As filed with the Securities and Exchange Commission on April 20, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
TFC ENTERPRISES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 54-1306895
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5425 Robin Hood Road, Suite 101B
Norfolk, Virginia 23513
(757) 858-4054
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Robert S. Raley, Jr.
Chairman of the Board,
President and Chief Executive Officer
TFC Enterprises, Inc.
5425 Robin Hood Road
Norfolk, VA 23513
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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With Copies to:
John M. Paris, Jr., Esq. William L. Pitman, Esq.
Clark & Stant, P.C. Williams, Mullen, Christian & Dobbins, P.C.
One Columbus Center Two James Center
Virginia Beach, Virginia 23462 1021 East Cary Street
(757) 499-8800 Richmond, VA 23210
(804) 643-1991
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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================================= ================= ============================= ============================ ====================
Titles of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Share(1) Aggregate Offering Price(2) Registration Fee
================================= ================= ============================= ============================ ====================
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Common Stock, par value $0.01 1,135,280(2) $1.72 $1,952,682 $576.04
================================= ================= ============================= ============================ ====================
</TABLE>
(1) Estimated pursuant to paragraph (c) of Rule 457 solely for the purpose of
calculating the registration fee, based upon the average of the reported high
and low sales prices for a share of Common Stock on April 13,1998, as reported
on the Nasdaq National Market. (2) Plus such indeterminate number of additional
shares of Common Stock as may result from an adjustment in the number of shares
issuable pursuant to the two warrants from which the shares are convertible.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 20, 1998
PROSPECTUS
1,135,280 Shares
TFC ENTERPRISES, INC.
Common Stock
All of the 1,135,280 shares of common stock of TFC Enterprises, Inc., a
Delaware corporation (the "Company," "TFCE") offered hereby are being sold by
the Selling Stockholder. See "Selling Stockholder." The Company will not receive
any of the proceeds from the sale of shares by the Selling Stockholder. The
Company's Common Stock is traded on the Nasdaq National Market under the symbol
"TFCE." On April 10, 1998, the last reported sale price of the Common Stock on
the Nasdaq National Market was $1.63 per share.
The shares of Common Stock offered hereby may be sold from time to time
by the Selling Stockholder, or by agents, pledgees, donees, transferees or other
successors in interest of the Selling Stockholder. These sales may be made on
the Nasdaq National Market, or otherwise, at prices and on terms then prevailing
or at prices related to the then-current market prices, or in negotiated
transactions at negotiated prices. The shares may be sold utilizing
broker-dealers by one or a combination of the following: (a) a block trade in
which the broker or dealer so engaged will attempt to sell the shares as agent,
but may position and resell a portion of the block as principal to facilitate
the transactions; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; and (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers. Brokers or dealers will receive commissions or discounts from the
Selling Stockholder in amounts to be negotiated immediately prior to the sale.
The shares may also be sold pursuant to option, hedging, or other transactions
with broker-dealers. The Selling Stockholder will be responsible for any
discounts, concessions, commissions, or other compensation due to any broker or
dealer in connection with the sale of any of the shares offered hereby. All of
the other expenses of this offering, estimated at $25,000, will be paid by the
Company. See "Plan of Distribution."
See "Risk Factors" beginning on page 6 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April __, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files, reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
may be inspected and copies may be obtained at prescribed rates from the
Commission's Public Reference Section, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices, at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and 7 World Trade Center, Suite 1300, New York, New York
10048. In addition, such materials can also so be obtained from the Commission's
web site at http:\\www.sec.gov. Reports and other information concerning the
Company also may be inspected at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006-1500.
This Prospectus constitutes part of a Registration Statement on Form
S-3 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus does not contain all of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and
related exhibits for further information with respect to the Company and the
securities offered hereby. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in such instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 (the "Annual Report"); (2) the Company's Definitive Proxy Statement
dated April 10, 1998, used in connection with its Annual Meeting of Stockholders
to be held on May 12, 1998; (3) the Company's Current Report on Form 8-K dated
February 24, 1998; and (4) the description of the Company's capital stock
contained in its Form 8-A filed December 1993.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering made hereby
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of the filing of such reports and documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein (or in any other
subsequently filed document that also is incorporated or deemed to be
incorporated by reference into this Prospectus) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of the Registration Statement
or this Prospectus.
Any person to whom a copy of this Prospectus is delivered may obtain,
without charge, upon written or oral request, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such documents
(other than exhibits expressly incorporated by reference into such documents).
Requests for such documents should be addressed to the Chief Financial Officer
of the Company, 5425 Robin Hood Road, Suite 101B, Norfolk, Virginia 23513 or
directed to the Chief Financial Officer at (757) 858-4054.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto) included
elsewhere in this Prospectus or incorporated by reference herein, which should
be read in its entirety.
Cautionary statement under the "Safe-Harbor" provisions of the Private
Securities Litigation Reform Act of 1995: Included in this Prospectus and other
written and oral information presented by management from time to time,
including but not limited to, reports to stockholders, quarterly stockholder
letters, filings with the Commission, news releases, and investor presentations,
are forward-looking statements about business strategies, market potential,
potential for future point-of-sale and portfolio purchases, future financial
performance and other matters that reflect management's expectations as of the
date made. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," and similar expressions are intended to identify
forward-looking statements. Future events and the Company's actual results could
differ materially from the results reflected in these forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation: the
Company's dependence on its line of credit, the fluctuating interest rates
associated with its line of credit, and the impact of installment contract
defaults. Please refer to a discussion of these and other factors in this
Prospectus and the Company's other Commission filings. See "Risk Factors." The
Company disclaims any intent or obligation to update these forward-looking
statements, whether as a result of new information, future events or otherwise.
The Company
The Company conducts its consumer finance operations through two
wholly-owned subsidiaries, The Finance Company ("TFC") and First Community
Finance, Inc. ("FCF"). Through TFC, the Company is engaged in purchasing and
servicing installment sales contracts originated by automobile and motorcycle
dealers in the sale of used automobiles, vans, light trucks, and new and used
motorcycles (collectively "vehicles"). Installment sales contracts are acquired
on either an individual basis after the Company has reviewed and approved the
vehicle purchaser's credit application (a "point-of-sale purchase"), or on a
group basis through the purchase of a dealer's portfolio of existing installment
sales contracts (a "portfolio purchase"). The Company focuses its point-of-sale
business on installment sales contracts originated by dealers with consumers who
are United States military enlisted personnel, primarily in the E-1 through E-5
grades. Portfolio purchases are primarily from dealers who finance their own
contracts with civilian customers and sell them after origination in bulk. To
achieve an acceptable rate of return and provide for credit risks, contracts are
purchased from dealers at a discount to the remaining principal balance. Most of
the discount is held in a nonrefundable reserve against which credit losses are
first applied. The amount of the discount reflects, among other things, a
contract's interest rate, remaining term, and perceived credit risk.
The Company has been engaged in consumer finance activities since its
founding in 1977. The Company's point-of-sale purchases provide TFC with the
ability to direct the credit underwriting process at the initiation of the
installment sales contract. Participating dealers benefit by having a source of
financing for a group of customers who typically find financing difficult to
obtain, thereby increasing the number of vehicles sold and improving dealer
profitability. Consumers also benefit because the financing provided by the
Company enables them to purchase a vehicle they otherwise would not be able to
buy. As of December 31, 1997, $75.2 million, or 59% of the Company's net
contract receivables represented point-of-sale purchases, compared to $80.7
million, or 64% at December 31, 1996, and $134.3 million, or 78% at December 31,
1995.
TFC's portfolio purchase business emphasizes acquisitions of portfolios
of seasoned installment sales contracts. These contracts normally have a payment
history of at least three months. While the typical portfolio purchase involves
fewer than 100 individual contracts, TFC has, at times, purchased portfolios
totaling more than 1,000 contracts. Portfolio purchases provide TFC with
demographic diversification, as the majority of customers are not military
enlisted personnel. They also provide a payment history on which to evaluate and
price the credit risk of the contracts and a relatively efficient mechanism for
establishing dealer relationships in new areas. TFC's portfolio purchases
benefit dealers by providing an immediate source of liquidity. As of December
31, 1997, $41.6 million, or 32% of the Company's portfolio of net contract
receivables was attributable to portfolio purchases, compared to $36.7 million,
or 29% at December 31, 1996, and $32.3 million, or 19% at December 31, 1995.
