SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TFC ENTERPRISES, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[LETTERHEAD]
TFC ENTERPRISES, INC.
CORPORATE EXECUTIVE OFFICES
April 11, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of
Shareholders of TFC Enterprises, Inc. that will be held at the Norfolk Airport
Hilton Hotel, 1500 North Military Highway, Norfolk, Virginia 23502, at 11:00
a.m. Eastern Time, on Tuesday, May 13, 1997.
Enclosed are a Notice of the Annual Meeting, a Proxy Card, and a
Proxy Statement containing information about the matters to be acted upon at the
meeting. Directors and Officers of the Company as well as a representative of
Ernst & Young LLP will be present at the Annual Meeting to respond to any
questions our shareholders may have.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
Accordingly, we urge you to sign and date the enclosed Proxy Card and promptly
return it to us in the enclosed, self-addressed, postage-paid envelope, even if
you are planning to attend the meeting. If you attend the meeting, you may vote
in person even if you have previously returned a Proxy Card.
We look forward to the 1997 Annual Meeting of Shareholders and we
hope you will attend the meeting or be represented by proxy.
Sincerely,
ROBERT S. RALEY, JR., Chairman of the Board,
President and Chief Executive Officer
[LETTERHEAD]
<PAGE>
TFC ENTERPRISES, INC.
5425 ROBIN HOOD ROAD
NORFOLK, VIRGINIA 23513
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
TUESDAY, MAY 13, 1997
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Shareholders of
TFC Enterprises, Inc. will be held at the Norfolk Airport Hilton Hotel, 1500
North Military Highway, Norfolk, Virginia 23502, at 11:00 a.m. Eastern Time, on
Tuesday, May 13, 1997, for the following purposes:
1. To elect two (2) directors to hold office for a term of three
years and until their successors are elected and qualified; and
2. To act upon such other matters as may properly come before the
meeting or any adjournment thereof.
Information concerning the matters to be acted upon at the meeting
is set forth in the accompanying Proxy Statement. The Board of Directors has
established the close of business on March 18, 1997 as the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof.
By Order of the Board of Directors
--------------------------------------------
Robert S. Raley, Jr., Chairman of the Board,
President and Chief Executive Officer
Norfolk, Virginia
April 11, 1997
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN
PERSON OR THROUGH YOUR PROXY.
<PAGE>
PROXY STATEMENT
This Proxy Statement and the enclosed proxy card ("Proxy") are
furnished in connection with the solicitation of proxies on behalf of the Board
of Directors of TFC Enterprises, Inc. (the "Company") to be voted at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at The Norfolk Airport
Hilton Hotel, 1500 North Military Highway, Norfolk, Virginia 23502, at 11:00
a.m. Eastern Time, on Tuesday, May 13, 1997, and at any adjournment thereof, for
the purposes set forth in the accompanying Notice of Meeting.
Only shareholders of record at the close of business on March 18,
1997 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. This Proxy is being mailed on or about April 11, 1997.
REVOCABILITY OF PROXY
Execution of the enclosed Proxy will not affect a shareholder's
right to attend the Annual Meeting and vote in person. If your Proxy is properly
signed, received by the Company and not revoked by you, the shares to which it
pertains will be voted at the Annual Meeting in accordance with your
instructions. If a shareholder does not return a signed Proxy, his or her shares
cannot be voted by proxy.
PERSON MAKING THE SOLICITATION
The cost of soliciting Proxies will be borne by the Company. The
Company has retained Corporate Investor Communications, Inc., 111 Commerce Road,
Carlstadt, New Jersey 07072-2586, to assist in the solicitation of proxies from
brokers and nominees for a fee of approximately $2,000 plus out-of-pocket
expenses and First Union National Bank, Two First Union Center, Charlotte, North
Carolina 28288-1154, to assist in the counting of proxies for a fee of
approximately $500 plus out-of-pocket expenses. In addition to solicitation by
mail, the Company will request banks, brokers and other custodians, nominees and
fiduciaries to send proxy material to the beneficial owners and to secure their
voting instructions if necessary. The Company, upon request, will reimburse them
for their expenses in so doing. Officers and regular employees of the Company
may solicit Proxies personally, by telephone or by telegram from some
shareholders if Proxies are not received promptly, for which no additional
compensation will be paid.
VOTING SHARES AND VOTE REQUIRED
On the Record Date, the Company had 11,290,308 shares of Common
Stock outstanding. Each share of Common Stock is entitled to one vote on each
matter presented at the Annual Meeting.
Directors are elected by a plurality of shares of Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting. Under the laws of Delaware, the Company's state of incorporation,
<PAGE>
"shares present in person or represented by proxy and entitled to vote" are
determinative of the outcome of the matter subject to vote. Abstentions will be,
but broker non-votes will not be, considered "shares present in person or
represented by proxy" based on the Company's understanding of state law
requirements and the Company's Certificate of Incorporation and Bylaws.
All shareholder meeting proxies, ballots and tabulations that
identify individual shareholders are kept secret and no such document shall be
available for examination, nor shall the identity or the vote of any shareholder
be disclosed except as may be necessary to meet legal requirements and the laws
of Delaware. Votes will be counted and certified by First Union National Bank,
which will act as the inspector of elections.
Unless specified otherwise, the Proxy will be voted FOR the election
of the two (2) nominees to serve as directors of the Company for a three year
term and until their successors are duly elected and qualified. In the
discretion of the Proxy holders, the Proxies will also be voted for or against
such other matters as may properly come before the Annual Meeting. Management is
not aware of any other matters to be presented for action at the Annual Meeting.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of March 18, 1997
relating to the beneficial ownership of the Company's Common Stock by (i) each
of the Company's directors and named executive officers who own Common Stock,
(ii) each person (or group of affiliated persons) who is known by the Company to
own beneficially more than 5% of the Common Stock, and (iii) all of the
Company's directors and executive officers as a group. All directors and
executive officers receive mail at the Company's corporate executive offices at
5425 Robin Hood Road, Suite 101B, Norfolk, Virginia 23513.
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
Name and Address of Amount of Beneficial
Beneficial Owner Ownership Percent of Class
- ---------------- -------------------- ----------------
Robert S. Raley, Jr. 1,188,526(1) 10.49%
Walter S. Boone, Jr. 386,224(2) 3.42%
Douglas E. Bywater 378,409(3) 3.35%
Andrew M. Ockershausen 148,889 1.32%
Phillip S. Smiley 27,100(4) *
Linwood R. Watson 256,932 2.28%
Ronald G. Tray 59,441(6) *
George R. Kouri 567,155(7) 4.93%
Preston K. Gnagey 251,075(8) 2.22%
Joseph R. Becka 257,633(9) 2.25%
All directors and executive
officers as a group (8 persons) 2,476,521 21.75%
- -----------------------------------
*Less than 1% beneficial ownership.
