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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-19657
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TRM CORPORATION
(Exact name of registrant as specified in its charter)
Oregon 93-0809419
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5208 N.E. 122nd Avenue
Portland, Oregon 97230-1074
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 257-8766
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of August 21, 1998 the aggregate market value of the registrant's Common
Stock held by non affiliates of the registrant was $66.4 million. Solely for
purposes of this calculation, the registrant has treated its Board of Directors
and executive officers as affiliates.
As of August 21, 1998, the number of shares of the registrant's Common
Stock outstanding was 7,065,384.
Documents incorporated by reference:
Parts of registrant's Proxy Statement for the annual meeting of
shareholders on November 16, 1998 are incorporated by reference into Part III of
this report.
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<PAGE>
TRM CORPORATION
TABLE OF CONTENTS
Item Page
No. No.
- ---- ----
Part I
1. Business..................................................................2
2. Properties................................................................7
3. Legal Proceedings.........................................................7
4. Submission of Matters to a Vote of Security Holders.......................7
Part II
5. Market for Registrant's Common Equity and Related Stockholder Matters....10
6. Selected Financial Data..................................................10
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................11
8. Financial Statements and Supplemental Data...............................16
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.....................................................16
Part III
10. Directors and Executive Officers of the Registrant.......................17
11. Executive Compensation...................................................17
12. Security Ownership of Certain Beneficial Owners and Management...........17
13. Certain Relationships and Related Transactions...........................17
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........18
<PAGE>
PART I
ITEM 1. BUSINESS
General
As of June 1998, TRM Corporation (formerly TRM Copy Centers Corporation)
owned and maintained over 33,000 self-service photocopiers in retail
establishments such as multi-site retailers, pharmacies, stationery stores,
hardware stores and gift shops in 73 metropolitan areas: 51 in the U.S., 5 in
Canada, 15 in the U.K and 2 in France. TRM installs, maintains and supplies its
photocopiers and regularly monitors their usage. Each retail business collects
payment from its customers, shares in the revenue generated by the TRM Copy
Center (as defined below) and benefits from any increase in walk-in traffic. The
Company invoices and collects payment from each retailer monthly.
Each TRM Copy Center consists of a photocopier, a machine stand,
advertising signs and in some cases a coin-operated unit ("Copy Center" or "TRM
Copy Center"). TRM Copy Centers are identifiable by the Company's trapezoidal
yellow and black "TRM Copies" signs.
TRM has become the leading provider in self-service photocopying in many of
the metropolitan areas it serves by focusing on service and convenience. The
Company strives to conveniently locate high numbers of Copy Centers throughout
its service areas. Operations by geographic area are presented in Note 12 to the
Consolidated Financial Statements included on page F-13 in this Form 10-K.
The Company services its Copy Centers and provides all necessary supplies.
The retail business supplies space and electrical power for the TRM Copy Center
and supervises its use. Consumers report the number of uses of the TRM Copy
Center to the retail business cashier, who collects payment. Each month, the
retail business keeps a percentage of the TRM Copy Center's revenue, which
generally is based on a sliding scale related to usage, as recorded by the TRM
Copy Center's tamper-proof internal counter, and remits the remainder to TRM.
All accounting, training, purchasing, billing and collection functions, as
well as coordination of customer service, are centralized in the Company's Team
Headquarters in Portland, Oregon. Generally, the only personnel outside the
Portland Team Headquarters are service and sales personnel. TRM minimizes costs
by buying large quantities of new photocopiers and by centrally purchasing large
quantities of parts, paper and toner. The Company believes that its centralized
operating systems and standardized operating procedures enable it to efficiently
open in new geographic areas and to install and service thousands of TRM Copy
Centers.
The Company is an Oregon corporation formed in 1982. From the end of fiscal
1993 through June 30, 1998, TRM opened operations in 14 U.S., 2 Canadian, 13
U.K. and 2 French metropolitan areas.
As part of a Special Meeting of Shareholders in June 1998, the Company's
Shareholders voted to amend its Restated Articles of Incorporation to change the
Company's corporate name from "TRM Copy Centers Corporation" to "TRM
Corporation."
As used in this Form 10-K, the terms "the Company" and "TRM" refer to TRM
Corporation and its subsidiaries, unless the context requires otherwise.
Recent Developments
In September 1997, the Company's Board of Directors authorized the Company
to repurchase up to 500,000 shares of its Common Stock through privately
negotiated or open market purchases as market conditions dictate. To date, the
Company has not repurchased any shares of Common Stock.
With the growth in new technology black and white photocopier
("NextGen(TM)") programs, the Company has decided to retire and dispose of over
half of its older model Savin photocopiers. In the third quarter of 1998, the
Company recorded non-cash, special charges of $6.4 million relating to these
under-performing assets of its Photocopy Division, as part of this strategic
decision to eliminate low-volume Savin photocopiers.
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Also in the third quarter of fiscal 1998, the Company entered into an
agreement with ReadyCash Investment Partners, L.P. ("ReadyCash"), resulting in
an equity investment of $20 million into TRM. In return, ReadyCash was issued
1,777,778 shares of Series A Preferred Stock and warrants to acquire 500,000
shares of Common Stock of the Company. The Company plans to use the proceeds of
this investment to finance the formation of a new Automated Teller Machine (ATM)
Division (see "New Products and Services Under Development," Management's
Discussion and Analysis of Financial Condition and Results of Operations on page
11, and Note 4 to the Consolidated Financial Statements on page F-8).
Locations
Historically, TRM has focused its sales efforts on small independent retail
businesses. During fiscal year 1998 and going forward, the Company is expanding
its program of selling to large-format, multi-site retail establishments to
better address the retail industry as it continues to consolidate. TRM's
installed customer base is diversified and no single retailer accounts for a
significant portion of revenues or profits. Further, TRM has diversified
geographically to avoid dependence on one or more market areas. The Company does
not believe that the presence of significant competition in any single
geographic market would have a material adverse effect on the Company.
As of June 30, 1998, the Company has established a local Service Center (as
defined below) in 52 major metropolitan areas. TRM locates its Service Centers
in sites convenient to the concentration of TRM Copy Centers. Each of these
Service Centers consists of leased premises generally staffed by a service
center manager and one or more service technicians and sales representatives.
Service Centers include a warehouse for the storage of photocopiers, other
components, spare parts, paper and toner. Twenty-one metropolitan areas most
recently entered by the Company were opened with resources from existing Service
Centers nearby, most of which have storage unit facilities ("Service Center").
In conjunction with the expansion of multi-site retailer sales activities,
the Company addressed the need to service customers in locations that were not
accessible by existing TRM Service Centers. When the number of customer sites
does not justify the addition of a new TRM Service Center, the Company contracts
with a third-party service provider to install and service photocopiers at those
sites. With this expanded network of third-party service providers, the Company
believes it is positioned to effectively market to large multi-site retailers.
The Company presently has service agreements in place for 327 TRM Copy Centers
not presently serviced directly by TRM technicians.
Expansion
TRM installed 4,631 additional TRM Copy Centers, net of replacements and
removals, from July 1, 1995 to June 30, 1998. During fiscal 1998, the Company
removed 7,120 photocopiers and installed 6,000 photocopiers, for a net decrease
of 1,120 photocopier machines. During fiscal 1999, the Company plans to add
approximately 10,000 additional TRM Copy Centers in new and existing market
areas. The Company intends to continue to actively manage its installed base by
removing its low-performing sites and eliminating sites that fail to meet
specified volume performance expectations.
TRM's planned expansion will require an increase in the number of installed
photocopiers and customers. Due to the improved efficiency of the NextGen(TM)
technology, the Company believes this expansion will not require an increase in
service center technicians. The Company believes its existing employee base can
support the planned growth. The Company will open a Service Center in each new
geographic market as it is justified. TRM uses both new and existing
photocopiers to fulfill the requirements of its expansion strategy. The Company
is purchasing new machines to use in high-volume, independent and multi-site
locations (see discussion of NextGen(TM) under "New Products and Services Under
Development"). TRM sells the TRM Copy Center concept to independent retail
businesses through sales lead generation programs and local door-to-door
solicitation using independent and Company sales representatives and service
technicians. The Company is increasing its corporate sales efforts directed
toward regional, national and international multi-site retail chains.
Copy pricing is based on market competition, volume and retailer
preference. Pricing decisions are made by the retailer based on the experience
and recommendations of TRM for individual site pricing strategy.
The Company intends to continue to focus on its core photocopy business
with controlled growth from new and existing U.S. market areas, international
expansion and new products and services that can be delivered to its core
customer base and similar consumers.
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New Products and Services Under Development
The Company is positioned to add other products or services to further
optimize the use of its existing network of sales, service, distribution and
support organizations as well as its growing installed customer base. Although
sales generated from additional products currently represent less than 5% of the
total sales, the Company is actively testing multiple new products and services.
During 1998, the Company announced plans to form an ATM division ("ATM
Division") using a $20 million equity investment by ReadyCash. The ATM Division
will enable TRM to offer ATM services to its 25,000 customer relationships in
North America, which in turn will increase utilization of the distribution and
service organization already in place in the US and Canada. The exact
organizational structure of the ATM Division is still in the development stage.
Current activities include a search for key management as well as evaluation of
potential acquisition opportunities.
Additionally in fiscal 1998, the Company commenced the purchasing of
thousands of NextGen(TM) copiers for further unit growth. NextGen(TM) is an
important element in TRM's core programs for high-volume, independent retailer
locations and larger retail chains. The Company places NextGen(TM) photocopiers
in accordance with a 36-month commitment from the retailer and slightly
different discount and billing arrangements. TRM's existing base of installed
copy machines will continue to be used for many convenience copying locations.
In fiscal 1998, the Company continued to expand its placement of
retailer-serviced coin-operated convenience photocopiers with large format
multi-site retailers, where TRM's service quality and worldwide infrastructure
is a key advantage, but where host cashiering is not a desired benefit for the
retailer.
TRM's intent is to invest in developing and market testing these and other
new products and services to identify those that clearly deserve to become
country or system-wide offerings.
Competition
A person seeking photocopy services has a variety of alternatives to a TRM
Copy Center. These alternatives include specialty full-service business centers,
copy and print shops, coin-operated photocopiers and other photocopiers located
within retail shops. Each of these alternatives may to some extent compete with
the Company. The Company does not attempt to compete directly with most
alternative suppliers of photocopy services. Instead, the Company seeks to
distinguish itself by blanketing its service areas with large numbers of
convenient photocopiers and by providing high quality service to those
locations.
Full-service business centers and copy and print shops generally serve a
market more interested in high volume and sophisticated copying than in
convenience of location.
Coin-operated photocopiers are sometimes located in retail establishments
similar to TRM's locations. While these coin-operated photocopiers provide a
similar service to TRM Copy Centers, the Company believes they do not pose a
significant competitive threat to the majority of TRM's retailers. As indicated
under the caption "New Products and Services Under Development," the Company is
placing coin-operated copying with major large format chains and retail stores.
The Company is aware of several self-service, non-coin-operated photocopier
businesses using the retail business concept. To the Company's knowledge, each
is limited to a relatively small geographic market and a relatively small number
of photocopiers. Because of barriers to entry in the Company's business, such as
developing operating systems, establishing sources of supply and achieving
economies of scale, the Company does not believe any of these competitors
currently represents a significant threat to the Company's business.
Personal copiers provide a substitute for TRM Copy Centers. While these
photocopiers have been on the market for a number of years, the Company does not
believe that they have had a significant adverse effect on its business. The
Company is unable to predict whether a technological or price breakthrough might
increase sales of personal copiers and reduce demand for the Company's copy
services.
Computers with printers allow convenient production of multiple copies. The
Company does not believe that computer printing will have a significant adverse
effect on its Copy Center business. At present, computer duplicating is
primarily used
4
<PAGE>
only for a document which is electronically resident on that particular computer
and not for other paper originals. Both computer printers and personal copiers
currently have per copy costs to the user which are similar to or higher than
TRM's retail copy prices so they are not, in general, a lower cost alternative.
The ATM business is and can be expected to remain highly competitive. While
the Company's principal competition is expected to come from national and
regional banks, the Company will also compete with other independent ATM
companies. All of these competitors offer services similar to or substantially
the same as those the Company expects to offer. As the Company enters the ATM
business, such competition could prevent the Company from obtaining or
maintaining desirable locations for its machines or could cause the Company to
reduce its user fees generated by the ATMs and thereby reduce the Company's
revenues and profits. The independent ATM business has become increasingly
competitive as entities other than banks have entered the market with relatively
few barriers to accomplish such entry.
Quarterly Seasonality
Historically, the Company has experienced slightly higher than average
production per TRM Copy Center in its third and fourth fiscal quarters due to
those quarters being tax season in the U.S. The Company experiences slightly
lower than average production per TRM Copy Center in its first fiscal quarter as
the European countries have extended holiday periods.
Photocopiers
As of June 30, 1998, TRM owned and maintained over 33,000 self-service
photocopiers in retail establishments such as multi-site retailers, pharmacies,
stationery stores, hardware stores and gift shops. Generally, new photocopiers
are shipped direct from the manufacturer to a TRM Service Center. The Company
expects to continue to use both new and existing photocopiers to expand its
black and white copying business.
Supply
In fiscal 1998, the Company finalized an agreement with Konica Business
Machines ("Konica") to purchase 7,500 new, state-of-the-art black and white
NextGen(TM) photocopiers over a three year span. At June 30, 1998, the Company
had purchased over 7,000 units under this agreement. During fiscal 1993, TRM
developed a supply relationship with Mita Copystar America, Inc. ("Mita"), for
black and white photocopiers and related products in North America. The
resulting arrangement, as updated, contains no commitment to purchase any
specific number of photocopiers. In the past, the Company primarily used two
similar discontinued models of used photocopiers originally manufactured by
Ricoh Company, Ltd. and its affiliates ("Savin" photocopiers). TRM bought these
photocopiers from photocopier brokers and dealers. These two models of black and
white photocopiers have not been manufactured since 1979 and 1982. A portion of
the older model Savin copiers have been written-off in fiscal 1997 and 1998 as
under-performing assets (see Note 4 to the Consolidated Financial Statements on
page F-8 in this Form 10-K.) The remaining Savin photocopiers owned by the
Company are in profitable locations.
Also during fiscal 1992, a supply arrangement was entered into with Mita
Europe B.V. ("Mita Europe") for black and white photocopiers and related
products in Europe. Under this arrangement, photocopiers and related products
are shipped from Mita Europe directly to the Company's European Service Centers.
The Company continues to monitor and evaluate supplies of new and used
photocopiers in Europe available for its use.
Parts
Currently, parts for Konica and Mita photocopiers are being supplied
primarily by the photocopier manufacturers. The Company acquires a majority of
the parts for its Savin photocopiers directly from various parts fabricators.
Many parts are built to TRM's specifications. While TRM's strategy is to use
multiple sources for its parts to reduce dependence on single sources, some
parts are purchased from single sources. Temporary shortages, increased costs
and quality control problems could result if parts from a single or limited
source became unavailable. The Company will continue to evaluate available
sources of supply for parts.
5
<PAGE>
Paper
Photocopy paper is purchased centrally by the Company's Team Headquarters
and then shipped directly from the mills to the Service Centers. A number of
paper companies are capable of producing the paper usable by the Company. The
Company believes that sufficient paper should be available to supply the
Company's expanding business.
Toner
Currently, toner for Konica photocopiers is being supplied primarily by the
photocopier manufacturer. The Company purchases toner for Mita photocopiers and
liquid toner for its black and white rebuilt photocopiers located in North
America directly from three manufacturers. The Company has confirmed that other
acceptable sources are available and could obtain suitable toner on reasonable
terms from other manufacturers, although some start-up delays could occur. The
Company will continue to evaluate available sources of supply for toner.
Employees
As of June 30, 1998, the Company had 593 employees, most of whom were
full-time. 401 are in field service, 170 are in sales, marketing, customer
service, purchasing, billing and administration, and 22 are in training,
production and warehouse functions. None of the Company's employees are
represented by unions. The Company believes it has good relations with its
employees. The Company currently engages 9 independent contractors to sell the
TRM service program, which includes a machine and a service agreement.
Service Marks
Most TRM Copy Centers are identified by distinctive yellow and black
trapezoidal signs bearing "TRM Copies" and the program price. In France the
Company does business under the name of FPC France Ltd. TRM and FPC's signs are
registered service marks. The Company registered "NextGen" as it relates to the
new black and white technology photocopier the Company is purchasing and placing
in service.
Copy Centers Investment Group, Ltd.
The Company serves as general partner of Copy Centers Investment Group,
Ltd., an Oregon limited partnership. The partnership was formed in 1983 to
acquire certain Copy Centers from the Company. The partnership owns 79 Copy
Centers in the states of Oregon and Washington. The Company receives a
management fee of 25% of the gross revenue from these 79 Copy Centers, plus $20
per month for each of the 79 locations for accounting and administrative
functions. The Company also owns a 1% interest in the profits and losses of the
partnership. The partnership will terminate December 31, 1998 according to the
partnership agreement. The partnership's operations do not constitute a material
part of the business of the Company.
Governmental Regulation
The Company's photocopier business is not subject to significant
governmental regulation. Local zoning and sign regulations occasionally prohibit
a retail business from displaying the "TRM Copies" sign on an exterior wall or
window. Local zoning and use restrictions may not allow opening a Copy Center in
an otherwise desirable retail business. The Company does not expect such
restrictions to have a material adverse effect on the Company's expansion plans.
The Company believes ATM operations are not subject to any governmental
regulation that will adversely effect the business of the Company's ATM
Division. Various regulations have been proposed to reduce or eliminate amounts
charged to users of ATMs. If any of these regulations are enacted in the
jurisdictions where the company is considering placing ATMs, the Company's
revenues would decline and the Company would be negatively impacted. The
enactment of any such regulations may effectively prohibit the Company from
placing ATMs in such jurisdiction.
Forward-Looking Statements
This Form 10-K and Annual Report include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 relating to the Company's goals, plans and
expectations regarding: removing Savin photocopiers, establishing the ATM
Division, effectively using a third-party network
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of service providers, purchasing and installing additional NextGen(TM)
photocopiers, expansion in existing and new markets, the Year 2000 Issue, and
capital expenditures. Risk factors related to these forward looking statements
are discussed in "Management's Discussion and Analysis" (see Forward-Looking
Statements on page 15 of this Form 10-K.)
ITEM 2. PROPERTIES
The Company leases approximately 25,750 square feet of office space for its
Team Headquarters in Portland, Oregon. The lease expires in 2010, with an option
to renew for an additional five years. The Company also leases 31,500 square
feet of space that serves as the Portland Service Center and is also used for
training, warehousing and other office space under a lease that also expires in
2010. This facility is located next to the Team Headquarters. Such space is
currently adequate for the Company's business.
The Company leases warehouse space for 52 Service Centers outside Portland,
Oregon. A Service Center typically consists of approximately 2,000 to 7,000
square feet of non-custom warehouse space. The leases typically run for three to
twelve years, some with extensions available upon exercise of renewal options.
The Company does not anticipate any difficulty in locating or, if necessary,
relocating Service Centers.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal proceedings from time to
time in the ordinary course of its business. There are no pending or threatened
matters which in the Company's opinion would have a material effect on the
Company's operations or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 24, 1998 the Company held a Special Meeting of Shareholders. The
Shareholders took the actions described below. As of the record date for the
Special Meeting, 7,056,811 shares of Common Stock were issued and outstanding.