TFC operates two service centers: the Point-of-Sale Service Center in
Norfolk, Virginia, and the Portfolio Purchase Service Center in Jacksonville,
Florida. During 1996, TFC closed a third service center in Dallas, Texas. In
addition, TFC operates point-of-sale Loan Production Offices ("LPO" or
collectively, "LPOs") in Jacksonville, Florida; Killeen, Texas; San Diego,
California; Norfolk, Virginia; and a portfolio purchase LPO in Norfolk,
Virginia. The Company expects to open a point-of-sale LPO in Tacoma, Washington
in May 1998.
Historically, regional service centers were responsible for purchasing
and servicing contract receivables originated by dealers in their regions.
However, during 1996, TFC transferred the underwriting functions to the
point-of-sale and portfolio purchase LPOs to improve TFC's control over the
underwriting process. Additionally, during 1996, TFC moved the responsibility
for serving point-of-sale accounts to the Norfolk service center and all of its
portfolio purchase accounts to the Jacksonville service center to improve TFC's
collection results.
Through FCF, the Company is involved in the direct origination and
servicing of small consumer loans. FCF began operations in the first quarter of
1995 with the opening of two branches in Richmond, Virginia. Four additional
branches were opened in Virginia in 1995 and four branches were opened in North
Carolina during 1996. In 1997, one additional branch was opened in Virginia and
four branches were opened in North Carolina. The Company is evaluating
additional branch openings in 1998. Net contract receivables relating to FCF at
December 31, 1997, were $11.7 million, or 9% of the Company's net contract
receivables, compared to $8.8 million, or 7% at December 31, 1996, and $4.4
million or 3% of the net contract receivables at December 31, 1995.
The Company's operations began in 1977 in Alexandria, Virginia, with
the founding of TFC by Robert S. Raley, Jr., the Company's current Chairman of
the Board, President and Chief Executive Officer, whose career has been
exclusively within the consumer finance industry. The Company was founded
specifically for the purpose of providing direct financing for the credit needs
of individuals having limited access to traditional sources of credit,
particularly young United States military enlisted personnel. Mr. Raley
recognized that the financing needs of that market segment were being ignored by
the traditional providers of consumer credit.
With the significant increase in interest rates in the late 1970s and
early 1980s, the Company incurred operating losses as a result of the increased
costs of its funding. To offset those losses, the Company opened a used car
dealership near Fort Belvoir in northern Virginia. Within several months of
opening the northern Virginia dealership, the Company opened a second used car
dealership in Norfolk, Virginia, the home of the world's largest naval base. The
operation of these dealerships generated sufficient operating income to enable
the Company to survive and provided the Company expertise in used automobile
financing, particularly to United States military enlisted personnel. With the
reduction in interest rates that occurred in the mid-1980's, the Company sold
its used car dealerships. The Company's experience in owning and managing used
car dealerships identified the need that used automobile dealers have for a
reliable source of financing.
The Company is incorporated under the laws of Delaware. The Company's
principal executive and administrative offices are located at 5425 Robin Hood
Road, Norfolk, Virginia 23513, and the Company's telephone number is (757)
858-4054. References to the Company include the Company's wholly-owned
subsidiaries.
<PAGE>
THE OFFERING
All of the 1,135,280 shares of Common Stock offered hereby will be sold
by the Selling Stockholder. The offered shares are available for purchase by the
Selling Stockholder pursuant to a Warrant to Purchase Common Stock dated
December 20, 1996 ("First Warrant") and a Warrant to Purchase Common Stock dated
April 4, 1997 ("Second Warrant") (the First Warrant and Second Warrant
collectively, the "Warrants"). The Warrants were issued to the Selling
Stockholder in two private placements. See "Selling Stockholder." Unless and
until the Selling Stockholder purchases shares of Common Stock from the Company
pursuant to the Warrants, no shares of the Common Stock offered hereby will be
available for sale. The Warrants are not being registered under this
Registration Statement. The Selling Stockholder is not obligated to exercise the
Warrants.
The Selling Stockholder has served as the principal lender to the
Company since 1992. See "Risk Factors - Fluctuating Interest Rates and
Dependence on Line of Credit." In connection with negotiations regarding an
amended and restated credit facility made available to the Company by the
Selling Stockholder (the "Credit Facility"), the Company issued to the Selling
Stockholder the First Warrant, pursuant to which the Selling Stockholder has the
right to purchase 567,640 shares of Common Stock of the Company for $2.00 per
share. The Company also entered into a Registration Rights Agreement with the
Selling Stockholder dated December 20, 1996 (the "Registration Rights
Agreement") to provide certain registration rights to the Selling Stockholder to
facilitate the distribution of shares of Common Stock available for purchase
under the First Warrant. Subsequently, in connection with an additional
amendment to the Credit Facility, the Company issued the Second Warrant to the
Selling Stockholder. Pursuant to the Second Warrant, the Selling Stockholder has
the right to purchase an additional 567,640 shares of Common Stock for $1.00 per
share. As of April 10, 1998, the last reported sales price of the Common Stock
on the Nasdaq National Market was $1.63 per share.
At the time the Company issued the Second Warrant, it reduced the
purchase price for shares under the First Warrant to $1.00 per share. The
Company and the Selling Stockholder also amended the Registration Rights
Agreement to provide registration rights with respect to the Common Stock
available for purchase under the Warrants. Under the Registration Rights
Agreement, the Company is obligated to keep a Registration Statement in effect
until the earlier of (a) the date when all shares offered hereby have been sold,
subject to suspensions by the Company in certain events, or (b) March 31, 2002,
subject to certain extension rights. The number of shares of Common Stock
issuable pursuant to exercise of the Warrants is subject to adjustment under
certain conditions.
See "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of shares by
the Selling Stockholder. See "Use of Proceeds."
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the specific factors
set forth below as well as the other information included in this Prospectus
before deciding to invest in the Common Stock offered hereby. All statements and
information herein, other than statements of historical fact, are
forward-looking statements that are based upon a number of assumptions
concerning future conditions that ultimately may prove to be inaccurate. These
forward-looking statements may be identified by the use of words such as
"believe," "anticipate," and "expect," and concern, among other things, the
Company's dependence on its line of credit; potential defaults associated with
installment contracts; and governmental regulation. Many phases of the Company's
operations are subject to influences outside its control. Any one or any
combination of factors could have a material adverse effect on the Company's
business, financial condition, and results of operations. These factors include:
competitive pressures, economic conditions, governmental regulation and
policies, changes in consumer spending, and other conditions affecting capital
markets.
Fluctuating Interest Rates and Dependence on Line of Credit
The Company's operations require substantial borrowing to provide
funding for the installment contracts purchased by TFC and originated by FCF.
Consequently, profitability is affected by the difference between the rate of
interest paid on the funds it borrows and the rate of interest charged on the
installment contracts. The rate of interest charged on installment contracts is
limited in some states by law. Currently, the principal source of borrowing by
the Company is the Credit Facility, guaranteed by TFC with General Electric
Capital Corporation, the Selling Stockholder. The maximum amount of borrowings
available under the Credit Facility was $110 million at December 31, 1997. At
December 31, 1997, TFC had $89.6 million outstanding under the Credit Facility.
The floating interest rate for borrowings under the Credit Facility is equal to
the average 30-day London Interbank Offered Rate ("LIBOR") plus 4.00%. Thus,
future increases in the Libor could adversely affect the Company's
profitability. In an effort to reduce its exposure to an increase in interest
rates, TFC has purchased an interest rate cap which ensures that the interest
rate on $75 million of the borrowings under the Credit Facility will not exceed
a LIBOR ceiling of 6.5%. This interest rate cap expires September 30, 1998. In
addition to the purchase of interest rate caps, the Company believes it has
certain flexibility to increase the discount at which installment contracts are
purchased, or to increase the rate of interest charged on future installment
contracts (to the extent not limited by state law), in order to offset the
adverse impact of any interest rate increase on profitability.