(1) Includes 16,904 shares owned jointly by Mr. Raley and his wife.
Also includes 40,000 shares which Mr. Raley has the right to acquire
within 60 days through the exercise of stock options granted to Mr.
Raley in January 1997 under the Company's 1995 Long-Term Incentive
Plan ("Incentive Plan") in connection with his 1997 compensation
package. See "Executive Compensation - Raley Employment Agreement
and Stock Options."
(2) Includes 193,112 shares owned by the Walter S. Boone, Jr. Living
Trust and 193,112 shares owned by the Rose K. Boone Living Trust.
(3) Includes 377,224 shares owned jointly by Mr. Bywater and his wife.
(4) Owned jointly by Mr. Smiley and his wife.
(5) Includes 254,932 shares held of record by the Charles F. Barnes
Revocable Trust, for which Mr. Watson serves as a co-trustee. As
co-trustee, Mr. Watson has shared voting and investment power
regarding the shares owned by this trust, but does not otherwise
have a beneficial ownership interest in these shares.
(6) Includes 2,000 shares owned jointly by Mr. Tray and his wife.
Includes 33,808 shares which Mr. Tray has the right to acquire
within 60 days through the exercise of stock options granted under
the Incentive Plan, including 10,000 currently exercisable
option shares granted to Mr. Tray on November 14, 1996 in
connection with his compensation package. See "Executive
Compensation - Tray Employment Agreement and Stock Options."
(7) Includes 211,376 shares which Mr. Kouri has the right to acquire
within 60 days through the exercise of stock options granted
under the Incentive Plan. Mr. Kouri's employment with the Company
ended September 30, 1996.
<PAGE>
(8) Includes 24,826 shares which Mr. Gnagey has the right to acquire
within 60 days through the exercise of stock options granted
under the Incentive Plan and 970 shares owned by Mr. Gnagey's
daughters. Mr. Gnagey disclaims beneficial ownership of the 970
shares owned by his daughters. Mr. Gnagey's employment with the
Company ended September 30, 1996.
(9) Includes 170,978 shares which Mr. Becka has the right to acquire
within 60 days through the exercise of stock options granted
under the Incentive Plan, 2,300 owned jointly by Mr. Becka and his
wife, 4,415 shares held under the Company's 401(K) Plan, and 700
shares held in trust for his sons. Mr. Becka's employment with the
Company ended September 30, 1996.
PROPOSAL 1. ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the Board of
Directors to be divided into three classes, with each class serving a staggered
three-year term. The directors for each class are elected at the Annual Meeting
of Shareholders held in the year in which the term of such class expires.
Directors serve for three years and until their successors are duly elected and
qualify. The Company's bylaws currently provide that the size of the Board is 6.
The terms of Douglas E. Bywater and Linwood R. Watson expire at the
Annual Meeting on May 13, 1997. The Board of Directors recommends that the two
nominees, Messrs. Bywater and Watson, be re-elected and Proxies received will be
voted for the election of such nominees unless marked to the contrary. A
shareholder who desires to withhold voting of the Proxy for all or one or more
of the nominees may so indicate on the Proxy. All of the nominees are currently
members of the Board of Directors and all have consented to be named and have
indicated their intent to serve if elected. If any nominee becomes unable to
serve, an event which is not anticipated, the Proxy will be voted for a
substitute nominee to be designated by the Board of Directors, or the number of
directors will be reduced.
The following information relates to the nominees and the directors
whose terms of office will continue after the Annual Meeting. There are no
family relationships among any of the nominees or directors nor among any of the
nominees or directors and any officer, nor is there any arrangement or
understanding between any nominee or director and any other person pursuant to
which the nominee or director was selected.
NOMINEES FOR TERMS EXPIRING IN 1997
Douglas E. Bywater, 53, has been a director of the Company since
1990. Mr. Bywater is a partner in the law firm of Tate & Bywater, Ltd., with
whom he has practiced law since 1972. He was also a director and General
Counsel for the Bank of Vienna. Mr. Bywater is a member of the Executive and
Compensation Committees.
Linwood R. Watson, 60, has been a director of the Company since
1993. Mr. Watson is a Principal of Thompson, Greenspon & Co., P.C., certified
public accountants and management consultants, of Fairfax, Virginia. Mr.
Watson, a certified public accountant since 1965, has been engaged in public
accounting since 1974. Mr. Watson is a member of the Audit Committee and
Compensation Committee.
<PAGE>
DIRECTOR WHOSE TERM EXPIRES IN 1998
Andrew M. Ockershausen, 67, has been a director of the Company
since 1990. Mr. Ockershausen is currently the Director of Business Development
for the cable television regional sports network Home Team Sports, Washington,
D.C. He is a director of the Police Boys/Girls Club and Hero's Inc., and a past
Chairman of the National Association of Broadcasters. From 1987 to 1993, Mr.
Ockershausen was Vice President and General Manager of WBSO television in
Rockville, Maryland. Mr. Ockershausen is a member of the Compensation
Committee.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Walter S. Boone, Jr., 70, was a director of the Company from
1984 through 1988 and has been a director since 1990. Mr. Boone has been
President of Virginia General Investment, Inc., a private investment firm,
since 1978 and is a director of Herald Newspapers, Inc. He was President of
Scope Inc., Reston, Virginia, a director of First Virginia Bank and a director
of Arlington Mortgage Company. Mr. Boone is a member of the Executive and
Audit Committees.
Robert S. Raley, Jr., 59, Chairman of the Board, founded the
Company's wholly owned subsidiary, The Finance Company ("TFC") in 1977 and from
that time through April 1990, and from May 1990 through April 1992, served as
President and Chief Executive Officer of TFC. Mr. Raley was appointed President
and Chief Executive Officer of the Company, and was reappointed President and
Chief Executive Officer of TFC, in October 1996. Prior to founding TFC, Mr.
Raley was employed by Major Financial Services, Silver Spring, Maryland, for 17
years in various positions, including Vice President and Director of Operations.
Mr. Raley was a director of the Company from 1984 through April 1990 and has
been a director since May 1990. Mr. Raley is a member of the Executive
Committee.