1. The Shareholders voted to amend the Company's Restated Articles of
Incorporation to change the Company's corporate name to "TRM Corporation,"
by the votes indicated below:
Votes For: 5,927,184
Votes Against: 980
Votes Abstained: 3,300
2. The Shareholders voted to approve an amendment to the Company's Restated
Articles of Incorporation to increase the authorized number of shares of
Common Stock that the Company may issues from 10,000,000 to 50,000,000, by
the votes indicated below:
Votes For: 4,516,413
Votes Against: 1,414,583
Votes Abstained: 468
3. The Shareholders voted to approve an amendment to the Company's Restated
Articles of Incorporation to create and determine the preferences,
limitations and rights of a new series of Preferred Stock of the Company,
to be designated "Series A Preferred Stock," by the votes indicated below:
Votes For: 3,645,694
Votes Against: 25,960
Votes Abstained: 3,560
Broker Non-votes: 2,256,250
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4. The Shareholders voted to approve the issuance and sale of 1,777,778 shares
of the Series A Preferred Stock and warrants to purchase an aggregate of
500,000 shares of Common Stock of the Company at an exercise price of
$15.00 a share (the "Warrants") to ReadyCash Investment Partners, L.P. (the
"Purchaser") pursuant to a Preferred Stock and Warrants Purchase Agreement
dated March 29, 1998 between the Company and the Purchaser (the "Purchase
Agreement"), for an aggregate purchase price of $20,000,000, by the votes
indicated below:
Votes For: 3,669,374
Votes Against: 5,290
Votes Abstained: 550
Broker Non-votes: 2,256,250
5. The Shareholders elected each of Daniel G. Cohen, Edward E. Cohen, Joseph
G. Denton, Kent B. Godfrey, Joel R. Mesznik and Kenneth L. Tepper by the
votes, and for the terms indicated below, to serve on the Company's Board
of Directors. All of the elections were effective upon closing of the
issuance and sale of the Series A Preferred Stock and the Warrants to the
Purchaser pursuant to the Purchase Agreement (the "Closing").
Daniel G. Cohen - Term expires in 1999
--------------------------------------
Votes For: 5,929,287
Votes Withheld: 2,177
Edward E. Cohen - Term expires in 2000
--------------------------------------
Votes For: 5,929,337
Votes Withheld: 2,127
Joseph G. Denton - Term expires in 1998
---------------------------------------
Votes For: 5,929,337
Votes Withheld: 2,127
Kent B. Godfrey - Term expires in 1998
--------------------------------------
Votes For: 5,929,337
Votes Withheld: 2,127
Joel R. Mesznik - Term expires in 1999
--------------------------------------
Votes For: 5,929,337
Votes Withheld: 2,127
Kenneth L. Tepper - Term expires in 1999
----------------------------------------
Votes For: 5,929,337
Votes Withheld: 2,127
Frederick O. Paulsell, Michael D. Simon and Frederic P. Stockton's terms of
office as directors continued after the meeting.
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6. The Shareholders voted to amend the Company's 1996 Stock Option Plan (the
"Plan") to increase the total number of shares of the Company's Common
Stock reserved for issuance under the Plan from 700,000 to 1,200,000, by
the votes indicated below:
Votes For: 2,141,006
Votes Against: 1,534,558
Votes Abstained: 650
Broker Non-votes: 2,255,250
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market
System since December 18, 1991 under the symbol TRMM. Information with respect
to the high and low sales prices for the Common Stock is set forth on the inside
back cover of the Company's 1998 Annual Report to Shareholders and is
incorporated by reference herein.
At August 21, 1998 there were 200 shareholders of record of the Company's
Common Stock and 7,065,384 shares were outstanding. The Company believes the
number of beneficial owners is substantially greater than the number of record
holders because a large portion of the Company's outstanding Common Stock is
held of record in broker "street names" for the benefit of individual investors.
The Company did not pay any dividends in fiscal 1997 or fiscal 1998. The
Company intends to retain future earnings for use in its business and therefore
does not anticipate paying cash dividends to Common Stock shareholders in the
foreseeable future.
On June 24, 1998, the Company issued and sold 1,777,778 shares of
unregistered Series A Preferred Stock and Warrants to purchase 500,000 shares of
Common Stock for net proceeds of approximately $19,853,000. The Company claims
exemption from the registration of such shares under the Securities Act of 1933,
as amended, in reliance on the exemption available under Section 4(2) thereof.
Each share is convertible at any time at the option of the holder into .7499997
of a share of Common Stock. In addition, each share of Series A Preferred Stock
is automatically converted into .7499997 shares of Common Stock if the price of
Common Stock is at least $20.00 for a period of 90 consecutive days commencing
after June 30, 1999. The conversion ratio and exercise prices are adjusted for
any combination or subdivision of shares, stock dividend, stock split or
recapitalization. The Series A Preferred Stock bears a dividend rate of 7.5%,
payable quarterly. The Company intends to use the proceeds to form an ATM
Division (see discussion of ATM under "New Products and Services Under
Development").
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for, and as of the end of, each
of the years in the five-year period ended June 30, 1998 have been derived from
the audited financial statements of the Company. This data should be read in
conjunction with the financial statements, related notes and other financial
information included elsewhere in this report.
<TABLE>
<CAPTION>
Selected Financial Data
(In thousands, except per share data)
1994 1995 1996 1997 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended June 30:
Sales $ 47,957 $ 60,544 $ 67,538 $ 69,881 $ 68,352
Net income (loss) 3,354 3,699 4,124 2,575 (582)
Basic net income (loss) per share 0.53 0.58 0.64 0.39 (0.08)
Diluted net income (loss) per share 0.49 0.53 0.57 0.35 (0.08)
As of June 30:
Working capital $ 8,523 $ 9,543 $ 8,860 $ 9,568 $ 21,937
Total assets 43,504 55,736 54,251 50,160 75,266
Long-term debt 9,500 14,238 8,128 400 --
Stockholders' equity 27,155 31,528 35,444 38,828 60,060
</TABLE>
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<TABLE>
<CAPTION>
Selected Operating Data
1994 1995 1996 1997 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TRM Copy Centers as of Year End 25,563 28,995 31,719 34,796 33,349
</TABLE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data
(In thousands, except per share data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1997 1998 1997 1998 1997 1998 1997 1998
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 16,577 $16,238 $17,347 $16,709 $18,023 $ 17,648 $17,934 $17,757
Gross profit 6,436 6,316 6,797 6,358 7,407 6,798 7,300 7,359
Net income (loss) 1,037 1,033 1,163 891 1,365 (3,173) (990) 667
Basic net income (loss) per share 0.16 0.15 0.18 0.13 0.20 (0.45) (0.14) 0.09
Diluted net income (loss) per share 0.14 0.14 0.16 0.12 0.19 (0.45) (0.14) 0.09
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TRM continues to expand in new and existing metropolitan service areas. The
number of service areas the Company operates in has increased from 54 to 73 over
the last three fiscal years and now includes 51 in the United States, 5 in
Canada, 15 in the United Kingdom and 2 in France. The number of TRM Copy Centers
has increased 15 percent over the same three year period, from 28,995 to 33,349.
In addition to expanding, the Company is also focused on improving the
profitability of the installed base of TRM Copy Centers.
On June 24, 1998, the Company issued and sold to ReadyCash 1,777,778 shares
of a new series of Preferred Stock of the Company, designated the "Series A
Preferred Stock", and warrants (the "Warrants") to purchase 500,000 shares of
the Company's Common Stock at an exercise price of $15.00 a share, for an
aggregate purchase price of $20 million in cash. ReadyCash informed the Company
that it obtained the funds used to purchase the Series A Preferred Stock and
Warrants from its individual limited partners in the form of capital
contributions.
Each share of Series A Preferred Stock has one vote per share and votes
together with the Common Stock on any and all matters submitted to the Company's
shareholders for a vote, except to the extent Oregon law requires otherwise. In
addition, each share of the Series A Preferred Stock is convertible at any time
at the option of the holder into .7499997 fully paid and nonassessable shares of
Common Stock and shall be automatically converted into shares of the Company's
Common Stock on the same basis if the last bid price quoted in the Nasdaq System
as of 4:00 p.m. for a share of the Company's Common Stock is at least $20.00 for
a period of 90 consecutive calendar days commencing after June 30, 1999. The
conversion ratio and the price at which the Series A Preferred Stock shall be
automatically converted shall be appropriately adjusted for any combination or
subdivision of shares, stock dividend, stock split or recapitalization.
Results of Operations
The following table sets forth, for the periods indicated, selected
statement of operations data, expressed as a percentage of sales, and the
percentage change in dollar amounts of each item on the Consolidated Statements
of Operations (see page F-3 of this Form 10-K).
11
<PAGE>
<TABLE>
<CAPTION>
Percentage Change As a Percentage of Sales
1996-97 1997-98 1996 1997 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 3.5% (2.2)% 100.0% 100.0% 100.0%
Sales discounts (0.4) (3.0) 17.4 16.7 16.6
Cost of sales 1.1 (0.2) 44.3 43.3 44.2
Selling, general and administrative 5.7 5.1 26.0 26.6 28.6
Non-cash stock compensation -- -- -- -- 1.7
Special charges -- 84.1 -- 5.8 9.3
----------------------------------------------------------------
Operating income (loss) (36.4) (104.2) 12.3 7.6 (0.4)
Interest expense, net (58.6) (82.8) 1.4 0.6 --
Other, net 55.2 (7.4) 0.7 1.0 1.0
----------------------------------------------------------------
Income (loss) before income taxes (39.5) (122.9) 10.2 6.0 (1.4)
Provision for income taxes (42.4) (123.4) 4.1 2.3 0.5
----------------------------------------------------------------
Net income (loss) (37.6)% (122.6)% 6.1% 3.7% (0.9)%
================================================================
</TABLE>
1998 Compared to 1997
Sales decreased by $1.5 million (2.2%) to $68.4 million for 1998 from $69.9
million for 1997. The decrease represents a 7.4 percent decrease in the average
net sales per unit, offset by a 5.8 percent overall increase in the number of
billed units. Sales in North America have declined 5.6 percent over the last
fiscal year, while sales in Europe have increased 5.5 percent during the same
period. The decline in North America represents a maturing market in the small,
independent retail customer base and increasing market demand for new black and
white technology photocopiers. The Company intends to turn the performance in
North America around by installing thousands of NextGen(TM) photocopiers in
existing sites and attracting new multi-site retail customers (see discussion of
NextGen(TM) under "New Products and Services Under Development" and multi-site
retailers under "Locations").
Sales for products not related to black and white photocopying have been
insignificant, amounting to less than 5 percent of total sales.
Sales discounts are the portion of revenue retained by retail customers.
They generally vary at individual retail businesses depending on volume--the
higher the volume, the greater the discount. The downward trend in sales
discounts as a percentage of sales in 1998 and 1997 reflects changes made in
business agreements with new customers over the periods.
Cost of sales decreased $75,000 (0.2%) from 1997 to 1998. Offsetting
factors resulted in relatively unchanged costs of sales compared to fiscal 1997.
Costs of paper, toner and parts decreased by $751,000, but were offset by
increased costs of $714,000 for copier machine depreciation and field and sales
labor. The increased copier depreciation relates to the new Konica copier
machines purchased and installed during the year.
Selling, general and administrative expenses increased $956,000 (5.1%) from
$18.6 million in 1997 to $19.5 million in 1998. Selling, general and
administrative costs were 28.6 percent and 26.6 percent of sales for 1998 and
1997, respectively. Selling, general and administrative costs increased due to
increased costs of medical, property and auto insurance, higher vehicle costs,
increased legal and accounting fees, and increased office and administrative
payroll costs.
In conjunction with the sale of Series A Preferred Stock (see Note 8 to the
Consolidated Financial Statements on page F-10), the Company amended certain
Board members' stock option agreements to extend the exercise period for the
options to ten years from June 24, 1998. Pursuant to APB No. 25, and due to the
extension of the exercise period, the Company recognized $1.1 million as
non-cash compensation expense in the year ended June 30, 1998.
During 1998, the Company recorded a pre-tax special charge of $6.4 million
($3.9 million after tax) related to the write-down of certain under-performing
assets of its Photocopy Division. The major components of the 1998 special
12
<PAGE>
charge included the disposal of under-performing machines ($4.3 million), the
disposal of replacement parts and inventory relating to under-performing
machines ($1.5 million) and other charges related to the disposal of equipment
($600,000).
Interest expense decreased 82.8 percent to $68,000 in 1998 from $396,000 in
1997. The decrease was due to reduced bank borrowings on the Company's revolving
line of credit during 1998.
The Company's effective tax rate for 1998 was 39.1 percent, resulting in an
income tax benefit of $373,000, compared to an effective rate of 38.2 percent
and an income tax provision of $1.6 million in 1997. The increase in the
effective tax rate from 1997 to 1998 is due to an increase in permanent
differences in the Company's income for financial and tax reporting.
1997 Compared to 1996
Sales increased by $2.3 million (3.5%) to $69.9 million for 1997 from $67.5
million for 1996. The increase was due primarily to a 10.9 percent increase in
the number of revenue-generating photocopiers offset by a 6.0 percent decrease
in average net sales per unit. Sales growth during 1997 came from the Company's
foreign operations. Foreign sales grew to $25.9 million in 1997 from $22.0
million in 1996.
Sales discounts decreased $52,000 (0.4%) from $11.7 million in 1996 to
$11.6 million in 1997. Sales discounts as a percentage of sales decreased from
17.4 percent in 1996 to 16.7 percent in 1997. The downward trend in sales
discounts as a percentage of sales reflects changes made in business agreements
with new customers over the periods.
Cost of sales increased $335,000 (1.1%) from 1996 to 1997. This was below
the percentage increase in sales, despite growth in field service payroll,
headcount additions for opening new TRM Service Centers, and copier depreciation
costs. This was achieved because of lower paper costs and lower paper and toner
usage under the Company's higher-copy-price programs.
Selling, general and administrative expenses increased $1.0 million (5.7%)
from $17.6 million in 1996 to $18.6 million in 1997. Selling, general and
administrative costs were 26.6 percent and 26.0 percent of sales for 1997 and
1996, respectively. The increase in selling, general and administrative during
1997 was primarily due to employee health care costs in the U.S. and higher
expansion and start-up expenses in both the U.S. and Europe.
During 1997, the Company recorded a non-cash, accounting charge of $4.1
million pretax ($2.5 million after tax). This charge included impairment write
downs of equipment in three categories: color copiers, custom business card
printing components and certain older generation black and white copiers. It was
concluded during 1997 that the initial equipment purchased in 1993 and 1994 to
support the Company's color and business card business was technologically dated
and that the full asset carrying amounts were not recoverable.
Interest expense decreased 58.6 percent to $396,000 in 1997 from $957,000
in 1996. The Company reduced bank borrowings significantly from mid-1996 through
1997, resulting in the lower interest expense.
The Company's effective tax rate for 1997 was 38.2 percent, resulting in an
income tax provision of $1.6 million, compared to an effective rate of 40.1
percent and an income tax provision of $2.8 million in 1996. The decrease in the
effective tax rate from 1996 to 1997 is due to income in the United Kingdom
flowing through a United Kingdom subsidiary, effective for fiscal year 1997, and
being taxed at a lower rate than income in the United States.
Impact of Year 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any such software
programs may recognize a date using "00" as the year 1900 rather than the year
2000.
The Company relies on computer systems and software to operate its
business, including applications used in account maintenance, purchasing,
inventory management, finance and various administrative functions. Based on a
recent assessment, the Company determined that it will be required to modify or
replace significant portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company presently believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose
13
<PAGE>
significant operations problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send customer invoices, or engage in similar normal business
activities.
Since December 1997, the Company has been actively engaged in becoming Year
2000 compliant. As of August 1998, sixty percent of the Company's hardware and
software system applications are Year 2000 compliant. The target date for full
compliance is June 30, 1999. The Company's efforts have been divided into three
phases. First, a Year 2000 discovery team was assembled to inventory all
hardware, operating systems and software applications and provide upgrade and/or
contingency recommendations. Second, all upgrade/contingency recommendations
were compiled into a project action plan. Of the twenty-two non-compliant
systems/applications identified, three have been upgraded or replaced, thirteen
more are due for implementation by December 31, 1998, and six more will be
replaced by an enterprise-wide information technology solution due to come on
line during the fourth quarter of fiscal 1999. Third and finally, the Company
re-prioritized existing information technology ("IT") projects to allocate
programming resources to the Company's Year 2000 Issue.
Independent of the Year 2000 project, the Company has initiated significant
systems upgrades to enhance performance and reliability of many of its
computer-based information systems. These upgrades will, as an additional
benefit, rectify certain identified Year 2000 issues. The total IT budget for
all systems activities is $1.5 million for fiscal 1999. Expenditures directly
related to Year 2000 issues are estimated to be approximately $350,000.
Expenditures for other planned systems upgrades, totaling $1,150,000, will
address certain Year 2000 issues as a corollary benefit to the Company, but have
been initiated primarily to enhance system reliability and capability. The
Company will utilize both internal and external resources to reprogram, or
replace, and test the software for the Year 2000 modifications. The Company
continues to manage total IT expenses by re-prioritizing or curtailing less
critical investments, incorporating Year 2000 readiness into previously planned
system enhancements and using existing staff to implement its Year 2000
modifications.
The Company intends to initiate communications with all of its significant
service providers, lenders, and large customers to determine the extent to which
the Company's interface systems are vulnerable in the event any of those third
parties fail to remedy their own Year 2000 Issues. However, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and will not have an adverse effect on the
Company's systems.
Contingencies for systems scheduled for replacement include upgrades and
service packs from manufacturers of third-party software as well as dedicated
programming time from internal Information Systems staff to produce "Hot Fix"
repairs to modify date integer fields and input masks to reflect long integer
format. Currently, no other contingency plan has been developed.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which established requirements for
disclosure of comprehensive income. The objective of SFAS No. 130 is to report
all changes in equity that result from transactions and economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other non-owner changes in equity. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of earlier financial
statements for comparative purposes is required. The Company has not quantified
the effect, if any, of adoption of SFAS No. 130.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." This Statement established
standards for reporting information about operating segments in annual financial
statements. Operating segments are defined as components of an enterprise
evaluated regularly by the Company's senior management in deciding how to
allocate resources and in assessing performance. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. The Company has not evaluated
the effect of adoption of SFAS No. 131, but does not believe it will
significantly change the Company's consolidated financial reporting structure.
In March 1998, the American Institute of Certified Public Accountants
Accounting Standards Executive Committee issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal
14
<PAGE>
Use" ("SOP 98-1.") SOP 98-1 is applicable to all nongovernmental entities and
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for fiscal years beginning
after December 15, 1998. The Company has not quantified the effect of adoption
of SOP 98-1.
Liquidity and Capital Resources
During 1998 TRM generated $16.7 million in cashflows from operations and
increased its net working capital from $9.6 million at June 30, 1997 to $21.9
million at June 30, 1998 (including cash and cash equivalents of $20.2 million).
On June 24, 1998 the Company received $19.9 million, net of expenses, from the
sale of Series A Preferred Stock described above. The Company also has a $30.0
million bank line of credit, with no borrowings outstanding at June 30, 1998.
The Company was in compliance with all loan covenants at June 30, 1998. This
credit facility expires on April 1, 2000.
During 1998, the Company received extended payment terms on photocopier
purchases. This resulted in a $5.4 million increase in accounts payable. This
interest free financing may not be available in the future.
During the twelve months ended June 30, 1998, the Company funded capital
expenditures of $20.2 million primarily from cash generated from operations,
bank borrowings and proceeds from equipment disposals and the sale of preferred
stock. Capital expenditures increased by $15.6 million over the prior year due
to increased purchases and installations of NextGen(TM) copiers ($14.3 million)
and increased expenditures for other copiers ($4.5 million). Additional capital
expenditures of $770,000, $400,000 and $185,000 were for vehicles, computer
hardware and software, and other normal operating purposes, respectively.
The Company currently anticipates capital expenditures of approximately $30
million during fiscal 1999. Approximately $15 million will be for acquiring
photocopiers. The remainder will be for developing the ATM business and other
general purposes including computer systems. The Company expects to finance
these capital expenditures with cash generated from operations, bank borrowings
and proceeds from the sale of Series A Preferred Stock. The Company expects that
these sources will provide adequate cash to fund its expansion through at least
June 30, 1999.
