally advised by the staff of the Nasdaq Stock Market that
the Transaction, including the change in the Board of Directors contemplated by
the Transaction, will constitute a "change of control" within the meaning of the
Bylaws of the Nasdaq Stock Market. The change of the corporate name of the
Company to "TRM Corporation" and the increase in the authorized Common Stock of
the Company require the approval of the Company's shareholders under Oregon law,
but are not conditions for the completion of the
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Transaction pursuant to the Purchase Agreement. Accordingly, if the shareholders
of the Company do not approve Proposal 1 or elect the nominees to the Company's
Board of Directors as set forth in Proposal 2, the Board of Directors of the
Company will consider all of its available options at that time.
Recommendation
The Board recommends that Proposal 1, providing for the approval of the
Restated Articles Amendment and the Transaction, be approved. If a quorum is
present at the Special Meeting, Proposal 1 will be approved if the votes cast in
favor of the proposal exceed the votes cast against the proposal. Accordingly,
abstentions and broker non-votes will have no effect on the results of the vote.
The proxies will be voted for or against the proposal, or as an abstention, in
accordance with the instructions specified on the proxy form. If no instructions
are given, proxies will be voted for approval of Proposal 1, providing for the
approval of the Restated Articles Amendments and the Transaction.
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PROPOSAL 2: ELECTION OF DIRECTORS
Pursuant to the Restated Articles of Incorporation, the Board of Directors
of the Company is divided into three classes serving three-year terms. One class
is elected each year for a three-year term. The term of office of Class 1
directors expires at the 1998 Annual Meeting; the term of office of Class 2
directors expires at the 1999 Annual Meeting; and the term of office of Class 3
directors expires at the 2000 Annual Meeting (and in all cases, the terms of the
directors will continue until their respective successors have been duly
elected). The Company's Bylaws provide for the Board of Directors to consist of
not more than nine but not less than three members.
On March 29, 1998, Mr. Ralph R. Shaw resigned as a director of the Company.
Pursuant to the Purchase Agreement, effective upon the Closing the Board of
Directors of the Company will be increased from seven to nine directors and
Messrs. Edwin S. Chan, Sherman M. Coe and Donald L. Van Maren will resign as
directors. Accordingly, the Board of Directors has nominated the following
individuals to become directors effective upon the Closing to fill the six
vacancies that will exist on the Board at that time:
Name Age Class of Directorship
---- --- ---------------------
Daniel G. Cohen ___ Class ___
Edward E. Cohen ___ Class ___
[Others]
Daniel G. Cohen has been an Executive Vice President and Director of
Resource America, Inc. since July, 1997. Prior thereto, since 1995, Mr. Cohen
had been a Senior Vice President of the Company. Mr. Cohen is also Chairman,
Chief Executive Officer and a director of FMF, the residential mortgage loan
origination subsidiary of the Company. Prior to joining the Company in November
1995, Mr. Cohen was principally engaged in graduate studies. Mr. Cohen is the
son of Edward E. Cohen.
Edward E. Cohen has been Chairman of the Board of Directors of Resource
America, Inc. since 1990, its Chief Executive Officer and a director since 1988
and its President since 1995. He is Chairman of the Board of Directors and a
director of BCMI, a real estate construction and management company. Since 1981,
Mr. Cohen has been Chairman of the Executive Committee and a director of
JeffBanks, Inc. (a bank holding company with total assets of approximately $1.2
billion). From 1991 to 1996, Mr. Cohen was affiliated with Ledgewood Law Firm,
P.C., most recently in an of counsel capacity. From 1969 through 1989, Mr. Cohen
was Chairman of the Board or Chairman of the Executive Committee of State
National Bank of Maryland (now First Union Bank of Maryland) and/or its holding
company. Mr. Cohen is the father of Daniel G. Cohen.
[Others]
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It is the intention of the persons named in the accompanying form of proxy
to vote for the two nominees for a Class 1 directorship, to vote for the three
nominees for a Class 2 directorship and to vote for the one nominee for a Class
3 directorship unless other instructions are given. Proxies cannot be voted for
more than two nominees for a Class 1 directorship, three nominees for a Class 2
directorship or one nominee for a Class 3 directorship. Directors are elected by
the vote of a plurality of the shares cast in person or by proxy at the meeting.
Accordingly, the two nominees for a Class 1 directorship receiving the most
votes at the Special Meeting will be elected to a Class 1 directorship, the
three nominees for a Class 2 directorship receiving the most votes at the
Special Meeting will be elected to a Class 2 directorship and the one nominee
for a Class 3 directorship receiving the most votes at the Special Meeting will
be elected to a Class 3 directorship. Abstentions and broker non-votes will have
no effect on the results of the vote. If any nominee is unable to stand for
election for any reason, proxies will be voted for the election of a substitute
proposed by the Board of Directors.
The Board of Directors has approved the nominees for election and
recommends approval by the shareholders.
BACKGROUND INFORMATION ABOUT
CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
Frederick O. Paulsell, 58, has served as a director since 1984 and was
elected Chairman of the Board in 1985. Mr. Paulsell is a Class 3 director whose
term expires at the 2000 Annual Meeting. Since January 1995, Mr. Paulsell has
been a partner at Olympic Capital Partners, P.L.L.C., a Seattle-based investment
banking firm. From 1992 to 1994, he served as President of Paulsell & Reed, a
Seattle investment firm. From 1987 to 1991, Mr. Paulsell served as President of
Foster, Paulsell & Baker, Inc., also a Seattle investment firm. Mr. Paulsell
serves on the Board of Directors of Costco Companies, Inc. and several
privately-held companies. He was Chairman of the Board of Ballard Computer,
Inc., a Seattle-based computer hardware and software retailer that filed for
bankruptcy in March 1995. Ballard is not affiliated in any way with the Company.
Frederic P. Stockton, 45, was appointed President, Chief Executive Officer
and a director in August 1997. Mr. Stockton is a Class 3 director whose term
expires at the 2000 Annual Meeting. Prior to joining TRM and since 1985, Mr.
Stockton was employed by The Estey Corporation, a privately-held company with
six business groups including vending, equipment distribution, food
distribution, mobile catering, recreational properties and food service. Most
recently and since 1994, he served as President and Chief Executive Officer.
From 1985 to 1994, Mr. Stockton served as President of The Estey Corporation's
Equipment Distribution Group. From 1978 to 1985, he was employed by Omark
Industries (now the Oregon Cutting Systems Division of Blount, Inc.) in
positions of increasing responsibility. Mr. Stockton holds a B.A. degree from
the University of Washington.
Michael D. Simon, 53, was elected President and Chief Executive Officer in
February 1995 and served until his retirement as an executive officer in August
1997. From July 1994 until becoming President, he served the Company as a
consultant. Mr. Simon is a Class 1 director whose term expires
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at the 1998 Annual Meeting. Prior to joining TRM and beginning in 1986, Mr.
Simon was employed by Sequent Computer Systems, Inc., a high-performance
computer company. His responsibilities over time at Sequent included executive
responsibilities in marketing, sales, service, legal, corporate development and
strategic planning. Most recently, he was a Senior Vice President at Sequent.
Mr. Simon holds a B.S. degree from Pratt Institute and a Masters degree from
Columbia University, both in electrical engineering.
Paul M. Brown, 44, was named Chief Financial Officer and Vice President of
Finance of the Company in September 1997. Prior to joining the Company and since
1993, Mr. Brown was Senior Vice President and Chief Financial Officer for SMC
Corporation, a manufacturer of motorized recreational vehicles. Before joining
SMC Corporation, Mr. Brown served as Chief Financial Officer for several
privately-held manufacturing companies and also worked as a consultant with
Arthur Andersen & Co. Mr. Brown attended Harvard University and holds a B.S.
degree from Portland State University.
James W. Perris, 40, was elected Chief Operating Officer and Vice President
of Operations of the Company in April 1995. Prior to joining TRM and since 1991,
Mr. Perris was General Manager of Calbag Metals Co., a privately-held
manufacturer and broker of nonferrous metals. From 1984 through 1991, he was
employed at First Interstate Bank of Oregon in positions of growing
responsibility. Mr. Perris holds a B.A. degree from Stanford University and an
M.B.A. from the University of Oregon.
Danial J. Tierney, 41, was named Vice President of Corporate Sales of the
Company in July 1996. Prior to that and since January 1995, Mr. Tierney served
the Company as Vice President of Sales and Marketing. For 16 years prior to
joining TRM, Mr. Tierney was employed by Spectra Physics Scanning Systems, Inc.
and its affiliates in various locations and in positions of increasing
responsibility, most recently in Eugene, Oregon, as Director of Marketing. He
holds a B.S. degree from the University of California, Berkeley, and an M.B.A.
from the University of Santa Clara.
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CORPORATE GOVERNANCE
Board Meetings and Committees
The Board of Directors has an Executive Committee, a Nominating Committee,
an Audit Committee and a Compensation Committee. Messrs. Paulsell, Simon and
Stockton currently serve on the Executive Committee. Mr. Shaw served on the
Executive Committee until his resignation as a director of the Company in March
of 1998. The function of the Executive Committee is to act on an interim basis
for the full Board. At the closing of the Transaction, the Executive Committee
will consist of Messrs. Edward E. Cohen, Daniel G. Cohen, and Frederic P.
Stockton. Messrs. Chan, as chairman, Paulsell and Simon currently serve on the
Nominating Committee. The Nominating Committee was established during fiscal
1996 to assist, as needed, with finding qualified candidates to serve on the
Company's Board of Directors. The Nominating Committee will consider nominations
submitted by shareholders. Nominations should be submitted to the Corporate
Secretary. Messrs. Coe, as chairman, and Van Maren currently serve on the Audit
Committee. The Audit Committee has the responsibility of recommending the
Company's independent auditors, reviewing the scope and results of audits, and
overseeing such other matters relating to the integrity of the Company's
finances and financial statements, as the Committee may consider appropriate.
Mr. Paulsell currently serves on the Compensation Committee, and until his
registation as a director of the Company, Mr. Shaw served as chairman of the
committee. The functions of the Compensation Committee are to approve the
executive officers' compensation and to administer the Company's 1996 Stock
Option Plan, when the full Board is not administering such Plan, and its
Employee Stock Purchase Plan.
The Board of Directors held six meetings during fiscal 1997. The Executive
Committee met four times during fiscal 1997. The Nominating Committee did not
meet. The Audit Committee met twice and the Compensation Committee met four
times. During fiscal 1997, each incumbent director attended at least 75 percent
of all meetings of the Board and Committees on which the director served.
Compensation of Directors
Directors who are not employees of the Company are paid fees of $2,000 per
year plus $500 for each Board or Committee meeting attended. Members of the
Executive Committee who are not employees receive an additional annual fee of
$2,000. If Board and Committee meetings are held on the same day, only one
attendance fee is paid. Pursuant to the Company's 1996 Stock Option Plan, each
nonemployee director is automatically granted a nonstatutory stock option for
5,000 shares of the Company's Common Stock on the date of each annual
shareholders' meeting held during the time he or she serves as a nonemployee
director. Each nonemployee director who is serving on the Executive Committee of
the Board automatically is granted an additional nonstatutory stock option for
2,500 shares on the date of each annual shareholder meeting held during the time
the director serves as a member of the Executive Committee. The exercise price
for all options granted to nonemployee directors under the Plan is the fair
market value of the Company's Common Stock on the date of grant. Each such
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option has a 10-year term and becomes fully exercisable on the first anniversary
of the option grant, provided the director is then serving on the Board and, if
applicable, on the Executive Committee. Effective March 29, 1998, each such
option was amended to provide that upon the resignation of a director after
three or more years of service as a director of the Company the exercise period
for the option will be extended to the date that is ten years after the date of
resignation.
During fiscal 1997, nonemployee directors received the fees and automatic
stock option grants described in the preceding paragraph. For serving as
Chairman of the Board and as a member of the Executive Committee, Mr. Paulsell
also received $3,000 a month during fiscal 1997, except for the months of
November and December during which no fees were received. Also, during the year,
Olympic Capital Partners, P.L.L.C., with whom Mr. Paulsell is a partner,
provided investment banking services to the Company. Mr. Shaw also received
$2,500 a month for serving as a member of the Executive Committee, except for
the months of December and January during which no fees were received.
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PROPOSAL 3: AMENDMENT TO THE COMPANY'S 1996 STOCK INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK THAT MAY BE
ISSUED PURSUANT TO THE PLAN FROM 700,000 TO 1,200,000
The purpose of the Company's 1996 Stock Incentive Plan (the "1996 Plan") is
to enable the Company to attract and retain the services of selected employees,
officers and directors of the Company and selected nonemployee agents,
consultants, advisors and independent contractors of the Company. The 1996 Plan
provides for the award of incentive stock options to key employees and the award
of non-statutory stock options, stock appreciation rights, bonus rights and
other incentive grants to employees, officers, directors, independent
contractors and consultants. Currently, 700,000 shares of the Company's Common
Stock are authorized to be issued pursuant to the 1996 Plan. As of April ___,
1998, options to purchase ________ shares had been granted to officers and
employees of the Company, directors [, and one independent consultant] pursuant
to the 1996 Plan.