Phillip R. Smiley, 58, is a Field Services Regional Manager for
UNISYS, a position for which Mr. Smiley is delegated responsibility for
computer hardware installation, documentation and maintenance. Mr. Smiley
has been employed by UNISYS, and its predecessor, Sperry Corp. in various
positions for 25 years. Mr. Smiley has been a director of the Company since
1994. Mr. Smiley is a member of the Audit Committee.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the
Board of Directors. The Board of Directors meets on a regularly scheduled basis
during the year to review significant developments affecting the Company and to
act on matters requiring approval by the Board of Directors. It also holds
special meetings when an important matter requires action by the Board of
Directors between scheduled meetings. The Board of Directors held eight meetings
during 1996. In accordance with the Rules of the NASDAQ National Market, Messrs.
Boone, Bywater, Ockershausen, Smiley and Watson are independent directors.
During 1996, each member of the Board of Directors participated in at least 75%
of all meetings of the Board of Directors and at least 75% of all meetings of
the applicable committees during the period for which he was a director. Each
director of the Company who is not also an executive officer of the Company
<PAGE>
receives a $3,000 annual retainer and a $500 fee for attendance at each Board
and Committee Meeting, unless a Committee Meeting is held on the same day as a
Board Meeting, in which case no fee for attendance at the Committee Meeting is
paid. Directors who are also employees of the Company receive no additional
compensation for serving as directors. The Company reimburses all of its
directors for travel and out of pocket expenses in connection with their
attendance at meetings of the Board of Directors.
The Board of Directors has established Executive, Audit and
Compensation Committees. The members of these committees are noted in the
director biographies set forth above. The Executive Committee is delegated the
power, with certain exceptions, of the Board of Directors to act in place of the
full Board during all periods between regular meetings of the Board. The
Executive Committee did not meet during 1996. The Audit Committee is empowered
by the Board of Directors to, among other things, recommend the firm to be
employed by the Company as its independent auditor and to consult with such
auditor regarding audits and the adequacy of internal accounting controls. The
Audit Committee held two meetings in 1996. The Compensation Committee makes
recommendations to the Board of Directors as to, among other things, the
compensation of the Chief Executive Officer, each officer who is also a director
of the Company and designated other members of senior management, as well as new
compensation and stock plans. The Compensation Committee met two times in 1996.
The Company had a Nominating Committee through January 1996, at
which time the three members of the Nominating Committee resigned from the
Board. The Board decided not to reconstitute this committee. Until such time as
the Board chooses to reconstitute a standing Nominating Committee, if any, the
functions customarily attributable to such a committee will be performed by the
Board of Directors as a whole.
The Company will consider director-nominees recommended by
shareholders, although it has not actively solicited recommendations from
shareholders for nominees nor has it established any procedure for this purpose
for the Annual Meeting other than as set forth in the bylaws of the Company.
Section 3.03 of the Company's bylaws provides that nominations for directors by
shareholders must be made by a written notice (the "Nomination Notice")
containing the following information: as to each individual nominated, (i) the
name, date of birth, business address and residence address of such individual,
(ii) the business experience during the past five years of such nominee,
including his or her principal occupations and employment during such period,
the name and principal business of any corporation or other organization for
which such occupations and employment were carried on, and such other
information as to the nature of his or her responsibilities and level of
professional competence as may be sufficient to permit assessment of his or her
prior business experience, (iii) whether the nominee is or has ever been at any
time a director, officer or owner of 5% or more of any class of capital stock,
partnership interests or other equity interest of any corporation, partnership
or other entity, (iv) any directorships held by such nominee in any company with
a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940 and (v) whether, in the last
five years, such nominee has been subject to any judgments, orders, findings or
decrees which may be material to an evaluation of the ability or integrity of
<PAGE>
the nominee. In addition, the person submitting the Nomination Notice must
provide certain information regarding his beneficial ownership of the Common
Stock of the Company. The nominee must consent to being named in a proxy
statement as a nominee and to serve as a director if elected. The Nomination
Notice must be delivered to the Secretary of the Company at the Company's
principal executive office not later than 120 days in advance of the anniversary
date of the Company's proxy statement for the previous year's annual meeting or,
in the case of special meetings, at the close of business on the seventh day
following the first date on which notice of the meeting is first given to
shareholders.
EXECUTIVE COMPENSATION
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table sets forth certain information regarding cash
and other compensation earned during the years 1996, 1995 and 1994 by (i) Robert
S. Raley, Jr., the Company's current President and Chief Executive Officer, (ii)
Ronald G. Tray, TFC's current Chief Operating Officer, (iii) George R. Kouri,
who served as the Company's President and Chief Executive Officer from January
1, 1996 until September 30, 1996, and (iv) Joseph R. Becka and Preston K.
Gnagey, who also served as executive officers from January 1, 1996 until
September 30, 1996.
<PAGE>
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying
Options All Other
Name and Principal Position Year Salary Bonus (#s) Compensation(1)
- --------------------------- ---- ------ --------- -------- ---------------
<S> <C>
Robert S. Raley, Jr. 1996 $300,000 $ 71,966 -0- $ 16,238
Chairman of the Board, President 1995 -0-(2) -0-(3) -0- 14,202
and Chief Executive Officer 1994 50,000 282,884 -0- 15,301
Ronald G. Tray 1996 115,885 -0- 50,000(4) 9,047
Vice President, Assistant Secretary 1995 107,800 -0-(3) -0- 7,278
1994 90,029 41,611 39,679(5) 5,591
George R. Kouri, former 1996 181,225 17,662,73 -0- 790,632(6)
President and Chief Executive Officer 1995 276,300 -0-(3) -0- 9,287
1994 132,226 443,846 528,438(5) 7,000
Preston K. Gnagey, former 1996 153,250 4,412.37 -0- 349,376(7)
Vice President 1995 239,000 -0-(3) -0- 5,550
1994 118,054 110,961 62,064(5) 7,010
Joseph R. Becka, 1996 127,000 13,250 -0- 440,007(9)
Former Vice President 1995 167,600 -0-(3) -0- 7,944
1994 103,522 332,884 427,449(5) 7,884
</TABLE>
- ------------------
(1) Includes the Company's matching contribution to its 401(k)
retirement savings plan and automobile benefits.
(2) Mr. Raley received $50,000 in base salary in 1995 pursuant to
his employment agreement. He elected to repay this amount along
with bonus payments received in 1995 as discussed in footnote (3)
below.