Forward-Looking Statements
Information in "Management's Discussion and Analysis," the letter to
shareholders and elsewhere in this Annual Report and Form 10-K about the
Company's goals, plans and expectations regarding: removing Savin photocopiers,
establishing the ATM Division, effectively using a third-party network of
service providers, purchasing and installing additional NextGen(TM)
photocopiers, expansion in existing and new markets, the Year 2000 Issue, and
capital expenditures constitutes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Factors that could adversely affect the removal of Savin
photocopiers include, but are not limited to, the availability of third-party
brokers to purchase the photocopiers, the Company's ability to collect amounts
due from third-party brokers, and the Company's ability to execute its removal
and disposal plan. Factors that could adversely affect establishing the ATM
Division include, but are not limited to, competition from existing ATM
providers and new entrants into the ATM market, the Company's ability to attract
and retain personnel necessary to execute its ATM business plan, the Company's
ability to manage and achieve growth in a new line of business, changes in
technology affecting ATM transactions, the Company's ability to expand its
current relationships with retailers and broaden its distribution network,
changes in consumer practices and preferences with respect to the location of,
and use of, ATM's, and changes in the laws and regulations applicable to
non-bank ATMs. Factors that could adversely affect the effectiveness of a
third-party network of service providers include, but are not limited to, the
availability of third-party service providers in the geographic areas needed,
the Company's ability to negotiate contracts with the third-party service
provider, and the service quality of the third-party service provider. Factors
that could adversely affect the purchasing and installing additional NextGen(TM)
photocopiers include, but are not limited to, changes in consumer practices and
preferences with respect to the use of TRM's new photocopy machines, and the
performance and profitability of NextGen(TM) photocopy machines, the Company's
ability to purchase the additional photocopy machines, and the Company's ability
to sell the variances in the NextGen(TM) program. Factors that could adversely
affect expansion in existing and new markets include, but are not limited to,
business conditions in the market areas the Company targets for expansion,
competitive factors, customer demand for the Company's services and the
Company's ability to execute its plans successfully. Factors that could
adversely affect the Year 2000 Issue include, but are not limited to,
unidentified issues in existing programs or underestimating the resources
necessary to make any required modifications or conversions, the Company's
ability to modify and/or convert the necessary systems and applications timely,
and the continued availability of resources internally
15
<PAGE>
and externally to implement the Year 2000 modifications. Factors that could
adversely affect capital expenditures include, but are not limited to, the items
described above regarding establishing the new ATM Division and purchasing
additional NextGen(TM) photocopiers, the continued availability of a credit
facility, and the Company's ability to negotiate favorable purchase agreements
with ATM manufacturers. Any forward-looking statements should be considered in
light of these factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements and supplementary data required by this item are
included in this Report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
16
<PAGE>
PART III
The information required by Part III is incorporated herein by reference
from the indicated pages of the Company's definitive Proxy Statement dated
October 9, 1998 for its 1998 annual meeting of shareholders.
Proxy
Statement
Page No.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 4-6
ITEM 11. EXECUTIVE COMPENSATION 8-13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 1-3
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 7, 14
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
Page in
(a) 1. Financial Statements this Report.
------------
Reports of Independent Accountants F-1
Consolidated Balance Sheets as of
June 30, 1998 and 1997 F-3
Consolidated Statements of Operations
for each of the three years in the period
ended June 30, 1998 F-4
Consolidated Statements of Stockholders'
Equity for each of the three years in the
period ended June 30, 1998 F-5
Consolidated Statements of Cash Flows
for each of the three years in the period
ended June 30, 1998 F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedules:
III -- Valuation and Qualifying Accounts F-15
All other schedules are omitted because they
are not applicable or the required information
is shown in the financial statements or notes
thereto.
3. Exhibits:
Exhibit
Number
- -------
3.1 a) Amendments to the Restated Articles of Incorporation
b) Restated Articles of Incorporation
3.2 Restated Bylaws
4.1 Investors' Rights Agreement (Incorporated herein by reference to
Exhibit 4.1 of Form 8-K dated July 9, 1998)
4.2 Articles V, VI and VII of the Restated Articles of Incorporation, as
amended (See Exhibit 3.1)
4.3 Articles I, II, V, VII and X of the Restated Bylaws (See Exhibit 3.2)
10.1 Form of Indemnity Agreements with Registrant's directors and executive
officers (Incorporated herein by reference to Exhibit 10.1 of Form
10-K for the fiscal year ended June 30, 1997)
10.2 Loan Agreement with United States National Bank of Oregon, dated March
31, 1997 (Incorporated herein by reference to Exhibit 10.2 of Form
10-K for the fiscal year ended June 30, 1997)
18
<PAGE>
10.3 a) Lease dated October 14, 1991 between Pacific Realty Associates,
L.P. and Registrant (for Registrant's training facility in
Portland, Oregon) (Incorporated herein by reference to Exhibit
10.7 of Form S-1 dated November 8, 1991 [No. 33-43829])
b) Lease amendment dated February 7, 1994, between Pacific Realty
Associates, L.P. and Registrant (Incorporated herein by reference
to Exhibit 10.7 of Form 10-K for the fiscal year ended June 30,
1994)
c) Lease amendment dated August 10, 1994, between Pacific Realty
Associates, L.P. and Registrant (Incorporated herein by reference
to Exhibit 10.5 of Form 10-K for the fiscal year ended June 30,
1995)
d) Lease dated August 10, 1994 between Pacific Realty Associates,
L.P. and Registrant (for the Registrant's corporate headquarters
in Portland, Oregon) (Incorporated herein by reference to Exhibit
10.4 of Form 10-K for the fiscal year ended June 30, 1995)
10.4 Restated 1986 Stock Incentive Plan (Incorporated herein by reference
to Exhibit 10.8 of Form 10-K for the fiscal year ended June 30, 1994)
10.5 Restated 1996 Stock Option Plan
10.6 Employee Stock Purchase Plan (Incorporated herein by reference to
Exhibit 28.1 of Form S-8 dated December 7, 1992 [No. 33-55370])
10.7 Form of Stock Option Agreements:
a) For option grants before fiscal 1994 (Incorporated herein by
reference to Exhibit 10.9 of Form S-1 dated November 8, 1991 [No.
33-43829])
b) For option grants during fiscal 1994 (Incorporated herein by
reference to Exhibit 10.10 of Form 10-K for the fiscal year ended
June 30, 1994)
c) For option grants during fiscal 1995 (Incorporated herein by
reference to Exhibit 10.8 of Form 10-K for the fiscal year ended
June 30, 1995)
10.8 Employment Agreements:
a) Employment Agreement dated January 17, 1995 with Michael D. Simon
(Incorporated herein by reference to Exhibit 10.9 of Form 10-K
for the fiscal year ended June 30, 1995)
b) Employment Agreement dated April 25, 1996 with Michael D. Simon
(Incorporated herein by reference to Exhibit 10.9 of Form 10-K
for the fiscal year ended June 30, 1996)
c) Employment Agreement dated August 18, 1997 with Frederic P.
Stockton (Incorporated herein by reference to Exhibit 10.8 of
Form 10-K for the fiscal year ended June 30, 1997)
d) Employment Agreement dated September 18, 1997 with Paul M. Brown
10.9 Executive Supplemental Retirement Agreement with Edwin S. Chan dated
January 9, 1995 (Incorporated herein by reference to Exhibit 10.9 of
Form 10-K for the fiscal year ended June 30, 1995)
10.10 Preferred Stock and Warrants Purchase Agreement dated March 29, 1998
between the Company and ReadyCash Investment Partners, L.P.
(Incorporated herein by reference to Exhibit 10 of Form 10-Q for the
quarter ended March 31, 1998)
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors (see Page S-1)
24.1 Power of Attorney (see Signature page)
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the last
quarter of fiscal 1998.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Portland, Oregon,
on September 28, 1998.
TRM CORPORATION
By: /s/ FREDERIC P. STOCKTON
-------------------------------------
Frederic P. Stockton
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Frederic P. Stockton his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on September 28, 1998 on
behalf of the Registrant and in the capacities indicated:
Signature Title
- ---------------------------------- ----------------------------------
/s/ FREDERIC P. STOCKTON
- ---------------------------------- President, Chief Executive Officer
Frederic P. Stockton and Director
/s/ EDWARD E. COHEN
- ---------------------------------- Chairman of the Board and Director
Edward E. Cohen
/s/ DANIEL G. COHEN
- ---------------------------------- Director
Daniel G. Cohen
/s/ JOSEPH G. DENTON
- ---------------------------------- Director
Joseph G. Denton
/s/ KENT B. GODFREY
- ---------------------------------- Director
Kent B. Godfrey
/s/ JOEL R. MESZNIK
- ---------------------------------- Director
Joel R. Mesznik
/s/ FREDERICK O. PAULSELL
- ---------------------------------- Director
Frederick O. Paulsell
/s/ MICHAEL D. SIMON
- ---------------------------------- Director
Michael D. Simon
/s/ KENNETH L. TEPPER
- ---------------------------------- Director
Kenneth L. Tepper
20
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- -------
3.1 a) Amendments to the Restated Articles of Incorporation
b) Restated Articles of Incorporation
3.2 Restated Bylaws
4.1 Investors' Rights Agreement (Incorporated herein by reference to
Exhibit 4.1 of Form 8-K dated July 9, 1998)
4.2 Articles V, VI and VII of the Restated Articles of Incorporation, as
amended (See Exhibit 3.1)
4.3 Articles I, II, V, VII and X of the Restated Bylaws (See Exhibit 3.2)
10.1 Form of Indemnity Agreements with Registrant's directors and executive
officers (Incorporated herein by reference to Exhibit 10.1 of Form
10-K for the fiscal year ended June 30, 1997)
10.2 Loan Agreement with United States National Bank of Oregon, dated March
31, 1997 (Incorporated herein by reference to Exhibit 10.2 of Form
10-K for the fiscal year ended June 30, 1997)
10.3 a) Lease dated October 14, 1991 between Pacific Realty Associates,
L.P. and Registrant (for Registrant's training facility in
Portland, Oregon) (Incorporated herein by reference to Exhibit
10.7 of Form S-1 dated November 8, 1991 [No. 33-43829])
b) Lease amendment dated February 7, 1994, between Pacific Realty
Associates, L.P. and Registrant (Incorporated herein by reference
to Exhibit 10.7 of Form 10-K for the fiscal year ended June 30,
1994)
c) Lease amendment dated August 10, 1994, between Pacific Realty
Associates, L.P. and Registrant (Incorporated herein by reference
to Exhibit 10.5 of Form 10-K for the fiscal year ended June 30,
1995)
d) Lease dated August 10, 1994 between Pacific Realty Associates,
L.P. and Registrant (for the Registrant's corporate headquarters
in Portland, Oregon) (Incorporated herein by reference to Exhibit
10.4 of Form 10-K for the fiscal year ended June 30, 1995)
10.4 Restated 1986 Stock Incentive Plan (Incorporated herein by reference
to Exhibit 10.8 of Form 10-K for the fiscal year ended June 30, 1994)
10.5 Restated 1996 Stock Option Plan
10.6 Employee Stock Purchase Plan (Incorporated herein by reference to
Exhibit 28.1 of Form S-8 dated December 7, 1992 [No. 33-55370])
10.7 Form of Stock Option Agreements:
a) For option grants before fiscal 1994 (Incorporated herein by
reference to Exhibit 10.9 of Form S-1 dated November 8, 1991 [No.
33-43829])
b) For option grants during fiscal 1994 (Incorporated herein by
reference to Exhibit 10.10 of Form 10-K for the fiscal year ended
June 30, 1994)
c) For option grants during fiscal 1995 (Incorporated herein by
reference to Exhibit 10.8 of Form 10-K for the fiscal year ended
June 30, 1995)
10.8 Employment Agreements:
a) Employment Agreement dated January 17, 1995 with Michael D. Simon
(Incorporated herein by reference to Exhibit 10.9 of Form 10-K
for the fiscal year ended June 30, 1995)
b) Employment Agreement dated April 25, 1996 with Michael D. Simon
(Incorporated herein by reference to Exhibit 10.9 of Form 10-K
for the fiscal year ended June 30, 1996)
c) Employment Agreement dated August 18, 1997 with Frederic P.
Stockton (Incorporated herein by reference to Exhibit 10.8 of
Form 10-K for the fiscal year ended June 30, 1997)
d) Employment Agreement dated September 18, 1997 with Paul M. Brown
10.9 Executive Supplemental Retirement Agreement with Edwin S. Chan dated
January 9, 1995 (Incorporated herein by reference to Exhibit 10.9 of
Form 10-K for the fiscal year ended June 30, 1995)
10.10 Preferred Stock and Warrants Purchase Agreement dated March 29, 1998
between the Company and ReadyCash Investment Partners, L.P.
(Incorporated herein by reference to Exhibit 10 of Form 10-Q for the
quarter ended March 31, 1998)
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors (see Page S-1)
24.1 Power of Attorney (see Signature page)
27.1 Financial Data Schedule
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
TRM Corporation (formerly TRM Copy Centers Corporation):
We have audited the accompanying consolidated balance sheets of TRM
Corporation (formerly TRM Copy Centers Corporation) and subsidiaries as of June
30, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended June 30, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TRM
Corporation and subsidiaries as of June 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1998, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
August 17, 1998
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
TRM Corporation (formerly TRM
Copy Centers Corporation)
Under date of August 17, 1998, we reported on the consolidated balance sheets of
TRM Corporation (formerly TRM Copy Centers Corporation) as of June 30, 1998 and
1997, and the related consolidated statements of operations, retained earnings,
and cash flows for each of the years in the three-year period ended June 30,
1998, which are included in Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule, as listed in Item 14(a)(2) for Form
10-K of TRM Corporation. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Portland, Oregon
August 17, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(In thousands)
June 30,
1997 1998
-------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,528 $ 20,177
Accounts receivable, net 7,704 7,423
Income tax receivable -- 949
Inventories (note 2) 4,611 3,809
Prepaid expenses and other 1,399 1,240
-------------------------------
Total current assets 16,242 33,598
Equipment and vehicles, less accumulated depreciation (notes 3 and 4) 33,872 41,624
Other assets 46 44
-------------------------------
$ 50,160 $ 75,266
===============================
Liabilities and Stockholders' Equity
Current liabilities:
Checks in transit $ 1,409 $ 553
Accounts payable 1,568 7,005
Accrued expenses (note 5) 3,697 4,103
-------------------------------
Total current liabilities 6,674 11,661
Long-term debt (note 6) 400 --
Deferred income taxes (note 7) 4,258 3,545
-------------------------------
Total liabilities 11,332 15,206
Commitments (note 11) -- --
Stockholders' equity (notes 8 and 9):
Preferred stock, no par value.
Authorized 5,000 shares; 1,778 and 0
shares issued and outstanding -- 19,853
Common stock, no par value.
Authorized 50,000 and 10,000 shares;
issued and outstanding 7,057 and 6,931 shares 16,601 18,617
Retained earnings 22,279 21,697
Cumulative translation adjustment (52) (107)
-------------------------------
Total stockholders' equity 38,828 60,060
-------------------------------
$ 50,160 $ 75,266
===============================
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(In thousands, except per share data)
Fiscal year ended June 30,
1996 1997 1998
------------------------------------------------
<S> <C> <C> <C>
Sales $ 67,538 $ 69,881 $ 68,352
Less discounts 11,728 11,676 11,331
------------------------------------------------
Net sales 55,810 58,205 57,021
Cost of sales 29,930 30,265 30,190
------------------------------------------------
Gross profit 25,880 27,940 26,831
Selling, general and administrative expense 17,569 18,569 19,525
Non-cash stock compensation (note 8) -- -- 1,146
Special charges (note 4) -- 4,088 6,380
------------------------------------------------
Operating income (loss) 8,311 5,283 (220)
Interest expense 957 396 68
Other expense, net 464 720 667
------------------------------------------------
Income (loss) before income taxes 6,890 4,167 (955)
Provision (benefit) for income taxes (note 7) 2,766 1,592 (373)
-------------------------------------------------
Net income (loss) $ 4,124 $ 2,575 $ (582)
=================================================
Basic net income (loss) per share:
Shares outstanding 6,451 6,666 6,992
================================================
Net income (loss) per share $ 0.64 $ 0.39 $ (0.08)
================================================
Diluted net income (loss) per share:
Shares outstanding 7,262 7,285 6,992
================================================
Net income (loss) per share $ 0.57 $ 0.35 $ (0.08)
================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
(In thousands)
Cumulative
Preferred Stock Common Stock Retained Translation
Shares Amount Shares Amount Earnings Adjustment Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1995 -- -- 6,432 $ 15,940 $ 15,580 $ 8 $31,528
Exercise of stock options -- -- 36 137 -- -- 137
Tax benefit of stock options -- -- -- 26 -- -- 26
Issuance of stock to employees -- -- 16 111 -- -- 111
Foreign currency translation adjustment -- -- -- -- -- (482) (482)
Net income -- -- -- -- 4,124 -- 4,124
---------------------------------------------------------------------------------------
Balances, June 30, 1996 -- -- 6,484 16,214 19,704 (474) 35,444
Exercise of stock options -- -- 468 517 -- -- 517
Tax benefit of stock options -- -- -- 96 -- -- 96
Issuance of stock to employees -- -- 6 53 -- -- 53
Purchase of outstanding shares -- -- (27) (279) -- -- (279)
Foreign currency translation adjustment -- -- -- -- -- 422 422
Net income -- -- -- -- 2,575 -- 2,575
---------------------------------------------------------------------------------------
Balances, June 30, 1997 -- -- 6,931 $ 16,601 $ 22,279 $ (52) $38,828
Exercise of stock options -- -- 114 571 -- -- 571
Tax benefit of stock options -- -- -- 201 -- -- 201
Issuance of stock to employees -- -- 12 98 -- -- 98
Issuance of preferred stock 1,778 $19,853 -- -- -- -- 19,853
Non-cash stock compensation -- -- -- 1,146 -- -- 1,146
Foreign currency translation adjustment -- -- -- -- -- (55) (55)
Net loss -- -- -- -- (582) -- (582)
---------------------------------------------------------------------------------------
Balances, June 30, 1998 1,778 $19,853 7,057 $ 18,617 $ 21,697 $ (107) $60,060
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(In thousands)
Fiscal year ended June 30,
1996 1997 1998
--------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net Income (Loss) 4,124 2,575 (582)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,101 5,591 5,953
Loss on disposal of equipment and vehicles 40 234 175
Non-cash stock compensation -- -- 1,146
Special charges -- 4,088 6,380
Changes in items affecting operations:
Accounts receivable (529) (440) 281
Inventories 1,292 566 (692)
Income Taxes Receivable -- -- (949)
Prepaid expenses and other 146 (189) 5
Accounts payable 306 (231) 5,437
Accrued expenses 70 324 229
Deferred income taxes 817 (311) (713)
---------------------------------------------
Total operating activities 11,367 12,207 16,670
---------------------------------------------
Investing activities:
Proceeds from sale of equipment 146 456 1,780
Capital expenditures (5,494) (4,562) (20,155)
Other 44 (33) 2
--------------------------------------------
Total investing activities (5,304) (4,139) (18,373)
---------------------------------------------
Financing activities:
Change in checks in transit (484) 471 (856)
Principal payments on borrowings (9,636) (7,728) (3,527)
Proceeds from borrowings 3,526 -- 3,127
Net proceeds from issuance of preferred stock -- -- 19,853
Net proceeds from issuance of common stock 274 387 870
--------------------------------------------
Total financing activities (6,320) (6,870) 19,467
--------------------------------------------
Effect of exchange rate changes 375 457 (115)
---------------------------------------------
Net increase in cash and cash equivalents 118 1,655 17,649
Beginning cash and cash equivalents 755 873 2,528
--------------------------------------------
Ending cash and cash equivalents $ 873 $ 2,528 $ 20,177
============================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
Notes to Consolidated Financial Statements
1. Description of Business and Summary of Significant Accounting Policies:
Description of Business
TRM Corporation (formerly TRM Copy Centers Corporation), headquartered in
Portland, Oregon, as its primary business, owns, supplies and maintains over
33,000 self-service photocopiers in large-format, multi-site retailer locations,
pharmacies, stationery stores, hardware stores, convenience stores and other
retail establishments in the United States, Canada, the United Kingdom, France.
Each retail establishment collects payment from its customers, shares in the
revenue of the photocopier and benefits from any increase in customer traffic
within the store.
Principles of Consolidation
The consolidated financial statements include the accounts of the parent
and its subsidiary companies (the Company). All significant intercompany
accounts and profits have been eliminated. Assets and liabilities of foreign
operations are translated into U.S. dollars at current exchange rates. Income
and expense accounts are translated into U.S. dollars at average rates of
exchange prevailing during the periods. Adjustments resulting from translating
foreign functional currency financial statements into U.S. dollars are taken
directly to a separate component of stockholders' equity. Foreign currency
transaction gains and losses are included in income and have been immaterial to
date.