The Board of Directors believes additional shares must be reserved for use
under the 1996 Plan to enable the Company to attract and retain key employees
and to provide appropriate incentives to key employees and others to exert their
best efforts on behalf of the Company. Stock options are currently the principal
long-term compensation element of the Company's officer and key-employee
compensation. Accordingly, on April ___, 1998, the Board of Directors approved
an amendment to the 1996 Plan, subject to shareholder approval, to reserve an
additional 500,000 shares for the Plan, thereby increasing the total number of
shares of the Company's Common Stock reserved for issuance under the Plan from
700,000 to 1,200,000.
Recommendation
The Board of Directors recommends that Proposal 3, increasing the number of
shares that may be issued under the 1996 Plan, be approved. The affirmative vote
of the holders of a majority of the shares of Common Stock present and entitled
to vote on the matter at the Special Meeting is required to approve this
Proposal 3. Accordingly, abstentions have the same effect as "no" votes in
determining whether the amendment is approved. Broker non-votes are counted for
purposes of determining whether a quorum exists at the Annual Meeting but are
not counted and have no effect on the results of the vote on Proposal 3. The
proxies will be voted for or against the proposal or as an abstention, in
accordance with the instructions specified on the proxy form. If no instructions
are given, proxies will be voted for approval of the amendment to the 1996 Plan.
Description of the 1996 Stock Incentive Plan
In 1986, the Company adopted the 1986 Stock Incentive Plan (the "1986
Plan"). The 1986 Plan had a 10 year term, which expired on September 9, 1996.
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Under the 1986 Plan, the Company initially reserved 1,000,000 shares of
Common Stock for issuance. The 1986 Plan was amended and restated in 1993 to,
among other changes, add an additional 300,000 shares. The Board of Directors of
the Company believes that the availability of stock options is an important
factor in the Company's ability to attract and retain qualified key employees
and to provide an incentive for them to exert their best efforts on behalf of
the Company. As of August 1, 1996, 216,950 shares of stock had been issued under
the 1986 Plan upon exercise of stock options, 1,083,050 shares were subject to
outstanding options and no shares were available for future grants. In August
1996 the Board of Directors adopted the 1996 Stock Option Plan (the "1996
Plan"), subject to shareholder approval, and reserved 700,000 shares for
issuance upon exercise of options granted under the 1996 Plan.
Certain provisions of the 1996 Plan are summarized below. The complete text
of the 1996 Plan, as proposed to be amended, is attached to this proxy statement
as Appendix IV.
Eligibility. All employees, consultants, independent contractors, officers
and directors of the Company and its subsidiaries are eligible to participate in
the 1996 Plan.
Administration. The 1996 Plan will be administered by the Compensation
Committee of the Board of Directors (the "Committee"), which will designate from
time to time the individuals to whom options are granted under the 1996 Plan,
the number of shares subject to options and all other terms and conditions of
the grants. Subject to the provisions of the 1996 Plan, the Committee may adopt
and amend rules and regulations relating to the administration of the 1996 Plan.
Only the Board of Directors may amend, modify or terminate the 1996 Plan.
Shares Available. The 1996 Plan permits the grants of incentive stock
options and nonstatutory stock options. If an option granted under the 1996 Plan
expires, terminates or is canceled, the shares again become available for
issuance under the Plan. 700,000 shares of Common Stock are available for grant
under the 1996 Plan. In addition, shares available for grant under the 1986 Plan
or subject to outstanding options under the 1986 Plan on the effective date of
the 1996 Plan and are not issued under the 1986 Plan due to termination or
cancellation of such options shall be available for grant under the 1996 Plan.
Term of Plan. The 1996 Plan will continue until all shares available for
issuance under the plan have been issued and all restrictions on such shares
have lapsed. The Board of Directors may suspend or terminate the 1996 Plan at
any time.
Stock Options. The Committee will determine the person to whom options are
granted, the option price, the number of shares subject to each option, the
period of each option and the times at which options may be exercised and
whether the option is an Incentive Stock Option ("ISO"), as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or an option
other than an ISO (a "Nonstatutory Stock Option" or "NSO"). If the option is an
ISO, the option price cannot be less than the fair market value of the Common
Stock on the date preceding the date of grant. If an
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optionee of an ISO at the time of grant owns stock possessing more than 10% of
the combined voting power of the Company, the option price may not be less than
110% of the fair market value of the Common Stock on the date preceding the date
of grant. If the option is an NSO, the option price cannot be less than 100% of
the fair market value of the Common Stock on the date preceding the date of
grant. The fair market value of such shares shall be deemed to be the closing
price of the Common Stock as reported in The Wall Street Journal on the
valuation date, or if there has been no sale on that date, on the last preceding
date on which a sale occurred, or such other reported value of the Common Stock,
or average closing prices for a period of up to 10 trading dates including or
preceding the valuation date, as shall be specified by the Committee. No ISO may
be granted on or after the tenth anniversary of the date that the Plan was
adopted by the Board of Directors. No employee may be granted options for more
than an aggregate of 300,000 shares of Common Stock in any calendar year. The
aggregate fair market value, on the date of the grant, of the stock for which
ISOs are exercisable for the first time by an employee during any calendar year
may not exceed $100,000. The Committee may not reprice outstanding options. No
monetary consideration is paid to the Company upon the granting of options. On
April 30, 1998, the closing price of the Common Stock of the Company on the
Nasdaq National Market System was $14.50 per share.
Options granted under the 1996 Plan generally continue in effect for the
period fixed by the Committee, except that ISOs are not exercisable after the
expiration of 10 years from the date of grant or five years in the case of 10%
shareholders. Options are exercisable in accordance with the terms of an option
agreement entered into at the time of grant and, except as otherwise determined
by the Committee with respect to a NSO granted to a person who is neither an
officer nor a director of the Company, are nontransferable except on death of a
holder or pursuant to a qualified domestic relations order. Options may be
exercised only while an optionee is employed by or in the service of the Company
or a subsidiary or within 12 months following termination of employment by
reason of death of physical disability or three months following termination for
any other reason. The 1996 Plan provides that the Committee may extend the
exercise period for any period up to the expiration date of the option and may
increase the number of shares for which the option may be exercised up to the
total number underlying the option. The purchase price for each share purchased
pursuant to exercise of options must be paid in cash, or, with the consent of
the Committee, in whole or in part, in shares of Common Stock valued at fair
market value. Upon the exercise of an option, the number of shares subject to
the option and the number of shares available under the 1996 Plan for future
option grants are reduced by the number of shares with respect to which the
option is exercised, less any shares surrendered in payment or withheld to
satisfy withholding obligations.
Stock Option Grants to Nonemployee Directors. Each Nonemployee Director
automatically receives annual grants of options to purchase 5,000 shares of
Common Stock at the close of each annual meeting of shareholders and each
Nonemployee Director who is a member of the Executive Committee receives an
additional option to purchase 2,500 shares. Options granted to Nonemployee
Directors have an exercise price equal to 100% of fair market value on the date
of grant and generally are governed by the terms discussed above, except that
the options become exercisable one year from the date of grant and expire 10
years after the date of grant. "Nonemployee Director" is a director who is not
an employee of the Company or any subsidiary. Nonemployee Directors are eligible
to receive other grants under the 1996 Plan.
22
<PAGE>
Foreign Qualified Option Grants. Options under the 1996 Plan may be granted
to eligible persons residing in foreign jurisdictions. The Committee may adopt
such supplements to the 1996 Plan as may be necessary to comply with the
applicable laws of such foreign jurisdictions and to afford participants
favorable treatment under such laws except that no grant shall be granted under
any such supplement with terms which are more beneficial to the participants
than the terms permitted by the 1996 Plan.
Changes in Capital Structure. The 1996 Plan provides that if the
outstanding Common Stock of the Company is increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any recapitalization,
stock split or certain other transactions, appropriate adjustment will be made
by the Committee in the number and kind of shares available for grants under the
Plan. In addition, the Committee will make appropriate adjustments to
outstanding options. In the event of dissolution of the Company or a merger,
consolidation or plan of exchange affecting the Company, in lieu of the
foregoing treatment for options, the Committee may, in its sole discretion,
provide a 30-day period prior to such event during which optionees shall have
the right to exercise options in whole or in part without any limitation on
exercisability and upon the expiration of such 30-day period all unexercised
options shall immediately terminate.
Amendments. The Board of Directors may at any time amend the 1996 Plan,
without shareholder approval, in such respects as it shall deem advisable
because of changes in the law while the 1996 Plan is in effect or for any other
reason. Current Nasdaq rules and IRS rules would require shareholder approval of
certain amendments to the 1996 Plan.
Tax Consequences. Certain options authorized to be granted under the 1996
Plan are intended to qualify as ISOs for federal income tax purposes. Under
federal income tax law currently in effect, the optionee will recognize no
income upon grant or upon a proper exercise of the ISO. If an employee exercises
an ISO and does not dispose of any of the option shares within two years
following the date of grant and within one year following the date of exercise,
then any gain realized upon subsequent disposition of the shares will be treated
as income from the sale or exchange of a capital asset. If an employee disposes
of shares acquired upon exercise of an ISO before the expiration of either the
one-year holding period or the two-year waiting period, any amount realized will
be taxable as ordinary compensation income in the year of such disqualifying
disposition to the extent that the lesser of the fair market value of the shares
on the exercise date or the fair market value of the shares on the date of
disposition exceeds the exercise price. The Company will not be allowed any
deduction for federal income tax purposes at either the time of the grant or
exercise of an ISO. Upon any disqualifying disposition by an employee, the
Company will generally be entitled to a deduction to the extent the employee
realized ordinary income.
Certain options authorized to be granted under the 1996 Plan will be
treated as NSOs for federal income tax purposes. Under federal income tax law
presently in effect, no income is realized by the grantee of an NSO pursuant to
the 1996 Plan until the option is exercised. At the time of exercise of an NSO,
the optionee will realize ordinary compensation income, and the Company will
generally
23
<PAGE>
be entitled to a deduction, in the amount by which the market value of the
shares subject to the option at the time of exercise exceeds the exercise price.
The Company's deduction is conditioned upon withholding on the income amount.
Upon the sale of shares acquired upon exercise of an NSO, the excess of the
amount realized from the sale over the market value of the shares on the date of
exercise will be taxable.
Section 162(m) of the Code, as adopted in 1993, limits to $1,000,000 per
person the amount that the Company may deduct for compensation paid to any of
its most highly compensated officers in any year after 1993. Under the
regulations, compensation received through the exercise of an option will not be
subject to the $1,000,000 limit if the option and the plan pursuant to which it
is granted meet certain requirements of the exception for performance-based
compensation. One such requirement is that shareholders approve per-employee
limits on the number of shares as to which options may be granted each year.
Other requirements of the exception for performance-based compensation are that
the option be granted by a committee of at least two outside directors and that
the exercise price of the option or the stock appreciation right be not less
than fair market value of the Common Stock on the date of grant. The Committee
is composed of two outside directors and, 22 thus, meets the requirements of the
proposed regulations. The Company believes that the options will be in
compliance with the above requirements.
24
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation paid by the Company with respect to
the last three fiscal years to the Chief Executive Officer and to certain other
executive officers of the Company.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual ------------
Compensation Securities
Name and ------------------------- Underlying Other
Principal Position Year Salary Bonus Options (#) Compensation (1)
------------------ ---- --------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Michael D. Simon 1997 $ 290,000 -- 59,000 $5,184
Former President 1996 $ 300,000 $ 138,258 116,000 $3,640
and Chief Executive 1995 $ 267,500(3) -- 300,000 --
Officer (2)
James W. Perris 1997 $ 118,983 $ 35,000 20,000 $4,576
Chief Operating 1996 $ 110,000 $ 22,500 -- $1,456
Officer and Vice 1995 $ 18,333 $ 5,000 75,000 --
President of
Operations
Robert A. Bruce 1997 $ 108,167 $ 29,250 10,000 $4,180
Former Chief 1996 $ 100,000 $ 23,750 25,000 $3,640
Financial Officer and 1995 $ 88,500 $ 14,063 50,000 $3,754
Vice President of
Finance (4)
Danial J. Tierney 1997 $ 108,167 $ 30,000 -- $4,064
Vice President of 1996 $ 110,000 $ 12,000 -- $2,438
Corporate Sales 1995 $ 55,000 $ 7,500 75,000 --
(1) Reflects contributions by the Company to the Company's Profit Sharing
Retirement Plan.
(2) Mr. Simon retired as an officer effective August 25, 1997.
25
<PAGE>
(3) Includes consulting fees paid from July 1994 until January 31, 1995 and
salary after Mr. Simon was elected President and Chief Executive Officer on
February 1, 1995.
(4) Mr. Bruce resigned from the Company effective August 22, 1997.
</TABLE>
26
<PAGE>
Stock Option Grants in Last Fiscal Year
The following table provides information regarding stock options granted to
certain executive officers in 1997.