(3) All of the named executive officers received estimated bonus
payments on a monthly basis during 1995 pursuant to the terms of
their respective employment agreements. Because the Company and TFC
did not have any net pre-tax earnings in 1995, the named executive
officers (other than Mr. Tray, who repaid his bonus payments)
entered into agreements to repay these bonuses. However, the
repayment obligations of Messrs. Gnagey and Johnston were forgiven
in 1996 in connection with their severance packages. For information
regarding the bonuses paid in 1995, the specific terms of the named
executive officers' repayment obligations, and the severance
packages of certain named executive officers, see "- Raley
Employment Agreement and Stock Options," "- Tray Employment
Agreement and Stock Options," "- Severance Agreements of Certain
Executive Officers," and "- Compensation Committee Report Concerning
1996 Compensation of Certain Executive Officers" below.
(4) Options granted in 1996 pursuant to the Company's 1995 Long-Term
Incentive Plan ("Incentive Plan"). See " - Tray Employment
Agreement and Stock Options" below.
(5) Options granted in 1994 pursuant to the Incentive Plan subject to
shareholder approval of the Incentive Plan, which occurred at the
Company's 1995 Annual Meeting.
(6) Includes severance payment of $780,064, $180,064 of which was used
by Mr. Kouri to satisfy his bonus repayment obligation described in
footnote (3) above.
(7) Includes severance payment of $300,000 and $43,889 of debt forgiven
by the Company.
(8) Mr. Johnston joined the Company in June 1994.
(9) Includes severance payment of $300,000 and $133,228 of debt forgiven
by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information regarding stock option grants
to Ronald G. Tray during the fiscal year ended December 31, 1996. The grants
were made pursuant to the Incentive Plan. See also " - Tray Employment Agreement
and Stock Options" below.
<PAGE>
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS GRANT DATE
NUMBER OF SECURITIES GRANTED TO EMPLOYEES PRESENT VALUE
NAME UNDERLYING OPTIONS GRANTED IN FISCAL YEAR EXERCISE PRICE EXPIRATION DATE ($)(2)
- ---- -------------------------- -------------------- -------------- --------------- -------------
<S> <C>
Ronald G. Tray 50,000 33% $1.25 December 31, 2005(1) $52,000
</TABLE>
- -------------
(1) 10,000 option shares vested on January 1, 1997. The remaining 40,000 option
shares vest in five tranches of 10,000 shares each on January 1 of 1998, 1999,
2000 and 2001. Each tranche expires if unexercised on the date that is five
years after the date the tranche vests.
(2) The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995: risk-free interest rate of 6%; dividend yield of
0%, volatility factor of the expected market price of the Company's common stock
of 0.915; and a weighted-average expected life of the option ranging from 2
years to 7.5 years. The actual value, if any, that may be realized will depend
on the excess of the stock price over the exercise price on the date the option
is exercised, so there can be no assurance that the value realized will be at or
near the value estimated by the Black-Scholes model.
FISCAL YEAR END OPTIONS TABLE
No stock options were exercised in 1996 by the current and former
executive officers whose compensation is disclosed in the Summary Executive
Compensation Table above. The table below sets forth exercisable and
unexercisable stock options held by those executive officers as of December 31,
1996, all of which were granted pursuant to the Incentive Plan.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
------------------ --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C>
Ronald G. Tray 15,872 73,808 0 $25,000(1)
George R. Kouri 211,376 0(2) 0 0
Preston K. Gnagey 24,826 0(2) 0 0
Joseph R. Becka 170,980 0(2) 0 0
</TABLE>
(1) Attributable to the 50,000 option shares granted to Mr. Tray on
November 14, 1996 at an exercise price of $1.25 per share, none of
which were exercisable on December 31, 1996. On December 31, 1996,
the average of the high and low sales prices of the Company's Common
Stock on NASDAQ/NMS was $1.75 per share.
(2) In connection with the severance packages of Messrs. Kouri, Gnagey
and Becka, all stock options that were unexercisable as of September
30, 1996, expired. See " - Severance Agreements of Certain Executive
Officers" below.
RALEY EMPLOYMENT AGREEMENT AND STOCK OPTIONS
BASIC TERMS OF EMPLOYMENT AGREEMENT
TFC and Robert S. Raley, Jr. entered into an employment
agreement (the "Raley Employment Agreement"), commencing January 1, 1993, and,
as amended, expiring December 31, 2002, unless terminated earlier in accordance
with its provisions. Under the original terms of the Raley Employment Agreement,
TFC agreed to pay Mr. Raley (i) a base salary of $50,000 per annum and (ii) a
bonus, after deduction of Mr. Raley's base salary payments, equal to 3% of the
<PAGE>
consolidated annual net pre-tax income of TFC. The computation of the
consolidated annual net pre-tax income of TFC is made without deducting federal
or state income taxes or bonuses paid by TFC to Mr. Raley or to any other
employee. In addition, Mr. Raley is reimbursed for all reasonable business
expenses and is furnished with two automobiles for his use, the reasonable
expenses for the operation of which are paid by TFC. Further, TFC has agreed to
provide Mr. Raley with all other employee benefits that he enjoyed on the date
of such agreement or those benefits that TFC may approve for employees generally
or for its senior executives.
In addition to termination upon the occurrence of Mr. Raley's
disability or death, TFC may terminate the Raley Employment Agreement prior to
the expiration of its term in the event that: (i) Mr. Raley ceases to serve as
the Chairman of TFC's Board of Directors; (ii) all or substantially all of TFC's
assets are sold to a third party; (iii) more than 50% of the then issued and
outstanding stock of TFC or the Company is sold to, or exchanged for equity
interests in, any person or entity, which sale or exchange would not constitute
a "continuity of interest;" (iv) TFC is involved in a business combination in
which it is not the surviving corporation; or (v) TFC is dissolved voluntarily
or by operation of law. Further, the Raley Employment Agreement provides that
TFC reserves the right to terminate such agreement, without notice for "cause,"
as defined therein. The Raley Employment Agreement also includes a covenant not
to compete which continues for as long as Mr. Raley receives payments
thereunder.
BONUS REPAYMENT OBLIGATION; 1996 AND 1997 COMPENSATION PACKAGE
Although the Company cannot make a final determination regarding the
amount, if any, of the 3% bonus of net pre-tax income of TFC until the end of
each year, historically TFC has made estimated bonus payments to Mr. Raley and
other executives throughout the year on a monthly basis. In 1995, these
estimated bonus payments to Mr. Raley totalled $354,982. However, because TFC
did not have any net pre-tax income in 1995, Mr. Raley was obligated to return
to TFC all estimated bonus payments made in 1995. In addition, although Mr.