Fair Value of Financial Instruments
Financial instruments, including cash and cash equivalents, accounts
receivable, checks in transit and accounts payable, approximate fair market
value because of the short maturity for these instruments. Fair value
approximates carrying value of the Company's borrowings under its long-term debt
arrangements based upon interest rates available for the same or similar loans.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturity
dates of three months or less to be cash equivalents.
Revenue Recognition and Accounts Receivable
A portion of each copy sale is retained by the retail business, generally
depending on copy volume. The Company invoices each retailer via monthly
billings based on usage at the program price per copy less the applicable
discount (the amount retained by the retailer). Total sales activity and
discount amounts are recorded separately in the accounting records and in the
consolidated statements of operations to arrive at net sales.
Accounts receivable are shown net of allowance for doubtful accounts of
$148,000 and $156,000 at June 30, 1997 and 1998, respectively.
Inventories
Inventories are stated at the lower of FIFO cost or market.
Equipment and Vehicles
Equipment and vehicles are recorded at cost plus amounts required to place
equipment in service. Depreciation begins when the asset is placed in service
and is generally recorded using the straight-line method over the estimated
remaining useful lives of the related assets as follows:
Photocopiers and other centers 5-10 years
Furniture and fixtures 5-7 years
Computer equipment 5 years
Vehicles 5 years
F-7
<PAGE>
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and income tax bases of assets and liabilities, and are measured by applying
enacted tax rates and laws to the taxable years in which such differences are
expected to reverse.
Stock-Based Compensation
The Company applies APB No. 25, "Accounting for Stock Issued to Employees,"
and the related interpretations in accounting for stock-based compensation
plans. In fiscal 1998, the Company recorded $1.1 million of non-cash
compensation expense related to the revision of stock options of certain
retiring members of the Company's Board of Directors. In accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company has provided the
required footnote disclosures (see note 8).
Statements of Cash Flows Supplemental Information
Income taxes paid were approximately $2,465,000, $1,635,000 and $1,171,000
for the fiscal years 1996, 1997 and 1998, respectively. Interest paid does not
materially differ from interest expense.
Net Income Per Share
Net income per share is computed based on the weighted average number of
shares of common stock and dilutive potential common shares outstanding during
the periods. Dilutive potential common shares consist of options to purchase
stock (using the treasury stock method).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Risks and Uncertainties
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.
Based on a recent assessment, the Company determined that it will be
required to modify or replace significant portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operations problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send customer invoices, or engage in similar normal business
activities.
Effect of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which requires companies with complex capital
structures that have publicly held common stock or common stock equivalents to
present both basic and diluted earnings per share ("EPS") on the face of the
income statement. The presentation of basic EPS replaces the presentation of
primary EPS previously required by APB No. 15, "Earnings Per Share." This
statement is effective for financial statements issued for interim and annual
periods ending after December 15, 1997. The adoption of SFAS No. 128 in fiscal
1998 did not have a significant impact on the Company's reported diluted EPS.
F-8
<PAGE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes requirements for disclosure of comprehensive income.
The objective of SFAS No. 130 is to report all changes in equity that result
from transactions and economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-owner changes
in equity. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of earlier financial statements for comparative
purposes is required. The Company has not quantified the effect of adoption of
SFAS No. 130.
2. Inventories (in thousands):
June 30,
1997 1998
--------------------------
Paper $ 1,231 $ 1,019
Toner and developer 692 629
Parts 2,688 2,161
--------------------------
$ 4,611 $ 3,809
==========================
3. Equipment and Vehicles (in thousands):
June 30,
1997 1998
--------------------------
Photocopiers $ 45,232 $ 50,741
Furniture and fixtures 1,899 1,436
Computer equipment 1,381 1,834
Vehicles 5,109 4,680
--------------------------
53,621 58,691
Accumulated depreciation 19,749 17,067
--------------------------
$ 33,872 $ 41,624
==========================
4. Special Charges:
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," during fiscal
1997. This new accounting standard requires long-lived assets to be reviewed for
impairment when circumstances indicate the carrying amount of an asset may not
be recoverable. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the estimated future cash flows expected to
result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures the
amount of the impairment by comparing the carrying amount of the asset to its
fair value.
During 1997, the Company recognized a non-cash impairment charge of
$4,088,000 pretax ($2,526,000 and $0.35 per share after tax). This charge
included impairment write downs of equipment in three categories: color copiers,
custom business card printing components and certain older generation black and
white copiers. It was concluded during 1997 that the equipment purchased in 1993
and 1994 to support the Company's color and business card businesses was
technologically dated and that the full asset carrying amounts were not
recoverable. In addition, the Company entered an agreement with a major copier
manufacturer to purchase a new generation black and white copier ("NextGen(TM)")
to expand its core black and white photocopy business.
During 1998 new management joined the Company and evaluated the performance
of assets in the Photocopy Division. With the growth of the NextGen(TM)
photocopy program, the Company has decided to retire over half of its older
Savin photocopiers at low-volume locations, resulting in the recording of
special charges as noted hereafter:
F-9
<PAGE>
Disposal of under-performing machines $4,324
Disposal of replacement parts and inventory
relating to under-performing machines 1,494
Other 562
------
Total special charges $6,380
======
5. Accrued Expenses (in thousands):
June 30,
1997 1998
--------------------------
Accrued payroll expenses $ 2,550 $ 2,918
Customer security deposits 250 218
Accrued taxes other than income 475 330
Other accrued expenses 422 637
--------------------------
$ 3,697 $ 4,103
==========================
6. Bank Borrowings (in thousands):
June 30,
1997 1998
--------------------------
Bank revolving loan, unsecured,
maximum limit of $30.0 million $ 400 $ --
The revolving loan agreement calls for monthly payments of interest only
until expiration on April 1, 2000, or as renegotiated. At that time, no
additional borrowings will be available, and the outstanding loan balance will
be due and payable. The arrangement allows the Company to choose from interest
rate alternatives based on the bank's reference rate or on LIBOR. It also calls
for a loan fee which was paid at the date of the loan. The interest rate
applicable to bank borrowings as of June 30, 1997 was 8.5%. The loan agreement
contains certain restrictive covenants as to working capital, total liabilities
and stockholders' equity. The Company is in compliance with the covenants.
7. Income Taxes:
Income (loss) before income taxes is as follows (in thousands):
1996 1997 1998
-------------------------------------------
United States $ 6,730 $ 1,223 $ (3,900)
Foreign 160 2,944 2,945
-------------------------------------------
$ 6,890 $ 4,167 $ (955)
===========================================
F-10
<PAGE>
The components of income tax expense (benefit) are as follows (in
thousands):
1996 1997 1998
-------------------------------------------
Current:
Federal $ 1,459 $ 1,074 $ (537)
State 424 459 --
Foreign 66 370 877
Deferred:
Federal 564 (1,097) (598)
State 164 (320) (384)
Foreign 89 1,106 269
-------------------------------------------
$ 2,766 $ 1,592 $ (373)
===========================================
Deferred income taxes arise primarily from different depreciation
calculations used for financial statement and income tax purposes.
The effective tax rate differs from the federal statutory tax rate as
follows:
1996 1997 1998
-------------------------------------------
Statutory federal rate 34.0% 34.0% 34.0%
State taxes, net of
federal benefit 5.9 7.6 5.0
Benefit of foreign tax rates -- (4.1) (5.1)
Other 0.2 0.7 5.2
--------------------------------------------
40.1% 38.2% 39.1%
============================================
8. Stockholders' Equity:
Preferred Stock
On June 24, 1998 the Company issued and sold 1,777,778 Series A Preferred
Shares and Warrants to purchase 500,000 shares of Common Stock for net proceeds
of approximately $19.9 million. Each share of Preferred Stock has one vote, and
votes together with the Common Stock as a single class on all matters. Each
share is convertible at any time at the option of the holder into .7499997 of a
share of Common Stock. In addition, each share of Preferred Stock is
automatically converted into .7499997 shares of Common Stock if the price of
Common Stock is at least $20.00 for a period of 90 consecutive days commencing
after June 30, 1999. The conversion ratio and exercise prices are adjusted for
any combination or subdivision of shares, stock dividend, stock split or
recapitalization. Dividends on the Series A Preferred Shares are cumulative from
the date of original issuance and are payable quarterly in March, June,
September and December of each year, commencing June 1998, at the rate of 7-1/2%
per annum. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, each holder of Series A Preferred Stock shall be paid
the aggregate Liquidation Value, $11.25 per share, plus all accumulated and
unpaid dividends to the date of liquidation, dissolution or winding up of
affairs before any payment to holders of Junior Securities.
In conjunction with closing the preferred share transaction, the Company
amended certain retiring Board members' stock option agreements to extend the
exercise period for the options to ten years from June 24, 1998. Pursuant to APB
No. 25, and due to the extension of the exercise period, $1.1 million was
recognized as non-cash compensation expense in the year ended June 30, 1998.
F-11
<PAGE>
Common Stock
On June 24, 1998 the Company announced shareholder approval of an amendment
to the Company's Restated Articles of Incorporation increasing the number of
authorized shares of common stock from 10,000,000 shares to 50,000,000 shares.
Common Stock Warrants
On June 24, 1998 the Company granted Warrants to purchase 500,000 shares of
Common Stock at $15.00 a share. The Warrants are exercisable in whole or in
increments of at least 75,000 shares and expire as to 200,000 shares three years
after the date of grant and as to 300,000 shares seven years after the date of
grant. The Warrants may be exercised by the payment of cash, by payment in
shares of Common Stock, or on a cashless basis whereby the Company will issue
the number of shares of Common Stock equal in value to the difference between
the fair market value of the Warrant shares and the exercise price.
Common Stock Options
The Company reserved 1,300,000 shares of common stock for issuance under an
incentive and nonqualified stock option plan established in 1986 (the "1986
Plan"). In October 1996, the 1996 Stock Option Plan (the "1996 Plan") was
approved by shareholders of the Company, which provided for the granting of a
maximum of 700,000 options to purchase common shares to key employees of the
Company. In June 1998, shareholders of the Company approved increasing the
maxinum options in the 1996 Plan from 700,000 to 1,200,000, bringing the total
shares of common stock for issuance under stock option plans to 2,500,000. Under
both plans ("the Plans"), incentive stock options are granted at no less than
100% of the fair market value per share of the common stock. Nonqualified stock
options under the 1986 Plan were granted at prices determined by the Board of
Directors, while grants under the 1996 Plan are granted at no less than 100% of
fair market value. The options are exercisable over a period of ten years from
the date of grant. Generally, the options vest over five years.
<TABLE>
<CAPTION>
A summary of stock option activity follows:
Shares Weighted Average
Under Option Price Range Exercise Price
-------------------------------------- -----------------------------
<S> <C> <C> <C>
Balance, June 30, 1996 1,383,050 $ .25 - $ 10.625 $ 4.12
Options granted 146,500 $ 9.875 - $ 10.375 $ 10.28
Options exercised (468,200) $ .25 - $ 6.75 $ 1.11
Options canceled (12,800) $ 6.25 - $ 10.625 $ 7.01
----------------------------------------------------------------
Balance, June 30, 1997 1,048,550 $ 2.00 - $ 10.625 $ 6.29
Options granted 437,500 $ 9.00 - $ 14.50 $ 9.99
Options exercised (113,850) $ 4.00 - $ 10.375 $ 5.01
Options canceled (32,700) $ 6.25 - $ 10.625 $ 8.39
----------------------------------------------------------------
Balance, June 30, 1998 (990,075 exercisable,
361,500 available for grant under the Plans) 1,339,500 $ 2.00 - $ 14.50 $ 7.56
================================================================
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
A summary of stock options outstanding follows:
Options Outstanding Options Exercisable
------------------------------------------------------- ------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Price at June 30, 1998 Contractual Life Price at June 30, 1998 Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.00 to $ 7.50 599,500 6.4 $ 4.45 505,100 $ 4.21
$ 9.00 to $ 9.875 470,500 9.3 $ 9.69 336,100 $ 9.71
$ 10.00 to $ 14.50 269,500 8.3 $ 10.75 148,875 $ 10.37
- -----------------------------------------------------------------------------------------------------------------------
$ 2.00 to $ 14.50 1,339,500 7.8 $ 7.56 990,075 $ 7.00
=======================================================================================================================
</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, except for $1,146,000 in
fiscal 1998 for the extension of the exercise period for certain directors. Had
compensation cost for the Company's stock option and stock purchase plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's net income and earnings per share
would have been reduced by approximately $757,000 or $0.11 per share for the
year ended June 30, 1998, and approximately $180,000 or $0.02 per share for the
year ended June 30, 1997. The weighted-average grant-date fair value of options
granted during fiscal 1998 was $2.75 per share using the Black-Scholes option
pricing model with the following assumptions: dividend yield of 0%, volatility
of 36.80%, risk-free interest rate of 5.52% and an expected life of four years.
The weighted-average grant-date fair value of options granted during fiscal 1997
was $4.13 per share using the Black-Scholes option pricing model with the
following assumptions: dividend yield of 0%, volatility of 39.60%, risk-free
interest rate of 6.40% and an expected life of four years.
The effects of applying SFAS No. 123 for providing pro-forma disclosure for
1998 and 1997 are not likely to be representative of the effects on reported net
earnings and earnings per share for future years since options vest over several
years and additional awards may be made.
9. Benefit Plans:
Profit Sharing Retirement Plan
On January 1, 1990, the Company established a profit sharing retirement
plan for eligible U.S. employees. The Plan has profit sharing and 401(k)
components. The Company's contribution under the profit sharing portion of the
Plan is discretionary. Under the 401(k) part of the Plan, each employee may
contribute, on a pretax basis, up to 20% of the employee's gross earnings,
subject to certain limitations. The Company also has supplemental retirement
plans in Canada and the United Kingdom. The Company accrued profit sharing
contributions of $240,000 for fiscal 1996, $260,000 for fiscal 1997 and $270,000
for fiscal 1998.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan permits each eligible employee
to purchase shares of common stock through payroll deductions, not to exceed 10%
of the employee's compensation. The purchase price of the shares is the lower of
85% of the fair market value of the stock at the beginning of each six-month
offering period or 85% of the fair market value at the end of such period.
Amounts accumulated through payroll deductions during the offering period are
used to purchase shares on the last day of the offering period. Of the 100,000
shares authorized to be issued under the Plan, 65,927 shares have been
purchased, and 34,073 shares remain available for purchase as of June 30, 1998.
F-13
<PAGE>
10. Related Party Transactions:
Two members of the Company's Board of Directors served as consultants to
the Company on various aspects of the Company's business and strategic issues in
fiscal 1997 and 1998 and were paid $60,000 and $66,000, respectively.
11. Commitments:
The Company leases vehicles and office and warehouse space in several
locations under operating leases. Minimum lease payments are as follows:
$2,195,000, $1,968,000, $1,729,000, $1,319,000 and $1,018,000 for fiscal years
1999, 2000, 2001, 2002 and 2003, respectively, and $3,647,000 thereafter. Rental
expense for fiscal years 1996, 1997 and 1998 was $1,921,000, $2,358,000 and
$2,818,000, respectively.
In fiscal 1998, the Company entered an agreement with Konica Business
Machines ("Konica") to purchase 7,500 new, state-of-the-art black and white
NextGen(TM) photocopiers over a three year span. At June 30, 1998, the Company
had purchased over 7,000 units under this agreement.
12. Operations by Geographic Areas:
The Company operates in one industry segment as a service company
maintaining and supporting its programs, which have been developed and placed
with retail establishments. Information about the Company's domestic and foreign
operations are presented hereafter (in thousands).
<TABLE>
<CAPTION>
Sales Operating Income (Loss) Assets
----------------------------------- --------------------------------- -----------------------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 45,559 $ 43,949 $ 41,563 $ 5,717 $ 1,416 $ (5,281) $ 31,527 $ 26,451 $ 51,544
Foreign:
Europe 17,575 21,389 22,566 2,310 3,383 4,873 19,786 20,869 20,332
Other 4,404 4,543 4,223 284 484 188 2,938 2,840 3,390
- ----------------------------------------------------------------------------------------------------------------------------------
$ 67,538 $ 69,881 $ 68,352 $ 8,311 $ 5,283 $ (220) $ 54,251 $ 50,160 $ 75,266
==================================================================================================================================
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
TRM Corporation (formerly TRM Copy Centers Corporation) and Subsidiaries
Schedule III - Valuation and Qualifying Accounts
Years ended June 30, 1996, 1997 and 1998
(In thousands)
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Deductions - End of
Period Expenses Accounts Write Offs Peiod
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996
Allowance for doubtful accounts $ 266 $ 700 $ --- $ (679) $ 287
================================================================================
Year ended June 30, 1997
Allowance for doubtful accounts $ 287 $ 835 $ --- $ (974) $ 148
================================================================================
Year ended June 30, 1998
Allowance for doubtful accounts $ 148 $ 771 $ --- $ (763) $ 156
================================================================================
Reserve for deposit $ 100 $ 200 $ --- $ --- $ 300
================================================================================
</TABLE>
F-15
<PAGE>
Independent Auditors' Consent
The Board of Directors
TRM Corporation (formerly TRM
Copy Centers Corporation):
We consent to the incorporation by reference on Form S-8 (Nos. 33-55370 and
33-74354) of TRM Corporation of our reports dated August 17, 1998, relating to
the consolidated balance sheets of TRM Corporation and subsidiaries as of June
30, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity, cash flows, and related schedule for each of the years in
the three-year period ended June 30, 1998, which reports appear in the June 30,
1998 Form 10-K of TRM Corporation.
KPMG PEAT MARWICK LLP
Portland, Oregon
September 18, 1998
S-1
AMENDMENTS TO THE
RESTATED ARTICLES OF INCORPORATION
OF
TRM COPY CENTERS CORPORATION
1. Article I of the Restated Articles of Incorporation is hereby amended to
read in its entirety as follows:
"ARTICLE I
The name of this Corporation is TRM Corporation."
2. The first sentence of Article III of the Restated Articles of
Incorporation is hereby amended to read in its entirety as follows:
"1. The authorized capital stock of the Corporation shall consist of
50 million shares of Common Stock, no par value, and 5 million shares of
Preferred Stock no par value."
3. The Company's Restated Articles of Incorporation is hereby amended to
add the following section at the end of Article III:
"2. Series A Preferred Stock. This Article III.2 sets forth the
designation, preferences, limitations and relative rights of a series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article III.1
above. The shares of such series shall be designated Series A Preferred Stock
("Series A Preferred") and the number of shares constituting such series shall
be 1,777,778.
Section A. Dividends.
(i) When and as declared by the Corporation's Board of Directors
and to the extent permitted under the Oregon Business Corporation Act, the
Corporation will pay preferential cumulative dividends to the holders of the
Series A Preferred as provided in this Section A. Except as otherwise provided
herein, dividends on each share of Series A Preferred will accrue on a daily
basis at the rate of seven and one-half percent (7 1/2%) per annum of the
Liquidation Value thereof, determined on a quarterly basis, from and including
the date of issuance of such share of Series A Preferred to and including the
earlier of (a) the date on which the Liquidation Value of such share of Series A
Preferred plus any accrued and unpaid dividends thereon is paid to the holder
thereof upon any liquidation, dissolution or winding up of the Corporation (b)
the date on which such share of Series A Preferred is converted into Common
Stock. Such dividends will accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. The date on which the
Corporation initially issues
<PAGE>
any share of Series A Preferred will be deemed to be its "date of issuance"
regardless of the number of times transfer of such share of Series A Preferred
is made on the stock records maintained by or for the Corporation and regardless
of the number of certificates which may be issued to evidence such share of
Series A Preferred. To the extent not paid on March 31, June 30, September 30,
and December 31 of each year beginning on September 30, 1998 (the "Dividend
Payment Date"), all dividends which have accrued on each share of Series A
Preferred outstanding during the three-month period (or other period in the case
of the initial Dividend Payment Date) shall be accumulated and shall remain
accumulated dividends with respect to each such share of Series A Preferred
until paid. If at any time the Corporation pays less than the total amount of
dividends then accrued with respect to the Series A Preferred, such payment will
be distributed ratably among the holders of the Series A Preferred on the basis
of the amount of accrued and unpaid dividends with respect to the shares of
Series A Preferred owned by each such holder.