TFC has maintained a line of credit with the Selling Stockholder since
1992. The current line of credit was executed in December 1996, amended in April
1997 and February 1998, and expires January 1, 1999. There is no assurance that
a new Credit Facility will be executed when the current line of credit expires.
If a new line of credit is not executed, TFC would be required to seek
alternative financing sources and repay its outstanding balance on or before the
expiration of the line of credit on January 1, 1999. No assurance can be given
that alternative financing sources would be available in such event. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resource" included in the TFC Enterprises,
Inc. periodic reports, which are incorporated herein by reference
Defaults on Installment Contracts
The Company is engaged primarily in purchasing installment contracts
entered into by dealers with consumers who have limited access to traditional
sources of consumer credit. The inability of these types of consumers to finance
a used automobile purchase by means of traditional credit sources is generally
due to such individual's past credit history or lack of sufficient cash to make
the required down payment on an automobile. As a result, installment contracts
purchased by the Company are generally with purchasers of automobiles who are
considered to have a higher risk of default on an installment contract than
certain other automobile purchasers. Accordingly, the consumer loan activities
engaged in by the Company typically have a higher risk of loss than those of
other consumer financings. While the Company believes that its expertise in used
automobile financing, particularly for automobiles purchased by United States
military enlisted personnel, enables it to evaluate and price accurately the
higher risk associated with the Company's business, a significant economic
downturn in the markets in which the Company operates could materially increase
the number of charged off and delinquent installment contracts experienced by
TFC as compared to its historical losses. If TFC were to experience a material
increase in charge-offs or delinquencies, its profitability could be materially
and adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Credit Losses and Delinquency" included
in the TFC Enterprises, Inc. periodic reports, which are incorporated herein by
reference
Dependence Upon Key Executive
The Company's growth and development to date have been largely
dependent upon the services of Robert S. Raley, Jr., Chairman of the Board,
President and Chief Executive Officer. The loss of Mr. Raley's services could
have a material adverse effect on the Company. Mr. Raley has an agreement to
serve as Chairman of the Company until December 31, 2001.
Competition
The markets in which the Company operates are extremely competitive.
There are numerous providers of financing for the purchase of used automobiles
either through the direct financing of such purchases or on an indirect basis
through a dealer. These financing sources include commercial banks, savings and
loan associations, consumer finance companies, credit unions, financing
divisions of automobile manufacturers or automobile retailers, small sales
contract companies, and other consumer lenders. Many of those providers of
automobile financing have significantly greater financial resources than TFC and
have relationships with established dealer networks. The Company has focused on
a segment of the market composed of consumers who typically do not meet the more
stringent credit requirements of the traditional consumer financing sources and
whose needs, as a result, have not been addressed consistently by such financing
sources. If, however, one or more of the other providers of consumer finance
were to penetrate TFC's targeted market segment, TFC could be materially and
adversely affected.
Regulation
The Company's business is subject to regulation and licensing under
various federal, state and local statutes and regulations. The Company's
business operations are conducted in approximately 30 states and, accordingly,
the laws and regulations of such states govern the Company's operations
conducted in those states. Most states where the Company operates limit the
interest rate, fees and other charges that may be imposed by the Company,
prescribe certain other terms of the contracts that the Company purchases and
define the Company's rights to repossess and sell collateral. In addition, the
Company is required to be, and is, licensed to conduct its operations in certain
states. As the Company expands its operations into other states, it will be
required to comply with the laws of such states.
An adverse change in those laws or regulations could have a material
adverse effect on the Company's profitability by, among other things, limiting
the states in which the Company may operate or the interest rate that may be
charged on installment contracts or restricting the Company's ability to realize
the value of any collateral securing contracts.
Restrictions on the Payment of Dividends
The Company currently intends to retain its earnings to finance the
growth and development of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future. Any future dividend
payments will depend upon the financial condition, funding requirements and
earnings as well as other factors that the Company's Board of Directors may deem
relevant. As the Company is a legal entity separate and distinct from TFC and as
its revenues depend on the payment of dividends by TFC, limitations on the
ability of TFC to pay dividends to the Company will in turn limit the ability of
the Company to pay dividends to its stockholders. There are certain restrictions
on the payment of dividends in the form of various affirmative and negative
covenants included in TFC's Credit Facility and the Note Purchase Agreement
relating to the Subordinated Non-Convertible Notes due October 15, 1998 and the
Note Purchase Agreement relating to the Senior Subordinated Notes due June 30,
2002.
Effect of Certain Charter, Bylaw and Statutory Provisions
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
Bylaws (the "Bylaws") could delay or frustrate the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contest
involving the Company, even if such events could be beneficial, in the short
term, to the interest of the stockholders. For example, the Certificate of
Incorporation provides for a classified Board of Directors and for certain
limitations on the calling of a special meeting of stockholders and the Bylaws
require advance notice of stockholder proposals and nominations of directors.
The Company also is subject to provisions of Delaware corporation law that
prohibit a publicly-held Delaware corporation from engaging in a broad range of
business combinations with a person who, together with affiliates and
associates, owns 15% or more of the corporation's common stock (an "interested
stockholder") for three years after the person became an interested stockholder,
unless the business combination is approved in a prescribed manner. Those
provisions could discourage or make more difficult a merger, tender offer, or
similar transaction, even if favorable to the Company's stockholders.
Authorized Preferred and Common Stock
Pursuant to the Certificate of Incorporation, shares of preferred stock
and Common Stock may be issued in the future without further stockholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as the Board of Directors may determine. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
any preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporation transactions, could have the effect of making
it more difficult for a third party to acquire, or effectively preventing a
third party from acquiring, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of preferred
stock.
Anti-Takeover Effect of Certain Provisions of the Company's Articles of
Incorporation and Bylaws
Certain provisions of the Company's Certificate of Incorporation and
Bylaws may be deemed to have anti-takeover effects and may discourage, delay or
prevent a takeover attempt that a stockholder might consider in its best
interest. These provisions, among other things, (i) classify the Company's Board
of Directors into three classes, each of which will serve for different
three-year periods, (ii) provide that only the Board of Directors, chairman or
president may call special meetings of the stockholders, (iii) establish certain
advance notice procedures for nominations of candidates for election as
directors and for stockholders proposals to be considered at stockholders'
meetings, and (iv) require a vote of the holders of more than two-thirds of the
shares entitled to vote in order to remove a director or amend the foregoing and
certain other provisions of the Certificate of Incorporation and Bylaws. In
addition, the Board of Directors, without further action of the stockholders, is
permitted to issue and fix the terms of preferred stock which may have rights
senior to those of the Common Stock.
Possible Volatility of Stock Price
The market price of the Company's Common Stock, which is quoted on the
Nasdaq National Market, may be subject to significant fluctuations in response
to operating results, announcements by competitors and other factors. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of individual companies. These market fluctuations, as
well as general economic conditions, may adversely affect the market price of
the Common Stock.
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Stockholder, nor will any such proceeds be available
for use by the Company or otherwise for the Company's benefit. Notwithstanding
the foregoing, the Company will receive $1,135,280 from the Selling Stockholder
in the event of the exercise of the Warrants. See "Selling Stockholder."
BUSINESS
The Company conducts its consumer finance operations through TFC and
FCF. Through TFC, the Company is engaged in purchasing and servicing installment
sales contracts originated by automobile and motorcycle dealers in the sale of
used automobiles, vans, light trucks, and new and used motorcycles (collectively
"vehicles"). Installment sales contracts are acquired on either an individual
basis after the Company has reviewed and approved the vehicle purchaser's credit
application (a "point-of-sale purchase"), or on a group basis through the
purchase of a dealer's portfolio of existing installment sales contracts (a
"portfolio purchase"). The Company focuses its point-of-sale business on
installment sales contracts originated by dealers with consumers who are United
States military enlisted personnel, primarily in the E-1 through E-5 grades.
Portfolio purchases are primarily from dealers who finance their own contracts
with civilian customers and sell them after origination in bulk. To achieve an
acceptable rate of return and provide for credit risks, contracts are purchased
from dealers at a discount to the remaining principal balance. Most of the
discount is held in a nonrefundable reserve against which credit losses are
first applied. The amount of the discount reflects, among other things, a
contract's interest rate, remaining term, and perceived credit risk.
