Document:

Exhibit
10.219

 

MANUFACTURING
AGREEMENT

 

This Manufacturing Agreement (“Agreement”), is entered into as of May
1, 2003 (“Effective Date”) between KEY TRONIC CORPORATION, a Washington
corporation, having its principal place of business at N. 4424 Sullivan Road,
Spokane, Washington 99216 (“Supplier”) and CYGNUS,
INC., a Delaware corporation having its principal place of business
at 400 Penobscot Drive, Redwood City, California 94063 (“Buyer”).

 

1.                                      SCOPE OF AGREEMENT

Supplier shall sell and Buyer shall purchase under the
terms and conditions of this Agreement the Products listed on Exhibit A.  For purposes of this Agreement, Product
shall mean and be limited to those products manufactured for Buyer by Supplier
as listed on Exhibit A and any mutually agreed upon modifications thereto.  Unless otherwise specifically agreed to in
writing, this Agreement prevails over any additional, conflicting or
inconsistent terms and conditions appearing on any quotation, purchase order, acknowledgement,
invoice or other form used by the parties in connection with this Agreement.

 

Supplier and Buyer may from time to time add Products
to or delete Products from this Agreement. 
Such additions or deletions shall be accomplished by written addendum to
this Agreement.  Terms and conditions
that may be specific to additional Products will be set forth in said addendum.

 

2.                                      ORDERS
AND FORECAST

During the term of this Agreement Buyer shall provide
Supplier once every calendar month with a six (6) month rolling forecast of
Buyer’s requirements for Products.  The
forecasts shall not be treated as authorization to manufacture Products.  However, Supplier is authorized to rely on
the forecasts to order, purchase and otherwise make available within normal
acquisition cycles in existence from time to time as determined by Supplier in
its reasonable judgment all parts and materials for incorporation into
forecasted Products.   In addition to
purchase of parts and materials for incorporation into forecasted Products,
Buyer authorizes Supplier to purchase and maintain an inventory of parts and
materials sufficient to provide Buyer with an additional two (2) weeks of
Products over and above that which is necessary to meet Buyer’s forecasted
requirements for Products.  Buyer also
authorizes Supplier to purchase excess parts and material when necessary to
meet minimum buy requirements.  If any
parts and materials purchased by Supplier pursuant to this paragraph 2 remain
in Supplier’s inventory for a period in excess of ninety (90) calendar days and
such parts and materials were purchased to forecast, then Buyer shall, at
Supplier’s option immediately purchase all such parts and materials.   Supplier will use Buyer’s forecasts to
manage and schedule manufacturing capacity for Buyer’s Products.  If Buyer does not submit purchase orders at
leadtime set forth in Section 3, then Supplier shall not be obligated to
reserve manufacturing capacity.

 

Buyer will provide Supplier each month with a purchase
order for any Products Buyer wishes to be manufactured by Supplier and
delivered at or beyond leadtime. 
Supplier is under no obligation to reserve manufacturing capacity for
Buyer’s Products during periods when Buyer has not provided Supplier with a
purchase order.

 

1

 

Supplier will respond within forty-eight (48) hours of
receipt of each purchase order as to its ability to fulfill requirements as set
forth in the purchase order provided. 
This response shall include a schedule of anticipated deliveries against
the purchase order.

 

Purchase orders cannot be cancelled.  Purchase order delivery dates may be
rescheduled one time by Buyer as follows:

 

	
  From
  Scheduled Ship Date

  	
   

  	
  Reschedule Terms

  
	
   

  	
   

  	
   

  
	
  0 - 60 calendar days

  	
   

  	
  Cannot be rescheduled

  
	
  61 - 90 calendar days

  	
   

  	
  Can be pushed out for no
  more than 15 calendar days

  
	
  91 - 120 calendar days

  	
   

  	
  Can be pushed out for no more than 30 calendar days

  
	
  121 calendar days or more

  	
   

  	
  May be rescheduled

  

 

Supplier may, in its sole
discretion, upon Buyer’s request agree to increase the delivery quantity of any
purchase order, or pull in the scheduled shipment date.