(ii) The Corporation shall not pay dividends (other than
dividends payable in shares of Common Stock) upon the Common Stock unless and
until it has paid dividends upon the Series A Preferred as set forth in Section
A(i). In the event that the Corporation declares or pays any dividends upon the
Common Stock (whether payable in cash, securities or other property) other than
dividends payable in shares of Common Stock, the Corporation shall also declare
and pay to the holders of the Series A Preferred at the same time that it
declares and pays such dividends to the holders of the Common Stock the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon conversion of the Series A Preferred had all of the
outstanding Series A Preferred been converted immediately prior to the record
date for such dividend, or, if no record date is fixed, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
Section B. Liquidation. Upon any liquidation, dissolution or winding
up of the Corporation, each holder of Series A Preferred shall be entitled to be
paid, before any distribution or payment is made upon any Junior Securities, an
amount in cash equal to the aggregate Liquidation Value of all Series A
Preferred held by such holder (plus all accrued or declared dividends unpaid
thereon), and the holders of Series A Preferred shall not be entitled to any
further payment. If, upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Series A Preferred are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid hereunder, then the entire
assets to be distributed to the Corporation's stockholders shall be distributed
pro rata among such Series A Preferred holders based upon the aggregate
Liquidation Value of all Series A Preferred held by each such holder (plus all
accrued or declared dividends unpaid thereon). At least 30 days prior to any
liquidation, dissolution or winding up of the Corporation, the Corporation shall
give written notice of such event to each record holder of Series A Preferred,
specifying the amount of liquidation proceeds per share to be distributed to the
holders of the Series A Preferred and to the holders of the Common Stock.
<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
<PAGE>
Preferred that are entitled to such notice rights or similar notice rights and
that represent at least a majority of the voting power of all then outstanding
shares of such Series A Preferred.
Section C. Voting Rights.
(i) The holders of Series A Preferred shall have no right to vote
on matters to be voted on by the stockholders of the Corporation except as
provided in this Section C and as otherwise expressly required by applicable
law; provided that in any event, each holder of Series A Preferred shall be
entitled to notice of all stockholder meetings at the same time and in the same
manner as notice is given to the stockholders entitled to vote at any such
meeting.
(ii) The holders of Series A Preferred shall be entitled to vote,
together as a single class with the holders of the Common Stock and the other
classes of the Corporation's capital stock voting with the Common Stock, on all
matters submitted to the stockholders for a vote with each share of Series A
Preferred having one vote and shall be entitled to notice of each stockholders
meeting in accordance with the Bylaws of the Corporation.
Section D. Conversion.
1. Right to Convert.
(i) Subject to the terms and conditions of this Section D,
each holder of Series A Preferred shall have the right, at its option, to
convert each share of the Series A Preferred held by such holder at any time
into .7499997 fully paid and nonassessable shares of Common Stock.
2. Conversion Procedure.
(i) Except as otherwise provided herein, each conversion of
Series A Preferred shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Series A Preferred to be converted have been surrendered at the principal office
of the Corporation (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series A
Preferred). At such time as such conversion has been effected, the rights of the
holder of such Series A Preferred as such holder shall cease and the Person or
Persons in whose name or names any certificate or certificates for shares of
Conversion Stock are to be issued upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
(ii) The conversion rights of each share of Series A
Preferred shall terminate on the date the Corporation has paid to the holder of
such share the Liquidation Value thereof (plus all accrued or declared dividends
unpaid thereon).
<PAGE>
(iii) As soon as possible after a conversion has been
effected (but in any event within three business days in the case of
subparagraph (a) below), the Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the
number of shares of Conversion Stock issuable by reason of such conversion
in such name or names and such denomination or denominations as the
converting holder has specified;
(b) payment in an amount equal to all accrued dividends
unpaid with respect to each share of Series A Preferred converted into
Conversion Stock, which have not been paid prior thereto, plus the amount
payable under subparagraph (vii) below with respect to such conversion; and
(c) a certificate representing any shares of Series A
Preferred which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which
were not converted.
(iv) If the Corporation is not permitted under applicable
law to pay any portion of the accrued dividends on the shares of Series A
Preferred being converted into Conversion Stock, the Corporation shall pay such
dividends to the converting holder as soon thereafter as funds of the
Corporation are legally available for such payment. At the request of any such
converting holder, the Corporation shall provide such holder with written
evidence of its obligation to such holder.
(v) The issuance of certificates for shares of Conversion
Stock upon any conversion of Series A Preferred shall be made without charge to
the holders thereof for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares; provided that the Corporation shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than that of the holder of the
shares which are being converted.
(vi) The Corporation shall not close its transfer books
against the transfer of Conversion Stock issued or issuable upon conversion of
Series A Preferred in any manner which interferes with the timely conversion of
the Series A Preferred. The Corporation shall assist and cooperate with any
holder of Series A Preferred required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of
Series A Preferred hereunder (including, without limitation, making any filings
required to be made by the Corporation).
(vii) If any fractional interest in a share of Conversion
Stock would, except for the provisions of this subparagraph, be deliverable upon
any conversion of Series A Preferred, the Corporation, in lieu of delivering the
fractional share therefor, shall pay an amount to the holder thereof equal to
the Market Price of such fractional interest as of the date of conversion.
<PAGE>
(viii) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of issuance upon the conversion of the Series A Preferred, such
number of shares of Common Stock issuable upon conversion of all outstanding
Series A Preferred. All shares of stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Corporation shall take all such actions as may
be necessary to ensure that all such shares may be so issued without violation
of any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of such stock may be listed
(except for official notice of issuance which shall be immediately delivered by
the Corporation upon each such issuance). The Corporation shall not take any
action which would cause the number of authorized but unissued shares of Common
Stock to be less than the required number of such shares to be reserved
hereunder.
3. Conversion Adjustments.
(i) In order to prevent dilution of the conversion rights
granted hereunder, the conversion ratio provided for in Section D.1 shall be
subject to adjustment from time to time pursuant to this Section D.3.
(ii) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the conversion ratio provided for
in Section D.1 in effect immediately prior to such subdivision shall be
proportionately increased, and if the Corporation at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the conversion ratio provided
for in Section D.1 in effect immediately prior to such combination shall be
proportionately decreased.
4. Notices.
(i) Immediately upon any adjustment of the Conversion Price,
the Corporation shall give written notice thereof to all holders of Series A
Preferred, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Corporation shall give written notice to all
holders of Series A Preferred at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any dividend
or distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any dissolution or liquidation.
5. Automatic Conversion. All of the outstanding Series A
Preferred shall be automatically converted into Conversion Stock upon the
closing of the date as of which the Share Price of the Common Stock for a period
of 90 consecutive calendar days commencing after June 30, 1999 is at least
$20.00 (as appropriately adjusted for any combination or subdivision of shares,
stock dividend, stock split or other recapitalization).
<PAGE>
Section E. Purchase Rights.
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then each holder of Series A Preferred shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Conversion Stock acquirable upon conversion of such
holder's Series A Preferred immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
Section F. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of Series A Preferred. Upon the surrender of any certificate
representing shares of Series A Preferred at such place, the Corporation shall,
at the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares of Series A
Preferred represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of shares of
Series A Preferred as is requested by the holder of the surrendered certificate
and shall be substantially identical in form to the surrendered certificate. The
issuance of new certificates shall be made without charge to the holders of the
surrendered certificates for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such issuance (but not including
any transfer taxes).
Section G. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
shares of Series A Preferred, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of Series A Preferred
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
<PAGE>
Section H. Definitions.
"Common Stock" means the Common Stock, no par value, of the
Corporation, and any capital stock of any class of the Corporation hereafter
authorized which is not limited to a fixed sum or percentage of any stated value
in respect to the rights of the holders thereof to participate in dividends or
in the distribution of assets upon any liquidation, dissolution or winding up of
the Corporation.
"Conversion Stock" means shares of Common Stock issuable upon
conversion of Series A Preferred; provided that if there is a change such that
the securities issuable upon conversion of Series A Preferred are issued by an
entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion of the Series A Preferred if such security
is issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities convertible
into or exchangeable for any equity securities of the Company.
"Junior Securities" means any of the Corporation's capital stock or
other equity securities other than the Series A Preferred.
"Liquidation Value" of any share of Series A Preferred as of any
particular date shall be equal to $11.25 (as such amount is equitably adjusted
for subsequent stock splits, stock combinations, stock dividends and
recapitalizations affecting the Series A Preferred).
"Market Price" of any security means the average of the closing prices
of such security's sales on all securities exchanges on which such security may
at the time be listed, or, if there has been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the
Corporation and the holders of a majority of the Series A Preferred. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Corporation and the holders of a
majority of the Series A Preferred. The determination of such appraiser shall be
final and binding upon the parties, and the Corporation shall pay the fees and
expenses of such appraiser.
<PAGE>
"Options" means any rights or options to subscribe for or purchase
equity securities or Convertible Securities.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Share Price" means the closing price on a day of sales of the Common
Stock on the securities exchange on which the Common Stock may be listed, or if
on any day the Common Stock is not listed on any securities exchange, the last
bid price quoted in the NASDAQ System as of 4:00 P.M., New York time on such
day, or if on any day the Common Stock is not quoted in the NASDAQ System, the
last bid price on such day in the domestic over-the-counter market as reported
by the National Quotation Bureau, Incorporated, or any similar successor
organization.
Section I. Notices.
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be delivered by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices,
attention: Paul Brown, Chief Financial Officer and (ii) to any stockholder, at
such holder's address as it appears in the stock records of the Corporation
(unless otherwise indicated by any such holder)."
Amendment 1 dated: September 11, 1998.
Amendment 2 and 3 dated: June 24, 1998
RESTATED ARTICLES OF INCORPORATION
FOR
TRM COPY CENTERS CORPORATION
(Formerly known as
All Copy Corporation)
ARTICLE I
Effective on the filing of these Restated Articles of Incorporation, the
name of this Corporation is changed from ALL COPY CORPORATION to TRM COPY
CENTERS CORPORATION. Its duration shall be perpetual.
ARTICLE II
The purpose for which the Corporation is organized is to engage in any
lawful activity for which corporations may be organized under the Oregon
Business Corporation Act.
ARTICLE III
The authorized capital stock of the Corporation shall consist of 10 million
shares of Common Stock, no par value, and 5 million shares of Preferred Stock,
no par value. The Common Stock shall have unlimited voting rights, and shall be
entitled to receive the net assets of the Corporation upon dissolution, subject
to any specific voting rights or right to distributions upon dissolution that
may be set forth in the terms of any shares of Preferred Stock established by
amendment to these Restated Articles. The Board of Directors of the Corporation
may determine, in whole or in part, the preferences, limitations, and relative
rights of the Preferred Stock before the issuance of any shares of such class of
stock.
The Preferred Stock may be issued from time to time in one or more series
as determined by the Board of Directors pursuant to authority hereby vested in
it, each series to be appropriately designated, prior to the issue of any shares
thereof, by some distinguishing letter, number or title. All shares of the same
series of Preferred Stock shall be identical in every particular and, except as
otherwise stated with respect to the particular preferences, limitations and
relative rights in the resolution or resolutions creating any series, identical
with respect to other series of Preferred Stock. The designation and terms of
any series of Preferred Stock shall be fixed and determined by the Board of
Directors and set forth in an amendment to these Restated Articles to be filed
with the Secretary of State before the issuance of any shares of any such
series.
The Board of Directors may from time to time increase the authorized number
of shares of any series of Preferred Stock already created by providing that any
unissued shares of Preferred Stock shall constitute part of such series, or may
decrease (but not below
<PAGE>
the number of shares thereof then outstanding) the number of shares of any
series of Preferred Stock already created by providing that any unissued shares
previously assigned to such series shall no longer constitute a part thereof.
The Board of Directors is further empowered to classify or reclassify any
unissued Preferred Stock by fixing or altering the terms thereof and by
assigning all or any portion thereof to an existing or newly created series from
time to time before the issuance of such stock.
ARTICLE IV
1. The number of directors of the Corporation shall be fixed as provided by
the Bylaws and may be changed from time to time by amending the Bylaws, as
therein provided, but the number of directors shall be not less than three. The
Board of Directors is authorized to increase the number of persons to comprise
the Board of Directors in any period between annual shareholder meetings by the
affirmative vote of a majority of the directors. In the event the Board of
Directors is divided into classes, such additional director or directors shall
be allocated by the Board of Directors among the three classes of directors so
as to maintain equal classes to the extent possible. Without the unanimous
consent of the existing Board of Directors, the number of directors shall not be
increased by more than two within any 12-month period. Without the unanimous
consent of the Board of Directors, no person who is affiliated as an owner,
director, officer or employee of a company or business deemed by the Board of
Directors to be competitive with that of the Corporation shall be eligible to
serve on the Board of Directors of the Corporation.
2. At any time when the Board of Directors shall consist of six or more
members, in lieu of electing the entire number of directors annually, the Board
of Directors of the Corporation shall be divided into three classes. The three
classes shall consist of an equal number of directors to the extent possible.
The initial designation of which current directors shall serve in which classes
shall be made by the director then serving as Chairman of the Board. The classes
shall be Class 1, Class 2 and Class 3. The term of office of directors of Class
1 shall expire at the first annual meeting of shareholders after their election,
that of Class 2 shall expire at the second annual meeting after their election,
and that of Class 3 shall expire at the third annual meeting after their
election. When classification of directors is in effect, at each annual meeting
of shareholders the number of directors equal to the number of the class whose
term expires at the time of such meeting shall be elected to hold office until
the third succeeding annual meeting. No classification of directors shall be
effective in the event the authorized number of members of the Board is reduced
to fewer than six.
3. If the Board of Directors is divided into classes and in the event of
any increase or decrease in the authorized number of directors, then (i) each
director then serving as such shall nevertheless continue as a director of the
class of which he is a member until the expiration of his current term, or upon
his earlier resignation, removal from office or death; (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
allocated by the Board of Directors among the three classes of directors so
2
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as to maintain equal classes to the extent possible; and (iii) in the event such
decrease in the authorized number of directors makes the total number of
directors less than six, then the Board of Directors shall become declassified
and the directors remaining in office shall continue their terms until the next
annual meeting of shareholders, at which time all of said remaining directors
shall be re-elected to one-year terms or until their successors are duly elected
and qualified.
4. A director of the Corporation may be removed only for cause by the
affirmative vote of the holders of not less than 75 percent of the outstanding
shares of voting stock.
ARTICLE V
1. The affirmative vote of the holders of not less than 75 percent of all
outstanding voting stock, voting as one class, shall be required for the
approval or authorization of any "business combination" (as hereinafter defined)
with any person or entity which, as of the record date for the determination of
the shareholders entitled to notice of and to vote upon such matter, is the
beneficial owner of 5 percent or more of the outstanding voting stock of the
Corporation (hereinafter a "Major Shareholder"). Any such 75 percent vote in
order to constitute due and valid authorization under this Article must include
the affirmative vote of not less than 51 percent of the voting stock held by
persons other than the Major Shareholder.
2. For purposes of this Article, the term "business combination" shall
mean:
(a) any merger or consolidation (whether in a single transaction or a
series of related transactions) of the Corporation or any subsidiary of the
Corporation with or into any Major Shareholder; or
(b) the sale, exchange, distribution to shareholder, pledge, mortgage
(or use of other security device to create a lien upon) or lease of 10 percent
or more of the consolidated assets of the Corporation and its subsidiaries to
any Major Shareholder, or the purchase, exchange, lease or other acquisition by
the Corporation or any of its subsidiaries of 10 percent or more of the
consolidated assets of a Major Shareholder, in either case in a single
transaction or a series of related transactions, excluding, however, any
dividend or distribution paid or made or any transaction with shareholders,
which, in each case, is pro rata to all holders of a class or series of shares
of the Corporation or any of its subsidiaries, provided that there is no
increase in the Major Shareholder's proportionate share of any class or series
of shares of the Corporation or of the voting stock of the Corporation; or
(c) the issuance of securities of the Corporation (or warrants,
options or other rights to purchase the same, but specifically excluding any
stock options and any related purchases of shares pursuant to such options
granted under any employee stock option
3
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plan adopted by the Board of Directors) to, the reclassification or
recapitalization of the securities of the Corporation owned by, or the exchange
of securities of the Corporation with, a Major Shareholder in any transaction in
which all shareholders of the same class or series of shares are not treated
identically on a per-share basis; or
(d) any other transaction with a Major Shareholder for which approval
of the shareholders of this Corporation is required by law or by any agreement
between the Corporation and any national securities exchange or the National
Association of Securities Dealers, Inc., or rule of any such exchange or
Association; or
(e) any contract or agreement providing for any of the foregoing.
3. For purposes of this Article, the term "person" or "entity" shall mean:
(a) any individual, corporation, partnership or other person;
(b) any other party which is an "affiliate" or "associate" (as those
terms are defined in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934 as in effect on October 31, 1991), of any person
or entity described in subparagraph 3(a) above;
(c) any other party with which any person or entity described in
subparagraph 3(a) above or any of its affiliates or associates have any
agreement, arrangement or understanding, directly or indirectly, for the purpose
of acquiring, holding, voting or disposing of shares of the Corporation; and
(d) the predecessors, successors or assigns of any entity described in
subparagraphs 3(a), (b) or (c) above in any transaction or series of
transactions not involving a public offering of the shares of the Corporation
within the meaning of the Securities Act of 1933.
4. The super-majority voting requirements of this Article shall not be
applicable to any business combination (i) approved by resolution of the Board
of Directors prior to the time that the Major Shareholder became such, (ii)
approved by the affirmative vote of a majority of the Continuing Directors, or
(iii) solely between the Corporation and any other corporation or entity in
which 50 percent or more of the voting stock or interest is owned by the
Corporation, if the shareholders of the Corporation retain their proportionate
voting and equity interests in the surviving entity. The term "Continuing
Director" for purposes of this Article shall mean a director (i) who is and has
been a director for at least two consecutive years immediately preceding the
date of the vote, (ii) who was a member of the Board of Directors of the
Corporation immediately prior to the time that any person or entity with whom a
business combination is to be consummated became a Major Shareholder, or (iii)
who is a director designated (before his initial election as a director) as a
Continuing Director by a two-thirds vote of the then Continuing Directors. All
references to a vote of
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the Continuing Directors shall mean a vote of the total number of Continuing
Directors of the Corporation.
5. Beneficial ownership for purposes of this Article shall be deemed to
include all shares which would be determined to be beneficially owned (whether
directly by such person or entity or indirectly through any affiliate or
otherwise) under Rule 13d-3 of the Securities and Exchange Commission as in
effect on October 31, 1991, as well as all shares of the Corporation which such
person or entity has the right to acquire, pursuant to any agreement or
otherwise.
6. The determination of whether a proposed business combination is within
the scope of this Article, including without limitation, (i) the number of
shares of stock beneficially owned by any person; (ii) whether a person is an
affiliate or associate of another; (iii) whether a person has an agreement,
arrangement or understanding with another as to the matters referred to in this
Article; (iv) whether the assets subject to any business combination are a
substantial part of the relevant corporation's assets; (v) whether a proposed
transaction is subject to the provisions of this Article; and (vi) such other
matters with respect to which a determination is required under this Article,
shall be made by a two-thirds majority of the Continuing Directors. Any such
determination shall be conclusive and binding for all purposes of this Article.
7. During the time a Major Shareholder exists, a resolution to voluntarily
dissolve the Corporation shall be adopted only upon (i) the consent of the
holders of all of the Corporation's outstanding voting stock; or (ii) the
affirmative vote of at least two-thirds of the total number of the Continuing
Directors, and the affirmative vote of the holders of at least 75 percent of the
outstanding shares of voting stock. If no Major Shareholder exists, this section
7 shall not apply.
8. The shareholder vote, if any, required for any business combination not
expressly subject to the super-majority voting provisions of this Article shall
be such vote as may otherwise be required by applicable law and any other
applicable provisions of these Restated Articles of Incorporation.