The Company has been engaged in consumer finance activities since its
founding in 1977. The Company's point-of-sale purchases provide TFC with the
ability to direct the credit underwriting process at the initiation of the
installment sales contract. Participating dealers benefit by having a source of
financing for a group of customers who typically find financing difficult to
obtain, thereby increasing the number of vehicles sold and improving dealer
profitability. Consumers also benefit because the financing provided by the
Company enables them to purchase a vehicle they otherwise would not be able to
buy. As of December 31, 1997, $75.2 million, or 59% of the Company's net
contract receivables represented point-of-sale purchases, compared to $80.7
million, or 64% at December 31, 1996, and $134.3 million, or 78% at December 31,
1995.
TFC's portfolio purchase business emphasizes acquisitions of portfolios
of seasoned installment sales contracts. These contracts normally have a payment
history of at least three months. While the typical portfolio purchase involves
fewer than 100 individual contracts, TFC has, at times, purchased portfolios
totaling more than 1,000 contracts. Portfolio purchases provide TFC with
demographic diversification, as the majority of customers are not military
enlisted personnel. They also provide a payment history on which to evaluate and
price the credit risk of the contracts and a relatively efficient mechanism for
establishing dealer relationships in new areas. TFC's portfolio purchases
benefit dealers by providing an immediate source of liquidity. As of December
31, 1997, $41.6 million, or 32% of the Company's portfolio of net contract
receivables was attributable to portfolio purchases, compared to $36.7 million,
or 29% at December 31, 1996, and $32.3 million, or 19% at December 31, 1995.
The Company's operations began in 1977 in Alexandria, Virginia, with
the founding of TFC by Robert S. Raley, Jr., the Company's current Chairman of
the Board, President and Chief Executive Officer, whose career has been
exclusively within the consumer finance industry. The Company was founded
specifically for the purpose of providing direct financing for the credit needs
of individuals having limited access to traditional sources of credit,
particularly young United States military enlisted personnel. Mr. Raley
recognized that the financing needs of that market segment were being ignored by
the traditional providers of consumer credit.
With the significant increase in interest rates in the late 1970s and
early 1980s, the Company incurred operating losses as a result of the increased
costs of its funding. To offset those losses, the Company opened a used car
dealership near Fort Belvoir in northern Virginia. Within several months of
opening the northern Virginia dealership, the Company opened a second used car
dealership in Norfolk, Virginia, the home of the world's largest naval base. The
operation of these dealerships generated sufficient operating income to enable
the Company to survive and provided the Company expertise in used automobile
financing, particularly to United States military enlisted personnel. With the
reduction in interest rates that occurred in the mid-1980's, the Company sold
its used car dealerships. The Company's experience in owning and managing used
car dealerships identified the need that used automobile dealers have for a
reliable source of financing.
TFC operates two service centers: the Point-of-Sale Service Center in
Norfolk, Virginia, and the Portfolio Purchase Service Center in Jacksonville,
Florida. During 1996, TFC closed a third service center in Dallas, Texas. In
addition, TFC operates point-of-sale Loan Production Offices ("LPOs") in
Jacksonville, Florida; Killeen, Texas; San Diego, California; Norfolk, Virginia;
and a portfolio purchase Loan Production Office in Norfolk, Virginia. The
Company expects to open a point-of-sale LPO in Tacoma, Washington in May 1998.
Historically, regional service centers were responsible for purchasing
and servicing contract receivables originated by dealers in their regions.
However, during 1996, TFC transferred the underwriting functions to the
point-of-sale and portfolio purchase LPOs to improve TFC's control over the
underwriting process. Additionally, during 1996, TFC moved the responsibility
for serving point-of-sale accounts to the Norfolk service center and all of its
portfolio purchase accounts to the Jacksonville service center to improve TFC's
collection results.
Through FCF, the Company is involved in the direct origination and
servicing of small consumer loans. FCF began operations in the first quarter of
1995 with the opening of two branches in Richmond, Virginia. Four additional
branches were opened in Virginia in 1995 and four branches were opened in North
Carolina during 1996. In 1997, one additional branch was opened in Virginia and
four branches were opened in North Carolina. The Company is evaluating
additional branch openings in 1998. Net contract receivables relating to FCF at
December 31, 1997, were $11.7 million, or 9% of the Company's net contract
receivables, compared to $8.8 million, or 7% at December 31, 1996, and $4.4
million or 3% of the net contract receivables at December 31, 1995.
Industry Overview
The automobile finance industry is dominated in certain respects by
commercial banks and captive finance companies of major automobile
manufacturers. While consumer credit risk classifications are not standardized,
those institutions generally focus on consumers that could be characterized as
being "low-risk" or "medium-risk" from a credit perspective. TFC's target market
involves consumers that are characterized as being "high-risk" from a credit
perspective.
The direct consumer loan industry established in the early 1900's has
traditionally been serviced by major national companies, smaller regional
companies and small local independent companies. Over the last 10-15 years many
of the major national companies have retreated from or reduced their involvement
in this market.
Management's focus since 1996 has been on redirecting the Company
toward those sectors of the market in which management believes pricing more
closely reflects the risk inherent in the business. Areas of focus include the
military point-of-sale business, portfolio purchases, and small direct consumer
loans.
Automobile Finance Operations
Dealer Selection and Program
Through its marketing efforts, TFC has established relationships with
dealers that originate installment sales contracts purchased by TFC, either
through point-of-sale purchases or portfolio purchases. TFC's relationships are
primarily with independent dealers that are not affiliated with an automobile
manufacturer nor the Company.
To achieve an acceptable rate of return and provide for credit risks,
contracts are purchased from dealers at a discount to the remaining principal
balance. With respect to point-of-sale purchases, the discount is the difference
between TFC's purchase price from the dealer and the amount financed, net of the
cost of ancillary products. With respect to portfolio purchases, the discount is
the difference between TFC's purchase price and the amount of the remaining
principal balance on the contract. The amount of the discount at which contracts
are purchased reflects, among other things, a contract's interest rate, term and
credit risk. Contracts are purchased in accordance with applicable underwriting
criteria and pursuant to a Master Dealer Agreement in the case of point-of-sale
purchases, and an Asset Purchase Agreement in the case of portfolio purchases.
TFC believes that its dealer programs provide substantial benefits to
dealers by providing a source of financing for a group of customers who
typically find financing difficult to obtain, thereby increasing the number of
vehicles sold and improving dealer profitability. Additionally, TFC provides the
following services to dealers through its point-of-sale program: (1)
documentation designed to conform to applicable federal and state laws; (2)
timely response to credit applications; (3) timely payment for approved
installment contracts; and (4) access to a range of ancillary products.
Sales and Marketing
TFC markets primarily to independent used car dealers. Initial contacts
are pursued through telemarketing and followed up by personal visits to dealer
facilities by appropriate LPO marketing personnel. TFC also establishes
relationships with dealers through referrals from existing dealers and
independent marketing contractors. Other marketing efforts involve the
distribution of marketing brochures and advertisements in trade journals and
other industry publications directed to dealers. TFC also participates at
several of the Independent Automobile Dealers Association meetings and
conventions.
Competition
There are numerous providers of financing for the purchase of used
vehicles either through the direct financing of such purchases or on an indirect
basis through dealers. These financing sources include commercial banks, savings
and loans associations, consumer finance companies, credit unions, financing
divisions of automobile manufacturers, small sales contract companies, and other
consumer lenders. Many of these providers of vehicle financing have
significantly greater resources than TFC and have relationships with established
dealer networks. TFC has focused on a segment of the market comprised of
consumers who typically do not meet the more stringent credit requirements of
the traditional sources of consumer financing and whose needs, as a result, have
historically not been consistently addressed by such financing sources. If,
however, the other providers of consumer finance were to assert a significantly
greater effort to penetrate TFC's targeted market segment, given their financial
strength, TFC's income, revenues, results of operations could be materially and
adversely affected by this type of competition.