 

3.                                      LEAD
TIMES

So long as Buyer performs its obligations set out in
Section 2 above and Buyer does not order in excess of 120% of forecast,
Supplier agrees that lead times for Products shall be sixty (60) calendar
days.  “Lead Time” means that length of
time from the date of Supplier’s receipt of Buyer’s written purchase
order to the date of Supplier’s tender of the Products set forth in such
accepted order to Buyer’s carrier at Supplier’s dock.

 

4.                                      DELIVERY,
TITLE AND RISK OF LOSS

a.                                       Delivery
will be FOB Supplier’s dock located in Las Cruces, New Mexico.  Risk of loss and title to Products will pass
to Buyer upon delivery to Buyer or Buyer’s designated carrier at Supplier’s
dock.

 

b.                                      Supplier
will maintain an on time delivery performance of 98% to agreed upon delivery
date.  For purposes of this Agreement,
on time delivery is defined as five (5) business days early/five (5) business
days late to agreed upon delivery date at Supplier’s dock.  In the event that Supplier cannot supply
acceptable Product for a period exceeding thirty (30) calendar days and
Supplier is not making good faith efforts to correct this supply deficiency,
then Buyer shall be under no obligation to purchase the minimum quantity of
Product set forth in Exhibit B during the Term(s) of this Agreement.

 

5.                                      PRICES
AND PAYMENT/COST REDUCTION

The prices for Products are based on lot sizes and are
set forth on Exhibit B.  Prices for
Products delivered in quantities less than the minimum lot size shall be
determined pursuant to a separate agreement between the Parties.  Buyer shall pay all invoices for Products
delivered within thirty-five (35) calendar days of the date of invoice.

 

Supplier agrees to explore and identify cost reduction
opportunities in the Product.  Buyer and
Supplier agree to share equally all cost reductions after Supplier has
recovered its cost of implementing the cost reduction.

 

2

 

With respect to payments due from Buyer to Supplier
hereunder, if full payment is not made by Buyer by the due date then Buyer
shall be liable to Supplier for the lesser of interest at the rate of 1% per
month or the maximum interest allowed by law on all unpaid invoices.  Such interest shall be computed on the
unpaid balance for each calendar day payment is not received after the date on
which payment was originally due.

 

Payment terms to Buyer
are subject to Supplier’s credit policy.

 

Supplier’s rights
reserved under its credit policy include, but are not limited to the
following:  the right to modify payments
for habitual late payment, including the right to require cash on delivery,
cash in advance with order entry or an irrevocable letter of credit prior to
order entry; the right to put any shipment on hold if outstanding receivables
are more than fifteen (15) calendar days past due; and the right to hold both
shipments and/or manufacturing if Buyer has failed to make any payment for more
than forty-five (45) calendar days from the date of Supplier’s invoice.  Production schedules may be set back up to
sixty (60) calendar days at Supplier’s option, depending upon shop work load at
the time, from the date of release following a manufacturing hold on Buyer’s
Products.  Supplier shall notify Buyer
in writing in the event Supplier, at any time during the term hereof, elects to
exercise any of its aforesaid rights reserved under its credit policy.

 

6.                                      CONSIGNMENT OF MATERIALS AND EQUIPMENT/UCC
FILINGS

a.                                       Buyer
shall deliver on consignment to Supplier the materials listed in Exhibit C,
which may be modified or updated periodically by Buyer, for the sole purpose of
incorporation by Supplier into the Product (the “Consigned Material”).  Additionally, Buyer has placed certain
equipment at Suppliers facility for use in manufacturing Product for Buyer
which equipment is listed in Exhibit C (the “Consigned Equipment”). All such
Consigned Material and Consigned Equipment shall remain the sole property of
Buyer and Supplier shall not pledge or otherwise encumber such Consigned
Material and Consigned Equipment. 
Supplier shall keep all Consigned Material and Consigned Equipment in
the same safe manner as its own procured materials and equipment and apply the
same security measures to it.  Supplier
shall maintain full replacement value insurance coverage for all Consigned
Material and Consigned Equipment. 
Supplier agrees to assume liability for all losses of the Consigned
Material and Consigned Equipment while in Supplier’s possession, including
scrap in excess of the range set forth in Exhibit B, except losses due to
passage of shelf life.

