<PAGE>
THIS REPORT HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION VIA EDGAR
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission File No. 0-22910
T F C E N T E R P R I S E S, I N C.
(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 101 B
Norfolk, Virginia 23513
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code -- (757) 858-1400
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
-----
As of May 12, 2000, there were 11,433,682 outstanding shares of the registrant's
$.01 par value per share common stock.
<PAGE>
TFC ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q FOR
THE THREE MONTHS ENDED MARCH 31, 2000
Table of Contents and 10-Q Cross Reference Index
<TABLE>
<CAPTION>
Part I - Financial Information Page No.
- ------------------------------ --------
<S> <C>
Financial Highlights 3
Financial Statements (Item 1)
Consolidated Balance Sheets 4
Consolidated Statements of Income 5
Consolidated Statements of Changes in Shareholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Item 2) 12
Part II - Other Information
- ---------------------------
Exhibits and Reports on Form 8-K (Item 6) 19
Signatures 20
Index to Exhibits 21
</TABLE>
2
<PAGE>
TFC ENTERPRISES, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------
(in thousands, except per share amounts) 2000 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 875 $ 1,402
Net income per basic common share $ 0.08 $ 0.12
Net income per diluted common share $ 0.07 $ 0.12
Average common shares outstanding (in thousands) 11,433 11,405
- -------------------------------------------------------------------------------------------
Performance ratios (annualized, as appropriate)
Return on average common equity 8.27% 15.58%
Return on average assets 1.66 3.13
Yield on interest-earning assets 22.93 23.27
Cost of interest-bearing liabilities 9.62 8.96
Net interest margin 15.92 16.92
Operating expense as a percentage of
average interest-earning assets (a) 13.40 12.15
Total net charge-offs to average
gross contract receivables,
net of unearned interest 15.84 14.58
60+ days delinquencies to period-end
gross contract receivables 5.65 5.03
30+ days delinquencies to period-end
gross contract receivables 8.37 7.25
Total allowance and nonrefundable reserve
to period end gross contract receivables,
net of unearned interest 9.89 11.50
Equity to assets, period end 19.73 19.86
- -------------------------------------------------------------------------------------------
Average balances:
Interest-earning assets (b) $217,550 $191,712
Total assets 210,904 179,136
Interest-bearing liabilities 158,322 135,833
Equity 42,353 35,979
- -------------------------------------------------------------------------------------------
</TABLE>
Note: Throughout this report, ratios are based on unrounded numbers and factors
contributing to changes between periods are noted in descending order of
materiality.
(a) Gross contract receivables net of unearned interest revenue.
(b) After considering approximately $750 of pre-tax costs associated with the
consolidation of service centers, operating expense as a percentage of
interest earning assets decreases to 12.15%.
3
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
- ---------------------------------------------------------------------------------------------------------
(in thousands, except share amounts) 2000 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,340 $ 2,290
Restricted cash 7,641 9,563
Net contract receivables 192,801 182,039
Property and equipment, net 2,351 2,244
Intangible assets, net 9,614 9,887
Other assets 2,726 2,488
- ---------------------------------------------------------------------------------------------------------
Total assets $216,473 $208,511
=========================================================================================================
Liabilities and shareholders' equity
Liabilities:
Revolving lines of credit $110,993 $ 94,866
Automobile receivables-backed notes 43,421 52,316
Other debt 9,595 9,501
Accounts payable and accrued expenses 4,263 3,539
Income taxes payable and other liabilities 3,470 4,941
Refundable dealer reserve 2,018 1,519
- ---------------------------------------------------------------------------------------------------------
Total liabilities 173,760 166,682
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none outstanding -- --
Common stock, $.01 par value, 40,000,000 shares
authorized; 11,433,682 and 11,430,482 shares issued and
outstanding, respectively 50 50
Additional paid-in capital 56,089 56,080
Retained deficit (13,426) (14,301)
- ---------------------------------------------------------------------------------------------------------
Total shareholders' equity 42,713 41,829
- ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $216,473 $208,511
=========================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
- --------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and other finance revenue $12,470 $11,153
Interest expense 3,810 3,044
- --------------------------------------------------------------------------------------------------------
Net interest revenue 8,660 8,109
Provision for credit losses 182 98
- --------------------------------------------------------------------------------------------------------
Net interest revenue after provision for credit losses 8,478 8,011
- --------------------------------------------------------------------------------------------------------
Other revenue:
Commissions on ancillary products 156 201
Other 203 107
- --------------------------------------------------------------------------------------------------------
Total other revenue 359 308
- --------------------------------------------------------------------------------------------------------
Total net interest and other revenue 8,837 8,319
- --------------------------------------------------------------------------------------------------------
Operating expense:
Salaries 3,780 3,047
Employee benefits 769 642
Occupancy 481 230
Equipment 398 313
Amortization of intangible assets 273 273
Other 1,589 1,320
- --------------------------------------------------------------------------------------------------------
Total operating expense 7,290 5,825
- --------------------------------------------------------------------------------------------------------
Income before income taxes 1,547 2,494
Provision for income taxes 672 1,092
- --------------------------------------------------------------------------------------------------------
Net income $ 875 $ 1,402
========================================================================================================
Net income per common share:
Basic $ 0.08 $ 0.12
Diluted $ 0.07 $ 0.12
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
- ----------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock
Balance at beginning and end of period $ 50 $ 50
==========================================================================================================
Additional paid-in capital
Balance at beginning of period $ 56,080 $ 56,020
Stock options exercised 9 --
- ----------------------------------------------------------------------------------------------------------
Balance at end of period $ 56,089 $ 56,020
==========================================================================================================
Retained deficit
Balance at beginning of period $(14,301) $(20,788)
Net income (a) 875 1,402
- ----------------------------------------------------------------------------------------------------------
Balance at end of period $(13,426) $(19,386)
==========================================================================================================
</TABLE>
(a) There are no adjustments to net income to determine comprehensive income
for the periods presented.