From 1995 through 1997, there was a significant increase in the number
of competitors in the automobile non-prime finance industry markets in which TFC
operates and in the access to funds. The combination of increased competition
and the industry's improved access to funds resulted in a general increase in
prices offered to dealers for installment sales contracts. In certain sectors of
the market, prices increased to the point at which anticipated credit losses
relating to the contracts were not adequately reflected in prices offered to
dealers. As a result, the Company found it increasingly difficult to purchase
contracts at what it considers to be reasonable prices.
Management's focus since 1996 has been on redirecting the Company
toward those sectors of the market in which management believes pricing more
closely reflects the risk inherent in the business. Areas of focus will continue
to include the military point-of-sale and portfolio business lines. During 1996
and 1997, a number of the Company's competitors have experienced financial
problems that have restricted their ability to compete with the Company in its
core markets. Management believes that because of the problems faced by its
competitors, the Company may have a better opportunity, in 1998, to purchase
installment contracts from dealers on terms consistent with its pricing policies
than it has had over the past two years.
Point-of-Sale Purchase Program
In its point-of-sale program, TFC establishes relationships with
dealers that meet its financial, organizational, and compliance criteria. TFC
currently makes point-of-sale purchases from dealers in approximately 30 states.
TFC purchases contracts relating to its point-of-sale program pursuant
to a Master Dealer Agreement. Upon entering into a Master Dealer Agreement, TFC
provides the dealer with necessary documentation for the origination of
installment sales contracts and trains its personnel regarding the use of TFC's
documentation. The Master Dealer Agreement contains representations and
warranties by the dealer to TFC with respect to certain matters, including the
security interest in the vehicle, and sets forth the general terms upon which
installment contracts will be purchased by TFC. The agreements are nonexclusive
and do not obligate a dealer to sell, or TFC to purchase, any particular
contract or volume of contracts. The Master Dealer Agreement may be terminated
at any time by TFC or by the dealer.
Typically, a dealer will submit a customer's credit application to more
than one financing source for review. Under TFC's program, a dealer is required
to provide TFC with a completed credit application which lists the applicant's
assets, liabilities, income, credit, and employment history, and other personal
information bearing on the decision to extend credit.
The application and related information are then analyzed by one of
TFC's credit analysts. A credit analyst evaluates the applicant's ability to
make regular payments and other factors, including the amount of money to be
financed in relation to the purchase price and value of the vehicle. TFC
generally determines the value of the vehicle based upon the NADA's Used Car
Guide Books on Retail and Wholesale Values and/or the Kelley Blue Book. Upon
completion of the credit application review, a credit analyst will decide
whether to approve the financing as submitted, decline the financing or
conditionally approve the financing.
Typically, installment contracts are purchased by and assigned to TFC
at a price that reflects a discount from the amount financed. Most of the
discount is held in a non-refundable reserve against which credit losses are
first applied. The assigning dealer makes certain warranties as to the validity
of the contract and compliance with certain laws and generally agrees to
indemnify TFC for any claim, defense, and set-off against the dealer that may be
asserted against TFC by reason of the assignment. TFC, at the time of purchase,
requires physical damage insurance on all automobiles covered by the installment
sales contracts that it purchases through its point-of-sale program. To the
extent that material terms of a contract prove to be inaccurate, TFC generally
has the right to require the dealer to repurchase such contract under the terms
of the Master Dealer Agreement.
Portfolio Purchase Program
Many dealers finance automobile sales through the use of their own
funds. TFC currently purchases portfolios of seasoned installment contracts from
such dealers in approximately 20 states. TFC limits consideration of dealers to
those that generate sufficient business volume, employ satisfactory credit
approval procedures, and adequately monitor and report loan performance data.
Portfolio purchases are made pursuant to an Asset Purchase Agreement which
requires the dealer to make representations and warranties to TFC with respect
to each contract to be purchased by TFC and with respect to security interests
in the related vehicles. Unlike a point-of-sale purchase, with respect to which
TFC has the opportunity to verify various information relating to the
installment contract prior to its purchase, portfolio purchases are made
subsequent to the origination of the installment contract. Thus, the typical
Asset Purchase Agreement provides TFC with more extensive remedies than the
Master Dealer Agreement. Generally, if a representation or warranty is breached,
TFC, under the Asset Purchase Agreement, can require the dealer to repurchase
the contract. In certain cases, a special reserve or holdback is established,
against which payment defaults on contracts can be charged.
Generally, TFC purchases that portion of the dealer's portfolio that
meets or exceeds TFC's underwriting standards. TFC's due diligence normally
begins with a review of information obtained from the dealer on TFC's standard
information-gathering forms. Additional information is then obtained to verify
the dealer's compliance with licensing, bonding and organizational requirements.
TFC then performs extensive due diligence procedures that it has developed
during its years of operation to determine whether to do business with that
particular dealer.
Within 90 days after completing a portfolio purchase, TFC confirms by
telephone various terms of most contracts with the purchaser of the vehicle. To
the extent that material terms of any contract prove to be inaccurate, TFC
generally has the right to require the dealer to repurchase such contract under
the terms of the Asset Purchase Agreement
Contract Duration
Contracts in TFC's point-of-sale portfolio have initial durations
normally ranging from 18 to 48 months, with an average original maturity of
approximately 40 months. Portfolio purchase contracts generally have an average
remaining maturity of 18 to 24 months at the time of purchase.
The following table sets forth for the periods indicated TFC's contract
volume as well as the number and average size of its contracts.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C>
(dollars in thousands)
Contracts purchased or
originated:
Point-of-sale $ 85,311 $ 58,623 $231,877 $145,193 $101,615
Portfolio 70,520 61,391 61,261 76,990 53,583
------ ------ ---- ------ ---- ------ ---- ------ ---- ------
Total $ 155,831 $120,014 $293,138 $222,183 $155,198
========== ======== ======== ======== ========
Number of contracts purchased or originated:
Point-of-sale 7,411 6,154 24,095 15,610 12,228
Portfolio 14,157 11,853 14,084 21,324 15,598
----- ------ ---- ------ ---- ------ ---- ------ ---- ------
Total 21,568 18,007 38,179 36,952 27,826
===== ====== ==== ====== ==== ====== ==== ====== ==== ======
Average size of contract: (in
dollars):
Point-of-sale $ 11,511 $ 9,526 $ 9,623 $ 9,301 $ 8,310
Portfolio $ 4,981 $ 5,179 $ 4,349 $ 3,607 $ 3,435
Weighted average $ 7,228 $ 6,665 $ 7,678 $ 6,013 $ 5,577
</TABLE>
TFC's contract purchase volume is discussed more fully in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the TFC Enterprises, Inc. periodic reports which are incorporated
herein by reference.
Ancillary Products
In connection with its point-of-sale business, TFC offers, through its
dealers in certain states, warranty products, as well as physical damage
insurance. These products are provided and underwritten by third-party vendors.
Accordingly, liabilities under the ancillary products are not obligations of
TFC. TFC offers these products to dealers so that they, in turn, may provide
vehicle purchasers a more complete line of products and services. By offering
these products, TFC is able to generate supplementary revenue without incurring
significant additional expenses. During 1997, 1996 and 1995, TFC generated gross
revenues of approximately $0.8 million, $1.2 million and $2.1 million,
respectively, from the sale of ancillary products through its dealers.
Collections
Payments on purchased installment sales contracts are received by TFC
through a number of different means. Payments are monitored by TFC to maintain
current information regarding each customer's current address and banking data.
Customers occasionally make payments in person at one of TFC's service centers
or LPOs. Collections Department personnel, at times, will make a collection
through a field visit to the customer.
Monitoring the payment history of accounts and implementing appropriate
remedial action is the responsibility of the Collections Department within each
service center. At year-end 1997, a total of 139 employees, or 52% of TFC's
total full-time equivalent employees, worked in the Collections Departments of
the two service centers.
One of the primary responsibilities of the Collections Department is to
monitor customer accounts that are delinquent in payment. Collections Department
personnel work with customers to resolve payment problems and bring accounts to
current status at the earliest possible stage of delinquency. Collections
Department employees are compensated, in part, through bonuses tied to their
monthly collection performance.