 

b.                                      Buyer
may require Supplier to perform, at Buyer’s expense, acceptance testing on
Consigned Material.  This testing will
be performed in accordance to the Quality Agreement and Buyer’s Product
specifications referenced in Section 15 hereof.

 

c.                                       Buyer
shall deliver tested and approved Consigned Materials to Supplier no later than
fifteen (15) calendar days prior to the scheduled shipment date for Product orders
of less than 200,000 units per month and no later than thirty (30) calendar
days prior to the scheduled shipment date for Product orders of 200,001 or more
units per month. If Buyer fails to deliver Consigned Materials by such date,
Buyer agrees to pay the cancellation charges set forth on Exhibit B. Buyer may,
at its option, elect to reserve production capacity at the rate of $125 per
hour and pay for unused production capacity due to its

 

3

 

failure to deliver
Consigned Materials on time based on that rate in lieu of payment of the
cancellation charges set forth on Exhibit B.

 

d.                                      Within
fifteen (15) calendar days of the Effective Date of this Agreement, Seller
shall execute an Owner Acknowledgement Agreement relating to Consigned
Materials and Consigned Equipment and Buyer shall file Uniform Commercial Code
financing statements to this effect.

 

7.                                      WARRANTY

a.                                       Supplier
represents and warrants that the each Product manufactured by Supplier under
the terms of this Agreement will be free from defects in Supplier supplied
material and workmanship and will conform to the specifications set forth in
the quality agreement (“Quality Agreement”) referenced in Section 15 hereof for
a period of seven (7) months following the Product’s date of manufacture.

 

b.                                      Supplier
shall, at Supplier’s option, repair or replace any product that does not
conform to the specifications provided, (i) Supplier is notified of the
non-conforming Product within 14 days after discovery by Buyer that such item
is non-conforming, or within the warranty period as stated above, whichever is
earlier and (ii) the non-conforming Product is returned to Supplier at its
factory. In the event defective Product is found during automated processing at
Buyer’s facility or a contracted third party’s facility, such Product may be
rendered scrap and shall be returned to Supplier.  If Supplier determines such Product to be defective, Supplier
shall, at its option, repair, replace or credit Buyer for such Product.  If Supplier elects to repair defective
Product, Supplier shall submit a written repair plan to Buyer prior to
performing any repairs.  Transportation
charges for Product returned to Supplier shall be at Supplier’s expense.  Transportation for return of the repaired
Product to Buyer shall be at Supplier’s expense.  The warranty on repaired or replaced items shall be seven (7)
months from the date of repair or replacement.

 

c.                                       Any
failure analysis shall be agreed to in advance by the parties prior to commencement
of the analysis and prior to incurring any costs therefore.

 

d.                                      Buyer
shall request and obtain a return material authorization number (“RMA”) from
Supplier for each defective Product prior to return of the Product.  Supplier shall issue an RMA within five (5)
business days of Supplier’s receipt of Buyer’s request.

 

e.                                       Supplier
agrees to repair or replace defective Product within ten (10) calendar days of
receipt at Supplier’s factory.

 

f.                                         With
respect to Products sold outside the United States, Buyer shall repair or
replace defective Products and Supplier shall credit or reimburse Buyer for the
cost of repair or replacement.

 

g.                                      In
no event shall Supplier’s aggregate liability with respect to defective
Products(s) exceed Supplier’s value added portion of the purchase price of
defective Product(s).

 

4

 

8.                                      PRODUCT
CHANGES

 

a.                                       Supplier
agrees that it shall not make any changes in (i) Product design, (ii)
specified, qualified suppliers for all components, (iii) Product manufacturing
process, and/or (iv) Buyer-owned equipment without the written prior approval
of the Buyer.  Product design,
components and Product manufacturing process are as defined in the Quality Agreement.

 

In the event that the
Supplier needs to make changes to Supplier-owned equipment or its associated
utilities, the Supplier agrees that it shall not produce batches of Product
after such changes have been implemented, without prior written approval from
the Buyer.  Supplier and Buyer agree to
work together in good faith to assess the impact of such changes on Product
performance, and if necessary, to conduct verification and validation studies
to qualify such changes.