<TABLE>
<CAPTION>
Individual Grants
- ------------------------------------------------------------------------------
Percent Potential Realizable Value
of Total at Assumed Annual Rates
Numbers Options of Stock Price
of Shares Granted to Appreciation for Option
Underlying Employees Exercise Term (2)
Options in Fiscal Price per Expiration -----------------------
Name Granted (1) Year Share Date 5% 10%
---- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Simon 59,000 (3) 40.3% $10.375 10/22/06 $384,962 $975,570
Robert A. Bruce 10,000 (4) 6.8% $10.375 10/22/06 $ 65,248 $165,351
James W. Perris 20,000 (4) 13.7% $ 9.875 12/17/06 $124,207 $314,764
(1) Under terms of the option agreements, the options are subject to
accelerated vesting in the event of a future change in control of the
Company.
(2) In accordance with rules of the Securities and Exchange Commission, these
amounts are the hypothetical gains or "option spreads" that would exist for
the respective options based on assumed rates of annual compound stock
price appreciation of 5% and 10% from the date the options were granted
over the full option term.
(3) The option vests 40% after the first year, 30% after the second year, 20%
after the third year and 5% after the fourth and fifth years and the option
vests in full on termination without cause, death, disability, or a
significant change in job responsibilities.
(4) The option vests 20% a year over five years from the date of grant.
</TABLE>
Option Exercises and Holdings
The following table indicates (i) stock options exercised by the executive
officers during the last fiscal year, (ii) the number of shares subject to
exercisable (vested) and unexercisable (unvested) stock options as of June 30,
1997 and (iii) the fiscal year-end value of "in-the-money" unexercised options.
27
<PAGE>
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options at Fiscal In-The-Money Options
Acquired Year End (#) at Fiscal Year End (2)
on Exercise Value ------------------------------- -------------------------------
Name (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Simon 40,000 $236,650 312,504 122,496 $1,724,689 $ 30,624
James W. Perris -- -- 30,000 65,000 $ 127,500 $ 206,250
Robert A. Bruce -- -- 40,000 45,000 $ 206,250 $ 71,250
Danial J. Tierney -- -- 22,000 45,000 $ 143,000 $ 292,500
(1) Aggregate market value of the shares covered by the option, less the
aggregate price paid by the executive.
(2) Based on the fair market value of the Company's stock as of June 30, 1997.
Values are stated on a pretax basis.
</TABLE>
28
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of the Purchase Agreement, as described above, the
Purchaser will pay $20 million cash to the Company in exchange for 1,777,778
shares of the Series A Preferred and Warrants to purchase 500,000 shares of
Common Stock. One of the nominees for director, Daniel G. Cohen, is the majority
shareholder and an officer and director of the general partner of the Purchaser.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Committee
All of the actions regarding compensation of executive officers of the
Company in fiscal 1997 were taken by the Compensation Committee of the Board of
Directors (the "Committee"), which is composed of two outside directors.
Pursuant to authority delegated by the Board, the Committee makes determinations
concerning compensation to be paid to the Chief Executive Officer and each of
the other executive officers of the Company and is responsible for developing
and making recommendations to the Board of Directors with respect to the
Company's executive compensation policies. During fiscal 1997, the Committee
also administered the Company's 1996 Stock Option Plan and the Company's
Restated 1986 Stock Incentive Plan.
Chief Executive Officer Compensation
In January 1995, Michael D. Simon and the Company entered into an
employment letter agreement whereby Mr. Simon was appointed President and Chief
Executive Officer of the Company for the period from February 1, 1995 to
September 30, 1996. In May 1996, Mr. Simon's employment letter agreement was
revised to extend Mr. Simon's employment. The revised agreement provided that
Mr. Simon's base compensation would continue at $300,000 per year and any cash
bonuses for periods beginning after February 1, 1997 would be at the discretion
of the Board of Directors. The terms of the revised employment agreement
reflected negotiations between the Company and Mr. Simon and the Committee's
evaluation of Mr. Simon's performance as Chief Executive Officer, including his
efforts to enhance long-term shareholder value and his contributions to
improving profits and revenues and the long-term growth prospects for the
Company. The number of option shares granted to Mr. Simon during fiscal 1997 was
based on negotiations between the Company and Mr. Simon and the directors'
subjective determination of the number of shares needed to adequately compensate
Mr. Simon and to provide a significant incentive for him to exert his best
efforts on the Company's behalf and to continue with the Company on a
longer-term basis.
29
<PAGE>
Executive Officer Compensation
The Company's executive compensation program consists of base salary,
annual cash incentive compensation in the form of discretionary bonuses and
discretionary long-term incentive compensation in the form of stock options.
This program is designed to reflect pay for performance that is tied to the
Company's, as well as individual performance.
The fiscal 1997 salaries established for executive officers other than the
Chief Executive Officer were determined by the Committee after considering the
Company's size and complexities relative to other public companies. In
determining salaries, the Committee took into account job responsibilities,
individual experience and individual performance.
Discretionary bonuses were paid to each executive officer other than the
Chief Executive Officer for fiscal 1997 based on Company and individual
performance.
The Company has a stock option plan in which key employees of the Company,
including executive officers, are eligible to participate. The Board of
Directors believes that the availability of stock incentives is an important
factor in the Company's ability to attract and retain key employees, to provide
an incentive for them to exert their best efforts on behalf of the Company and
to further align their interests with shareholders. Stock option grants to
certain executive officers during fiscal 1997 are reflected in the Summary
Compensation Table and the stock option tables.
Section 162(m) of the Internal Revenue Code of 1986 limits to $1,000,000
per person the amount that the Company may deduct for compensation paid to any
of its most highly compensated officers in any year after 1993. It is
anticipated that the levels of salary and bonus to be paid by the Company will
not exceed that limit.
Compensation Committee Report Submitted By:
Ralph R. Shaw, Chairman
Frederick O. Paulsell
30
<PAGE>
Stock Performance Graph
The following graph provides a comparison of the cumulative total
shareholder return for the period June 30, 1992 through June 30, 1997 for (i)
the Company's Common Stock, (ii) the Nasdaq Stock Market (US) and (iii) the
Nasdaq Retail Trade Index, in each case assuming the investment of $100 on June
30, 1992 and the reinvestment of any dividends.
[Line chart depicting performance:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/92 12/31/92 6/30/93 12/31/93 6/30/94 12/31/94 6/30/95 12/31/95 6/30/96 12/31/96 6/30/97
------- -------- ------- -------- ------- -------- ------- -------- ------- -------- -------
TRM 100.000 98.113 90.566 84.906 43.396 39.623 49.057 79.245 83.962 73.585 80.189
Nasdaq (US) 100.000 121.120 125.761 139.038 126.968 135.912 169.477 192.207 217.593 236.402 264.614
Nasdaq Retail 100.000 113.710 106.259 119.988 105.780 109.317 119.113 120.428 144.768 143.574 154.383
</TABLE>
31
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table presents selected quarterly consolidated financial data
for the Company. The selected quarterly financial data is derived from the
Company's audited consolidated financial statements for the fiscal years ended
June 30, 1997 and 1996, and the Company's unaudited consolidated financial
statements for the periods ended September 30, 1997 and December 31, 1997,
copies of which are attached to this proxy statement as Appendix III. The
following selected quarterly financial data is qualified in its entirety by
reference to the attached audited and unaudited consolidated financial
statements of the Company.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
(In thousands, except
per share data) 1998 1997 1996 1998 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 16,238 $16,577 $15,716 $16,709 $17,347 $16,727 $18,023 $17,394 $17,934 $17,701
Gross profit 6,316 6,436 5,788 6,358 6,797 6,263 7,407 6,659 $7,300 7,170
Net income (loss) 1,033 1,037 844 891 1,163 910 1,365 1,077 (990) 1,293
Net income
(loss) per share 0.14 0.14 0.12 0.13 0.16 0.13 0.19 0.15 (0.13) 0.18
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company has continued to expand its business by opening TRM Centers in
new and existing market areas. The number of market areas served increased from
66 to 72 from June 30, 1996 to June 30, 1997. The number of TRM Centers grew
from 31,719 to 34,796 over the same period. This expansion has continued into
the first six months of fiscal 1998 with the opening of three new market areas
and 834 TRM Centers. As of [December 31, 1997], the Company had [75] market
areas with [35,630] TRM Centers.
Results of Operations
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
The percentage of change in dollar amounts and the percentage of sales
represented by each item on the Consolidated Statements of Operations (see
Appendix III) follow:
<TABLE>
<CAPTION>
Percentage Change As a Percentage of Sales
---------------------------- ------------------------------------------
1996-97 1995-96 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 3.5% 11.6% 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------------------------------------------------
Sales of discounts (0.4) 5.3 16.7 17.4 18.4
Cost of sales 1.1 11.4 43.3 44.3 44.3
Selling, general and administrative 5.7 17.1 26.6 26.0 24.8
Impairment of long-lived assets 100.0 -- 5.8 -- --
- --------------------------------------------------------------------------------------------------------------------------
Operating income (36.4) 10.2 7.6 12.3 12.5
Interest expense, net (58.6) 1.3 (0.6) (1.4) (1.6)
Other, net 55.2 (1.3) (1.0) (0.7) (0.8)
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes (39.5) 12.4 6.0 10.2 10.1
Provision for income taxes (42.4) 13.9 2.3 4.1 4.0
- --------------------------------------------------------------------------------------------------------------------------
Net income (37.6%) 11.5% 3.7% 6.1% 6.1%
==========================================================================================================================
</TABLE>
32
<PAGE>
The 1997 sales growth of 3.5 percent was due primarily to a 10.9 percent
increase in the number of billed units offset by a 6.0 percent decrease in
average net sales per unit. Sales growth during 1997 came primarily from the
Company's foreign operations. Foreign sales grew to $25.9 million in 1997 from
$22.0 million in 1996 and $15.7 million in 1995. Heavy investments in new city
openings and in new copiers in Europe in 1994 and 1995 are now resulting in
higher sales. The company's business model in the more well-established U.S.
operations differs from that in its foreign operations. In the U.S., the primary
focus over the last three years has been on learning how to better manage the
installed base of copiers. In actively managing the profit performance of the
U.S. installed base, under-performing machines were removed and put back into
stock to be redeployed at better sites. Locations with copy pricing too low to
be profitable at their existing copy volumes were repriced to higher levels. The
majority of the machines repriced showed increased profits and lower sales per
unit. This and the declining performance of test installations of color copiers
and business card equipment, referred to under "Impairment of long-lived
assets," contributed to a decrease in U.S. sales during 1997. The Company plans
to begin using a new state- of-the-art black and white copiers to grow the
installed based for the next several years. Further, after two years of opening
cities attached to existing service centers, the Company has now resumed opening
stand-alone cities with three domestic locations opening since October 1996.
Also, much progress has been made on establishing a corporate chain selling
program at TRM to better address the retailer consolidation of the 1990's. This
aggressive new program, along with the NextGen black and white copier discussed
below, are both expected to contribute toward increasing U.S. sales going
forward.
During 1996, sales growth was 11.6 percent and billed unit growth was 8.9
percent. The number of billed units and average sales per unit were
significantly affected by the aggressive unit growth in Europe, where average
machine performance is above the Company's average.
To date, sales from products not related to black and white photocopying
have been insignificant, amounting to less than 5 percent of total sales.
Sales discounts are the portion of revenue retained by retail customers.
They generally vary at individual retail businesses depending on volume -- the
higher the volume, the greater the discount and vice versa. The downward trend
in sales discounts as a percentage of sales in 1997 and 1996 reflects changes
made in business agreements with new customers over the periods.
Cost of sales increased 1.1 percent from 1996 to 1997. This was below the
percentage increase in sales, despite growth in field service payroll, headcount
additions for opening new cities, and copier depreciation costs that were above
the level of sales growth. This was achieved because of lower paper costs
worldwide and lower paper and toner usage under the Company's higher-copy- price
programs.
33
<PAGE>
Comparing 1996 to 1995, cost of sales increased 11.4 percent. This was
primarily due to higher paper costs, though the Company mitigated the adverse
impact of higher paper costs on cost of sales through its active program to
raise copy prices at thousands of locations. This had a decreasing influence on
the number of copies made due to expected demand elasticity. The increase in
cost of sales was also affected by higher field service and field sales payroll
costs.
The rate of growth in selling, general and administrative expense decreased
significantly, from 17.1 to 5.7 percent, from 1996 to 1997. During 1996,
significant investments were made in people and systems. Key additions were made
across all levels of the management team. Investments in our computerized
management information systems were also made and continued throughout 1997. The
increase in selling, general and administrative expense during 1997 was
primarily due to higher employee health care costs in the U.S. and higher
expansion and start-up expenses in both the U.S. and Europe.
During 1997, the Company recorded a non-cash, non-recurring accounting
charge of $4.1 million pretax ($2.5 million and $0.35 per share after tax),
which reflected the Company's application of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of."
As discussed with "Sales" above, the Company determined that this action was
necessary after reviewing the affected asset categories. This charge included
impairment write downs of equipment in three categories: color copiers, custom
business card printing components and certain older generation black and white
copiers. Though the Company continues to support its installed color copier and
business card units and expects to pursue other equipment offerings in these two
product categories, it was concluded during 1997 that the initial equipment
purchased in 1993 and 1994 for market testing was technologically dated and that
the full asset carrying amounts were not recoverable. In addition, the Company
recently finalized an agreement with a major copier manufacturer to purchase a
new-generation black and white copier to grow the core business. The Company
intends to use these new, state-of-the-art copiers to grow the installed base
for the next several years. In light of this, the equipment write down included
a provision for the impairment of older generation black and white copiers which
are needed in the service centers to support the installed base, but are no
longer expected to be placed as incremental revenue generating units.