9. Notwithstanding the foregoing provisions, in the event of any business
combination with any person or entity which is a Major Shareholder, the
requisite vote of the holders of the outstanding shares of voting stock
necessary to approve the transaction shall be 75 percent unless the terms of the
transaction are such that all of the Corporation's shareholders of the same
class are to receive as a result of the business combination the identical and
highest price on a per-share basis in exchange for their shares as was received
by any other former shareholder of the Corporation of such class whose shares
were acquired during the preceding 9-month period by the Major Shareholder with
whom the business combination is to be consummated.
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ARTICLE VI
Notwithstanding any of the provisions of these Restated Articles of
Incorporation or the Bylaws of the Corporation, and notwithstanding the fact
that some lesser percentage may be allowed by law, any amendment, change or
repeal of Articles IV, V or this Article VI, or any other amendment of these
Restated Articles of Incorporation which would have the effect of modifying or
permitting circumvention of the provisions of Articles IV, V and VI, shall
require the affirmative vote of 75 percent of the outstanding shares of voting
stock of the Corporation.
ARTICLE VII
1. The Corporation shall indemnify its directors, officers, employees and
agents to the full extent and under the circumstances permitted by the Oregon
Business Corporation Act.
2. To the fullest extent permitted by law, no director of this Corporation
shall be personally liable to the Corporation or its shareholders for monetary
damages for conduct as a director. No amendment or repeal of this Article VII,
nor the adoption of any provision of these Restated Articles of Incorporation
inconsistent with this Article VII, shall adversely affect any right or
protection of a director based upon this Article VII and existing at the time of
such amendment or repeal. No change in the law shall reduce or eliminate the
rights and protections applicable at the time this provision shall become
effective unless the change in the law shall specifically require such reduction
or elimination. If the Oregon Business Corporation Act is amended, after this
Article VII shall become effective, to authorize corporate action further
eliminating or limiting the personal liability of directors, officers, employees
or agents, then the liability of directors, officers, employees or agents of
this Corporation shall be eliminated or limited to the fullest extent permitted
by the Oregon Business Corporation Act, as so amended.
3. No contract or other transaction between the Corporation and one or more
of its directors or between the Corporation and any other corporation, firm,
association or entity in which one or more of its directors are directors or
officers or are financially interested, shall be either void or voidable because
of such relationship or interest or because such director or directors are
present at the meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction or because his or
their votes are counted for such purposes, if:
(i) the fact of such relationship or interest is disclosed or known to
the Board of Directors or committee which authorizes, approves or
ratifies the contract or transaction by a vote or consent sufficient
for the purpose without counting the votes or consents of such
interested directors; or
(ii) the fact of such relationship or interest is disclosed or known to
the
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shareholders entitled to vote and they authorize, approve or ratify
such contract or transaction by vote or written consent; or
(iii) the contract or transaction is fair and reasonable to the
Corporation.
Interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or a committee thereof which authorizes
or ratifies such contract or transaction.
ARTICLE VIII
No shareholder shall have any preemptive right to acquire unissued or
treasury shares of the Corporation or securities convertible into such shares or
carrying a right to subscribe to or acquire such shares.
ARTICLE IX
No shareholder shall have the right to cumulate votes in respect of the
election of directors.
7
RESTATED BYLAWS
OF
TRM COPY CENTERS CORPORATION
ARTICLE I
SHAREHOLDERS: MEETINGS AND VOTING
Section 1. PLACE OF MEETINGS
Meetings of the shareholders of TRM COPY CENTERS CORPORATION, an Oregon
corporation (the "Corporation") will be held at the principal office of the
Corporation, or any other place, either within or without the state of Oregon,
selected by the Board of Directors.
Section 2. ANNUAL MEETINGS
(a) The annual meeting of the shareholders will be held on the fourth
Tuesday of October of each year, if not a legal holiday, and if a legal holiday
then on the next succeeding business day, at such time as may be prescribed by
the Board of Directors and specified in the notice of the meeting. At the annual
meeting, the shareholders will elect by vote a Board of Directors from the
persons nominated pursuant to paragraph (c) below, provided that if pursuant to
the Articles of Incorporation staggered terms for directors are in effect, then
only such members whose terms expire at such meeting shall be elected. The
shareholders shall also consider reports of the affairs of the Corporation and
transact such other business as may properly be brought before the meeting.
(b) At the annual meeting of the shareholders, only such matters as shall
have been properly brought before the meeting shall be considered and acted
upon. To be properly brought before an annual meeting, a matter must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (ii) otherwise brought before the
meeting by or at the direction of the Board of Directors, or (iii) properly
brought before the meeting by a shareholder. For any matter to be properly
brought before the annual meeting by a shareholder, the shareholder must have
given prior written notice to the Secretary of the Corporation which must be
received at the principal executive offices of the Corporation not less than 30
days nor more than 60 days prior to the meeting. In the event that less than 30
days' notice of the date of the meeting is given or made to shareholders, notice
by a shareholder shall be timely received if received not later than the close
of business on the tenth day following the date on which such notice of the date
of the annual meeting was mailed. A shareholder's notice to the Secretary in
order to be valid must set forth as to each matter the shareholder proposes to
bring before the annual meeting
<PAGE>
(i) a brief description of the matter proposed to be brought before the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the shareholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in the matter. No matter shall be
considered or acted upon at an annual meeting except in accordance with the
procedures set forth in this Section 2. The presiding officer at any annual
meeting shall determine whether any matter was properly brought before the
meeting in accordance with the provisions of this section. If he shall determine
that any matter has not been properly brought before the meeting, he shall so
declare at the meeting and any such matter shall not be considered or acted
upon.
(c) At the annual meeting of shareholders, only those persons properly
nominated shall be considered in the election for directors. To be properly
nominated, a person must be (i) nominated by the Board of Directors or (ii)
properly nominated by a shareholder. To be properly nominated by a shareholder,
the shareholder must have given prior written notice of the nomination to the
Secretary of the Corporation which must be received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior to
the meeting. In the event that less than 30 days' notice of the date of the
meeting is given or made to shareholders, notice of the nomination by a
shareholder shall be timely received if received not later than the close of
business on the tenth day following the date on which such notice of the date of
the annual meeting was mailed. A shareholder's notice of nomination to the
Secretary in order to be valid must set forth as to each person the shareholder
proposes to nominate to the Board of Directors (i) the information described by
Items 401(a), (e) and (f) and Item 403(b) of Regulation S-K under the Securities
Act of 1933, as amended, or successor provisions, (ii) the class and number of
shares of the Corporation which are beneficially owned by the nominating
shareholder, and (iii) any material interest of the shareholder or of the
nominee in the Corporation. No nominee shall be considered for election as a
director at an annual meeting except in accordance with the procedures set forth
in this Section 2. The presiding officer at any annual meeting shall determine
whether any nomination was properly brought before the meeting in accordance
with the provisions of this section. If he shall determine that any person has
not been properly nominated, he shall so declare at the meeting and any such
nominee shall not be considered in the election.
Section 3. SPECIAL MEETINGS
(a) The Corporation will hold a special meeting of shareholders upon the
call of the President or the Board of Directors, or if the holders of at least
10 percent of all votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting sign, date and deliver to the
Secretary of the Corporation one or more written demands for the meeting
describing the purpose or purposes for which it is to be held.
(b) The circuit court of the county where the Corporation's principal
office is located, or, if the principal office is not in Oregon, where the
registered office of the Corporation is or was last located, may summarily order
a special meeting to be held upon
<PAGE>
the application of a shareholder of the Corporation who signed a valid demand
for a special meeting if notice of the special meeting was not given within 30
days after the date the demand was delivered to the Corporation's Secretary or
if the special meeting was not held in accordance with the notice.
Section 4. NOTICE OF MEETINGS
(a) The Corporation will notify shareholders in writing of the date, time
and place of each annual and special shareholders meeting not earlier than 60
days nor less than ten days before the meeting date. Unless Oregon law or the
Articles of Incorporation require otherwise, the Corporation is required to give
notice only to shareholders entitled to vote at the meeting. Such notice is
effective when mailed if it is mailed postage prepaid and is correctly addressed
to the shareholder's address shown in the Corporation's current record of
shareholders. Unless required by law or by the Articles of Incorporation, notice
of an annual meeting need not include a description of the purpose or purposes
for which the meeting is called. However, notice of a special meeting will
include a description of the purpose or purposes for which the meeting is
called.
(b) If an annual or special shareholders meeting is adjourned to a
different date, time or place, notice need not be given of the new date, time or
place if the new date, time or place is announced at the meeting before
adjournment. However, if a new record date for the adjourned meeting is fixed,
or is required by law to be fixed, notice of the adjourned meeting shall be
given to persons who are shareholders as of the new record date. A determination
of shareholders entitled to notice of or to vote at a shareholders meeting is
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it must do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
(c) A shareholder's attendance at a meeting waives objection to (i) lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; and (ii) consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
unless the shareholder objects to considering the matter when it is presented.
Section 5. QUORUM AND VOTING REQUIREMENTS FOR VOTING GROUPS
(a) Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect to that
matter. Unless otherwise required by law or by the Articles of Incorporation, a
majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter. Once a
share is represented for any purpose at a meeting, it is deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for that adjourned meeting.
<PAGE>
(b) In the absence of a quorum, a majority of those present in person or
represented by proxy may adjourn the meeting from time to time until a quorum
exists. Any business that might have been transacted at the original meeting may
be transacted at the adjourned meeting if a quorum exists.
Section 6. VOTING RIGHTS
(a) The persons entitled to receive notice of and to vote at any
shareholders meeting will be determined from the records of the Corporation on
the close of business on the day before the mailing of the notice or on such
other date not more than 70 nor less than 10 days before such meeting, as will
be fixed in advance by the Board of Directors.
(b) Except as otherwise provided in the Articles of Incorporation or by
law, each outstanding share, regardless of class, is entitled to one vote on
each matter voted on at a shareholders meeting. Only issued and outstanding
shares are entitled to vote.
(c) Unless otherwise provided in the Articles of Incorporation or by law,
if a quorum exists, action on a matter, other than the election of directors, by
a voting group is approved if the votes cast within the voting group favoring
the action exceed the votes cast within the voting group opposing the action.
(d) Unless otherwise provided in the Articles of Incorporation, directors
are elected by a plurality of the votes cast by holders of the shares entitled
to vote in the election at a meeting at which a quorum is present.
Section 7. VOTING OF SHARES BY CERTAIN HOLDERS
(a) If the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the Corporation, if acting in good
faith, is entitled to accept the vote, consent, waiver or proxy appointment and
give it effect as the act of the shareholder. If the name signed on a vote,
consent, waiver or proxy appointment does not correspond to the name of its
shareholder, the Corporation, if acting in good faith, is nevertheless entitled
to accept the vote, consent, waiver or proxy appointment and give it effect as
the act of the shareholder if:
(i) The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
(ii) The name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder and, if the
Corporation requests, evidence of fiduciary status acceptable to the Corporation
has been presented with respect to the vote, consent, waiver or proxy
appointment;
<PAGE>
(iii) The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests, evidence of this
status acceptable to the Corporation has been presented with respect to the
vote, consent, waiver or proxy appointment;
(iv) The name signed purports to be that of a pledgee, beneficial
owner or attorney-in-fact of the shareholder and, if the Corporation requests,
evidence acceptable to the Corporation of the signatory's authority to sign for
the share-holder has been presented with respect to the vote, consent, waiver or
proxy appointment; or
(v) Two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
(b) Shares of the Corporation are not entitled to be voted if (i) they are
owned, directly or indirectly, by another domestic or foreign corporation, and
(ii) the Corporation owns, directly or indirectly, a majority of the shares
entitled to be voted for directors of such other corporation. This paragraph
does not limit the power of a corporation to vote any shares, including its own
shares, held by it in a fiduciary capacity.
(c) Redeemable shares are not entitled to be voted after notice of
redemption is mailed to the holders and a sum sufficient to redeem the shares
has been deposited with a bank, trust company or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
surrender of the shares.
Section 8. PROXIES
A shareholder may vote shares either in person or by proxy. A shareholder
may appoint a proxy to vote or otherwise act for the shareholder by signing an
appointment form, either personally or by the shareholder's attorney-in-fact. An
appointment of a proxy is effective when received by the Secretary or other
officer or agent of the Corporation authorized to tabulate votes. An appointment
is valid for 11 months unless a longer period is expressly provided in the
appointment form. An appointment of a proxy is revocable by the shareholder
unless the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest.
Section 9. SHAREHOLDER LISTS
(a) After fixing a record date for a meeting, the Corporation will prepare
an alphabetical list of the names of all of its shareholders who are entitled to
notice of the meeting. The list must be arranged by voting group, and within
each voting group, by class or series of shares and show the address of and the
number of shares held by each shareholder.
<PAGE>
(b) The shareholder list must be available for inspection by any
shareholder, beginning two business days after notice of the meeting for which
the list was prepared is given and continuing through the meeting. Such list
will be kept on file at the Corporation's principal office or at a place
identified in the meeting notice in the city where the meeting will be held. A
shareholder, or the shareholder's agent or attorney, is entitled on written
demand to inspect and, subject to the requirements of law, to copy the list
during regular business hours and at the shareholder's expense during the period
it is available for inspection.
(c) The Corporation will make the shareholder list available at the
meeting, and any shareholder, or the shareholder's agent or attorney, is
entitled to inspect the list at any time during the meeting or any adjournment.
(d) Refusal or failure to prepare or make available the shareholder list
does not affect the validity of action taken at the meeting.
ARTICLE II
DIRECTORS: MANAGEMENT
Section 1. POWERS
The Corporation will have a Board of Directors. All corporate powers will
be exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, the Board of Directors, subject to
any limitation set forth in the Articles of Incorporation.
Section 2. NUMBER AND QUALIFICATIONS
The Board of Directors will consist of nine members, until the number has
been changed by the Board of Directors by amendment of these Bylaws. In no event
shall the number of directors be less than three. A decrease in the number of
directors does not shorten an incumbent director's term. In the event the Board
of Directors is divided into classes as set forth in Section 5 below, any
increase in the number of directors shall be allocated by the Board of Directors
among the three classes of directors so as to maintain equal classes to the
extent possible. Without the unanimous consent of the existing Board of
Directors, no more than two additional directors shall be added to the Board of
Directors within any 12-month period. Without the unanimous consent of the Board
of Directors, no person who is affiliated as an owner, director, officer or
employee of a company or business deemed by the Board of Directors to be
competitive with that of the Corporation shall be eligible to serve on the Board
of Directors of the Corporation. Directors need not be residents of the state of
Oregon or shareholders of the Corporation, unless required by the Articles of
Incorporation.
<PAGE>
Section 3. ELECTION OF DIRECTORS
The directors will be elected by ballot at the annual meeting of the
shareholders.
Section 4. TENURE OF OFFICE WITHOUT CLASSES
If the Board of Directors consists of five or fewer members, the terms of
all directors shall expire at the next annual shareholders meeting following
their election. The term of a director elected to fill a vacancy expires at the
next shareholders meeting at which directors are elected. Despite the expiration
of a director's term, the director continues to serve until the director's
successor is elected and qualifies or until there is a decrease in the number of
directors. Subject to paragraph (c) of Section 6 of Article II, a director's
term of office will begin immediately after election.
Section 5. TENURE OF OFFICE WITH CLASSES
(a) At any time when the Board of Directors shall consist of six or more
members, in lieu of electing the entire number of directors annually, the Board
of Directors of the Corporation shall be divided into three classes. The three
classes shall consist of an equal number of directors to the extent possible.
The initial designation of which current directors shall serve in which classes
shall be made by the director then serving as Chairman of the Board. The classes
shall be Class 1, Class 2 and Class 3. The term of office of directors of Class
1 shall expire at the first annual meeting of shareholders after their election,
that of Class 2 shall expire at the second annual meeting after their election,
and that of Class 3 shall expire at the third annual meeting after their
election. When classification of directors is in effect, at each annual meeting
of shareholders the number of directors equal to the number of the class whose
term expires at the time of such meeting shall be elected to hold office until
the third succeeding annual meeting. No classification of directors shall be
effective in the event the authorized number of members of the Board is reduced
to fewer than six.
(b) If the Board of Directors is divided into classes and in the event of
any increase or decrease in the authorized number of directors, then (i) each
director then serving as such shall nevertheless continue as a director of the
class of which he is a member until the expiration of his current term, or upon
his earlier resignation, removal from office or death; (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
allocated by the Board of Directors among the three classes of directors so as
to maintain equal classes to the extent possible; and (iii) in the event such
decrease in the authorized number of directors makes the total number of
directors less than six, then the Board of Directors shall become declassified
and the directors remaining in office shall continue their terms until the next
annual meeting of shareholders, at which time all of said remaining directors
shall be re-elected to one-year terms or until their successors are duly elected
and qualified.
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Section 6. VACANCIES
(a) A vacancy in the Board of Directors will exist upon the death,
resignation or removal of any director or upon an increase in the number of
directors.
(b) Unless the Articles of Incorporation provide otherwise, if a vacancy
occurs on the Board of Directors:
(i) The shareholders may fill the vacancy, provided that the Board of
Directors has not already done so; or
(ii) The Board of Directors may fill the vacancy, provided the
shareholders have not already done so. If the directors remaining in office
constitute fewer than a quorum of the Board, they may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in office.
(c) A vacancy that will occur at a specific later date, by reason of a
resignation effective at the later date or otherwise, may be filled before the
vacancy occurs, but the new director may not take office until the vacancy
occurs.
Section 7. RESIGNATION OF DIRECTORS
A director may resign at any time by delivering written notice to the Board
of Directors, its chairperson or the Corporation. Unless the notice specifies a
later effective date, a resignation is effective at the earliest of the
following: (a) when received; (b) five days after its deposit in the United
States mail, as evidenced by the postmark, if mailed postage prepaid and
correctly addressed; or (c) on the date shown on the return receipt, if sent by
registered or certified mail, return receipt requested and the receipt is signed
by or on behalf of the addressee. Once delivered, a notice of resignation is
irrevocable unless revocation is permitted by the Board of Directors.
Section 8. REMOVAL OF DIRECTORS
A director may be removed only for cause by the affirmative vote of the
holders of not less than 75 percent of the outstanding shares of Common Stock. A
director may be removed by the shareholders only at a meeting called for the
purpose of removing the director and the meeting notice must state that the
purpose, or one of the purposes, of the meeting is removal of the director.
Section 9. MEETINGS
(a) The Board of Directors may hold regular or special meetings in or out
of the state of Oregon.
<PAGE>
(b) Annual meetings of the Board of Directors will be held without notice
immediately following the adjournment of the annual meetings of the
shareholders.
(c) Unless the Articles of Incorporation provide otherwise, regular
meetings of the Board of Directors may be held without notice of the date, time,
place or purpose of the meeting. The Board of Directors may fix, by resolution,
the time and place for the holding of regular meetings.
(d) Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the President or any director. The person or
persons who call a special meeting of the Board of Directors may fix the time
and place of the special meeting.
Section 10. NOTICE OF SPECIAL MEETINGS
(a) Unless the Articles of Incorporation provide for a longer or shorter
period, special meetings of the Board of Directors must be preceded by at least
two days' notice of the date, time and place of the meeting. The notice need not
describe the purpose of the special meeting unless required by the Articles of
Incorporation. The notice will be given orally, in person or by telephone, or
delivered in writing either personally or by mail, private carrier, telegram,
electronic mail or facsimile transmission. If in writing, such notice is
effective at the earliest of the following: (a) when received; or (b) when
mailed if it is mailed postpaid and is correctly addressed to the director's
address shown in the corporation's records. If given orally, such notice is
effective when communicated.
(b) A director's attendance at or participation in a meeting waives any
required notice to the director of the meeting unless the director at the
beginning of the meeting, or promptly upon the director's arrival, objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
(c) Notice of the time and place of holding an adjourned meeting need not
be given if such time and place are fixed at the meeting adjourned.
Section 11. QUORUM AND VOTE
(a) Unless the Articles of Incorporation provide otherwise, a majority of
the directors in office will constitute a quorum for the transaction of
business. A majority of the directors, in the absence of a quorum, may adjourn
from time to time but may not transact any business.