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
TFC ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
- -------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net income $ 875 $ 1,402
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of intangible assets 273 273
Depreciation and other amortization 453 250
Provision for credit losses 182 98
Changes in operating assets and liabilities:
Increase in other assets (454) (400)
Increase in accounts payable and accrued expenses 724 363
Increase (decrease) in income taxes payable and other liabilities (1,471) 1,526
Increase (decrease) in refundable dealer reserve 499 (291)
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,081 3,221
- -------------------------------------------------------------------------------------------------------
Investing activities
Net cost of acquiring contract receivables (33,180) (34,675)
Repayment on contract receivables 22,236 22,611
Purchase of property and equipment (344) (211)
Decrease in restricted cash 1,922 --
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities ( 9,366) (12,275)
- -------------------------------------------------------------------------------------------------------
Financing activities
Net borrowings on revolving lines of credit 16,127 9,062
Net borrowings on other debt 94 --
Payments on automobile receivables-backed notes (8,895) --
Proceeds from stock options exercised 9 --
- -------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,335 9,062
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (950) 8
Cash and cash equivalents at beginning of period 2,290 1,868
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,340 $ 1,876
=======================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
TFC ENTERPRISES, INC.
Notes to Consolidated Financial Statements
7
<PAGE>
1. Summary of significant accounting policies
Organization and business
TFC Enterprises, Inc. ("TFCE") is a holding company that operates three primary
wholly-owned subsidiaries, The Finance Company ("TFC"), First Community Finance,
Inc. ("FCF") and Recoveries, Inc. ("RI"). TFCE has no significant operations of
its own. TFC specializes 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") both
on an individual basis ("point-of-sale" purchase) and on a bulk basis ("bulk"
purchase). Based in Norfolk, Virginia, TFC also has eleven contract production
offices throughout the United States. FCF is involved in the direct origination
and servicing of small consumer loans. FCF operates seventeen branches
throughout Virginia and North Carolina. Recoveries Inc., a third party debt
collection agency, services foreclosed or troubled loan portfolios and
receivables.
Basis of presentation
The unaudited consolidated financial statements of the Company are prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. These financial statements should be read in conjunction with the Company's
1999 Annual Report on Form 10-K. In the opinion of management, all normal
recurring adjustments which management of the Company considers necessary for a
fair presentation of the financial position and results of operations for the
periods are reflected in the financial statements. Operating results for the
three months ended March 31, 2000, are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 2000. Certain
amounts have been reclassified to conform to the current quarter's presentation.
2. Contract receivables
The following is a summary of contract receivables at March 31, 2000, and
December 31, 1999:
<TABLE>
March 31, Dec. 31,
(in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Contract receivables:
Auto finance $241,926 $236,305
Consumer finance 21,160 21,086
- ---------------------------------------------------------------------------------------------------------
Gross contract receivables 263,086 257,391
Less:
Unearned interest revenue 40,644 40,491
Unearned discount 5,851 4,613
Unearned commissions 383 441
Unearned service fees 1,082 1,074
Payments in process 26 4,707
Escrow for pending acquisitions 323 530
Allowance for credit losses 829 817
Nonrefundable reserve 21,147 22,679
- ---------------------------------------------------------------------------------------------------------
Net contract receivables $192,801 $182,039
=========================================================================================================
</TABLE>
TFC ENTERPRISES, INC.