From mid-1996 through 1997, the Company was able to reduce bank borrowings
significantly, which resulted in the lower interest expense. Interest costs were
higher in 1995 and early 1996 because the Company incurred bank borrowings to
help fund its aggressive unit expansion.
The effective tax rate declined from 40.1% in 1996 to 38.2% in 1997 due to
income in the United Kingdom now flowing through a United Kingdom subsidiary and
being taxed at a lower statutory rate than domestic income. The change in
effective tax rates between 1995 and 1996 was not significant.
34
<PAGE>
Six Months Ended December 31, 1997 Compared to Six Months Ended
December 31, 1996
Sales for the second quarter were $16.7 million, down 3.7% from second
quarter sales of the previous year of $17.3 million. Sales for the six months
year-to-date were $32.9 million, down 2.9% from prior year-to-date sales of
$33.9 million. Sales in Europe continue to increase, although at a slowing rate
as the European market matures. Sales in North America, where the market is more
fully developed, continue to decline, offsetting the growth in Europe.
Sales discounts are the portion of revenue retained by customers. Sales
discounts as a percentage of sales continue to decline, from 16.8% to 16.2% in
the comparable quarters. This reflects changes made in business agreements with
new customers. The discount rate generally varies among individual retail
businesses based on volume.
Cost of sales remained flat compared to the same quarter in prior year and
decreased 0.3% compared to the prior six months. Cost of sales increased as a
percent of sales from 44.0% to 45.7% in the comparable prior-year quarter due to
certain costs being fixed while sales have decreased.
Selling, general and administrative costs grew by 1.4% to $4.7 million in
the second quarter and 0.9% to $9.2 million for the first six months. Increased
health care costs and vehicle fleet costs caused this change.
Interest costs are incurred because the Company uses bank borrowings to
help fund its expansion. The decrease in interest expense is due to reduced bank
borrowings compared to the prior-year quarter and year-to-date.
Liquidity and Capital Resources
During the six months ended December 31, 1997, the Company funded capital
expenditures of $5.7 million and repaid $0.4 million in bank borrowings with no
additional draws on its line of credit. Capital expenditures increased by $3.9
million over the same period of the prior year due to increased purchases and
installations of NextGenTM copiers ($2.3 million) and increased expenditures for
other copiers ($1.2 million). Additional capital expenditures of $400,000 were
for normal operating purposes.
The Company currently anticipates capital expenditures of approximately $13
million during fiscal 1998. The Company intends to finance these capital
expenditures with cash generated from operations and with bank borrowings under
its existing line of credit. The Company expects that these sources will provide
adequate cash to fund its expansion through at least June 30, 1998.
35
<PAGE>
Year 2000 Disclosure
The Company is aware of, and currently evaluating its exposure related to
potential year 2000 formation systems problems. Generally, internal accounting
and operating systems are either year 2000 compliant or will become compliant as
part of a general information technology upgrade initiative (the "Initiative"),
which is presently underway at the Company. The core components of the
Initiative are anticipated to be completed by December 31, 1998. Total cost of
the Initiative is expected to be approximately $1.2 million, of which $300,000
has been expended through December 31, 1997. The Company has also determined
that a portion of its telephone system will also require upgraded capability, at
a cost of approximately $50,000.
The Company is presently assessing the risk that major customers or
suppliers may have year 2000 problems, which could impact the Company. The
extent that such risk exists, if any, has not yet been determined.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This Statement establishes a different method of computing net income
per share than was previously required under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS No. 128, the Company is required to
present both basic net income per share and diluted net income per share. The
Company adopted SFAS No. 128 in the second fiscal quarter of 1998 and all
historical net income per share data has been restated to conform to the
provisions of this Statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which established requirements for disclosure of comprehensive income.
The objective of SFAS No. 130 is to report all changes in equity that result
from transactions and economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-owner changes
in equity. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of earlier financial statements for comparative
purposes is required. The Company is in the process of quantifying the effect of
adoption of SFAS No. 130.
Forward-Looking Statements
Information in this "Management's Discussion and Analysis," and elsewhere
in this proxy statement about the Company's goals, plans and expectations
regarding expansion and business opportunities, including the opportunity
represented by the ATM market, the Company's plan to enter that market,
constitute forward-looking statements within the meaning of Section 27A of the
Act and Section 21E of the Securities and Exchange Act of 1934. The following
factors are among the factors that could cause actual results to differ
materially from those described in the forward-
36
<PAGE>
looking statements: the outcome of the shareholder vote regarding this
transaction, the regulatory environment related to delivery of financial
services and the ATM market in particular, competition from existing ATM
providers and new entrants into the ATM market, TRM's ability to attract and
retain personnel necessary to execute its ATM business plan, TRM's ability to
manage and achieve growth in a new line of business, changes in technology
affecting ATM transactions, TRM's ability to expand its current relationships
with retailers and broaden its distribution network, changes in consumer
practices and preferences with respect to the location of, and use of, ATM's,
changes in consumer practices and preferences with respect to the use of TRM's
new photocopy machines, and the performance and profitability of NextGen(TM)
photocopy machines, as well as general economic conditions in the market areas
in which TRM operates. 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 SEC Form 10-K for the year ended June 30, 1997.
37
<PAGE>
INDEPENDENT AUDITORS
Representatives of KPMG Peat Marwick LLP, independent auditors for the
Company, are expected to be present at the annual meeting, will have the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Reports of all transactions in the Company's Common Stock by insiders are
required to be filed with the SEC pursuant to Section 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). One stock transaction
relating to stock owned by Mr. Paulsell's former wife and minor stepson was
reported late on one Form 4 for fiscal 1997.
SHAREHOLDER PROPOSALS
A proposal by a shareholder for inclusion in the Company's proxy statement
and form of proxy for the 1998 annual meeting of shareholders must be received
by the Company at 5208 NE 122nd Avenue, Portland, Oregon 97230 on or before May
20, 1998 in order to be eligible for such inclusion.
OTHER MATTERS
The notice of annual meeting of shareholders provides for transaction of
such other business as may properly come before the meeting. As of the date of
this proxy statement, the Board of Directors has been advised of no matters to
be presented for discussion at the meeting. However, the enclosed proxy gives
discretionary authority to the persons named in the proxy in the event that any
other matters should be properly presented to the shareholders.
By Order of the Board of Directors
Portland, Oregon
May 25, 1998
Paul M. Brown
Secretary
38
<PAGE>
APPENDIX I
ARTICLES OF AMENDMENT TO THE
RESTATED ARTICLES OF INCORPORATION
OF
TRM COPY CENTERS CORPORATION
1. Article I of the Restated Articles of Incorporation is hereby amended to
read in its entirety as follows:
"ARTICLE I
The name of this Corporation is TRM Corporation."
2. The first sentence of Article III of the Restated Articles of
Incorporation is hereby amended to read in its entirety as follows:
"1. The authorized capital stock of the Corporation shall consist of
50 million shares of Common Stock, no par value, and 5 million shares of
Preferred Stock no par value."
3. The Company's Restated Articles of Incorporation is hereby amended to
add the following section at the end of Article III:
"2. Series A Preferred Stock. This Article III.2 sets forth the
designation, preferences, limitations and relative rights of a series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article III.1
above. The shares of such series shall be designated Series A Preferred Stock
("Series A Preferred") and the number of shares constituting such series shall
be 1,777,778.
Section A. Dividends.
(i) When and as declared by the Corporation's Board of Directors
and to the extent permitted under the Oregon Business Corporation Act, the
Corporation will pay preferential cumulative dividends to the holders of the
Series A Preferred as provided in this Section A. Except as otherwise provided
herein, dividends on each share of Series A Preferred will accrue on a daily
basis at the rate of seven and one-half percent (7 1/2%) per annum of the
Liquidation Value thereof, determined on a quarterly basis, from and including
the date of issuance of such share of Series A Preferred to and including the
earlier of (a) the date on which the Liquidation Value of such share of Series A
Preferred plus any accrued and unpaid dividends
A-1
<PAGE>
thereon is paid to the holder thereof upon any liquidation, dissolution or
winding up of the Corporation (b) the date on which such share of Series A
Preferred is converted into Common Stock. Such dividends will accrue whether or
not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends.
The date on which the Corporation initially issues any share of Series A
Preferred will be deemed to be its "date of issuance" regardless of the number
of times transfer of such share of Series A Preferred is made on the stock
records maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such share of Series A Preferred.
To the extent not paid on March 31, June 30, September 30, and December 31 of
each year beginning on June 30, 1998 (the "Dividend Payment Date"), all
dividends which have accrued on each share of Series A Preferred outstanding
during the three-month period (or other period in the case of the initial
Dividend Payment Date) shall be accumulated and shall remain accumulated
dividends with respect to each such share of Series A Preferred until paid. If
at any time the Corporation pays less than the total amount of dividends then
accrued with respect to the Series A Preferred, such payment will be distributed
ratably among the holders of the Series A Preferred on the basis of the amount
of accrued and unpaid dividends with respect to the shares of Series A Preferred
owned by each such holder.
(ii) The Corporation shall not pay dividends (other than
dividends payable in shares of Common Stock) upon the Common Stock unless and
until it has paid dividends upon the Series A Preferred as set forth in Section
A(i). In the event that the Corporation declares or pays any dividends upon the
Common Stock (whether payable in cash, securities or other property) other than
dividends payable in shares of Common Stock, the Corporation shall also declare
and pay to the holders of the Series A Preferred at the same time that it
declares and pays such dividends to the holders of the Common Stock the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon conversion of the Series A Preferred had all of the
outstanding Series A Preferred been converted immediately prior to the record
date for such dividend, or, if no record date is fixed, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
Section B. Liquidation. Upon any liquidation, dissolution or winding
up of the Corporation, each holder of Series A Preferred shall be entitled to be
paid, before any distribution or payment is made upon any Junior Securities, an
amount in cash equal to the aggregate Liquidation Value of all Series A
Preferred held by such holder (plus all accrued or declared dividends unpaid
thereon), and the holders of Series A Preferred shall not be entitled to any
further payment. If, upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Series A Preferred are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid hereunder, then the entire
assets to be distributed to the Corporation's stockholders shall be distributed
pro rata among such Series A Preferred holders based upon the aggregate
Liquidation Value of all Series A Preferred held by each such holder (plus all
accrued or declared dividends unpaid thereon). At least 30 days prior to any
liquidation, dissolution or winding up of the Corporation, the Corporation shall
give written notice of such event to each record holder of Series A Preferred,
specifying the amount of liquidation proceeds per share to be distributed to the
holders of the Series A Preferred and to the holders of the Common Stock.
A-2
<PAGE>
For purposes of this Section B, a liquidation, dissolution or winding
up of this Corporation shall be deemed to be occasioned by, or to include, (A)
the acquisition of this Corporation by another entity by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger or consolidation) that results in the transfer of
fifty percent (50%) or more of the outstanding voting power of this Corporation;
or (B) a sale of all or substantially all of the assets of this Corporation.
In any of such events, if the consideration received by this
corporation is other than cash, the value of such consideration will be deemed
its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such quotation system over the thirty (30) day
period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by this Corporation and
the holders of at least a majority of the voting power of all then outstanding
shares of the Series A Preferred.
(B) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by this corporation and the holders
of at least a majority of the voting power of all then outstanding shares of the
Series A Preferred.
This Corporation shall give each holder of record of Series A
Preferred written notice of such impending transaction not later than twenty
(20) days prior to the shareholders' meeting called to approve such transaction,
if any, or twenty (20) days prior to the closing of such transaction, whichever
is earlier, and shall also notify such holders in writing of the final approval
of such transaction. The first of such notices shall describe the material terms
and conditions of the impending transaction and the provisions of this Section
B, and this Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after this Corporation has given the first notice provided for
herein or sooner than ten (10) days after this Corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of Series A Preferred
that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of such Series A Preferred.
A-3
<PAGE>
Section C. Voting Rights.
(i) The holders of Series A Preferred shall have no right to vote
on matters to be voted on by the stockholders of the Corporation except as
provided in this Section C and as otherwise expressly required by applicable
law; provided that in any event, each holder of Series A Preferred shall be
entitled to notice of all stockholder meetings at the same time and in the same
manner as notice is given to the stockholders entitled to vote at any such
meeting.
(ii) The holders of Series A Preferred shall be entitled to vote,
together as a single class with the holders of the Common Stock and the other
classes of the Corporation's capital stock voting with the Common Stock, on all
matters submitted to the stockholders for a vote with each share of Series A
Preferred having one vote and shall be entitled to notice of each stockholders
meeting in accordance with the Bylaws of the Corporation.
Section D. Conversion.
1. Right to Convert.
(i) Subject to the terms and conditions of this Section D, each
holder of Series A Preferred shall have the right, at its option, to convert
each share of the Series A Preferred held by such holder at any time into
.7499997 fully paid and nonassessable shares of Common Stock.