 

b.                                      Buyer
may request Supplier to incorporate changes to Products via engineering change
orders or authorized red lined drawings, and any such Buyer Product
specifications will be incorporated into the Quality Agreement referenced in
Section 15 hereof.  Supplier shall make
every reasonable effort to incorporate requested changes within the time frame
requested by Buyer.  Buyer understands
and agrees that additional charges may be incurred for incorporation of
requested changes.  All such charges must
be approved in advance by Buyer and Buyer agrees to pay all pre-approved charges.

 

9.                                      INDEMNIFICATION
AND INSURANCE

a.                                       Each
party shall defend, indemnify and hold harmless the other party from and
against all damages, claims, liabilities and expenses arising out of or
resulting in any way from any act or omission of the indemnifying party, its
agents, employees or subcontracts.  With
respect to Supplier, the indemnification obligations in this Section 9 shall
include, but not be limited to claims arising out of or resulting in any way
from (a) a defect in Supplier supplied materials or workmanship, (b) Supplier’s
non-compliance with Buyer’s specifications; (c) Supplier’s breach of any of the
provisions of this Agreement, or (d) any claim that there is infringement of
any patent, trade secret or any other proprietary right of a third party with
respect to the manufacturing processes of Supplier.  With respect to Buyer, the indemnification obligations in this
Section 9 shall include, but not be limited to claims arising out of or
resulting in any way from (a) Buyer’s specifications as provided to Supplier
under this Agreement, (b) Buyer’s breach of any of the provisions of this
Agreement, or (c) any claim that there is infringement of any patent, trade
secret or any other proprietary right of a third party with respect to the
Product.

 

b.                                      During
the Term, Buyer and Supplier each will purchase and maintain in full force and
effect, with a responsible carrier having Best’s rating of A-VII or greater, a
comprehensive Product liability insurance policy in amounts typical in the
medical devices industry.  Within
fifteen (15) calendar days after the Effective Date of this Agreement, the
parties will exchange Certificates of Insurance.  Each party shall keep such policy current.  Each such insurance policy shall provide for
at least thirty (30) calendar days’ prior written notice to the respective
party of the cancellation or any substantial modification of the terms of
coverage.

 

5

 

10.                               TAXES

Unless Buyer furnishes a valid exemption certificate,
Buyer will bear all sales and use taxes properly imposed by federal, state,
municipal or other local authorities with respect to purchases under this
Agreement.

 

11.                               NON-PUBLICITY

Supplier and Buyer shall not disclose to any third
party any pricing or product information relating to this Agreement.  Both parties agree not to publicize or
otherwise make known to any third party any information relating to this
Agreement without prior written consent of the other party except as such
disclosure is required by law.

 

12.                               LIMITATION
OF LIABILITY

NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR
ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR LOST PROFITS OR LOST
BUSINESS RESULTING IN ANY WAY FROM THIS AGREEMENT EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.  THIS
CLAUSE SHALL SURVIVE ANY TERMINATION OR EXPIRATION OF THIS AGREEMENT.

 

13.                               TERM
AND TERMINATION

a.                                       This
Agreement shall commence on the Effective Date and shall remain in effect until
April 30, 2005 and may be renewed for additional consecutive terms of one (1)
year, upon the mutual written agreement of the parties at least one (1) year
prior to the end of the then current term.

 

b.                                      Either
party may terminate this Agreement immediately upon written notice, after
notice and a thirty (30) calendar day cure period, if the other party (i) fails
to comply with any material term or condition of this Agreement, (ii) becomes
insolvent or makes a general assignment for the benefit of creditors or (iii)
has a petition under the Bankruptcy Act filed by or against it and such
petition is not dismissed within sixty (60) calendar days of the filing date.