Raley also received $50,000 in base salary during 1995, Mr. Raley elected to
repay that amount as well. To fulfill this obligation, Mr. Raley delivered a
Promissory Note to TFC dated as of January 1, 1996, in the principal amount of
$404,982 ("Raley Note") and an Excess Compensation Repayment Agreement also
dated as of January 1, 1996 ("Raley Repayment Agreement"). Under its original
terms, the Raley Note had a three year term expiring December 31, 1998, with
interest accruing at 9% per annum beginning January 1, 1997. The Raley Note and
Raley Repayment Agreement also originally provided that TFC could offset
estimated bonus payments otherwise due in 1997 under the Raley Employment
Agreement until all principal and accrued interest due under the Raley Note was
paid. However, as part of Mr. Raley's new compensation package described below,
the Board of Directors has agreed that there will not be any such bonus offsets
in 1997 and that no interest will accrue on the Raley Note in 1997. If Mr. Raley
ceases to be employed by TFC for certain reasons prior to December 31, 1998, all
principal and accrued interest due under the Raley Note is payable within thirty
days of termination of employment.
During 1996, Mr. Raley assumed increasing responsibility for the day
to day operations of the Company. As a result, the Board increased Mr. Raley's
salary to $300,000 for 1996, and the term of the Raley Employment Agreement was
extended to December 31, 2002. In addition, the Board granted Mr. Raley a
<PAGE>
$300,000 line of credit, subject to such facility being approved by the
Company's lenders. The Company decided not to request the approval of its
lenders for this facility and the Company and Mr. Raley have mutually agreed to
terminate the facility. Subsequently, in August 1996, Mr. Raley agreed to
relinquish his rights to the twenty year deferred compensation package that was
part of the original terms of the Raley Employment Agreement. Effective
September 30, 1996, the employment of four executive officers of the Company
ended. See " - Severance Agreements of Certain Executive Officers" below. In
October 1996, Mr. Raley, at the request of the Board, agreed to become President
and Chief Executive Officer of the Company and reassumed the same position with
TFC.
Although the Company did not amend the Raley Employment Agreement,
in January 1997 the Board passed a resolution that supplemented Mr. Raley's
1997 compensation. Under this resolution, the Board modified the repayment
terms of the Raley Note, as described above. In addition, pursuant to the
Company's 1995 Long-Term Incentive Plan ("Incentive Plan"), the Company
granted Mr. Raley options to purchase 200,000 shares of Company Common Stock.
The exercise price for these option shares is $1.44 per share, which was the
fair market value of the Company's Common Stock on the date of grant as
determined pursuant to the Incentive Plan. 40,000 option shares became
exercisable immediately, and the remaining 160,000 option shares vest in four
equal tranches of 40,000 shares on each of January 1, 1998, 1999, 2000, and
2001. The options expire if unexercised ten years after grant. Without
amending the Raley Employment Agreement, the Board modified the salary and
bonus components of Mr. Raley's 1997 compensation. Under this modification, he
will receive a base salary of $300,000 per year and will also receive a
guaranteed bonus of $300,000 to be credited against the bonus payable to
Mr. Raley in 1997 pursuant to the Raley Employment Agreement. In the event the
terms of the Raley Employment Agreement result in a bonus in excess of $300,000,
Mr. Raley will be paid such excess. However, should the bonus calculation
under the Raley Employment Agreement result in a bonus of less than $300,000,
then Mr. Raley will not be required to repay any of the $300,000 guaranteed
bonus. As the salary arrangement provided in the January 1997 Resolution is
not guaranteed under the Raley Employment Agreement, should Mr. Raley for any
reason cease being Chief Executive Officer during 1997 the $300,000 salary due
him under this compensation package will be based on the amount of time he
served in that role in 1997.
TRAY EMPLOYMENT AGREEMENT AND STOCK OPTIONS
Ronald G. Tray, the Chief Operating Officer of TFC, and a vice
president and assistant secretary of the Company, entered into an Employment
Agreement with TFC that, as amended, became effective January 1, 1995 and
expires December 31, 1999 ("Tray Employment Agreement"). The Tray Employment
Agreement provides that TFC will pay Mr. Tray (i) an annual base salary and (ii)
an annual bonus equal to a fixed percentage of the consolidated net pre-tax
earnings of TFC. The computation of the consolidated net pre-tax earnings of TFC
and its subsidiaries is made without deducting the amount of Mr. Tray's bonus
paid by TFC to Mr. Tray or to any other executive employee. In addition, no
bonus is paid unless the net pre-tax earnings of the Company meet or exceed 65%
of a budgeted amount approved by the Board of Directors. Although bonus amounts
are not final until the end of each year, TFC makes estimated bonus allocations
to Mr. Tray on a monthly basis. In 1995, Mr. Tray's estimated bonus payments
totalled $16,791. However, because neither the Company nor TFC had net pre-tax
earnings in 1995, Mr. Tray repaid the full amount of these estimated bonus
payments in March 1996.
<PAGE>
In 1996, the Company and TFC negotiated a revised compensation
package with Mr. Tray. Initially, Mr. Tray's annual salary for 1996, 1997, 1998
and 1999 was increased from $107,800, $123,970, $142,566 and $163,950,
respectively, to $115,885, $150,000, $180,000 and $210,000, respectively.
However, in November 1996, these annual salary figures were revised for the
years 1997 through 1999 to $155,000, $165,000 and $175,000, respectively. In
addition, on November 14, 1996, pursuant to the Incentive Plan, the Company
granted Mr. Tray options to purchase 50,000 shares of Company Common Stock at an
exercise price of $1.25 per share. 10,000 option shares became exercisable
January 1, 1997, and the remaining 40,000 option shares vest in four equal
tranches of 10,000 shares on each of January 1, 1998, 1999, 2000 and 2001. Each
tranche expires if unexercised on the date that is five years after the date the
tranche vests.
SEVERANCE AGREEMENTS OF CERTAIN EXECUTIVE OFFICERS
Effective September 30, 1996, the Company and TFC entered into
agreements with each of George R. Kouri, Joseph R. Becka, Preston K. Gnagey, and
Charles M. Johnston (each such executive officer, an "Executive Employee"),
pursuant to which their employment with the Company and TFC ended. Prior to
September 30, 1996, each Executive Employee had entered into an employment
agreement with TFC. These employment agreements provided for bonuses of varying
percentages of net pre-tax income, including estimated bonus payments throughout
the year, on the same terms as described above with respect to Mr. Tray.