2. Conversion Procedure.
(i) Except as otherwise provided herein, each conversion of
Series A Preferred shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Series A Preferred to be converted have been surrendered at the principal office
of the Corporation (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series A
Preferred). At such time as such conversion has been effected, the rights of the
holder of such Series A Preferred as such holder shall cease and the Person or
Persons in whose name or names any certificate or certificates for shares of
Conversion Stock are to be issued upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
(ii) The conversion rights of each share of Series A
Preferred shall terminate on the date the Corporation has paid to the holder of
such share the Liquidation Value thereof (plus all accrued or declared dividends
unpaid thereon).
(iii) As soon as possible after a conversion has been
effected (but in any event within three business days in the case of
subparagraph (a) below), the Corporation shall deliver to the converting holder:
A-4
<PAGE>
(a) a certificate or certificates representing the
number of shares of Conversion Stock issuable by reason of such conversion
in such name or names and such denomination or denominations as the
converting holder has specified;
(b) payment in an amount equal to all accrued dividends
unpaid with respect to each share of Series A Preferred converted into
Conversion Stock, which have not been paid prior thereto, plus the amount
payable under subparagraph (vii) below with respect to such conversion; and
(c) a certificate representing any shares of Series A
Preferred which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which
were not converted.
(iv) If the Corporation is not permitted under applicable law to
pay any portion of the accrued dividends on the shares of Series A Preferred
being converted into Conversion Stock, the Corporation shall pay such dividends
to the converting holder as soon thereafter as funds of the Corporation are
legally available for such payment. At the request of any such converting
holder, the Corporation shall provide such holder with written evidence of its
obligation to such holder.
(v) The issuance of certificates for shares of Conversion Stock
upon any conversion of Series A Preferred shall be made without charge to the
holders thereof for any issuance tax in respect thereof or other cost incurred
by the Corporation in connection with such conversion and the related issuance
of shares; provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
shares which are being converted.
(vi) The Corporation shall not close its transfer books against
the transfer of Conversion Stock issued or issuable upon conversion of Series A
Preferred in any manner which interferes with the timely conversion of the
Series A Preferred. The Corporation shall assist and cooperate with any holder
of Series A Preferred required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of Series A
Preferred hereunder (including, without limitation, making any filings required
to be made by the Corporation).
(vii) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this subparagraph, be deliverable upon any
conversion of Series A Preferred, the Corporation, in lieu of delivering the
fractional share therefor, shall pay an amount to the holder thereof equal to
the Market Price of such fractional interest as of the date of conversion.
(viii) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of issuance upon the conversion of the Series A Preferred, such
number of shares of Common Stock issuable upon conversion of all outstanding
Series A Preferred. All shares of stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all
A-5
<PAGE>
taxes, liens and charges. The Corporation shall take all such actions as may be
necessary to ensure that all such shares may be so issued without violation of
any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of such stock may be listed
(except for official notice of issuance which shall be immediately delivered by
the Corporation upon each such issuance). The Corporation shall not take any
action which would cause the number of authorized but unissued shares of Common
Stock to be less than the required number of such shares to be reserved
hereunder.
3. Conversion Adjustments.
(i) In order to prevent dilution of the conversion rights granted
hereunder, the conversion ratio provided for in Section D.1 shall be subject to
adjustment from time to time pursuant to this Section D.3.
(ii) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the conversion ratio provided for
in Section D.1 in effect immediately prior to such subdivision shall be
proportionately increased, and if the Corporation at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the conversion ratio provided
for in Section D.1 in effect immediately prior to such combination shall be
proportionately decreased.
4. Notices.
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Series A
Preferred, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Corporation shall give written notice to all holders of
Series A Preferred at least 20 days prior to the date on which the Corporation
closes its books or takes a record (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any dissolution or liquidation.
5. Automatic Conversion. All of the outstanding Series A Preferred
shall be automatically converted into Conversion Stock upon the closing of the
date as of which the Share Price of the Common Stock for a period of 90
consecutive calendar days commencing after June 30, 1999 is at least $20.00 (as
appropriately adjusted for any combination or subdivision of shares, stock
dividend, stock split or other recapitalization).
Section E. Purchase Rights.
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then each holder of Series A Preferred shall be entitled to
acquire, upon the terms applicable to such Purchase
A-6
<PAGE>
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Series A Preferred immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
Section F. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of Series A Preferred. Upon the surrender of any certificate
representing shares of Series A Preferred at such place, the Corporation shall,
at the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares of Series A
Preferred represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of shares of
Series A Preferred as is requested by the holder of the surrendered certificate
and shall be substantially identical in form to the surrendered certificate. The
issuance of new certificates shall be made without charge to the holders of the
surrendered certificates for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such issuance (but not including
any transfer taxes).
Section G. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
shares of Series A Preferred, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of Series A Preferred
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section H. Definitions.
"Common Stock" means the Common Stock, no par value, of the
Corporation, and any capital stock of any class of the Corporation hereafter
authorized which is not limited to a fixed sum or percentage of any stated value
in respect to the rights of the holders thereof to participate in dividends or
in the distribution of assets upon any liquidation, dissolution or winding up of
the Corporation.
"Conversion Stock" means shares of Common Stock issuable upon
conversion of Series A Preferred; provided that if there is a change such that
the securities issuable upon conversion of Series A Preferred are issued by an
entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Conversion Stock" shall mean one
A-7
<PAGE>
share of the security issuable upon conversion of the Series A Preferred if such
security is issuable in shares, or shall mean the smallest unit in which such
security is issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities convertible
into or exchangeable for any equity securities of the Company.
"Junior Securities" means any of the Corporation's capital stock or
other equity securities other than the Series A Preferred.
"Liquidation Value" of any share of Series A Preferred as of any
particular date shall be equal to $11.25 (as such amount is equitably adjusted
for subsequent stock splits, stock combinations, stock dividends and
recapitalizations affecting the Series A Preferred).
"Market Price" of any security means the average of the closing prices
of such security's sales on all securities exchanges on which such security may
at the time be listed, or, if there has been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the
Corporation and the holders of a majority of the Series A Preferred. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Corporation and the holders of a
majority of the Series A Preferred. The determination of such appraiser shall be
final and binding upon the parties, and the Corporation shall pay the fees and
expenses of such appraiser.
"Options" means any rights or options to subscribe for or purchase
equity securities or Convertible Securities.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Share Price" means the closing price on a day of sales of the Common
Stock on the securities exchange on which the Common Stock may be listed, or if
on any day the Common Stock is not listed on any securities exchange, the last
bid price quoted in the NASDAQ System as of 4:00 P.M., New York time on such
day, or if on any day the Common Stock is not quoted in the NASDAQ System, the
last bid price on such day in the domestic over-
A-8
<PAGE>
the-counter market as reported by the National Quotation Bureau, Incorporated,
or any similar successor organization.
Section I. Notices.
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be delivered by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices,
attention: Paul Brown, Chief Financial Officer and (ii) to any stockholder, at
such holder's address as it appears in the stock records of the Corporation
(unless otherwise indicated by any such holder)."
A-9
<PAGE>
APPENDIX II
CONFIDENTIAL
March 17, 1998
Board of Directors
TRM Copy Centers Corporation
5280 NE 122nd Avenue
Portland, OR 97230-1074
Dear Board of Directors:
At your request, Pacific Crest Securities, Inc. performed an independent
assessment as to the fairness, from a financial point of view ("Fairness
Opinion"), of the $20 million convertible preferred stock investment
("Investment") made by ReadyCash Investment Partners, L.P. ("RCIP") into TRM
Copy Centers Corporation ("TRM" or the "Company").
Pacific Crest Securities, Inc. is an investment banking firm that, among other
things, performs financial advisory services. We believe that for the purposes
of this Fairness Opinion, we are independent of the Company.
In arriving at our opinion, we reviewed certain financial information including,
but not limited to, publicly available financial documents of the Company,
current capitalization of the Company, financial forecasts provided by the
Company and RCIP, public ownership profile of the Company and relevant stock
price performance of the Company. Further, we have met with the TRM and RCIP
managements to discuss the financial prospects of the Company after the
Investment has been made.
We have also compared the terms of the Investment to the terms of other similar
investments that have recently been effected. We conducted various discounted
cash flow analyses in order to ascertain the impact of the Investment on the
Company from a valuation standpoint. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which we deemed relevant.
In arriving at our opinion, we did not independently verify any of the foregoing
information and have relied on its being complete and accurate in all material
respects. With respect to the financial forecasts, we assumed that they had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's management as to the future financial performance
of the Company.
We were retained by the Board of Directors of the Company and our opinion as
expressed herein is limited to the fairness, from a financial point of view, to
the Company's stockholders, of the Investment and does not address the Company's
underlying business decision to proceed with the Investment. Our opinion is
necessarily based on conditions as they exist and can be evaluated on the date
hereof and the information made available to us through the date hereof. This
letter does not constitute a recommendation to the Board of Directors of the
Company with respect to any approval of Investment.
A-10
<PAGE>
Based upon and subject to the foregoing, it is our opinion that, as of the date
of this letter, the Investment by RCIP in the Company is fair, from a financial
point of view, to the holders of the Company's stock.
Very truly yours,
PACIFIC CREST SECURITIES, INC.
By: ERIK J. KRIEGER
----------------------------------
Erik J. Krieger
Chairman and Managing Director
A-11
<PAGE>
APPENDIX III
FINANCIAL STATEMENTS
Independent Auditors' Report
The Board of Directors and Stockholders
TRM Copy Centers Corporation:
We have audited the accompanying consolidated balance sheets of TRM Copy
Centers Corporation and subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TRM Copy
Centers Corporation and subsidiaries as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
August 15, 1997
A-12
<PAGE>
<TABLE>
<CAPTION>
TRM COPY CENTERS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1997 (see note 1) 1997 1996
----------------------- ------------- ------------
(Unaudited) (In thousands)
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 1,974 $ 2,528 $ 873
Accounts receivable, net 7,560 7,704 7,264
Inventories (note 3) 4,995 4,611 5,253
Prepaid expenses and other 1,801 1,399 1,580
----------------------- -------------- ------------
Total current assets 16,330 16,242 14,970
Equipment and vehicles, less accumulated
depreciation (notes 4 and 5) 36,315 33,872 39,172
Other assets 46 46 109
----------------------- -------------- ------------
$ 52,691 $ 50,160 $ 54,251
Liabilities and Stockholders' Equity Current liabilities:
Checks in transit $ 1,257 $ 1,409 $ 938
Accounts payable 2,280 1,568 1,799
Accrued expenses (note 6) 3,251 3,697 3,373
----------------------- -------------- ------------
Total current liabilities 6,788 6,674 6,110
Long-term debt (note 7) 0 400 8,128
Deferred income taxes (note 8) 4,770 4,258 4,569
----------------------- -------------- ------------
Total liabilities 11,558 11,332 18,807
Commitments (note 12) -- -- --
Stockholders' equity (notes 9 and 10):
Preferred stock, no par value.
Authorized 5,000 shares; no shares
issued and outstanding -- -- --
Common stock, no par value.
Authorized 10,000 shares; issued 16,894 16,601 16,214
and outstanding 6,931 and 6,484
shares
Retained earnings 24,203 22,279 19,704
Cumulative translation adjustment 36 (52) (474)
-------------------------- -------------- ------------
Total stockholders' equity 41,133 38,828 35,444
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
December 31, Fiscal year ended June 30,
------------------------- ----------------------------------------
1997 1996 1997 1996 1995
----------- ---------- ---------- ---------- ----------
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Sales $ 32,946 $ 33,924 $ 69,881 $ 67,538 $ 60,544
Less discounts 5,285 5,656 11,676 11,728 11,138
---------- ---------- ---------- ---------- ----------
Net sales 27,661 28,268 58,205 55,810 49,406
Cost of sales 14,988 15,035 30,265 29,930 26,857
---------- ---------- ---------- ---------- ----------
Gross profit 12,673 13,233 27,940 25,880 22,549
Selling, general and
administrative expense 9,228 9,143 18,569 17,569 15,006
Impairment of long-lived assets -- -- 4,088 -- --
(note 4)
---------- ---------- ---------- ---------- ----------
Operating income 3,445 4,090 5,283 8,311 7,543
Interest expense 22 266 396 957 945
Other expense, net 266 188 720 464 470
---------- ---------- ---------- ---------- ----------
Income before income taxes 3,157 3,636 4,167 6,890 6,128
Provision for income taxes (note 7) 1,233 1,436 1,592 2,766 2,429
---------- ---------- ----------- ---------- ----------
Net income $ 1,924 $ 2,200 $ 2,575 $ 4,124 $ 3,699
---------- ---------- ---------- ---------- ----------
Net income per share $ 0.28 $ 0.34 $ 0.35 $ 0.57 $ 0.53
Weighted average common
and common equivalent
shares outstanding 7,356 7,332 7,337 7,262 6,934
See accompanying notes to consolidated financial statements.