 

c.                                       Upon
termination, the Supplier shall remain obligated to deliver Products ordered by
Buyer prior to termination and still required by Buyer and Buyer shall be
obligated to pay for all Products ordered under the terms of this
Agreement.  Upon termination Supplier
shall return all Buyer furnished Equipment and any other material provided by
or owned by Buyer.  Upon termination
Buyer shall purchase from Supplier at Supplier’s cost all inventory of raw
materials and components on hand, on order or in transit purchased by Supplier
in accordance with Section 2 hereof.

 

14.                               GOVERNMENT
APPROVALS.  Supplier shall, at its
sole expense, obtain any and all necessary governmental approvals and other
authorizations and approvals which are appropriate or necessary to carry out
the proposed activities contemplated herein. 
Supplier shall obtain all necessary governmental and regulatory
approvals to sell the Products to Buyer.

 

6

 

15.                               QUALITY
AGREEMENT.

a.                                       Buyer and Supplier agree to execute
simultaneously with the execution of this Agreement, a Quality Agreement
setting forth quality control and testing requirements for the Products and the
Buyer’s Product specifications.

 

b.                                      Supplier
will maintain ISO 9002 certification and will comply with all applicable rules
and regulations.

 

16.                               EXHIBITS

The following documents are attached to and made a
part of this Agreement:

Exhibit A                                               Products

Exhibit B                                                 Prices

Exhibit C                                                 Consigned
Materials and Equipment

 

17.          CONFIDENTIALITY AND OWNERSHIP OF
PROPRIETARY INFORMATION

a.                                       Each
party agrees that all inventions, schematics, list of suppliers, know-how, and
all other technical, business and financial information that it obtains from
the other party that is identified in writing as “Confidential” or
“Proprietary” is the confidential property of the disclosing party.  Except as expressly allowed herein, the
receiving party will (i) hold such information in strictest confidence, (ii)
will not use or disclose such information, (iii) take reasonable protective
measures to ensure the same treatment as it provides for its own confidential
information, and (iv) similarly bind its employees, agents, temporary employees
and contractors in writing for a period of three (3) years following
termination of this Agreement.  The
receiving party shall not be obligated under this Section 17 with the respect
to information that the receiving party can document:

 

(i)                                     is
or has become readily publicly available without restriction through no fault
of the receiving party; or

 

(ii)                                  is
received without restriction from a third party lawfully in possession of such
information and lawfully empowered to disclose such information; or

 

(iii)                               was rightfully in the
possession of the receiving party without restriction prior to its disclosure
by the other party; or

 

(iv)                              was
independently developed by the other party without access to the confidential
information; or

 

(v)                                 is
required to be disclosed by law or an order of a court, provided that
reasonable measures are taken to obtain confidential treatment thereof and to
guard against further disclosure and after notice has been given to the other
party of such intended disclosure.

 

b.                                      If
either party breaches any of its obligations with respect to confidentiality,
the other party shall be entitled to equitable relief, including but not
limited to specific performance or an injunction, in addition to other rights
and remedies.

 

7

 

c.                                       During
the Term of this Agreement, Supplier will not directly or indirectly engage in
or assist others in the field of diagnostics. 
For purposes of this Agreement, the field of diagnostics shall mean all
applications for the detection of glucose in connection with the diagnosis,
treatment and/or prevention of diabetes in humans and animals; however,
currently available, whether through publication or commercialization, invasive
blood glucose diagnostic applications are not included within this definition
of the field of diagnostics.

 

d.                                      As
between the parties and subject to the exclusion set forth in this Section
17(d), each party will be the sole owner of the intellectual property rights in
any invention made during the Term of this agreement of which only its
employees and its third party contractors are inventors, and each party will
jointly own the intellectual property rights in all inventions made during the
Term of this Agreement of which both parties, employees or contractors are
joint inventors.  In the case of solely
owned intellectual property rights, each party will bear the cost and
responsibility of such rights.  In the
case of jointly owned intellectual property rights, at Supplier’s option, the
parties (a) either will share the cost and responsibility in filing,
prosecuting and maintaining such jointly owned rights, which may be exploited
and non-exclusively licensed to third parties by either party without
accounting to or further approval of the other party, or (b) will assign all of
its rights in such jointly owned intellectual property rights to Buyer and
Buyer will bear the cost and responsibility of such rights. Inventorship on
patent applications will be determined by U.S. patent law.  Notwithstanding the foregoing, the parties
acknowledge that the Buyer’s specification parameters as set forth in the
Quality Agreement referenced in Section 15 hereto were developed and paid for
by Buyer and are thus intellectual property rights owned by Buyer and
maintained as Buyer’s trade secrets.