As was the case with Mr. Tray, because neither the Company nor TFC
had net pre-tax earnings in 1995, no bonuses were payable by TFC for 1995 and
each of the Executive Employees became obligated to return to TFC all estimated
bonus payments made in 1995. To evidence the terms under which the Executive
Employees were to repay the bonus payments made to them during 1995, each such
Executive Employee delivered a Promissory Note dated as of January 1, 1996
("Note") to TFC and executed an Excess Compensation Repayment Agreement
("Repayment Agreement"), also dated as of January 1, 1996. The principal amounts
due under the respective Executive Employees' Notes (which correspond to the
1995 estimated bonus payments) were as follows:
George R. Kouri $180,064
Joseph R. Becka $135,327
Preston K. Gnagey $ 44,733
Charles M. Johnston $ 33,582
Other than with respect to principal amounts, each of the Notes
delivered by the Executive Employees had the same terms, as did the Repayment
Agreements. Principal under the Notes was to be due December 31, 1998, with
interest accruing monthly at a rate of 9%, beginning March 20, 1996. Under the
terms of the Notes, if an Executive Employee ceased to be employed by TFC for
certain reasons prior to December 31, 1998, all principal and accrued interest
due under the Notes was to be payable within thirty days of termination of
employment. In addition, the Notes and the Repayment Agreements together
provided that TFC could offset estimated bonus payments otherwise due in 1996
<PAGE>
and thereafter under the Executive Employees' employment agreements until all
principal and accrued interest due under the Notes was paid.
As described above, in 1996 the Company and each Executive Employee
entered into a severance agreement (each a "Severance Agreement"), pursuant to
which the Executive Employees' employment with the Company and TFC ended
effective September 30, 1996. Each Severance Agreement contained three principal
components, in addition to such other general terms as are customary in similar
circumstances. First, TFC and the Company agreed to forgive all principal and
interest outstanding under the Notes of Messrs. Becka, Gnagey and Johnston. In
addition, while all estimated bonus payments to these Executive Employees under
their employment agreements during the first nine months of 1996 were to be
applied to reduce the amounts outstanding under the Notes, the Severance
Agreements provided that bonus overpayments in 1996 would also be forgiven. The
Severance Agreements also provided that any stock options previously granted to
an Executive Employee under the Incentive Plan that were exercisable as of
September 30, 1996, would remain exercisable until December 31, 1999. All
unexercisable options as of September 30, 1996, expired. Finally, the Severance
Agreements provided for a one time, lump sum severance payment to each of the
Executive Employees, however, the amount of Mr. Kouri's severance payment was
offset by $180,064, the principal amount owed by Mr. Kouri to TFC under his
Note. Set forth in the chart below is information regarding the severance
payment, retained stock options, expired stock options, and amount of principal
and interest forgiven under the Notes for each of the Executive Employees.
<TABLE>
<CAPTION>
PRINCIPAL AND
NAME SEVERANCE PAYMENT RETAINED OPTIONS(1) EXPIRED OPTIONS INTEREST FORGIVEN
---- ----------------- ---------------- --------------- -----------------
<S> <C>
George R. Kouri $780,064(2) 211,376 317,062 $ 0(2)
Joseph R. Becka 300,000 170,980 256,469 $133,228
Preston K. Gnagey 300,000 24,826 37,238 $ 43,889
Charles M. Johnston 200,000 32,022 48,032 $ 34,833
</TABLE>
(1) The exercise price of all of these options is $11.50 per share.
(2) Mr. Kouri's severance payment was offset by $180,064, the amount of his
bonus repayment obligation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Company's compensation committee was an officer or
employee of the Company or TFC during 1996. During 1996, no executive officer of
the Company served as a member of the compensation committee of another entity,
nor did any executive officer of the Company serve as a director of another
entity.
COMPENSATION COMMITTEE REPORT CONCERNING 1996 COMPENSATION OF CERTAIN EXECUTIVE
OFFICERS
This report describes the Company's officer compensation strategy,
the components of the compensation program and the manner in which the 1996
compensation determinations were made for the Company's senior management team,
including the President and Chief Executive Officer, Robert S. Raley, Jr., TFC's
Chief Operating Officer, Ronald G. Tray, and the three former executive officers
(collectively referred to as the "Executive Officers") whose 1996 compensation
is disclosed in the Summary Compensation table of this Proxy Statement.
<PAGE>
In addition to the information set forth under "Executive
Compensation" in this Proxy Statement, the Company's Compensation Committee (the
"Compensation Committee") is required to provide shareholders a report
explaining the rationale and considerations that led to the fundamental
executive compensation decisions affecting the Company's Executive Officers. In
fulfillment of this requirement, the Compensation Committee, at the direction of
the Company's Board of Directors, has prepared the following report for
inclusion in this Proxy Statement. None of the members of the Compensation
Committee are executive officers or employees of the Company.
COMPENSATION PHILOSOPHY
The Company's compensation packages are designed to attract, retain,
motivate and reward qualified, dedicated executives, and to directly link
compensation with (i) previous and anticipated performance and (ii) the
Company's profitability. Historically, the principal components of executive
compensation have been (i) a base salary at a stated annual rate, together with
certain other benefits as may be provided from time to time, and (ii) bonuses
keyed to the net pre-tax earnings of TFC.
As of January 1, 1996, each of the Executive Officers had an
employment agreement with the Company. Under these employment agreements, base
salary levels during 1996 for the Executive Officers other than Mr. Raley (whose
employment agreement was negotiated separately) were set at the 75th percentile
of comparable officers and comparable companies, exclusive of additional
compensation awarded by such comparable companies on the basis of those
companies' performance, adjusted for individual Executive Officer's past
contributions and performance, and taking into account the Executive Officer's
experience and abilities, the Executive Officer's expected future contributions
and the Company's past performance. Unless the Board awards a specified bonus
for a uniquely beneficial contribution to the Company, no bonuses are paid to
Executive Officers of the Company, individually or collectively, (i) except as a
percentage of TFC's and its subsidiaries net pre-tax earnings for the accounting
period on which the bonus is based, and then, with respect to Executive Officers
other than Mr. Raley, only if the Company's net pre-tax earnings meet certain
budgeted thresholds, or (ii) if the payment of the bonus will materially and
adversely affect the Company's cash flow requirements. In order to emphasize the
importance of the Company's profitability, bonuses may be paid monthly on the
basis of the Company's performances during the preceding month, but are limited
cumulatively and are subject to adjustment on the basis of the Company's fiscal
year performance as determined by independent auditors.