(b) If a quorum is present when a vote is taken, the affirmative vote of a
majority of directors present is the act of the Board of Directors unless the
Articles of Incorporation require the vote of a greater number of directors.
<PAGE>
(c) A director of the Corporation who is present at a meeting of the Board
of Directors, or is present at a meeting of a committee of the Board of
Directors, when corporate action is taken, is deemed to have assented to the
action taken unless (i) the director objects at the beginning of the meeting, or
promptly upon the director's arrival, to holding the meeting or transacting
business at the meeting, (ii) the director's dissent or abstention from the
action taken is entered in the minutes of the meeting, or (iii) the director
delivers written notice of dissent or abstention to the presiding officer of the
meeting before its adjournment or to the Corporation immediately after
adjournment of the meeting. The right of dissent or abstention is not available
to a director who votes in favor of the action taken.
Section 12. COMPENSATION
The Board of Directors may, by resolution, provide that the directors be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors, and provide that directors be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment will preclude any director from serving the Corporation in any other
capacity and receiving compensation for that service.
ARTICLE III
COMMITTEES
(a) Subject to law, the provisions of the Articles of Incorporation and
these Bylaws, the Board of Directors may appoint such committees as may be
necessary from time to time, consisting of such number of its members and having
such powers as it may designate. Each such committee will have two or more
members, who serve at the pleasure of the Board of Directors.
(b) All actions of a committee will be reflected in minutes to be kept of
such meetings and reported to the Board of Directors at the next succeeding
meeting thereof. The provisions of Article II of these Bylaws governing
meetings, notice and waiver of notice, and quorum and voting requirements of the
Board of Directors apply to committees and their members as well.
(c) An executive committee may be appointed by the Board of Directors
pursuant to the foregoing paragraphs. When appointed, the executive committee
will have the power to exercise all authority of the Board of Directors except
as may be expressly limited by law.
(d) An audit committee shall be appointed by the Board of Directors. The
audit committee shall have such members, duties and powers as may be necessary
or appropriate to qualify such committee as an audit committee within the rules
of the NASDAQ National Market System.
<PAGE>
ARTICLE IV
OFFICERS
Section 1. DESIGNATION; ELECTION; QUALIFICATION
(a) The officers of the Corporation will be a President, a Secretary and
such other officers and assistant officers as the Board of Directors will from
time to time appoint, none of whom need be members of the Board of Directors.
The officers will be elected by, and hold office at the pleasure of, the Board
of Directors. A duly appointed officer may appoint one or more officers or
assistant officers if such appointment is authorized by the Board of Directors.
The same individual may simultaneously hold more than one office in the
Corporation.
(b) A vacancy in any office because of death, resignation, removal or any
other cause will be filled in the manner prescribed in these Bylaws for regular
appointments to such office.
Section 2. COMPENSATION AND TERM OF OFFICE
(a) The compensation and term of office of all the officers of the
Corporation will be fixed by the Board of Directors.
(b) The Board of Directors may remove any officer at any time, either with
or without cause.
(c) Any officer may resign at any time by giving written notice to the
Board of Directors, the President or the Secretary of the Corporation. Unless
the notice specifies a later effective date, a resignation is effective at the
earliest of the following: (a) when received; (b) five days after its deposit in
the United States mail, as evidenced by the postmark, if mailed postage prepaid
and correctly addressed; or (c) on the date shown on the return receipt, if sent
by registered or certified mail, return receipt requested and the receipt is
signed by or on behalf of the addressee. Once delivered, a notice of resignation
is irrevocable unless revocation is permitted by the Board of Directors. If a
resignation is made effective at a later date and the Corporation accepts the
future effective date, the Board of Directors may fill the pending vacancy
before the effective date, if the Board of Directors provides that the successor
will not take office until the effective date.
(d) This section will not affect the rights of the Corporation or any
officer under any express contract of employment.
<PAGE>
Section 3. CHAIRMAN OF THE BOARD
If the Corporation elects a Chairman of the Board, he or she will preside
at all meetings of the Board of Directors and, if requested by the President, at
meetings of the shareholders. The Chairman of the Board shall perform such other
duties as may be prescribed by the Board of Directors from time to time.
Section 4. PRESIDENT
The President will be the chief executive officer and chief operating
officer of the Corporation. The President will have general supervision,
direction and control of the business and affairs of the Corporation. In the
absence of the Chairman of the Board, the President will perform the duties and
responsibilities of the Chairman of the Board. The President will be ex officio
a member of all the standing committees (including the executive committee, if
any), will have the general powers and duties of management usually vested in
the office of president of a corporation and will have such other powers and
duties as may be prescribed by the Board of Directors or these Bylaws.
Section 5. VICE PRESIDENTS
The Vice Presidents, if any, will perform such duties as the Board of
Directors prescribes. In the absence or disability of the President, the
President's duties and powers will be performed and exercised by a senior Vice
President, as designated by the Board of Directors.
Section 6. SECRETARY
(a) The Secretary will keep or cause to be kept at the principal office, or
such other place as the Board of Directors may order, a book of minutes of all
meetings of directors and shareholders showing the time and place of the
meeting, whether it was regular or special and, if special, how authorized, the
notice given, the names of those present at directors' meetings, the number of
shares present or represented at shareholders meetings and the proceedings
thereof.
(b) The Secretary will keep or cause to be kept, at the principal office or
at the office of the Corporation's transfer agent, a share register, or a
duplicate share register, showing the names of the shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for such shares and the number and date of cancellation of
certificates surrendered for cancellation.
(c) The Secretary will give or cause to be given such notice of the
meetings of the shareholders and of the Board of Directors as is required by
these Bylaws. The Secretary will keep the seal of the Corporation, if any, and
affix it to all documents requiring a seal,
<PAGE>
and will have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these Bylaws.
Section 7. TREASURER
The Treasurer, if any, will be responsible for the funds of the
Corporation, and pay them out only on the checks of the Corporation signed in
the manner authorized by the Board of Directors.
Section 8. ASSISTANTS
The Board of Directors may appoint or authorize the appointment of
assistants to the Secretary or Treasurer, or both. Such assistants may exercise
the powers of the Secretary or Treasurer, as the case may be, and will perform
such duties as are prescribed by the Board of Directors.
ARTICLE V
CORPORATE RECORDS AND REPORTS - INSPECTION
Section 1. RECORDS
The Corporation will maintain all records required by law. All such records
will be kept at its principal office, registered office or at any other place
designated by the President of the Corporation, or as otherwise provided by law.
Section 2. INSPECTION OF RECORDS
All records of the Corporation will be open to inspection by the
shareholders or the shareholders' agents or attorneys in the manner and to the
extent required by law.
Section 3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of or payable to the Corporation,
will be signed or endorsed by such person or persons and in such manner as will
be determined from time to time by resolution of the Board of Directors.
Section 4. EXECUTION OF DOCUMENTS
The Board of Directors may, except as otherwise provided in these Bylaws,
authorize any officer or agent of the Corporation to enter into any contract or
execute any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances. Unless so authorized
by the Board of Directors, no officer, agent or
<PAGE>
employee of the Corporation will have any power or authority to bind the
Corporation by any contract or engagement outside of the ordinary course of
business.
ARTICLE VI
CERTIFICATES AND TRANSFER OF SHARES
Section 1. CERTIFICATES FOR SHARES
(a) Certificates for shares will be in such form as the Board of Directors
may designate, will designate the name of the Corporation and the state law
under which the Corporation is organized, will state the name of the person to
whom the shares represented by the certificate are issued, and will state the
number and class of shares and the designation of the series, if any, the
certificate represents. If the Corporation is authorized to issue different
classes of shares or different series within a class, the designations, relative
rights, preferences and limitations applicable to each class, the variations and
rights, preferences and limitations determined for each series and the authority
of the Board of Directors to determine variations for future series will be
summarized on the front or back of each certificate, or each certificate may
state conspicuously on its front or back that the Corporation will furnish
shareholders with this information on request in writing and without charge.
(b) Each certificate for shares must be signed, either manually or in
facsimile, by the President or a Vice President and the Secretary or an
Assistant Secretary of the Corporation. The certificates may bear the corporate
seal or its facsimile.
(c) If any officer who has signed a share certificate, either manually or
in facsimile, no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
(d) The Corporation will not issue certificates for fractional shares.
Section 2. TRANSFER ON THE BOOKS
Upon surrender to the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation will issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES
In the event a certificate is represented to be lost, stolen or destroyed,
a new certificate will be issued in place thereof upon such proof of the loss,
theft or destruction and upon the giving of such bond or other security as may
be required by the Board of Directors.
<PAGE>
Section 4. TRANSFER AGENTS AND REGISTRARS
The Board of Directors may from time to time appoint one or more transfer
agents and one or more registrars for the shares of the Corporation who will
have such powers and duties as the Board of Directors will specify.
Section 5. CLOSING STOCK TRANSFER BOOKS
The Board of Directors may close the transfer books for a period not
exceeding 70 days nor less than 10 days preceding any annual or special meeting
of the shareholders or the day appointed for the payment of a dividend.
ARTICLE VII
GENERAL PROVISIONS
Section 1. SEAL
If the Corporation elects to have a corporate seal, such corporate seal
will be circular in form and will have inscribed thereon the name of the
Corporation and the state of its incorporation.
Section 2. AMENDMENT OF BYLAWS
(a) Except as otherwise provided by law or by the Articles of
Incorporation, the Board of Directors may amend or repeal these Bylaws unless:
(i) The Articles of Incorporation or Oregon law reserve this power
exclusively to the shareholders in whole or in part; or
(ii) The shareholders in amending or repealing a particular Bylaw
provide expressly that the Board of Directors may not amend or repeal that
Bylaw.
(b) The Corporation's shareholders may amend or repeal these Bylaws even
though these Bylaws may also be amended or repealed by the Board of Directors.
(c) Whenever an amendment or new Bylaw is adopted, it will be copied in the
minute book with the original Bylaws in the appropriate place. If any Bylaw is
repealed, the fact of repeal and the date on which the repeal occurred will be
stated in such book and place.
Section 3. WAIVER OF NOTICE
(a) A shareholder may at any time waive any notice required by law, the
Articles of Incorporation or these Bylaws. Except as otherwise provided in
paragraph (c) of Section
<PAGE>
4 of Article I of these Bylaws, the waiver must be in writing, be signed by the
shareholder entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records.
(b) A director may at any time waive any notice required by law, the
Articles of Incorporation or these Bylaws. Except as otherwise provided in
paragraph (b) of Section 8 of Article II of these Bylaws, the waiver must be in
writing, must be signed by the director entitled to the notice, must specify the
meeting for which notice is waived and must be filed with the minutes or
appropriate records.
Section 4. ACTION WITHOUT A MEETING
(a) Action required or permitted by law to be taken at a shareholders
meeting may be taken without a meeting if the action is taken by all the
shareholders entitled to vote on the action. The action must be evidenced by one
or more written consents describing the action taken, signed by all the
shareholders entitled to vote on the action and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. Action taken
under this Section 4 is effective when the last shareholder signs the consent,
unless the consent specifies an earlier or later effective date. If not
otherwise determined by law, the record date for determining shareholders
entitled to take action without a meeting is the date the first shareholder
signs the consent. A consent signed under this Section 4 has the effect of a
meeting vote and may be described as such in any document.
(b) Unless the Articles of Incorporation or Bylaws provide otherwise,
action required or permitted by law to be taken at a meeting of the Board of
Directors, or at a meeting of a committee of the Board of Directors, may be
taken without a meeting if the action is taken by all members of the Board. The
action must be evidenced by one or more written consents describing the action
taken, signed by each director and included in the minutes or filed with the
corporate records reflecting the action taken. Action taken under this section
is effective when the last director signs the consent, unless the consent
specifies an earlier or later effective date. A consent signed under this
section has the effect of a meeting vote and may be described as such in any
document.
Section 5. TELEPHONIC MEETINGS
Unless the Articles of Incorporation provide otherwise, the Board of
Directors may permit any or all directors to participate in a regular or special
meeting by, or conduct the meeting through, use of any means of communication by
which all directors participating may simultaneously hear each other during the
meeting. A director participating in a meeting by this means is deemed to be
present in person at the meeting.
<PAGE>
ARTICLE VIII
INDEMNIFICATION
(a) The Corporation will indemnify to the fullest extent permitted by law,
any person who is made, or threatened to be made, a party to or witness in, or
is otherwise involved in, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative, or otherwise
(including any action, suit or proceeding by or in the right of the Corporation)
by reason of the fact that:
(i) the person is or was a director or officer of the Corporation or
any of its subsidiaries;
(ii) the person is or was serving as a fiduciary within the meaning of
the Employee Retirement Income Security Act of 1974 with respect to any employee
benefit plan of the Corporation or any of its subsidiaries; or
(iii) the person is or was serving, at the request of the Corporation
or any of its subsidiaries, as a director or officer, or as a fiduciary of an
employee benefit plan, of another corporation, partnership, joint venture, trust
or other enterprise.
(b) The Corporation may indemnify its employees and other agents to the
fullest extent permitted by law.
(c) The expenses incurred by a director or officer in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, investigative, or otherwise, which the director or
officer is made or threatened to be made a party to or witness in, or is
otherwise involved in, will be paid by the Corporation in advance at the written
request of the director or officer, if the director or officer:
(i) furnishes the Corporation a written affirmation of his or her good
faith belief that he or she is entitled to be indemnified by the Corporation;
and
(ii) furnishes the Corporation a written under-taking to repay such
advance to the extent that it is ultimately determined by a court that he or she
is not entitled to be indemnified by the Corporation. Such advances will be made
without regard to the person's ability to repay such expenses and without regard
to the person's ultimate entitlement to indemnification under this Article or
otherwise.
(d) The rights of indemnification provided in this Article VIII will be in
addition to any rights to which a person may otherwise be entitled under any
articles of incorporation, bylaw, agreement, statute, policy of insurance, vote
of shareholders or Board of Directors, or otherwise; will continue as to a
person who has ceased to be a director, officer, employee
<PAGE>
or agent of the Corporation; and will inure to the benefit of the heirs,
executors and administrators of such person.
(e) Any repeal of this Article VIII will be prospective only and no repeal
or modification of this Article VIII will adversely affect any right or
protection that is based upon this Article VIII and pertains to an act or
omission that occurred prior to the time of such repeal or modification.
ARTICLE IX
TRANSACTIONS BETWEEN CORPORATION
AND INTERESTED DIRECTORS
(a) No transaction will be voidable by the Corporation solely because of a
director's interest in the transaction if any one of the following is true:
(i) The material facts of the transaction and the director's interest
were disclosed or known to the Board of Directors or a committee of the Board of
Directors, and the Board of Directors or committee authorized, approved or
ratified the transaction;
(ii) The material facts of the transaction and the director's interest
were disclosed or known to the shareholders entitled to vote and the
shareholders authorized, approved or ratified the transaction; or
(iii) The transaction was fair to the Corporation.
(b) For purposes of this Article IX, a director of the Corporation has an
indirect interest in a transaction if:
(i) Another entity in which the director has a material financial
interest or in which the director is a general partner is a party to the
transaction; or
(ii) Another entity of which the director is a director, officer or
trustee is a party to the transaction and the transaction is or should be
considered by the Board of Directors.
(c) For purposes of paragraph (a)(i) of this Article IX, a conflict of
interest transaction is authorized, approved or ratified if it receives the
affirmative vote of a majority of the directors on the Board of Directors, or on
the committee, who have no direct or indirect interest in the transaction. A
transaction may not be authorized, approved or ratified under this Article IX by
a single director. If a majority of the directors who have no direct or indirect
interest in the transaction vote to authorize, approve or ratify the
transaction, a quorum is present for the purpose of taking action under this
Article IX. The presence of, or a vote cast by, a director with a direct or
indirect interest in the transaction does not affect
<PAGE>
the validity of any action taken under paragraph (a)(i) of this Article IX if
the transaction is otherwise authorized, approved or ratified as provided in
paragraph (a) of this Article IX.
(d) For purposes of paragraph (a)(ii) of this Article IX, a conflict of
interest transaction is authorized, approved or ratified if it receives the vote
of a majority of the shares entitled to be counted under this Article IX, voting
as a single voting group. Shares owned by or voted under the control of a
director who has a direct or indirect interest in the transaction, and shares
owned by or voted under the control of an entity described in paragraph (b)(i)
of this Article IX may be counted in a vote of shareholders to determine whether
to authorize, approve or ratify a conflict of interest transaction under
paragraph (a)(ii) of this Article IX. A majority of the shares, whether or not
present, that are entitled to be counted in a vote on the transaction under this
Article IX constitutes a quorum for the purpose of taking action under this
Article IX.
ARTICLE X
LIMITATION OF DIRECTOR LIABILITY
To the fullest extent permitted by law, no director of the Corporation will
be personally liable to the Corporation or its shareholders for monetary damages
for conduct as a director. For example, without limiting the generality of the
foregoing, if the Oregon Revised Statutes are amended, after this Article X
becomes effective, to authorize corporate action further eliminating or limiting
the personal liability of directors of the Corporation, then the liability of
directors of the Corporation will be eliminated or limited to the fullest extent
permitted by the Oregon Revised Statutes, as so amended. No amendment or repeal
of this Article X, nor the adoption of any provision of these Bylaws
inconsistent with this Article X, nor a change in the law, will adversely affect
any right or protection that is based upon this Article X and pertains to
conduct that occurred prior to the time of such amendment, repeal, adoption or
change. No change in the law will reduce or eliminate the rights and protections
set forth in this Article X unless the change in the law specifically requires
such reduction or elimination.
ARTICLE XI
OREGON CONTROL SHARE ACT
Sections 60.801 to 60.816 of the Oregon Business Corporation Act, known as
the "Oregon Control Share Act," do not apply to acquisitions of the
Corporation's voting shares (as defined in the Oregon Control Share Act).
As amended March 29, 1998.
[Company Logo] TRM COPY CENTERS CORPORATION
RESTATED 1996 STOCK OPTION PLAN
1. Purpose. The purpose of this Restated 1996 Stock Option Plan (the
"Plan") is to enable TRM Copy Centers Corporation (the "Company") to attract and
retain the services of selected key employees, consultants, independent
contractors, officers and directors of the Company.
2. Shares Subject to the Plan. Subject to adjustment as provided below and
in paragraph 9, the shares to be offered under the Plan shall consist of Common
Stock of the Company, and the total number of shares of Common Stock that may be
issued under the Plan shall not exceed 1,200,000 shares plus any shares that
were available for grant or subject to outstanding options under the Company's
Restated 1986 Stock Incentive Plan (the "1986 Plan") on the effective date of
the Plan and are not issued under the 1986 Plan due to termination or
cancellation of such options. If an option granted under the Plan expires,
terminates or is cancelled, the unissued shares subject to such option shall
again be available under the Plan.
3. Effective Date and Duration of Plan.
(a) Effective Date. The Plan shall become effective when adopted by
the Board of Directors; provided, however, that prior to shareholder approval of
the Plan, any grants shall be subject to and conditioned on approval of the Plan
by a majority of the votes cast at a meeting of shareholders at which a quorum
is present. Options may be granted under the Plan at any time after the
effective date and before termination of the Plan.
(b) Duration. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions on
such shares have lapsed. The Board of Directors may suspend or terminate the
Plan at any time except with respect to options then outstanding under the Plan.
Termination shall not affect any outstanding options.
4. Administration.
(a) Except as specified in paragraph 4(b) the Plan shall be
administered by the Board of Directors of the Company, which shall determine and
designate from time to time the individuals to whom option grants shall be made
and all terms and conditions of the grants. Subject to the provisions of the
Plan, the Board of Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, accelerate any exercise
date, provide for automatic acceleration upon the occurrence of specified
events, waive or modify any restriction applicable to grants (except those
restrictions imposed by law) and make all other determinations in the judgment
of the Board of Directors necessary or desirable for the administration of the
Plan. The interpretation and construction of the provisions of the Plan and
related agreements by the Board of Directors shall be final and conclusive. The
Board of Directors may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any related agreement in the manner and to
the extent it shall deem expedient to carry the Plan into effect, and it shall
be the sole and final judge of such expediency.