When calling a delinquent account, Collections Department personnel
utilize TFC's Collections Training Manual developed by TFC. The manual specifies
the procedure to follow in different circumstances in order to maximize the
effectiveness of the call. Specific action with respect to a delinquent account
will depend on the customer's particular circumstances as well as the past
payment history of the account. However, in all cases, the primary focus is
resolving the problem causing the delinquency, arranging a modified payment
plan, or working out a settlement agreement. At times, Collections Department
personnel meet with customers in the field or at a service center.
When TFC has difficulty locating a customer, Collections Department
personnel will attempt to find the individual through skip tracing, which
utilizes various sources of information about a customer to which TFC has
access. All communications with and efforts to locate the customer are reflected
in TFC's data files.
In certain situations, TFC will repossess a vehicle. To the extent that
a deficiency balance exists upon repossession and sale of a vehicle, TFC may
take action to obtain a judgment.
Decisions to charge off accounts are made at the end of each month.
Accounts on which there has been no significant payment activity for 90 days are
generally charged off when they are 180 days contractually past due.
Additionally, the carrying value of repossessed assets is reduced, through
charge-off, to the lower of the unpaid contract balance or anticipated
liquidation proceeds. Once an account is charged off, it is transferred to the
Recovery Unit. Customers are called regularly and attempts are made to set up
repayment plans or workout settlement agreements as appropriate to a customer's
circumstances. Each Recovery Unit employee is responsible for keeping records of
all collection activity and for following up on callback and broken promise
dates as appropriate.
The Company's charge-off and delinquency experience is discussed more
fully in Management's Discussion and Analysis of Financial Condition and Results
of Operations included in the TFC Enterprises, Inc. periodic reports, which are
incorporated herein by reference.
Information Systems
The Company processes all data relating to its contract receivables and
financial reporting through a distributed network of computers. TFC's computer
systems are networked together to provide information to management for analysis
as well as automatic posting to the general ledger for financial reporting
purposes. The systems provide for complete contract processing from the purchase
of the contract, payment to the dealer, posting of payments and all other
collection activity from the inception date of the installment contract. TFC's
systems operate on software which has been adapted to the specific manner in
which TFC operates its business.
The TFC systems are interfaced with a predictive dialing system
designed to enhance collection activity by increasing the number of customer
contacts per collector hour. This system dials multiple telephone numbers
simultaneously based on parameters defined by the Collections Department. Calls
are connected automatically to a collector at the same time the customer's
account is displayed on the collector's computer screen. The process permits
better control of calling patterns for more effective calling and improved
customer contact rates. By eliminating busy signals, no answers and answering
machines, the system enables the collector to speak to more customers. The
system also reports collection performance by collector for improved supervision
and results. The Company has invested in technology that enables TFC to
mechanically process and score credit applications, thereby increasing capacity,
reducing processing time and improving standardization of credit underwriting
without significant staff increases.
FCF uses a third-party computer system designed for the consumer loan
industry. Each branch processes all data relating to that branch on a computer
within the branch. The system provides for complete contract processing from the
closing of the loan, posting of payments and all collection activity. These
systems are networked together to provide consolidated management information
and automatic posting to the Company's general ledger for financial reporting.
The Company believes that it has sufficient management information
systems in place, or in the process of being implemented, to meet the Company's
current and near-term future requirements.
Consumer Finance Operations
Consumer Loan Program
In its Consumer Loan Program, FCF originates direct loans through a
branch network. Loans are obtained through print media, customer referrals,
renewals and other sources. Applications are primarily received directly from
the consumer either by telephone or in person at one of the branches.
Once an application has been received, a background investigation is
performed on the applicant, including such things as employment and income
verification, residence verification, direct references from other creditors and
review of credit bureau files. This information is reviewed by a branch manager
or assistant manager to determine creditworthiness. If the applicant is
approved, the applicant would visit the appropriate branch to execute necessary
documents and receive funding.
Loan Origination
Most contracts have initial durations of 36 months or less.
The following table sets forth for the periods indicated FCF's loan
volume as well as the number and average size of its loans. (FCF commenced
operations in 1995.)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C>
Loans originated (in thousands) $16,023 $13,174 $6,257
======= ======= ======
Number of loans originated 7,093 6,623 3,254
========= ========= =======
Average size of loan $ 2,259 $ 1,989 $1,923
======== ======== ======
</TABLE>
FCF's loan volume is discussed more fully in Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
TFC Enterprises, Inc. 1997 periodic reports, which are incorporated herein by
reference.
Ancillary Products
In connection with its consumer loan business, FCF offers its customers
credit life insurance, credit accident and health insurance, and property
insurance. These products are provided and underwritten by third-party vendors.
Accordingly, liabilities under the ancillary products are not obligations of the
Company. These products protect the customer as well as providing supplementary
revenue to FCF. During 1997 and 1996, FCF generated gross revenues of
approximately $0.3 million and $0.1 million, respectively, from the sale of
ancillary products. These revenues in 1995, FCF's first year of operation, were
not significant.
Collections
Payments on consumer loans are received by FCF primarily through the
mail or the customer pays at the appropriate branch. Each branch monitors
payments to maintain current information regarding each customer's current
address and banking data. Branch personnel, at times, will make a collection
through a field visit to the customer. Monitoring the payment history of the
accounts and implementing appropriate remedial action is the responsibility of
the branch.
One of the primary responsibilities of the branch is to monitor
customer accounts that are delinquent in payment. Branch personnel work with
customers to resolve payment problems and bring accounts to current status at
the earliest possible stage of delinquency. Specific action with respect to a
delinquent account will depend on the customer's particular circumstances as
well as the past payment history of the account. However, in all cases the
primary focus is resolving the problem causing the delinquency, arranging a
modified payment plan or working out a settlement. At times branch personnel
meet with the customers in the field or at the branch. When FCF has difficulty
locating a customer, collections personnel will attempt to locate the individual
through skip tracing, which utilizes various sources of information about a
customer to which FCF has access. All communications with and efforts to locate
the customer are reflected in FCF's data files.
Decisions to charge off accounts are made at the end of each month.
Accounts that reach a 180 day contractually past due status are generally
charged off. Once an account is charged off, collection activity will continue.
The Company's charge off and delinquency experience is discussed more fully in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the TFC Enterprises, Inc.
periodic reports, which are incorporated herein by reference.
Recoveries, Inc.
To capitalize on its collections expertise, in 1997 the Company formed
a new subsidiary named Recoveries, Inc. which is designed to collect debts for
others. The Company is currently in the process of obtaining licenses to enable
it to operate in all 50 states. Although management's plans are still being
formulated, Recoveries, Inc. is currently attempting to offer its debt
collection services to medical organizations and other third parties. During
1997, Recoveries, Inc. generated insignificant revenue, and operated at a loss.
Management cannot offer any assurance that Recoveries, Inc. will generate
revenue or be profitable, during 1998 or thereafter.
Regulation
The Company's businesses are subject to regulation and licensing under
various federal, state and local statutes and regulations. Most of the states in
which the Company operates limit the interest rate, fees and other charges that
may be collected. In addition, many states prescribe certain terms in the
contract.
Numerous federal and state consumer protection laws and related
regulations impose substantive disclosure requirements upon lenders and
servicers involved in motor vehicle financing. Some of the federal laws and
regulations include the Truth-in-Lending Act, the Equal Credit Opportunity Act,
the Federal Trade Commission Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Motor Vehicle Information and Cost Savings Act,
the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z,
and the Soldiers' and Sailors' Civil Relief Act.
In addition, the Federal Trade Commission ("FTC") has adopted the
holder-in-due-course rule, which has the effect of subjecting persons that
finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses which the purchaser could assert against
the seller of the goods and services. With respect to used automobiles
specifically, the FTC's rule on Sale of Used Vehicles requires that all sellers
of used vehicles prepare, complete and display a Buyer's guide which explains
the warranty coverage for such vehicles. The Credit Practices Rules of the FTC
impose additional restrictions on sales contract provisions and credit
practices.
Certain states where the Company operates have adopted motor vehicle
retail installment sales acts or variations thereof and consumer finance acts.
Such laws regulate, among other things, the interest rates and terms and
conditions of motor vehicle retail installment sales contracts and also impose
restrictions on consumer transactions and require sales contract disclosures in
addition to the requirements under federal law. Those requirements impose
specific statutory liabilities upon creditors who fail to comply.
The Company believes that it is in compliance with all applicable laws
and regulations.