EXECUTIVE OFFICER COMPENSATION PROGRAM; EMPLOYMENT CONTRACTS; SEVERANCE
AGREEMENTS
In 1996, the Company's and TFC's senior management team was
materially restructured. Effective September 30, 1996, the employment of George
R. Kouri, the Company's President and Chief Executive Officer, as well as the
employment of three other executive officers, Joseph R. Becka, Preston K. Gnagey
<PAGE>
and Charles M. Johnston, ended. Severance arrangements were negotiated with
these four individuals, as described in " - Severance Agreements of Certain
Executive Officers" above. As a result of these four departures from the
Company, the Board of Directors appointed Robert S. Raley, Jr., Chairman of the
Board, to the positions of President and Chief Executive Officer of the Company
and TFC. In connection with this appointment, and given Mr. Raley's increased
role in the Company's day to day operations throughout 1996, modifications were
made to Mr. Raley's compensation arrangement in 1996 and he received a new
compensation and incentive package for 1997, all as described in " - Raley
Employment Agreement and Stock Options" above. The Company also modified the
compensation package of Ronald G. Tray, TFC's Chief Operating Officer, as
described in " - Tray Employment Agreement and Stock Options" above, and hired a
new Chief Financial Officer, who replaced the Company's then Chief Financial
Officer and Controller, and who was not given an employment agreement. The
salaries paid to Mr. Raley, Mr. Tray and the new Chief Financial Officer during
1997 will collectively be less than the aggregate annual salaries of the
executive team, including Messrs. Raley and Tray, that were in effect at the
beginning of 1996. The Compensation Committee participated in the negotiation of
all of the foregoing compensation and severance arrangements, and believes that
amounts paid pursuant thereto are consistent with the Company's compensation
philosophy as set forth above.
1995 LONG-TERM INCENTIVE PLAN
In 1994, the Board of Directors adopted the 1995 Long-Term Incentive
Plan (the "Incentive Plan"), which was approved by shareholders of the Company
at the 1995 Annual Meeting. On November 14, 1996, the Company granted Ronald G.
Tray options to purchase 50,000 shares of stock and in January 1997, a grant of
200,000 stock options pursuant to the Incentive Plan was made to Robert S.
Raley, Jr. The specific terms of these awards are described in this Proxy
Statement under the headings " - Raley Employment Agreement and Stock Options"
and " - Tray Employment Agreement and Stock Options" above. On November 1, 1996,
the Compensation Committee also granted options to purchase 100,000 shares to
David W. Karsten, who was hired as the Company's new Chief Financial Officer.
The exercise price of Mr. Karsten's options is $1.13 per share. 20,000 of the
option shares vested on January 1, 1997, and the remaining 80,000 option shares
vest in four equal tranches of 20,000 shares on each of January 1, 1998, 1999,
2000 and 2001. Each tranche expires if unexercised on the date that is five
years after the day the tranche vests. The exercise price of all of the
foregoing options is equal to the fair market value of the Company's Common
Stock on the date of grant as determined pursuant to the Incentive Plan.
The purpose of the Incentive Plan is to support the business goals
of the Company and to attract, retain and motivate management officials of high
caliber by providing incentives to associate more closely the interest of
certain officers and key executives of the Company with the interests of the
Company's shareholders. Participation is limited to officers and other key
employees of the Company who are in positions in which their decisions, actions
and counsel significantly contribute to the success of the Company. Directors of
the Company who are not otherwise officers or employees of the Company are not
eligible for participation under the Incentive Plan. The Company has reserved
1,500,000 shares of the Company's Common Stock for issuance of awards under the
Incentive Plan. Awards under the Incentive Plan can be made in the form of
nonqualified stock options, incentive stock options, or restricted stock,
<PAGE>
separately or in combination. The Incentive Plan is administered and interpreted
by the Compensation Committee. The Compensation Committee has full and final
authority to make and adopt rules and regulations for the administration of the
Incentive Plan, to interpret the provisions of the Incentive Plan, to determine
the employees to whom awards shall be made under the Incentive Plan and to
determine the type of award to be made and the amount, size and terms of each
such award.
EMPLOYEE STOCK PURCHASE PLAN
The Board adopted the Employee Stock Purchase Plan (the "Stock
Purchase Plan") on December 11, 1993, which provides for awards of Common Stock
to employees, including eligible officers of the Company, TFC and any future
majority owned subsidiary. Awards under the Stock Purchase Plan are in the form
of options to purchase Common Stock of the Company. The price at which shares of
Common Stock are sold under the Stock Purchase Plan to employees is the lower of
85% of the fair market value of a share of Common Stock on the date of grant or
85% of the fair market value of Common Stock on the date of purchase of the
shares. Awards granted to Executive Officers pursuant to the Stock Purchase Plan
are intended to increase their motivation for an interest in the Company's long
term success as measured by the value of the Company's Common Stock.
LIMITATION ON DEDUCTIBILITY OF CERTAIN COMPENSATION FOR FEDERAL INCOME TAX
PURPOSES
Section 162(m) of the Internal Revenue Code ("162(m)") precludes the
Company from taking a deduction for compensation in excess of $1,000,000 for the
Chief Executive Officer or any of its four other highest paid officers. Certain
performance-based compensation, however, is specifically exempt from the
deduction limit. In adopting the Incentive Plan, the Compensation Committee duly
considered Section 162(m) and structured it accordingly. The Compensation
Committee believes that the Incentive Plan and the Employee Stock Purchase Plan
will both qualify as performance-based compensation under the regulations issued
under Section 162(m).
- Linwood R. Watson
- Douglas E. Bywater
- Andrew M. Ockershausen
THE PRECEDING "COMPENSATION COMMITTEE REPORT CONCERNING THE 1996
COMPENSATION OF CERTAIN EXECUTIVE OFFICERS" SHALL NOT BE DEEMED TO BE SOLICITING
MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OR INCORPORATED BY REFERENCE IN ANY DOCUMENTS SO FILED.