(b) The Board of Directors, if it so determines, may delegate to a
committee of the Board of Directors constituting of one or more members (the
"Committee") any or all authority for administration of the Plan; provided,
however, that only the Board of Directors may amend or terminate the Plan as
provided in paragraphs 3 and 11. If a Committee is appointed, all references to
the Board of Directors in the Plan shall mean and relate to such Committee
except as limited by the immediately preceding sentence and unless the context
requires otherwise.
<PAGE>
[Logo] TRM Copy Centers Corporation
1996 Restated Stock Option Plan
Page 2 of 7
5. Types of Awards; Eligibility; Limitations on Certain Awards. The Board
of Directors may, from time to time, take the following actions, separately or
in combination, under the Plan: (i) grant Incentive Stock Options, as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
provided in paragraphs 6(a) and 6(b); (ii) grant options other than Incentive
Stock Options ("Nonstatutory Stock Options") as provided in paragraphs 6(a) and
6(c); and (iii) grant foreign qualified options as provided in paragraph 7. Any
such grants may be made to employees, consultants, independent contractors,
officers and directors, provided, however, that only employees of the Company
shall be eligible to receive Incentive Stock Options under the Plan. Except as
for options granted pursuant to paragraph 8, the Board of Directors shall select
the individuals to whom grants shall be made and shall specify the action taken
with respect to each individual to whom a grant is made. The Board of Directors
may not reprice outstanding options, other than adjustments made pursuant to
paragraph 9. No individual may be granted options under the Plan for more than
an aggregate of 300,000 shares of Common Stock in any calendar year.
6. Option Grants.
(a) General Rules Relating to Options.
(i) Terms of Grant. With respect to each option grant (except for
options granted pursuant to paragraph 8), the Board of Directors
shall determine the number of shares subject to the option, the
option price, the period of the option, the time or times at
which the option may be exercised and whether the option is an
Incentive Stock Option or a Nonstatutory Stock Option.
(ii) Exercise of Options. Except as provided in paragraphs
6(a)(iv) and 8 or as determined by the Board of Directors, no
option granted under the Plan may be exercised unless at the time
of such exercise the optionee is employed by or in the service of
the Company or any subsidiary of the Company and shall have been
so employed or provided such service continuously since the date
such option was granted. Absence on leave or on account of
illness or disability under rules established by the Board of
Directors shall not, however, be deemed an interruption of
employment or service for this purpose. Unless otherwise
determined by the Board of Directors, vesting of options shall
not continue during an absence on leave (including an extended
illness) or on account of disability. Except as provided in
paragraphs 6(a)(iv), 8 and 9, options granted under the Plan may
be exercised from time to time over the period stated in each
option in such amounts and at such times as shall be prescribed
by the Board of Directors, provided that options shall not be
exercised for fractional shares. Unless otherwise determined by
the Board of Directors, if the optionee does not exercise an
option in any one year with respect to the full number of shares
to which the optionee is entitled in that year, the optionee's
rights shall be cumulative and the optionee may purchase those
shares in any subsequent year during the term of the option.
(iii) Nontransferability. Each Incentive Stock Option and, unless
otherwise determined by the Board of Directors, each other option
granted under the Plan by its terms shall be nonassignable and
nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and
distribution of the state or country of the optionee's domicile
at the time of death, and each option by its terms shall be
exercisable during the optionee's lifetime only by the optionee;
provided, however, that a Nonstatutory Stock Option shall also be
transferable pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement
Income Security Act.
<PAGE>
[Logo] TRM Copy Centers Corporation
1996 Restated Stock Option Plan
Page 3 of 7
(iv) Termination of Employment or Service.
(A) General Rule. Unless otherwise determined by the Board
of Directors, except as provided in paragraph 8, in the event the
employment or service of the optionee with the Company or a subsidiary
terminates for any reason other than because of physical disability or
death as provided in subparagraphs 6(a)(iv)(B) and (C), the option may
be exercised at any time prior to the expiration date of the option or
the expiration of three months after the date of such termination,
whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option at the date of such
termination.
(B) Termination Because of Physical Disability. Unless
otherwise determined by the Board of Directors, except as provided in
paragraph 8, in the event of the termination of employment or service
because of physical disability (within the meaning of Section 22(e)(3)
of the Code), the option may be exercised at any time prior to the
expiration date of the option or the expiration of 12 months after the
date of such termination, whichever is the shorter period, but only if
and to the extent the optionee was entitled to exercise the option at
the date of such termination.
(C) Termination Because of Death. Unless otherwise
determined by the Board of Directors, except as provided in paragraph
8, in the event of the death of an optionee while employed by or
providing service to the Company or a subsidiary, the option may be
exercised at any time prior to the expiration date of the option or
the expiration of 12 months after the date of such death, whichever is
the shorter period, but only if and to the extent the optionee was
entitled to exercise the option at the date of such termination and
only by the person or persons to whom such optionee's rights under the
option shall pass by the optionee's will or by the laws of descent and
distribution of the state or country of domicile at the time of death.
(D) Amendment of Exercise Period Applicable to Termination.
The Board of Directors, at the time of grant or at any time
thereafter, may extend the 90-day and 12-month exercise periods any
length of time not later than the original expiration date of the
option, and may increase the portion of an option that is exercisable,
subject to such terms and conditions as the Board of Directors may
determine.
(E) Failure to Exercise Option. To the extent that the
option of any deceased optionee or of any optionee whose employment or
service terminates is not exercised within the applicable period, all
further rights to purchase shares pursuant to such option shall cease
and terminate.
(v) Purchase of Shares. Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option granted
under the Plan only upon receipt by the Company of notice in
writing from the optionee of the optionee's intention to
exercise, specifying the number of shares as to which the
optionee desires to exercise the option and the date on which the
optionee desires to complete the transaction, which shall not be
more than 30 days after receipt of the notice, and if required in
order to comply with the Securities Act of 1933, as amended,
containing a representation that it is the optionee's present
intention to acquire the shares for investment and not with a
view to distribution. On or before the date specified for
completion of the purchase of shares pursuant to an option, the
optionee must have paid the Company the full purchase price of
such shares in cash or, with the consent of the Board of
Directors, in whole or in part, in Common Stock of the Company
valued at fair market value. The fair
<PAGE>
[Logo] TRM Copy Centers Corporation
1996 Restated Stock Option Plan
Page 4 of 7
market value of Common Stock provided in payment of the purchase
price shall be the closing price of the Common Stock as reported
in The Wall Street Journal on the day preceding the date that the
option is exercised, or such other reported value of the Common
Stock as shall be specified by the Board of Directors. No shares
shall be issued until full payment therefor has been made. Each
optionee who has exercised an option shall immediately upon
notification of the amount due, if any, pay to the Company in
cash amounts necessary to satisfy any applicable federal, state
and local tax withholding requirements. If additional withholding
is or becomes required beyond any amount deposited before
delivery of the certificates, the optionee shall pay such amount
to the Company on demand. If the optionee fails to pay the amount
demanded, the Company may withhold that amount from other amounts
payable by the Company to the optionee, including salary, subject
to applicable law. With the consent of the Board of Directors an
optionee may satisfy this obligation, in whole or in part, by
having the Company withhold from the shares to be issued upon the
exercise that number of shares that would satisfy the withholding
amount due or by delivering Common Stock to the Company to
satisfy the withholding amount. Upon the exercise of an option,
the number of shares reserved for issuance under the Plan shall
be reduced by the number of shares issued upon exercise of the
option.
(b) Incentive Stock Options. Incentive Stock Options shall be subject
to the following additional terms and conditions:
(i) Limitation on Amount of Grants. No employee may be granted
Incentive Stock Options under the Plan if the aggregate fair
market value, on the date preceding the date of grant, of the
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by that employee during any
calendar year under the Plan and under any other incentive stock
option plan (within the meaning of Section 422 of the Code) of
the Company or any parent or subsidiary of the Company exceeds
$100,000.
(ii) Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an
employee possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company or of any
parent or subsidiary of the Company only if the option price is
at least 110 percent of the fair market value of the Common Stock
subject to the option on the date preceding the date it is
granted, as described in paragraph 6(b)(iv), and the option by
its terms is not exercisable after the expiration of five years
from the date it is granted.
(iii) Duration of Options. Subject to paragraphs 6(a)(ii) and
6(b)(ii), Incentive Stock Options granted under the Plan shall
continue in effect for the period fixed by the Board of
Directors, except that no Incentive Stock Option shall be
exercisable after the expiration of 10 years from the date it is
granted.
(iv) Option Price. The option price per share shall be determined
by the Board of Directors at the time of grant. Except as
provided in paragraph 6(b)(ii), the option price shall not be
less than 100 percent of the fair market value of the Common
Stock covered by the Incentive Stock Option at the date the
option is granted. The fair market value shall be deemed to be
the closing price of the Common Stock as reported in The Wall
Street Journal on the day preceding the date the option is
granted, or if there has been no sale on that date, on the last
preceding date on which a sale occurred, or such other value of
the Common
<PAGE>
[Logo] TRM Copy Centers Corporation
1996 Restated Stock Option Plan
Page 5 of 7
Stock as shall be specified by the Board of Directors.
(v) Limitation on Time of Grant. No Incentive Stock Option shall
be granted on or after the tenth anniversary of the date the Plan
was adopted by the Board of Directors.
(vi) Conversion of Incentive Stock Options. The Board of
Directors may at any time without the consent of the optionee
convert an Incentive Stock Option to a Nonstatutory Stock Option.
(vii) Limit on Shares. Subject to adjustment as provided in
paragraph 9, the total number of Common Shares that may be issued
under the Plan upon exercise of Incentive Stock Options shall not
exceed 700,000 plus up to 200,000 shares that may become
available from the 1986 Plan.
(c) Nonstatutory Stock Options. Nonstatutory Stock Options, other than
options granted pursuant to paragraph 8, shall be subject to the following
additional terms and conditions:
(i) Option Price. The option price for Nonstatutory Stock Options
shall be determined by the Board of Directors at the time of
grant and may be any amount determined by the Board of Directors
not less than 100% of the fair market value in the date preceding
the date of grant. The fair market value of such shares shall be
deemed to be the closing price of the Common Stock as reported in
The Wall Street Journal on the valuation date, or if there has
been no sale on that date, on the last preceding date on which a
sale occurred, or such other reported value of the Common Stock,
or average closing prices for a period of up to 10 trading dates
including or preceding the valuation date, as shall be specified
by the Board of Directors.
(ii) Duration of Options. Nonstatutory Stock Options granted
under the Plan shall continue in effect for the period fixed by
the Board of Directors.
7. Foreign Qualified Option Grants. Options under the Plan may be granted
to such officers and employees of the Company and its subsidiaries and such
other persons described in paragraph 1 residing in foreign jurisdictions as the
Board of Directors may determine from time to time. The Board of Directors may
adopt such supplements to the Plan as may be necessary to comply with the
applicable laws of such foreign jurisdictions and to afford participants
favorable treatment under such laws; provided, however, that no option shall be
granted under any such supplement with terms which are more beneficial to the
participants than the terms permitted by the Plan.
8. Option Grants to Nonemployee Directors.
(a) Grants to Nonemployee Directors. Immediately after the close of
each annual shareholder meeting (commencing with the 1996 annual meeting), each
person then serving as a Nonemployee Director, including any such person who is
elected at such meeting, shall automatically be granted a Nonstatutory Stock
Option to purchase 5,000 shares of Stock. A "Nonemployee Director" is a director
of the Company who is not an employee of the Company or of any parent or
subsidiary of the Company on the date the option is granted.
(b) Additional Grants to Nonemployee Directors Who Serve on Executive
Committee. Immediately after the close of each annual shareholder meeting
(commencing with the 1996 annual meeting), each person who is then serving as a
Nonemployee Director and who also is serving on the Executive Committee of the
Board of Directors shall automatically be granted a Nonstatutory Stock Option
<PAGE>
[Logo] TRM Copy Centers Corporation
1996 Restated Stock Option Plan
Page 6 of 7
to purchase an additional 2,500 shares of Stock.
(c) Terms of Options. The exercise price for options granted under
this paragraph 8 shall be the fair market value of the shares covered by the
option on the date preceding the date of grant, determined pursuant to paragraph
6(b)(iv). Each such option shall have a 10-year term from the date of grant,
unless earlier terminated as provided in 6(a)(iv). Each such option shall become
fully exercisable one year after the date of grant, subject to earlier exercise
pursuant to paragraph 9. If an optionee ceases to be a director of the Company
for any reason, including death or disability, the exercise of the option shall
be subject to 6(a)(iv). Options may be exercised in accordance with paragraph 6.
Options granted under this paragraph 8 shall be governed by all other applicable
provisions of the Plan.
9. Changes in Capital Structure. If the outstanding Common Stock of the
Company is hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any reorganization, merger, consolidation, plan
of exchange, recapitalization, reclassification, stock split-up, combination of
shares or dividend payable in shares, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares available for grants
under the Plan. In addition, the Board of Directors shall make appropriate
adjustment in the number and kind of shares as to which outstanding options or
portions thereof then unexercised, shall be exercisable, so that the optionee's
proportionate interest before and after the occurrence of the event is
maintained. Notwithstanding the foregoing, the Board of Directors shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Board of
Directors. Any such adjustments made by the Board of Directors shall be
conclusive. In the event of dissolution of the Company or a merger,
consolidation or plan of exchange affecting the Company, in lieu of providing
for options as provided above in this paragraph 9 or in lieu of having the
options continue unchanged, the Board of Directors, may, in its sole discretion,
provide a 30-day period prior to such event during which optionees shall have
the right to exercise options in whole or in part without any limitation on
exercisability and upon the expiration of such 30-day period all unexercised
options and stock appreciation rights shall immediately terminate.
10. Corporate Mergers, Acquisitions, etc. The Board of Directors may also
grant options under the Plan having terms, conditions and provisions that vary
from those specified in this Plan provided that any such awards are granted in
substitution for, or in connection with the assumption of, existing options
granted by another corporation and assumed or otherwise agreed to be provided
for by the Company pursuant to or by reason of a transaction involving a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to which the Company or a subsidiary is a party.
11. Amendment of Plan. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraphs 6(a)(iv) and 9 however, no change
in an option already granted shall be made without the written consent of the
holder of such award. Current Nasdaq rules and IRS rules would require
shareholder approval of certain amendments to the 1996 Plan.
12. Approvals. The obligations of the Company under the Plan are subject to
the approval of state and federal authorities or agencies with jurisdiction in
the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange on which the
Company's shares may then be listed, in connection with the grants under the
Plan. The foregoing notwithstanding, the Company shall not be obligated to issue
or deliver Common Stock under the Plan if such issuance or delivery would
violate applicable state or federal securities laws.
<PAGE>
[Logo] TRM Copy Centers Corporation
1996 Restated Stock Option Plan
Page 7 of 7
13. Employment and Service Rights. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company any right to be retained
or employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.
14. Rights as a Shareholder. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date of issue to the recipient of a stock certificate for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.
15. Applicable Law. The law of the State of Oregon will govern all matters
relating to this Plan except to the extent it is superseded by the laws of the
United States.
Paul M. Brown, Jr.
680 River Pointe Dr.
Eugene, OR 97408
541-334-6975
FAX 541-334-0477
September 18, 1997
Mr. Fred Stockton
Chief Executive Officer
TRM Copy Centers Corporation
5208 NE 122nd Ave.
Portland, OR 97230
Dear Fred:
We have discussed our mutual interest in my joining TRM Copy Centers
Corporation. I have summarized the terms of our arrangement, in order to ensure
that we do not have any misunderstandings.
Start Date: September 22, 1997
Title: Vice President - Finance,
Chief Financial Officer
Base Compensation: $120,000 per year. Base compensation shall be
reviewed annually.
Incentive Compensation: Incentive compensation shall be based on
yet-to-be- determined performance criteria,
but which shall be mutually agreed-upon.
Incentive potential shall be $30,000 during
fiscal 1998 (the period ended June 30, 1998).
Similar or enhanced incentives will be
initiated in future years.
Stock Options: 100,000 non-qualified stock options shall be
issued effective as of my employment start
date, with the exercise price equal to 100
percent of the market price at that date,
vesting ratably at 20% per year and expiring
10 years from date of grant.
It is understood that the Board of Directors
will review opportunities for additional stock
option grants to executive management in
future years, based on performance.
Vacation and Holiday: Standard employee benefits, except that two
weeks will also be provided during the first
year of employment.
Other Employee Benefits: Standard employee benefits.
1
<PAGE>
Fred Stockton
TRM Copy Centers Corporation
September 18, 1997
Executive Benefits: Consistent with other executives' benefits.
Relocation Costs: Household moving costs will be paid by TRM
Copy Centers Corporation. The maximum moving
costs to be reimbursed are $10,000.
Out-of-town Living Expenses: Reasonable reimbursement for "out-of-town"
costs while I am living in Portland and my
residence is in Eugene, for the first 90 days,
or until my family is able to move to the
Portland area (whichever comes first).
Continuing Education Costs: Continuing education will be paid by TRM for
at least 40 hours per year of training, as
required to keep current CPA certification,
which qualifies for credit by the State of
Oregon licensing division and by OSCPA and
AICPA continuing education requirements.
Additional training for SEC reporting will
also be paid by TRM, as needed for continued
proficiency.
Severance: If I am terminated for any reason other than
"for cause," I will receive the following
separation provisions:
o 6 months' salary continuation if terminated
within one year of joining the Company. After
one years' employment, salary continuation
increases by 1 month for each year of
employment, up to 12 months total salary
continuation.
o Earned but unpaid incentive compensation will
be paid upon separation.
o Health insurance continuation for the duration
of the salary continuation period.
o 100% vesting of all outstanding stock options,
whose terms shall not expire sooner than the
normal expiration date as if I had continued
as an employee throughout their term.
Change in Control: o If the Company should experience a "Change in
Control," as evidenced by an increase in
ownership which would require reporting under
Regulation 14A of the Securities and Exchange
Act of 1934, then all options outstanding as
of the date of such
2
<PAGE>
Fred Stockton
TRM Copy Centers Corporation
September 18, 1997
Change in Control, continued: change in control shall become 100% vested and
shall not expire sooner than their normal
expiration date as if I had continued as an
employee throughout their term.
I hope that this summary fairly reflects our discussion and understanding. If
you have any questions or if your understanding is different from this, please
call me immediately.
Best regards,
PAUL M. BROWN JR.
Paul M. Brown, Jr.
Received and approved by:
RALPH R. SHAW
- ---------------------------------- ----------------------------------
Ralph R. Shaw Date
Chairman of the Compensation
Committee
FREDERICK O. PAULSELL
- ---------------------------------- ----------------------------------
Frederick O. Paulsell Date
Chairman of the Board,
Member of the Compensation
Committee
FREDERIC P. STOCKTON 9/18/97
- ---------------------------------- ----------------------------------
Frederic P. Stockton Date
President and CEO
Exhibit 21.1
Subsidiaries of TRM Corporation (formerly TRM Copy Centers Corporation)
-----------------------------------------------------------------------
State or Place
Subsidiary of Incorporation
- ---------- ----------------
TRM Copy Centers (USA) Corporation Oregon
TRM Copy Centres (Canada) Ltd.* Canada
TRM Copy Centres (U.K.) Limited.* U.K.
FPC France Ltd.* Oregon
FPC Belgium Limited* Oregon
BisCard Corporation Oregon
* TRM Copy Centres (Canada) Ltd., TRM Copy Centres (U.K.) Ltd., FPC France Ltd.
and FPC Belgium Limited are subsidiaries of TRM Copy Centers (USA)
Corporation.
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 20,177
<SECURITIES> 0
<RECEIVABLES> 7,579
<ALLOWANCES> 156
<INVENTORY> 3,809
<CURRENT-ASSETS> 33,598
<PP&E> 58,691
<DEPRECIATION> 17,067
<TOTAL-ASSETS> 75,266
<CURRENT-LIABILITIES> 11,661
<BONDS> 0
0
19,853
<COMMON> 18,617
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 75,266
<SALES> 57,021
<TOTAL-REVENUES> 57,021
<CGS> 30,190
<TOTAL-COSTS> 30,190
<OTHER-EXPENSES> 667
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (955)
<INCOME-TAX> (373)
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