 

e.                                       No
licenses, whether explicit or implied, to the Product are granted to Supplier
under this Agreement except to the extent necessary for Supplier to fulfill its
duties and obligations hereunder.

 

18.                               GENERAL
PROVISIONS

a.                                       Entire
Agreement Amendment.

This document and its Exhibits contain the entire
Agreement between the parties relating to the subject matter contained
herein.  All prior or contemporaneous
agreements, written or oral, between the parties regarding the Products are
superseded by this Agreement.  This
Agreement may not be modified except by written document signed by an
authorized representative of each party.

 

b.                                       Force
Majeure.

Neither party shall be liable for delays or defaults
due to fire, windstorm, riot, act of God, act of the public enemy, or other
similar unforeseeable cause beyond the reasonable control and without the fault
or negligence of the party incurring such delay.

 

c.                                       Waiver.

No term of this Agreement shall be considered waived and
no breach excused by either party unless made in writing by the other
party.  No consent, waiver, or excuse by
either party, express or implied, shall constitute a subsequent consent, waiver
or excuse.

 

8

 

d.                                       Non-assignment.

Neither party shall assign this Agreement or its
rights hereunder without the prior written consent of the other party except to
a party who acquires all or substantially all (defined as 50% or greater) of a
party’s stock assets or business, whether by merger, sale, acquisition or
otherwise.

 

e.                                       Controlling
Law.

This Agreement and its formation, operation and
performance and the terms of all sales of Product hereunder, shall be governed,
construed, performed and enforced in accordance within the laws of the State of
California without regard to its conflict of laws principles.

 

f.                                         Severability.

If any provision of this Agreement is held invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired.

 

g.                                      Surviving
Clauses.

Any provision of Sections 6, 7, 9, 11, 12, 13(c), and
17 of this Agreement having their performance period beyond the term of this
Agreement shall survive the termination or expiration of this Agreement.

 

h.                                      Notices.

All notices or other
communications (except for services of process) required or permitted to be
given pursuant to this Agreement shall be in writing and shall be conclusively
deemed to have been received by a party hereto on the day on which such notice
or communication was delivered by hand, prepaid telegram, facsimile, express
overnight courier service to the address set forth below ( or such other
address as such party may specify to the other party from time to time), or, if
sent postage prepaid by certified or registered mail, on the third business day
after the day on which such notice or communication was mailed.

 

If to Supplier:

Key Tronic
Corporation

N. 4424 Sullivan
Road

Spokane, WA  99203

Attention:  Craig D. Gates

Executive Vice
President & General Manager

 

If
to Buyer:

Cygnus, Inc.

400 Penobscot
Drive

Redwood City, CA
94063

Attention: Wade
Worsham, Vice President

 

i.                                         Relationship
of Parties.

The relationship of the
parties established by this Agreement is that of independent contractors and
nothing contained herein shall be construed to constitute either party as

 

9

 

the agent of the other
party or as partners, joint ventures, co-owners or otherwise as participants in
a joint or common undertaking.

 

IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed by their duly authorized officers as of the date first above
written.

 

 

	
  KEY TRONIC CORPORATION

  	
  CYGNUS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
    /s/ Ronald F. Klawitter

  	
   

  	
    /s/ John C Hodgman

  	
   

  
	
  Name:

  	
      Ronald F. Klawitter

  	
   

  	
  Name:

  	
    John C Hodgman

  	
   

  
	
  Title:

  	
    Exec. V.P. & CFO

  	
   

  	
  Title:

  	
      CEO & President

  	
   

  	 

									

 

10

 

EXHIBIT
A

 

PRODUCTS

 

Cygnus
Part #1929-00                            Sensor Web

 

Cygnus
Part #2293-00         Sensor Web

 

11

 

EXHIBIT
B

 