</TABLE>
A-14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Cumulative
--------------------------- Retained Translation
Shares Amount Earnings Adjustment Total
------------ ------------ ------------- ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1994 6,390 $ 15,822 $ 11,881 $ (548) $ 27,155
Exercise of stock options 27 55 -- -- 55
Issuance of stock to employees 15 63 -- -- 63
Foreign currency translation -- -- -- 556 556
adjustment
Net income -- -- 3,699 -- 3,699
------------ ------------ ------------- ------------ ------------
Balances, June 30, 1995 6,432 15,940 15,580 8 31,528
Exercise of stock options 36 137 -- -- 137
Tax benefit of stock options -- 26 -- -- 26
Issuance of stock to employees 16 111 -- -- 111
Foreign currency translation -- -- -- (482) (482)
adjustment
Net income -- -- 4,124 -- 4,124
------------ ------------ ------------- ------------ ------------
Balances, June 30, 1996 6,484 16,214 19,704 (474) 35,444
Exercise of stock options 468 517 -- -- 517
Purchase of outstanding shares (27) (279) -- -- (279)
Tax benefit of stock options -- 96 -- -- 96
Issuance of stock to employees 6 53 -- -- 53
Foreign currency translation -- -- -- 422 422
adjustment
Net income -- -- 2,575 -- 2,575
------------ ------------ ------------- ------------ ------------
Balances, June 30, 1997 6,931 16,601 22,279 (52) 38,828
Exercise of stock options 53 293 -- -- 293
Issuance of stock to employees -- -- --
Foreign currency translation -- -- -- 88 88
adjustment
Net income for six months
ended December 31, 1997 -- -- 1,924 -- 1,924
------------ ------------ ------------- ------------ ------------
Balances, as of December 31, 6,984 $ 16,894 $ 24,203 $ 36 $ 41,133
1997 (unaudited)
See accompanying notes to consolidated financial statements.
</TABLE>
A-15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
December 31, Fiscal year ended June 30,
-------------------------- --------------------------------------
1997 1996 1997 1996 1995
----------- ----------- ---------- ---------- ----------
(Unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Net income $ 1,924 $ 2,200 $ 2,575 $ 4,124 $ 3,699
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,795 2,858 5,591 5,101 4,623
Loss on disposal of equipment 79 50 234 40 18
and vehicles
Impairment of long-lived assets -- -- 4,088 -- --
Changes in items affecting
operations:
Accounts receivable 144 (355) (440) (529) (1,789)
Inventories (384) (5) 566 1,292 (2,318)
Prepaid expenses and other (402) (467) (189) 146 745
Accounts payable 712 120 (231) 306 240
Accrued expenses (446) 42 324 70 1,161
Deferred income taxes 512 522 (311) 817 687
---------- ----------- ---------- ---------- ----------
Total operating activities 4,934 4,965 12,207 11,367 7,066
Investing activities:
Proceeds from sale of equipment 270 180 456 146 130
Capital expenditures (5,678) (1,824) (4,562) (5,494) (13,259)
Other 0 (56) (33) 44 (17)
---------- ----------- ---------- ---------- ----------
Total investing activities (5,408) (1,700) (4,139) (5,304) (13,146)
Financing activities:
Change in checks in transit (152) 517 471 (484) 1,033
Principal payments on
borrowings (400) (3,128) (7,728) (9,636) (7,337)
Proceeds from borrowings 0 0 -- 3,526 12,075
Net proceeds from issuance of
common stock 293 193 387 274 118
---------- ----------- ---------- ---------- ----------
Total financing activities (259) (2,418) (6,870) (6,320) 5,889
Effect of exchange rate changes 179 269 457 375 283
Net increase in cash (554) 1,116 1,655 118 92
Beginning cash 2,528 873 873 755 663
---------- ----------- ---------- ---------- ----------
Ending cash $ 1,974 $ 1,989 $ 2,528 $ 873 $ 755
See accompanying notes to consolidated financial statements.
</TABLE>
A-16
<PAGE>
Notes to Consolidated Financial Statements
1. Interim Financial Data:
The condensed financial statements for the six-month period ended December
31, 1997 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 condensed interim financial data should be
read in conjunction with the Company's audited condensed financial statements
for the fiscal years ended June 30, 1997, 1996 and 1995.
2. Description of Business and Summary of Significant Accounting Policies:
Description of Business
TRM Copy Centers Corporation, headquartered in Portland, Oregon, as its
primary business, owns, supplies and maintains nearly 35,000 self-service
photocopiers in pharmacies, stationery stores, hardware stores, convenience
stores and other retail establishments in the United States, Canada, the United
Kingdom, France and Belgium. Each retail establishment collects payment from its
customers, shares in the revenue of the photocopier and benefits from any
increase in customer traffic within the store.
Principles of Consolidation
The consolidated financial statements include the accounts of the parent
and its subsidiary companies (the Company). All significant intercompany
accounts and profits have been eliminated. Assets and liabilities of foreign
operations are translated into U.S. dollars at current exchange rates. Income
and expense accounts are translated into U.S. dollars at average rates of
exchange prevailing during the periods. Adjustments resulting from translating
foreign functional currency financial statements into U.S. dollars are taken
directly to a separate component of stockholders' equity. Foreign currency
transaction gains and losses are included in income and have been immaterial to
date.
Fair Value of Financial Instruments
Financial instruments, including cash, accounts receivable, checks in
transit and accounts payable, approximate fair market value because of the short
maturity for these instruments. Fair value approximates carrying value of the
Company's borrowings under its long-term debt arrangements based upon interest
rates available for the same or similar loans.
Revenue Recognition and Accounts Receivable
A portion of each copy sale is retained by the retail business, generally
depending on copy volume. The Company invoices each retailer via monthly
billings based on usage at the program price per copy less the applicable
discount (the amount retained by the retailer). Total sales activity and
discount amounts are recorded separately in the accounting records and in the
consolidated statements of operations to arrive at net sales.
A-17
<PAGE>
Accounts receivable are shown net of allowance for doubtful accounts of
$148,000 and $287,000 at June 30, 1997 and 1996, respectively.
Inventories
Inventories are stated at the lower of FIFO cost or market.
Equipment and Vehicles
Equipment and vehicles are recorded at cost. Depreciation begins when the
asset is placed in service and is generally recorded using the straight-line
method over the estimated remaining useful lives of the related assets as
follows:
Photocopiers and other centers 5-10 years
Furniture and fixtures 5-7 years
Computer equipment 5 years
Vehicles 5 years
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and income tax bases of assets and liabilities, and are measured by applying
enacted tax rates and laws to the taxable years in which such differences are
expected to reverse.
Statements of Cash Flows Supplemental Information
Income taxes paid were approximately $1,635,000, $2,465,000 and $1,075,000
for the fiscal years 1997, 1996 and 1995, respectively. Interest paid does not
materially differ from interest expense.
Net Income Per Share
Net income per share is computed based on the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
the periods. Common stock equivalents consist of options to purchase stock
(using the treasury stock method).
Stock-Based Compensation
The Company applies APB No. 25, "Accounting for Stock Issued to Employees,"
and the related interpretations in accounting for stock-based compensation
plans. In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has provided the required footnote disclosures (see
note 8).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported
A-18
<PAGE>
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Effect of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which requires companies with complex capital
structures that have publicly held common stock or common stock equivalents to
present both basic and diluted earnings per share ("EPS") on the face of the
income statement. The presentation of basic EPS replaces the presentation of
primary EPS currently required by APB No. 15, "Earnings Per Share." This
statement is effective for financial statements issued for interim and annual
periods ending after December 15, 1997. The Company does not believe the
adoption of SFAS No. 128 in fiscal 1998 will have a significant impact on the
Company's reported diluted EPS.
3. Inventories:
<TABLE>
<CAPTION>
June 30,
Six Months Ended -------------------------------
December 31, 1997 1997 1996
----------------- ------------- ------------
(unaudited) (In thousands)
<S> <C> <C> <C>
Paper $ 1,298 $ 1,231 $ 1,505
Toner and developer 842 692 828
Parts 2,855 2,688 2,920
------------- ------------- ------------
$ 4,995 $ 4,611 $ 5,253
</TABLE>
4. Equipment and Vehicles:
<TABLE>
<CAPTION>
June 30,
----------------------------
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
Photocopiers and other centers $ 45,232 $ 47,918
Furniture and fixtures 1,899 1,787
Computer equipment 1,381 1,392
Vehicles 5,109 5,950
53,621 57,047
Accumulated depreciation 19,749 17,875
------------ ------------
$ 33,872 $ 39,172
</TABLE>
5. Impairment of Long-Lived Assets:
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," during fiscal
1997. This new accounting standard requires long-lived assets to be reviewed for
impairment when circumstances indicate the carrying amount of an asset may not
be recoverable. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the estimated future cash flows expected to
result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures the
A-19
<PAGE>
amount of the impairment by comparing the carrying amount of the asset to its
fair value.
The Company recognized a non-cash, non-recurring impairment charge of
$4,088,000 pretax ($2,526,000 and $0.35 per share after tax), in fiscal 1997 as
a result of adopting this new accounting standard. This charge included
impairment write downs of equipment in three categories: color copiers, custom
business card printing components and certain older generation black and white
copiers. Though the Company continues to support its installed color copier and
business card units and plans to pursue other equipment offerings in these two
product categories, it was concluded during 1997 that the initial equipment
purchased in 1993 and 1994 was technologically dated and that the full asset
carrying amounts were not recoverable. In addition, the Company recently
finalized an agreement with a major copier manufacturer to purchase a new
generation black and white copier to grow the core business. The Company intends
to use these new, state-of-the-art copiers to grow the installed base for the
next several years. In light of this, the equipment write down included a
provision for the impairment of older generation black and white copiers, which
are needed in the service centers to support the installed base, but are no
longer expected to be placed as incremental revenue-generating units.
6. Accrued Expenses:
<TABLE>
<CAPTION>
June 30,
----------------------------
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
Accrued payroll expenses $ 2,550 $ 2,443
Customer security deposits 250 276
Other accrued expenses 897 654
------------ ------------
$ 3,697 $ 3,373
7. Bank Borrowings:
June 30,
----------------------------
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
Bank revolving loan, unsecured, maximum $ 400 $ 8,128
limit of $30.0 million
</TABLE>
The revolving loan agreement calls for monthly payments of interest only
until expiration on April 1, 2000, or as renegotiated. At that time, no
additional borrowings will be available, and the outstanding loan balance will
be due and payable. The arrangement allows the Company to choose from interest
rate alternatives based on the bank's reference rate or on LIBOR. It also calls
for a loan fee which was paid at the date of the loan and is being amortized
over the life of the loan. The interest rate applicable to bank borrowings as of
June 30, 1997 was 8.5%. The loan agreement contains certain restrictive
covenants as to working capital, total liabilities and stockholders' equity. The
Company is in compliance with the covenants.
8. Income Taxes:
Deferred income taxes arise primarily from different depreciation
calculations used for financial statement and income tax purposes. Income before
income taxes is as follows:
A-20
<PAGE>
<TABLE>
1997* 1996 1995
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
United States $ 1,223 $ 6,730 $ 5,907
Foreign 2,944 160 221
------------ ------------ ------------
$ 4,167 $ 6,890 $ 6,128
</TABLE>
* During 1997, the Company recorded a non-cash, non-recurring accounting
charge of $4,088,000 pretax ($2,526,000 and $0.35 per share after tax),
for the impairment of long-lived assets (see note 4).
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 1,074 $ 1,459 $ 1,250
State 459 424 401
Foreign 370 66 91
Deferred:
Federal (1,097) 564 578
State (320) 164 100
Foreign 1,106 89 9
------------ ------------ ------------
$ 1,592 $ 2,766 $ 2,429
</TABLE>
The effective tax rate differs from the federal statutory tax rate as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Statutory federal rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 459 424 401
Benefit of foreign tax rates
------------ ------------ ------------
Other 0.7 0.2 (0.3)
------------ ------------ ------------
38.2% 40.1% 39.6%
</TABLE>
9. Stockholders' Equity:
The Company reserved 1,300,000 shares of common stock for issuance under an
incentive and nonqualified stock option plan established in 1986 (the "1986
Plan"). In October 1996, the 1996 Stock Option Plan (the "1996 Plan") was
approved by shareholders of the Company. The 1996 Plan provides for the granting
of a maximum of 700,000 options to purchase common shares to key employees of
the Company. Under both plans ("the Plans"), incentive stock options are granted
at no less than 100% of the fair market value per share of the common stock.