Employees
At December 31, 1997, the Company had 331 full-time equivalent
employees. No employees are currently covered by collective bargaining
agreements. The Company believes that its employee relations are excellent.
<PAGE>
SELLING STOCKHOLDER
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by the Selling Stockholder as
of April 20, 1998 and as adjusted to reflect the sale of the shares of Common
Stock offered hereby. The Selling Stockholder possesses sole voting and
investment power with respect to the shares.
<TABLE>
<CAPTION>
Shares to be Beneficially
Selling Shares Beneficially Number of Shares Owned After
Stockholder Owned Prior to Offering Being Offered Offering if All Shares Sold
- ----------- ----------------------- ------------- ---------------------------
Number Percent Number Percent
Name
<S> <C>
General Electric Capital 1,135,280(2) 9.1% 1,135,280 -- --
Corporation (1)
- -------------------------------
</TABLE>
(1) The address of the Selling Stockholder is General Electric Capital
Corporation, ABF Operations - Auto Financial Services, 1001 Hart Road,
Barrington, Illinois 10010.
(2) Represents shares of Common Stock available for purchase under the
Warrants.
PLAN OF DISTRIBUTION
The Registration Statement of which this Prospectus is a part was filed
pursuant to Rule 415 promulgated by the Commission under the Securities Act.
Pursuant to the Registration Rights Agreement, the Company is obligated to keep
the Registration Statement effective until the earlier of (a) the date when all
of the shares offered hereby have been sold, subject to suspension by the
Company in certain events, or (b) March 31, 2002, subject to certain extension
rights.
The shares offered hereby may be offered for sale, distributed or sold
from time to time by the Selling Stockholder, or by agents, pledgees, donees,
transferees, or other successors in interest of the Selling Stockholder (a) in
transactions executed on the Nasdaq National Market, or any securities exchange
on which the shares may be traded through registered broker-dealers (who may act
as principals, pledgees or agents), (b) in privately negotiated transactions, or
(c) through other means. Sales of shares may also be made pursuant to Rule 144
under the Securities Act, where applicable. Such sales may be made at prices and
on terms then prevailing or at prices related to the then-current market prices,
or in negotiated transactions at negotiated prices. The shares may be sold
utilizing broker-dealers by one or a combination of the following: (a) a block
trade in which the broker or dealer so engaged will attempt to sell the shares
as agent, but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; and
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers. In effecting sales, brokers or dealers engaged by the
Selling Stockholder may arrange for other brokers or dealers to participate.
In connection with distribution of the shares, the Selling Stockholder
may enter into hedging or other option transactions with broker-dealers in
connection with which, among other things, such broker-dealers may engage in
short sales of the shares pursuant to this Prospectus in the course of hedging
the positions they may assume with the Selling Stockholder. The Selling
Stockholder may also sell shares short pursuant to this Prospectus and deliver
the shares to close out such short positions. The Selling Stockholder may also
enter into option or other transactions with broker-dealers which may result in
the delivery of shares to such broker-dealers who may sell such shares pursuant
to this Prospectus. The Selling Stockholder may also pledge the shares to a
broker-dealer or financial institution and upon default the broker-dealer or
financial institution may effect the sales of the pledged shares pursuant to
this Prospectus.
The distribution of the shares by the Selling Stockholder is not
subject to any underwriting agreement. Any dealers, brokers or agents
participating in the distribution of the shares may receive compensation in the
form of discounts, concessions, commissions or fees from the Selling Stockholder
and/or purchasers of shares, for whom they may act. Such discounts, concessions,
commissions or fees will not exceed those customary for the type of transactions
involved. In addition, the Selling Stockholder and any such dealers, brokers, or
agents that participate in the distribution of shares may be deemed to be
"underwriters" under the Securities Act, and any profits on the sales of shares
by them and any discounts, concessions, or commissions or fees received by any
of such persons may be deemed to be underwriting discounts and commissions under
the Securities Act. Those who act as broker, dealer, or agent in connection with
the sale of the shares will be selected by the Selling Stockholder and may have
other business relationships with the Company and its subsidiaries or affiliates
in the ordinary course of business.
Upon the Company being notified by the Selling Stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares through a block trade, special offering, exchange distribution, or
secondary distribution or a purchase by a broker or dealer, a supplemented
prospectus will be filed, if required, pursuant to Rule 424(c) under the
Securities Act, setting forth (i) the name of each of the participating
broker-dealers, (ii) the number of shares involved, (iii) the price at which
such shares were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealers, where applicable, (v) a statement to the effect
that such broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this Prospectus, and (vi)
other facts material to the transaction.
The aggregate proceeds to the Selling Stockholder from the sale of the
shares offered hereby will be the purchase price of such shares less any
broker's discounts, concessions, commissions or fees to dealers, brokers or
agents.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdiction only through registered
or licensed brokers or dealers. In addition, in certain states the shares may
not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirements is available and all requirements for such exemption have been met.
Brokers, dealers, and others effecting transactions in the shares should confirm
the registration or qualification of the shares under the securities laws of the
states in which such transactions occur or the existence of any exemption from
such registration.
There is no assurance that the Selling Stockholder will sell any or all
of the shares described herein and may transfer, devise, or gift such securities
by other means not described herein. The Company is permitted to suspend the use
of this Prospectus by the Selling Stockholder during certain periods of time
under certain circumstances relating to pending corporate developments and
public filings with the Commission and similar events. Expenses of preparing and
filing the registration statement and all post-effective amendments will be
borne by the Company.
The Company has agreed to indemnify the Selling Stockholder against
certain liabilities, including liabilities under the Securities Act. The Selling
Stockholder has agreed to indemnify the Company and certain related persons
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock and certain other legal matters in
connection with this offering will be passed upon for the Company by Clark &
Stant, P.C., Virginia Beach, Virginia.
EXPERTS
The consolidated financial statements including Schedule 1 of
TFC Enterprises, Inc. appearing or incorporated by reference in TFC Enterprises,
Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1997 have been
audited by Ernst & Young, LLP, independent auditors, as set forth in their
reports thereon included or incorporated by reference therein and incorporated
herein by reference. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
<PAGE>
No broker, dealer or any other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Selling Stockholder. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the shares of Common Stock to which it relates or an offer to, or a solicitation
of, any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that information
contained herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
Page
Available Information....................... 2
Information Incorporated by Reference....... 2
Prospectus Summary.......................... 3
The Offering................................ 5
Risk Factors................................ 6
Use of Proceeds............................. 9
Business.................................... 9
Selling Stockholder......................... 17
Plan of Distribution ....................... 17
Legal Matters............................... 18
Experts..................................... 18
1,135,280 Shares
TFC Enterprises, Inc.
Common Stock
------------------
Prospectus
------------------
______________, 1998
<PAGE>
II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuances and Distribution
The following table sets forth the various fees and expenses to be paid by the
Company in connection with the issuance and distribution of the shares of Common
Stock being registered. All amounts shown are estimates except for the
Commission registration fee. The Company will pay all expenses in connection
with the distribution of the shares of Common Stock being sold by the Selling
Stockholder (including fees and expenses of counsel for the Company and one-half
of the reasonable fees and expenses of counsel to the Selling Stockholder),
except for any discounts, concessions, commissions or other compensation due to
any broker or dealer in connection with the sale of any of the shares offered
hereby.
Securities and Exchange Commission registration fee...... $ 576.04
Blue Sky fees and expenses............................... *
Printing expense......................................... *
Accounting fees and expenses............................. *
Legal fees and expenses.................................. *
Miscellaneous............................................ *
Total.................................................... $25,000.00
*To be filed by amendment
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law grants to the
Company the power to indemnify any person against liabilities and expenses
incurred by reason of the fact that he or she is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, subject, however, to
certain conditions and limitations as stated therein.
Section 145 also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company and any person who is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against liability
asserted against or incurred by him or her in any such capacity or arising out
of his or her status as such whether or not the Company would have the power to
indemnify such person against such liability under Section 145.
Article VII of the Company's Amended and Restated Certificate of
Incorporation provides that a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except: (i) for any breach of the director's duty
of loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Company shall be eliminated
or limited to the fullest extent permitted by the Delaware General Corporation
Law, as so amended.