PRICES

A.           Sensor
Web Pricing

 

***

 

*** Certain
information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.

 

12

 

EXHIBIT
C

 

CONSIGNED
MATERIALS AND EQUIPMENT

 

1.                                      Consigned
Materials

 

The
following materials may be consigned to Supplier by Buyer to be used in the
manufacture of Products:

Platinum/Carbon
Ink, Buyer part number 1618-01

Silver
ink, Buyer part number 1774-00

Silver/Silver
Chloride Ink, Buyer part number 1775-00

Cygnus
Platinum/Carbon Ink, Buyer part number 2290-00

 

2.                                      Consigned
Equipment

 

The
following equipment shall be consigned to Supplier by Buyer to be used in the
manufacture of Products:

 

	
  Item

  	
   

  	
  Description

  	
   

  	
  Serial No.

  	
   

  	
  Cygnus
  Asset

  Tag No.

  	
   

  	
  Location

  
	
  1

  	
   

  	
  EE-19 Mettler Toledo Scale

  	
   

  	
  1118252643

  	
   

  	
  N/A

  	
   

  	
  Eng. Lab

  
	
  2

  	
   

  	
  GASTS

  	
   

  	
  N/A

  	
   

  	
  4395

  	
   

  	
  Eng. Lab

  
	
  3

  	
   

  	
  Met One Laser Particle Counter, Model: 1506-49

  	
   

  	
  1506-49652861

  	
   

  	
  4545

  	
   

  	
  Web 2

  
	
  4

  	
   

  	
  Rotary Die Press

  	
   

  	
  001034

  	
   

  	
  4630

  	
   

  	
  Production floor

  
	
  5

  	
   

  	
  Jar Roller (Hot Pack) #2  EE-531

  	
   

  	
  N/A

  	
   

  	
  N/A

  	
   

  	
  Incoming inspection

  
	
  6

  	
   

  	
  Typ CCD 2004 1403-01

  Camera 1

  	
   

  	
  1517

  	
   

  	
  N/A

  	
   

  	
  Web 2

  
	
  7

  	
   

  	
  Typ CCD Led / L403-03

  Camera 2

  	
   

  	
  1030053

  	
   

  	
  N/A

  	
   

  	
  Web 2

  
	
  8

  	
   

  	
  Typ CCD 2004 1403-1

  Camera 3

  	
   

  	
  1171

  	
   

  	
  N/A

  	
   

  	
  Web 2

  
	
  9

  	
   

  	
  Typ. EKR 1500. 
  C305-01  Controller

  1947IP54  80VA

  	
   

  	
  23173400318

  	
   

  	
  4722

  	
   

  	
  Web 2

  
	
  10

  	
   

  	
  Typ. EKR 1500. 
  C305-01  Controller

  1945IP54  80VA

  	
   

  	
  23173400316

  	
   

  	
  N/A

  	
   

  	
  Web 2

  
	
  11

  	
   

  	
  Compaq CPU Desk Pro

  	
   

  	
  N/A

  	
   

  	
  4091

  	
   

  	
  Staff area

  
	
  12

  	
   

  	
  Jar Roller #1 EE-523

  	
   

  	
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  Ink room

  

 

13Exhibit 10.1

BUSINESS LOAN AGREEMENT

 

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

 

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

 

1.1                                 Line
of Credit Amount.

 

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

 

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

 

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

 

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

 

1.3                                 Repayment
Terms.

 

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

 

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

 

1.4                                 Interest
Rate.

 

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

 

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

 

1.5                                 Letters
of Credit.

 

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

 

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

 

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

 

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

 

1

 

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

 

(d)                                 The
Borrower agrees:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2.3                                 Repayment
Terms.