Nonqualified stock options under the 1986 Plan were granted at prices determined
by the Board of Directors, while grants under the 1996 Plan are granted at no
less than 100% of fair market value. The options are exercisable over a period
of ten years from the
A-21
<PAGE>
date of grant. Generally, the options vest over five years. In fiscal 1995,
300,000 option shares were granted at fair market value outside the Plans. These
options vested over two years and are exercisable for five years after the last
vesting date.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Shares Weighted
Under Option Price Range Average
------------ ----------------------- --------
<S> <C> <C> <C> <C>
Balance, June 30, 1995 1,237,650 $ .25 - $ 7.375 $ 3.22
Options granted 196,500 $ 6.37 - $ 10.625 $ 9.92
Options exercised (36,100) $ .25 - $ 6.375 $ 4.05
Options canceled (15,000) $ 4.12 - $ 6.375 $ 6.02
Balance, June 30, 1996 1,383,050 $ .25 - $ 10.625 $ 4.12
Options granted 146,500 $ - $ 10.375 $ 10.28
9.875
Options exercised (468,200) $ .25 - $ 6.75 $ 1.11
Options cancelled (12,800) $ 6.25 - $ 10.625 $ 7.01
Balance, June 30, 1997
(653,954 exercisable,
566,300 available for grant
under the Plans) 1,048,500 $ 2.00 - $ 10.$25 $ 7.01
</TABLE>
A summary of stock options outstanding follows:
<TABLE>
<CAPTION>
Options Outstanding
Number Weighted Weighted
Outstanding Average Average Number Weighted
Range of at June 30, Remaining Exercise Exercisable at Average
Exercise Price 1997 Contractual Life Price June 30, 1997 Price
<S> <C> <C> <C> <C> <C> <C> <C>
$2.00 to $ 6.00 545,750 6.1 $ 3.90 497,750 $3.87
$6.25 to $ 7.50 176,800 7.7 $ 10.22 66,899 $6.39
$9.25 to $10.625 326,000 9.3 $ 10.22 89,305 $9.99
$2.00 to $10.625 1,048,550 7.4 $ 6.29 653,954 $4.96
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock-based compensation plans. Accordingly, no compensation expense has
been recognized for its stock-based compensation plans. Had compensation cost
for the Company's stock option and stock purchase plans been determined based
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced by approximately $180,000 or $0.02 per share for the year ended June 30,
1997, and approximately $48,000 or $0.01 per share for the year ended June 30,
1996. The weighted-average grant-date fair value of options granted during
fiscal 1997 was $4.13 per share using the Black-Scholes option pricing model
with the following assumptions: dividend yield of 0%, volatility of 39.60%,
risk-free interest rate of 6.40% and an expected life of four years. The
weighted-average grant-date fair value of options granted during fiscal 1996 was
$4.24 per
A-22
<PAGE>
share using the Black-Scholes option pricing model with the following
assumptions: dividend yield of 0%, volatility of 43.65%, risk-free interest rate
of 6.46% and an expected life of four years.
The effects of applying SFAS No. 123 for providing pro-forma disclosure for
1997 and 1996 are not likely to be representative of the effects on reported net
earnings and earnings per share for future years since options vest over several
years and additional awards may be made.
10. Benefit Plans:
Profit Sharing Retirement Plan
On January 1, 1990, the Company established a profit sharing retirement
plan for eligible U.S. employees. The Plan has profit sharing and 401(k)
components. The Company's contribution under the profit sharing portion of the
Plan is discretionary. Under the 401(k) part of the Plan, each employee may
contribute, on a pretax basis, up to 20% of the employee's gross earnings,
subject to certain limitations. The Company also has supplemental retirement
plans in Canada and the United Kingdom. The Company accrued profit sharing
contributions of $260,000 for fiscal 1997, $240,000 for fiscal 1996 and $230,000
for fiscal 1995.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan permits each eligible employee
to purchase shares of common stock through payroll deductions, not to exceed 10%
of the employee's compensation. The purchase price of the shares is the lower of
85% of the fair market value of the stock at the beginning of each six-month
offering period or 85% of the fair market value at the end of such period.
Amounts accumulated through payroll deductions during the offering period are
used to purchase shares on the last day of the offering period. Of the 100,000
shares authorized to be issued under the Plan, 53,694 shares have been
purchased, and 46,306 shares remain available for purchase as of June 30, 1997.
11. Related Party Transactions:
A company in which the Chairman of the Board is a partner provided
approximately $57,000 in consulting services to the Company during fiscal 1997.
Two members of the Company's Board of Directors also served as consultants to
the Company on various aspects of the Company's business and strategic issues in
fiscal 1997 and 1996 and were paid $60,000 and $32,000, respectively.
12. Lease Commitments:
The Company leases vehicles and office and warehouse space in several
locations under operating leases. Minimum lease payments are as follows:
$2,015,000, $1,836,000, $1,246,000, $1,001,000 and $894,000 for fiscal years
1998, 1999, 2000, 2001 and 2002, respectively, and $4,623,000 thereafter. Rental
expense for fiscal years 1997, 1996 and 1995 was $2,358,000, $1,921,000 and
$1,757,000, respectively.
A-23
<PAGE>
13. Operations by Geographic Areas:
The Company operates in one industry segment as a service company
maintaining and supporting its programs, which have been developed and placed
with retail establishments. Information about the Company's domestic and foreign
operations are presented below.
<TABLE>
<CAPTION>
Sales Operating Income Assets
1997 1996 1995 1997* 1996 1995 1997* 1996 1995
--------- ---------- ---------- --------- --------- --------- --------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 43,949 $ 45,559 $ 44,814 $ 1,416 $ 5,717 $ 6,779 $ 26,451 $ 31,527 $ 33,858
Foreign:
Europe 21,389 17,575 11,677 3,383 2,310 389 20,869 19,786 19,330
Other 4,543 4,404 4,053 484 284 375 2,840 2,938 2,548
--------- ---------- ---------- --------- --------- --------- ---------- ---------- ----------
$ 69,881 $ 67,538 $ 60,544 $ 5,283 $ 8,311 $ 7,543 $ 50,160 $ 54,251 $ 55,736
</TABLE>
* During fiscal 1997, the Company recorded a non-cash, non-recurring
accounting charge for the impairment of long-lived assets. Before the
accounting charge, United States Operating Income and Assets for fiscal
1997 would have been $5,185,000 and $30,221,000, respectively. The effect
on foreign Operating Income and Assets was not significant.
A-24
<PAGE>
APPENDIX IV
TRM COPY CENTERS CORPORATION
1996 STOCK OPTION PLAN
As proposed to be amended under Proposal 3
1. Purpose. The purpose of this 1996 Stock Option Plan (the "Plan") is to
enable TRM Copy Centers Corporation (the "Company") to attract and retain the
services of selected key employees, consultants, independent contractors,
officers and directors of the Company.
2. Shares Subject to the Plan. Subject to adjustment as provided below and
in paragraph 9, the shares to be offered under the Plan shall consist of Common
Stock of the Company, and the total number of shares of Common Stock that may be
issued under the Plan shall not exceed 1,200,000 [700,000] shares plus any
=========
shares that were available for grant or subject to outstanding options under the
Company's Restated 1986 Stock Incentive Plan (the "1986 Plan") on the effective
date of the Plan and are not issued under the 1986 Plan due to termination or
cancellation of such options. If an option granted under the Plan expires,
terminates or is cancelled, the unissued shares subject to such option shall
again be available under the Plan.
3. Effective Date and Duration of Plan.
(a) Effective Date. The Plan shall become effective when adopted by
the Board of Directors; provided, however, that prior to shareholder approval of
the Plan, any grants shall be subject to and conditioned on approval of the Plan
by a majority of the votes cast at a meeting of shareholders at which a quorum
is present. Options may be granted under the Plan at any time after the
effective date and before termination of the Plan.
(b) Duration. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions on
such shares have lapsed. The Board of Directors may suspend or terminate the
Plan at any time except with respect to options then outstanding under the Plan.
Termination shall not affect any outstanding options.
4. Administration.
(a) Except as specified in paragraph 4(b) the Plan shall be
administered by the Board of Directors of the Company, which shall determine and
designate from time to time the individuals to whom option grants shall be made
and all terms and conditions of the grants. Subject to the provisions of the
Plan, the Board of Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, accelerate any exercise
date, provide for automatic acceleration upon the occurrence of specified
events, waive or modify any restriction applicable to grants (except those
restrictions imposed by law) and make all other determinations in the judgment
of the Board of Directors necessary or desirable for the administration of the
Plan. The interpretation and construction of the provisions of the Plan and
related agreements by the Board of Directors shall be final and conclusive. The
Board of Directors may correct any defect or supply any omission or reconcile
any inconsistency in the
A-25
<PAGE>
Plan or in any related agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect, and it shall be the sole and final
judge of such expediency.
(b) The Board of Directors, if it so determines, may delegate to a
committee of the Board of Directors constituting of one or more members (the
"Committee") any or all authority for administration of the Plan; provided,
however, that only the Board of Directors may amend or terminate the Plan as
provided in paragraphs 3 and 11. If a Committee is appointed, all references to
the Board of Directors in the Plan shall mean and relate to such Committee
except as limited by the immediately preceding sentence and unless the context
requires otherwise.
5. Types of Awards; Eligibility; Limitations on Certain Awards. The Board
of Directors may, from time to time, take the following actions, separately or
in combination, under the Plan: (i) grant Incentive Stock Options, as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
provided in paragraphs 6(a) and 6(b); (ii) grant options other than Incentive
Stock Options ("Nonstatutory Stock Options") as provided in paragraphs 6(a) and
6(c); and (iii) grant foreign qualified options as provided in paragraph 7. Any
such grants may be made to employees, consultants, independent contractors,
officers and directors, provided, however, that only employees of the Company
shall be eligible to receive Incentive Stock Options under the Plan. Except as
for options granted pursuant to paragraph 8, the Board of Directors shall select
the individuals to whom grants shall be made and shall specify the action taken
with respect to each individual to whom a grant is made. The Board of Directors
may not reprice outstanding options, other than adjustments made pursuant to
paragraph 9. No individual may be granted options under the Plan for more than
an aggregate of 300,000 shares of Common Stock in any calendar year.
6. Option Grants.
(a) General Rules Relating to Options.
(i) Terms of Grant. With respect to each option grant (except for
options granted pursuant to paragraph 8), the Board of Directors shall determine
the number of shares subject to the option, the option price, the period of the
option, the time or times at which the option may be exercised and whether the
option is an Incentive Stock Option or a Nonstatutory Stock Option.
(ii) Exercise of Options. Except as provided in paragraphs
6(a)(iv) and 8 or as determined by the Board of Directors, no option granted
under the Plan may be exercised unless at the time of such exercise the optionee
is employed by or in the service of the Company or any subsidiary of the Company
and shall have been so employed or provided such service continuously since the
date such option was granted. Absence on leave or on account of illness or
disability under rules established by the Board of Directors shall not, however,
be deemed an interruption of employment or service for this purpose. Unless
otherwise determined by the Board of Directors, vesting of options shall not
continue during an absence on leave (including an extended illness) or on
account of disability. Except as provided in paragraphs 6(a)(iv), 8 and 9,
options granted under the Plan may be exercised from time to time over the
period stated in each option in such amounts and at such times as shall be
prescribed by the Board of Directors, provided that options shall not be
exercised for fractional shares. Unless
A-26
<PAGE>
otherwise determined by the Board of Directors, if the optionee does not
exercise an option in any one year with respect to the full number of shares to
which the optionee is entitled in that year, the optionee's rights shall be
cumulative and the optionee may purchase those shares in any subsequent year
during the term of the option.
(iii) Nontransferability. Each Incentive Stock Option and, unless
otherwise determined by the Board of Directors, each other option granted under
the Plan by its terms shall be nonassignable and nontransferable by the
optionee, either voluntarily or by operation of law, except by will or by the
laws of descent and distribution of the state or country of the optionee's
domicile at the time of death, and each option by its terms shall be exercisable
during the optionee's lifetime only by the optionee; provided, however, that a
Nonstatutory Stock Option shall also be transferable pursuant to a qualified
domestic relations order as defined under the Code or Title I of the Employee
Retirement Income Security Act.
(iv) Termination of Employment or Service.
(A) General Rule. Unless otherwise determined by the Board
of Directors, except as provided in paragraph 8, in the event the employment or
service of the optionee with the Company or a subsidiary terminates for any
reason other than because of physical disability or death as provided in
subparagraphs 6(a)(iv)(B) and (C), the option may be exercised at any time prior
to the expiration date of the option or the expiration of three months after the
date of such termination, whichever is the shorter period, but only if and to
the extent the optionee was entitled to exercise the option at the date of such
termination.
(B) Termination Because of Physical Disability. Unless
otherwise determined by the Board of Directors, except as provided in paragraph
8, in the event of the termination of employment or service because of physical
disability (within the meaning of Section 22(e)(3) of the Code), the option may
be exercised at any time prior to the expiration date of the option or the
expiration of 12 months after the date of such termination, whichever is the
shorter period, but only if and to the extent the optionee was entitled to
exercise the option at the date of such termination.
(C) Termination Because of Death. Unless otherwise
determined by the Board of Directors, except as provided in paragraph 8, in the
event of the death of an optionee while employed by or providing service to the
Company or a subsidiary, the option may be exercised at any time prior to the
expiration date of the option or the expiration of 12 months after the date of
such death, whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option at the date of such termination and
only by the person or persons to whom such optionee's rights under the option
shall pass by the optionee's will or by the laws of descent and distribution of
the state or country of domicile at the time of death.
(D) Amendment of Exercise Period Applicable to Termination.
The Board of Directors, at the time of grant or at any time thereafter, may
extend the 90-day and 12-month exercise periods any length of time not later
than the original expiration date of the option, and may increase the portion of
an option that is exercisable, subject to such terms and conditions as the Board
of Directors may determine.
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<PAGE>
(E) Failure to Exercise Option. To the extent that the
option of any deceased optionee or of any optionee whose employment or service
terminates is not exercised within the applicable period, all further rights to
purchase shares pursuant to such option shall cease and terminate.