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
The following graph shows a comparison of cumulative total
stockholder returns for the Company, the Standard & Poor's 500 Stock Index and
two separate industry peer groups constructed by the Company from December 22,
1993 through December 31, 1996. The industry peer groups are described in detail
below. The total stockholder return assumes $100 invested at the beginning of
the period in the Company's Common Stock, the Standard & Poor's 500 Stock Index
and in each peer group index. In developing each industry peer group index, the
returns of the companies were weighted according to stock market capitalization
at the beginning of each period for which a return is indicated.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
S&P 500 INDEX AND PEER GROUP INDEX
[GRAPH]
<TABLE>
<CAPTION>
BASE PERIOD RETURN RETURN RETURN RETURN
DECEMBER 22, 1993 DECEMBER 1993 DECEMBER 1994 DECEMBER 1995 DECEMBER 1996
<S> <C>
- ---S&P 500 Index 100 99.8 101.1 139.1 171.0
- ---TFC Enterprises, Inc. 100 113.0 66.3 48.9 14.1
- ---Peer Group 100 112.8 94.6 141.7 143.0
</TABLE>
- --------------------
* 100 invested on 12/23/93 in stock or index, including reinvestment of
dividends.
Peer Group: Americredit Corporation, Consumer Portfolio Services Inc.,
Credit Acceptance Corporation, Eagle Finance Corporation, First Merchants
Acceptance Corporation, General Acceptance Corporation, Jayhawk Acceptance
Corporation, Mercury Finance Company, Monaco Finance Inc., Olympic Financial
Inc., Regional Acceptance Corporation, Ugly Duckling, Search Capital and MS
Financial.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described throughout this Proxy Statement, effective September
30, 1996, the Company entered into agreements with four executive officers,
George R. Kouri, Joseph R. Becka, Preston K. Gnagey and Charles M. Johnston,
pursuant to which their employment with the Company ended. The specific terms
and conditions of these agreements are described in this Proxy Statement under
the heading "Executive Compensation - Severance Agreements of Certain Executive
Officers." As described therein, as part of the severance arrangements, the
Company agreed to forgive certain amounts owed by these executive officers to
the Company. These obligations arose as a result of estimated bonus payments
that were made to each of the executive officers during 1995. Because neither
the Company nor TFC had any net pre-tax earnings in 1995, the executive officers
became obligated to return the bonus payments to TFC and they each delivered
promissory notes to the Company equal to the amounts of the bonus payments.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors, officers and persons who beneficially own more than 10% of a
registered class of stock of the Company to file initial reports of ownership
(Forms 3) and reports of changes in beneficial ownership (Forms 4 and 5) with
the SEC and NASDAQ. Such persons are also required under the rules and
regulations promulgated by the SEC to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to
the Company, the Company believes that all reporting requirements under Section
16(a) for 1996 were met in a timely manner by its directors, officers and
greater than 10% beneficial owners.
INFORMATION REGARDING AUDITORS
During 1996, the Company moved its accounting offices from
Manassas, Virginia to its corporate headquarters in Norfolk. Ernst & Young LLP
has audited the financial statements of the Company since the period ended
December 31, 1988, but does not maintain an office in the Norfolk area. The
Company is currently soliciting bids from Ernst & Young LLP and other accounting
firms to act as independent certified public accountants to audit the financial
statements of the Company for the fiscal year ending December 31, 1997. A
representative of Ernst & Young LLP will be present at the Annual Meeting, will
have the opportunity to make a statement if he or she desires, and will be
available to respond to appropriate questions.
<PAGE>
OTHER MATTERS
The Board of Directors does not know of any matters that will be
presented for action at the Annual Meeting other than those described above or
matters incident to the conduct of the Annual Meeting. If, however, any other
matters not presently known to management should come before the Annual Meeting,
it is intended that the shares represented by the Proxy will be voted on such
matters in accordance with the discretion of the holders of such proxy.
SUBMISSION OF PROPOSALS FOR 1998
The next Annual Meeting of Shareholders will be held on or about May
12, 1998. Any shareholder who wishes to submit a proposal for consideration at
that meeting, and who wishes to have such proposal included in the Company's
proxy statement for that meeting, must submit the proposal in writing to Robert
S. Raley, Jr., President and Chief Executive Officer, at 5425 Robin Hood Road,
Suite 101B, Norfolk, VA 23513 no later than December 12, 1997.
GENERAL
The Company's 1996 Annual Report to Shareholders accompanies this
Proxy Statement. The 1996 Annual Report to Shareholders does not form any part
of the material for the solicitation of proxies. Upon written request, the
Company will provide shareholders with a copy of its Annual Report on Form 10-K
for the year ended December 31, 1996 (the "Form 10-K"), as filed with the
Securities and Exchange Commission, without charge. Please direct written
requests for a copy of the Form 10-K to: Robert S. Raley, Jr., President and
Chief Executive Officer, TFC Enterprises, Inc., 5425 Robin Hood Road, Suite
101B, Norfolk, VA 23513.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY
By Order of the Board of Directors
April 1, 1997
<PAGE>
TFC ENTERPRISES, INC.
Proxy Solicited on Behalf of the
Board of Directors for
Annual Meeting of Shareholders
to be Held May 13, 1997
The undersigned, having received the Annual Report to Shareholders and
the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement
dated April 1, 1997, hereby appoints Robert S. Raley, Jr. and Douglas E. Bywater
(each with power to act alone) as proxies, with full power of substitution, and
hereby authorizes them to represent and vote, as directed below, all the shares
of the Common Stock of TFC Enterprises, Inc. held of record by the undersigned
on March 13, 1997, at the Annual Meeting of Shareholders to be held on May 13,
1997, and any adjournment thereof.
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR"
PROPOSAL 1
1. ELECTION OF DIRECTORS
FOR all nominees listed (except as indicated to the contrary) |_|
WITHHOLD AUTHORITY
to vote for all nominees listed |_|
Douglas E. Bywater
Linwood R. Watson
(INSTRUCTIONS: To withhold authority to vote for any
individual nominee write the nominee's name on the line
provided below.)
---------------------------------------------------
<PAGE>
2. IN THEIR DISCRETION, on such other matters as may properly come before
the meeting, or, if any nominee listed in Proposal 1 above is unable to
serve for any reason, to vote or refrain from voting for a substitute
nominee or nominees.
This proxy is revocable at any time prior to its exercise. This proxy
when properly executed, will be voted as directed. Where no direction
is given, this proxy will be voted for Proposal 1.
Please sign your name(s)
exactly as they appear hereon. If
signer is a corporation, please
sign the full corporate name by
duly authorized officer. If any
attorney, guardian,
administrator, executor, or
trustee, please give full title
as such. If a partnership, sign
in partnership name by authorized
person.
Date: __________________, 1997
------------------------------
------------------------------
Please complete, date, sign and
return this proxy promptly in the
accompanying envelope.