 

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

 

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

 

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

 

2

 

2.4                                 Interest
Rate.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

	
  LIBOR Rate =

  	
   

  	
  London Inter-Bank Offered Rate

  	
   

  
	
   

  	
   

  	
   

  	
  (1.00 - Reserve Percentage)

  
					

 

Where,

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

	
  IBOR Rate =

  	
   

  	
  IBOR Base Rate

  	
   

  
	
   

  	
   

  	
   

  	
  (1.00 - Reserve Percentage)

  
					

 

Where,

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

	
   

  	
   

  	
   

  	
   

  	
  Applicable
  Margin

  (in basis points per annum)

  	
   

  
	
  Pricing

  Level

  	
   

  	
  Leverage
  Ratio

  	
   

  	
  Offshore

  Applicable Margin

  	
   

  	
  Prime Rate

  Applicable Margin

  	
   

  
	
  1

  	
   

  	
  >2.00x

  	
   

  	
  325 bps

  	
   

  	
  50 bps

  	
   

  
	
  2

  	
   

  	
  >1.50x but <2.00x

  	
   

  	
  295 bps

  	
   

  	
  25 bps

  	
   

  
	
  3

  	
   

  	
  >1.00x but <1.50x

  	
   

  	
  265 bps

  	
   

  	
  0 bps

  	
   

  
	
  4

  	
   

  	
  <1.00x

  	
   

  	
  235 bps

  	
   

  	
  0 bps

  	
   

  

 

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

 

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

 

3.                                       FEES
AND EXPENSES

 

3.1                                 Fees.

 

(a)                                  Loan
Fee.

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

3.3                                 Reimbursement
Costs.

 

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

 

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

 

4.                                       COLLATERAL

 

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

 

(a)                                  Machinery
and Equipment.

 

(b)                                 Inventory.

 

(c)                                  Receivables.

 

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

 

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

 

6

 

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

 

(e)                                  Patents,
trademarks and other general intangibles.

 

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

 

(a)                                  Machinery
and Equipment.

 

(b)                                 Inventory.

 

(c)                                  Receivables.

 

(d)                                 Patents,
trademarks and other general intangibles.

 

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

 

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

The foregoing are called “Guarantors.”

 

5.                                       DISBURSEMENTS,
PAYMENTS AND COSTS

 

5.1                                 Disbursements
and Payments.

 

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

 

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

 

5.2                                 Telephone
and Telefax Authorization.

 

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

 

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

 

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

 

5.3                                 Direct
Debit (Pre-Billing).

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6.                                       CONDITIONS

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

7.                                       REPRESENTATIONS
AND WARRANTIES

 

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

 

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

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8.                                       COVENANTS

 

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

 

8.1                                 Use
of Proceeds.

 

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

 

10

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

(b)                                 Redundancy
accrual, $686,211;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

(b)                                 Liens
for taxes not yet due.

 

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

 

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

 

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

 

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

 

8.10                           Maintenance
of Assets.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(c)                                  Investments
in any of the following:

 

(i)                                     certificates
of deposit;

 

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

 

13

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

8.16                           Insurance.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

15

 

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

 

9.                                       DEFAULT
AND REMEDIES

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10.                                 ENFORCING
THIS AGREEMENT; MISCELLANEOUS

 

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

 

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

 

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

 

10.4                           Arbitration
and Waiver of Jury Trial.

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

19

 

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

 

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

 

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

 

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

 

 

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

 

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

 

	
  Bank of America, N.A.

  	
  TRM Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Eric Eidler

  	
   

  	
  By

  	
  /s/ Kenneth
  Lewis Tepper

  	
   

  
	
   

  	
   

  
	
  Typed Name

  	
  Eric Eidler

  	
   

  	
  Typed Name

  	
  Kenneth Lewis
  Tepper

  	
   

  
	
   

  	
   

  
	
  Title

  	
  Senior Vice
  President

  	
   

  	
  Title

  	
  President and
  Chief Executive Officer

  	
   

  
	
   

  	
   

  
	
  Address where notices to

  the Bank are to be sent:

  	
  Address where notices to

  the Borrower are to be sent:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Oregon Commercial Banking #04614

  	
  5208 N.E. 122nd Avenue

  
	
  121 S.W. Morrison Street, Suite 1700

  	
  Portland, OR 97230

  
	
  Portland, OR 97204

  	
   

  
	
   

  	
   

  
	
  Facsimile: (503) 275-1391

  	
  Telephone: (503) 257-8766

  
	
   

  	
  Facsimile: (800) 219-7805

  
										

 

 

20

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