Article VIII of the Company's Bylaws provides that each person who was
or is made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative ("Proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director or officer of the Company
or is or was serving at the request of the Company as a director, officer,
trustee, employee or agent of another corporation or of a partnership, trust or
other enterprise, including service with respect to an employee benefit plan,
whether the basis of such Proceeding is alleged action in an official capacity
as a director, officer, trustee, employee or agent or in any other capacity
while serving as a director, officer, trustee, employee or agent, shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the Delaware General Corporation Law against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) ("Losses") reasonably incurred or
suffered by such person in connection therewith; provided, however, that the
Company shall indemnify any such person seeking indemnity in connection with a
Proceeding (or part thereof) initiated by such person only if such Proceeding
(or part thereof) was authorized by the Board of Directors of the Company.
Section 8.06 of Article VIII of the Company's Bylaws provides that the
Company may maintain insurance, at its expense, to protect itself and any
director, officer, employee or agent of the Company or another corporation,
partnership, trust or other enterprise against losses, whether or not the
Company would have the power to indemnify such person against losses under the
Delaware General Corporation Law.
Item 16. Exhibits and Financial Statement Schedule
(a) Exhibits
<TABLE>
<S> <C>
*3.1 Amended and Restated Certificate of Incorporation of TFC Enterprises, Inc. (Incorporated by
reference to the Registrant's Registration Statement on Form S-1, Commission File No. 33-70638,
previously filed with the Commission on October 21, 1993.)
*3.2 Amended and Restated Bylaws of TFC Enterprises, Inc.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Commission File No. 33-70638,
previously filed with the Commission on October 21, 1993.)
*3.3 Second Amendment to Amended and Restated Bylaws of TFC Enterprises, Inc. regarding the number of
directors comprising the Board of TFC Enterprises, Inc. (Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended December 31, 1995, Commission File No. 1-11121,
previously filed with the Commission.)
*4 Form of Common Stock Certificate of the TFC Enterprises, Inc.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Commission File No. 33-70638,
previously filed with the Commission on October 21, 1993.)
*4.1 TFC Enterprises, Inc. Warrant to Purchase Common Stock dated
December 20, 1996. (Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended December 31,
1996, Commission File No. 1-11121, previously filed with the
Commission.)
*4.2 TFC Enterprises, Inc. Warrant to Purchase Common Stock dated
April 4, 1997. (Incorporated by reference to the Registrant's
Form 10-K for the fiscal year ended December 31, 1996,
Commission File No. 1-11121, previously filed with the
Commission.)
*4.3 Amended and Restated Registration Rights dated April 4, 1997
between TFC Enterprises, Inc. and General Electric Capital
Corporation. (Incorporated by reference to the Registrant's
Form 10-K for the fiscal year ended December 31, 1996,
Commission File No. 1-11121, previously filed with the
Commission.)
**5 Opinion of Clark & Stant, P.C.
***23.1 Consent of Ernst & Young LLP, Independent Auditors
**23.2 Consent of Clark & Stant, P.C.
***24 Power of Attorney relating to TFC Enterprises, Inc. (appears on the signature page hereto)
***27 Financial Data Schedule
</TABLE>
* Previously filed
** To be filed by amendment
*** Filed herewith.
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required to
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective
date of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement;
Provided, however, that paragraphs 1.(i) and (ii) above do not apply if
the information required to be in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration, by means of a post-effective
amendment, any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference to the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Norfolk, Commonwealth of Virginia, on the 20th day of
April, 1998.
TFC ENTERPRISES, INC.
By: /s/ ROBERT S. RALEY, JR.
-------------------------------------
Robert S. Raley, Jr., President
and Chief Executive Officer
The registrant and each person whose signature appears below constitute
and appoint Robert S. Raley , Jr. and Craig D. Poppen, and any agent for service
named in this Registration Statement and each of them, his, her or its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him, her or it and in his, her, or its name, place and
stead, in any and all capacities, to sign and file (i) any and all amendments
(including post-effective amendments) to this Registration Statement and (ii)
any Registration Statement relating to the offering covered by this Registration
Statement deemed effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933 and any and all amendments (including post-effective
amendments) thereto, with all exhibits thereto, and other documents in
connection therewith, with the Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he, she, or it might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C>
Chairman of the Board; Director,
/s/ ROBERT S. RALEY President and Chief Executive
Robert S. Raley Officer April 20, 1998
/s/ DOUGLAS E. BYWATER
Douglas E. Bywater Director April 20, 1998
/s/ WALTER S. BOONE, JR.
Walter S. Boone, Jr. Director April 20, 1998
/s/ PHILIP S. SMILEY
Philip S. Smiley Director April 20, 1998
/s/ ANDREW M. OCKERSHAUSEN
Andrew M. Ockershausen Director April 20, 1998
/s/ LINWOOD R. WATSON
Linwood R. Watson Director April 20, 1998
/s/ CRAIG D. POPPEN Vice President, Chief Financial
Craig D. Poppen Officer and Treasurer April 20, 1998
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of TFC Enterprises, Inc. *
(Incorporated by reference to the Registrant's Registration Statement on Form S-1,
Commission File No. 33-70638, previously filed with the Commission on October 21,
1993.)
3.2 Amended and Restated Bylaws of TFC Enterprises, Inc.
(Incorporated by reference to * the Registrant's Registration
Statement on Form S-1, Commission File No. 33-70638, previously
filed with the Commission on October 21, 1993.)
3.3 Second Amendment to Amended and Restated Bylaws of TFC
Enterprises, Inc. regarding * the number of directors comprising
the Board of TFC Enterprises, Inc. (Incorporated by reference to
the Registrant's Form 10-K for the fiscal year ended December
31, 1995, Commission File No. 1-11121, previously filed with the
Commission.)
4 Form of Common Stock Certificate of the TFC Enterprises, Inc.
(Incorporated by * reference to the Registrant's Registration
Statement on Form S-1, Commission File No. 33-70638, previously
filed with the Commission on October 21, 1993.)
4.1 TFC Enterprises, Inc. Warrant to Purchase Common Stock dated
December 20, 1996. * (Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended December 31,
1996, Commission File No. 1-11121, previously filed with the
Commission.)
4.2 TFC Enterprises, Inc. Warrant to Purchase Common Stock dated
April 4, 1997. * (Incorporated by reference to the Registrant's
Form 10-K for the fiscal year ended December 31, 1996,
Commission File No. 1-11121, previously filed with the
Commission.)
4.3 Amended and Restated Registration Rights dated April 4, 1997
between TFC * Enterprises, Inc. and General Electric Capital
Corporation. (Incorporated by reference to the Registrant's Form
10-K for the fiscal year ended December 31, 1996, Commission
File No. 1-11121, previously filed with the Commission.)
5 Opinion of Clark & Stant, P.C. re: Legality **
23.1 Consent of Ernst & Young LLP ***
23.2 Consent of Clark & Stant, P.C. **
27 Financial Data Schedule ***
</TABLE>
* (Not filed herewith. In accordance with Rule 12b-32 of the General
Rules and Regulations under the Securities Exchange Act of 1934, the
exhibit is incorporated by reference).
** To be filed by amendment.
*** Filed herewith.
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3) and related Prospectus of TFC Enterprises,
Inc. for the registration of 1,135,280 shares of its common stock and to the
incorporation by reference therein of our reports dated February 12, 1998, with
respect to the consolidated financial statements and schedule of TFC
Enterprises, Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
ERNST & YOUNG, LLP
Washington, D.C.
April 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,975
<SECURITIES> 0
<RECEIVABLES> 151,523
<ALLOWANCES> 23,029
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,923
<DEPRECIATION> 3,626
<TOTAL-ASSETS> 147,833
<CURRENT-LIABILITIES> 109,786
<BONDS> 0
49
0
<COMMON> 0
<OTHER-SE> 31,080
<TOTAL-LIABILITY-AND-EQUITY> 147,833
<SALES> 32,317
<TOTAL-REVENUES> 33,422
<CGS> 0
<TOTAL-COSTS> 19,977
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 719
<INTEREST-EXPENSE> 12,019
<INCOME-PRETAX> 707
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 707
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>