(v) Purchase of Shares. Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option granted under the Plan
only upon receipt by the Company of notice in writing from the optionee of the
optionee's intention to exercise, specifying the number of shares as to which
the optionee desires to exercise the option and the date on which the optionee
desires to complete the transaction, which shall not be more than 30 days after
receipt of the notice, and if required in order to comply with the Securities
Act of 1933, as amended, containing a representation that it is the optionee's
present intention to acquire the shares for investment and not with a view to
distribution. On or before the date specified for completion of the purchase of
shares pursuant to an option, the optionee must have paid the Company the full
purchase price of such shares in cash or, with the consent of the Board of
Directors, in whole or in part, in Common Stock of the Company valued at fair
market value. The fair market value of Common Stock provided in payment of the
purchase price shall be the closing price of the Common Stock as reported in The
Wall Street Journal on the day preceding the date that the option is exercised,
or such other reported value of the Common Stock as shall be specified by the
Board of Directors. No shares shall be issued until full payment therefor has
been made. Each optionee who has exercised an option shall immediately upon
notification of the amount due, if any, pay to the Company in cash amounts
necessary to satisfy any applicable federal, state and local tax withholding
requirements. If additional withholding is or becomes required beyond any amount
deposited before delivery of the certificates, the optionee shall pay such
amount to the Company on demand. If the optionee fails to pay the amount
demanded, the Company may withhold that amount from other amounts payable by the
Company to the optionee, including salary, subject to applicable law. With the
consent of the Board of Directors an optionee may satisfy this obligation, in
whole or in part, by having the Company withhold from the shares to be issued
upon the exercise that number of shares that would satisfy the withholding
amount due or by delivering Common Stock to the Company to satisfy the
withholding amount. Upon the exercise of an option, the number of shares
reserved for issuance under the Plan shall be reduced by the number of shares
issued upon exercise of the option.
(b) Incentive Stock Options. Incentive Stock Options shall be subject
to the following additional terms and conditions:
(i) Limitation on Amount of Grants. No employee may be granted
Incentive Stock Options under the Plan if the aggregate fair market value, on
the date preceding the date of grant, of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by that employee
during any calendar year under the Plan and under any other incentive stock
option plan (within the meaning of Section 422 of the Code) of the Company or
any parent or subsidiary of the Company exceeds $100,000.
(ii) Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or of any parent or subsidiary of the Company only if the option
price is at least 110 percent of the fair market
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<PAGE>
value of the Common Stock subject to the option on the date preceding the date
it is granted, as described in paragraph 6(b)(iv), and the option by its terms
is not exercisable after the expiration of five years from the date it is
granted.
(iii) Duration of Options. Subject to paragraphs 6(a)(ii) and
6(b)(ii), Incentive Stock Options granted under the Plan shall continue in
effect for the period fixed by the Board of Directors, except that no Incentive
Stock Option shall be exercisable after the expiration of 10 years from the date
it is granted.
(iv) Option Price. The option price per share shall be determined
by the Board of Directors at the time of grant. Except as provided in paragraph
6(b)(ii), the option price shall not be less than 100 percent of the fair market
value of the Common Stock covered by the Incentive Stock Option at the date the
option is granted. The fair market value shall be deemed to be the closing price
of the Common Stock as reported in The Wall Street Journal on the day preceding
the date the option is granted, or if there has been no sale on that date, on
the last preceding date on which a sale occurred, or such other value of the
Common Stock as shall be specified by the Board of Directors.
(v) Limitation on Time of Grant. No Incentive Stock Option shall
be granted on or after the tenth anniversary of the date the Plan was adopted by
the Board of Directors.
(vi) Conversion of Incentive Stock Options. The Board of
Directors may at any time without the consent of the optionee convert an
Incentive Stock Option to a Nonstatutory Stock Option.
(vii) Limit on Shares. Subject to adjustment as provided in
paragraph 9, the total number of Common Shares that may be issued under the Plan
upon exercise of Incentive Stock Options shall not exceed 700,000 plus up to
200,000 shares that may become available from the 1986 Plan.
(c) Nonstatutory Stock Options. Nonstatutory Stock Options, other than
options granted pursuant to paragraph 8, shall be subject to the following
additional terms and conditions:
(i) Option Price. The option price for Nonstatutory Stock Options
shall be determined by the Board of Directors at the time of grant and may be
any amount determined by the Board of Directors not less than 100% of the fair
market value in the date preceding the date of grant. The fair market value of
such shares shall be deemed to be the closing price of the Common Stock as
reported in The Wall Street Journal on the valuation date, or if there has been
no sale on that date, on the last preceding date on which a sale occurred, or
such other reported value of the Common Stock, or average closing prices for a
period of up to 10 trading dates including or preceding the valuation date, as
shall be specified by the Board of Directors.
(ii) Duration of Options. Nonstatutory Stock Options granted
under the Plan shall continue in effect for the period fixed by the Board of
Directors.
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<PAGE>
7. Foreign Qualified Option Grants. Options under the Plan may be granted
to such officers and employees of the Company and its subsidiaries and such
other persons described in paragraph 1 residing in foreign jurisdictions as the
Board of Directors may determine from time to time. The Board of Directors may
adopt such supplements to the Plan as may be necessary to comply with the
applicable laws of such foreign jurisdictions and to afford participants
favorable treatment under such laws; provided, however, that no option shall be
granted under any such supplement with terms which are more beneficial to the
participants than the terms permitted by the Plan.
8. Option Grants to Nonemployee Directors.
(a) Grants to Nonemployee Directors. Immediately after the close of
each annual shareholder meeting (commencing with the 1996 annual meeting), each
person then serving as a Nonemployee Director, including any such person who is
elected at such meeting, shall automatically be granted a Nonstatutory Stock
Option to purchase 5,000 shares of Stock. A "Nonemployee Director" is a director
of the Company who is not an employee of the Company or of any parent or
subsidiary of the Company on the date the option is granted.
(b) Additional Grants to Nonemployee Directors Who Serve on Executive
Committee. Immediately after the close of each annual shareholder meeting
(commencing with the 1996 annual meeting), each person who is then serving as a
Nonemployee Director and who also is serving on the Executive Committee of the
Board of Directors shall automatically be granted a Nonstatutory Stock Option to
purchase an additional 2,500 shares of Stock.
(c) Terms of Options. The exercise price for options granted under
this paragraph 8 shall be the fair market value of the shares covered by the
option on the date preceding the date of grant, determined pursuant to paragraph
6(b)(iv). Each such option shall have a 10-year term from the date of grant,
unless earlier terminated as provided in 6(a)(iv). Each such option shall become
fully exercisable one year after the date of grant, subject to earlier exercise
pursuant to paragraph 9. If an optionee ceases to be a director of the Company
for any reason, including death or disability, the exercise of the option shall
be subject to 6(a)(iv). Options may be exercised in accordance with paragraph 6.
Options granted under this paragraph 8 shall be governed by all other applicable
provisions of the Plan.
9. Changes in Capital Structure. If the outstanding Common Stock of the
Company is hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any reorganization, merger, consolidation, plan
of exchange, recapitalization, reclassification, stock split-up, combination of
shares or dividend payable in shares, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares available for grants
under the Plan. In addition, the Board of Directors shall make appropriate
adjustment in the number and kind of shares as to which outstanding options or
portions thereof then unexercised, shall be exercisable, so that the optionee's
proportionate interest before and after the occurrence of the event is
maintained. Notwithstanding the foregoing, the Board of Directors shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Board of
Directors. Any such adjustments made by the Board of Directors shall be
conclusive. In the event of dissolution of the Company or a merger,
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<PAGE>
consolidation or plan of exchange affecting the Company, in lieu of providing
for options as provided above in this paragraph 9 or in lieu of having the
options continue unchanged, the Board of Directors, may, in its sole discretion,
provide a 30-day period prior to such event during which optionees shall have
the right to exercise options in whole or in part without any limitation on
exercisability and upon the expiration of such 30-day period all unexercised
options and stock appreciation rights shall immediately terminate.
10. Corporate Mergers, Acquisitions, etc. The Board of Directors may also
grant options under the Plan having terms, conditions and provisions that vary
from those specified in this Plan provided that any such awards are granted in
substitution for, or in connection with the assumption of, existing options
granted by another corporation and assumed or otherwise agreed to be provided
for by the Company pursuant to or by reason of a transaction involving a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to which the Company or a subsidiary is a party.
11. Amendment of Plan. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraphs 6(a)(iv) and 9 however, no change
in an option already granted shall be made without the written consent of the
holder of such award. Current Nasdaq rules and IRS rules would require
shareholder approval of certain amendments to the 1996 Plan.
12. Approvals. The obligations of the Company under the Plan are subject to
the approval of state and federal authorities or agencies with jurisdiction in
the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange on which the
Company's shares may then be listed, in connection with the grants under the
Plan. The foregoing notwithstanding, the Company shall not be obligated to issue
or deliver Common Stock under the Plan if such issuance or delivery would
violate applicable state or federal securities laws.
13. Employment and Service Rights. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company any right to be retained
or employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.
14. Rights as a Shareholder. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date of issue to the recipient of a stock certificate for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.
15. Applicable Law. The law of the State of Oregon will govern all matters
relating to this Plan except to the extent it is superseded by the laws of the
United States.
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<PAGE>
PROXY
TRM COPY CENTERS CORPORATION
Special Meeting of Shareholders, June 29, 1998
PROXY SOLICITED BY BOARD OF DIRECTORS
The shares represented by this proxy will be voted as specified on the reverse
hereof, but if no specification is made, this proxy will be voted for (i)
approval of the amendments to the Company's Restated Articles of Incorporation
and the issuance and sale of the Series A Preferred Stock and warrants to
ReadyCash Investment Partners, L.P., (ii) the election of the nominees for
director, and (iii) approval of the amendment to the 1996 Stock Option Plan. The
proxies may vote in their discretion as to other matters that may come before
this meeting.
PROXY Shares: __________________________ Dated _________________________, 1998
_________________________________________ _____________________________________
Signature of Signatures
Please date and sign as name is imprinted hereon, including designation of
executor, trustee, etc., if applicable. A corporation must sign its name by the
president or other authorized officer. The Special Meeting of Shareholders of
TRM Copy Centers Corporation will be held on June 29, 1998 at 9:00 a.m. Pacific
Time, at the U.S. Bancorp Tower, 41st Floor, John Elorriaga Auditorium, 111 SW
Fifth Avenue, Portland, Oregon. Please Note: Any shares of stock of the Company
held in the name of fiduciaries, custodians or brokerage houses for the benefit
of their clients may only be voted by the fiduciary, custodian or brokerage
house itself--the beneficial owner may not directly vote or appoint a proxy to
vote the shares and must instruct the person or entity in whose name the shares
are held how to vote the shares held for the beneficial owner. Therefore, if any
shares of stock of the company are held "street names" by a brokerage house,
only the brokerage house, at the instructions of its client, may vote or appoint
a proxy to vote the shares.
<PAGE>
TRM COPY CENTERS CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. o
PLEASE SIGN AND RETURN THIS PROXY.
The undersigned hereby appoints Frederic P. Stockton and Paul M. Brown, and each
of them, proxies with power of substitution to vote on behalf of the undersigned
all shares that the undersigned may be entitled to vote at the special meeting
of shareholders of TRM Copy Centers Corporation (the "Company") on June 29, 1998
and any adjournments thereof, with all powers that the undersigned would possess
if personally present, with respect to the following
FOR AGAINST ABSTAIN
1. (A) Amendments to the Company's Restated o o o
Articles of Incorporation that will (i) change
the Company's corporation name to "TRM
Corporation," (ii) increase the authorized
number of shares of Common Stock that the
Company may issue from 10,000,000 to
50,000,000, and (iii) create and determine the
preferences, limitations and rights of a series
of Preferred Stock of the Company, to be
designated "Series A Preferred Stock."
(B) Issuance and sale of 1,778,778 shares of
the Series A Preferred Stock and warrants to
purchase an aggregate of 500,000 shares of
Common Stock of the Company at an
exercise price of $15.00 per share to
ReadyCash Investment Partners, L.P. (the
"Purchaser") pursuant to a Preferred Stock
and Warrant Purchase Agreement dated
March 29, 1998 between the Company and
the Purchaser, for an aggregate purchase
price of $20,000,000.
For Withheld For All
All All Except
2. Election of Directors o o o
(Instructions: To withhold authority to vote for
any individual, strike a line through the
nominee's name below.)
Daniel G. Cohen - Class _____ ____ Term
Edward E. Cohen - Class _____ ____ Term
_______________ - Class _____ ____ Term
_______________ - Class _____ ____ Term
_______________ - Class _____ ____ Term
_______________ - Class _____ ____ Term
FOR AGAINST ABSTAIN
3. Amendment of the Company's 1996 Stock o o o
Option Plan to increase the total number of
shares reserved for issuance under the plan
from 700,000 to 1,200,000 shares.
4. substitutes Transaction at the of any meeting
busines may that exercise properly all comes
the before powers the granted meeting hereby.
or any adjournments thereof. A majority of
the proxies of substitutes at the meeting may
exercise all the powers granted hereby.
- --------------------------------------------------------------------------------
(Continued and to be dated and signed on the other side.)