Notes to Consolidated Financial Statements
2. Contract receivables (continued)
8
<PAGE>
Changes in the allowance for credit losses and nonrefundable reserve for the
three months ended March 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
- ---------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 23,496 $22,195
Provision for credit losses 182 98
Allocation for credit losses 6,904 7,292
Charge-offs (10,130) (8,507)
Recoveries 1,524 1,521
- ----------------------------------------------------------------------------------------------------------
Balance at end of period $ 21,976 $22,599
==========================================================================================================
</TABLE>
3. Computation of primary and fully diluted earnings per share
Basic and diluted earnings per share for the three months ended March 31, 2000
and 1999 were as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
- ----------------------------------------------------------------------------------------------------------
(in thousands) except per share
amounts) 2000 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net income $ 875 $ 1,402
- ----------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings
per share-weighted-average shares 11,433 11,405
--------------------------------------------------------------------
Effect of dilutive securities:
Employee stock options 290 147
Warrants 798 589
--------------------------------------------------------------------
Dilutive potential common
shares 1,088 736
Denominator for diluted earnings 12,522 12,141
per share-adjusted weighted-
average shares and assumed
conversions
- ----------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.08 $ .12
Diluted earnings per share $ 0.07 $ .12
</TABLE>
TFC ENTERPRISES, INC.
Notes to Consolidated Financial Statements (continued)
4. Segments
9
<PAGE>
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision makers in deciding how to allocate resources and in
assessing performance.
The Company is a specialty finance company with two business segments. Through
TFC, the auto finance segment, the Company is engaged in purchasing and
servicing installment sales contracts originated by automobile and motorcycle
dealers involved in the sale of used automobiles, vans, light trucks, and new
and used motorcycles (collectively "vehicles") throughout the United States.
This segment consists of two business units (i) point-of-sale which contracts
are acquired on an individual basis from dealers after the Company has reviewed
and approved the purchasers credit application and (ii) bulk which contracts are
acquired through the purchase of dealer portfolios. Through FCF, the consumer
finance segment, the Company is involved in the direct origination and servicing
of small consumer loans through a branch network in Virginia and North Carolina.
The other column consists of RI and corporate support functions not allocated to
either of the business segments. All revenue is generated from external
customers in the United States.
10
<PAGE>
TFC ENTERPRISES, INC.
Notes to Consolidated Financial Statements (continued)
4. Segments (continued)
The accounting policies are the same as those described in the summary of
significant accounting policies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(in thousands) Consumer
Auto Finance Finance Other Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months ended
March 2000
Interest revenues $ 11,298 $ 1,172 $ -- $ 12,470
--------------------------------------------------------------------------
Interest expense $ 3,453 $ 357 $ -- $ 3,810
--------------------------------------------------------------------------
Income (loss) before taxes: $ 2,103 $ 24 $(170) $ 1,957
Unallocated amounts:
Intangible amortization (273)
Corporate expenses (137)
--------------
Consolidated income before
taxes $ 1,547
--------------------------------------------------------------------------
Net contract receivables $172,824 $19,779 $ 198 $192,801
Other assets 23,672
--------------
Total assets $216,473
--------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
(in thousands) Consumer
Auto Finance Finance Other Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months ended
March 1999
Interest revenues $ 10,150 $ 1,003 $ -- $ 11,153
--------------------------------------------------------------------------
Interest expense $ 2,741 $ 303 $ -- $ 3,044
--------------------------------------------------------------------------
Income (loss) before taxes: $ 2,839 $ 75 $ 11 $ 2,925
Unallocated amounts:
Intangible amortization (273)
Corporate expenses (158)
--------------
Consolidated income before
taxes $ 2,494
--------------------------------------------------------------------------
Net contract receivables $152,111 $15,733 $ 9 $167,861
Other assets 16,825
--------------
Total assets $184,686
--------------------------------------------------------------------------
</TABLE>
TFC ENTERPRISES, INC.
Management's Discussion And Analysis Of Financial Condition
11
<PAGE>
And Results Of Operations
Cautionary statement under the "Safe-Harbor" provisions of the Private
Securities Litigation Reform Act of 1995: included in this Report and other
written and oral information presented by management from time to time,
including but not limited to, reports to shareholders, quarterly shareholder
letters, filings with the Commission, news releases, discussions with analysts
and investor presentations, are forward-looking statements about business
strategies, market potential, potential for future point-of-sale and bulk
purchases, delinquency and charge-off rates, 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. The
following are factors that could cause the Company's actual results to differ
materially from those expressed or implied by such forward-looking statements: a
rise in interest rates, a deterioration of credit experience, competitive
pricing and other factors, the loss of or reduction in its credit facilities, or
if the Company were to face increased competition. Investors are encouraged to
review TFC Enterprise's SEC filings for more information about the factors
affecting the Company's business. The Company disclaims any intent or obligation
to update these forward-looking statements, whether as a result of new
information, future events or otherwise.
Results of Operations
- ---------------------
Net income and earnings per basic common share
Net income for the first quarter of 2000 was $0.9 million, or $0.08 per basic
common share, compared to net income of $1.4 million, or $0.12 per basic common
share, in the first quarter of 1999. Exclusive of the one-time charges of
approximately $450,000 (net of tax) associated with the relocation of the
Company's Bulk Service Center, net income for the first quarter of 2000 would
have been $0.12 per basic common share.
Volume
Gross contracts purchased or originated totaled $59.8 million in the first
quarter of 2000, compared to $58.5 million purchased in the first quarter of
1999.
TFC ENTERPRISES, INC.
12
<PAGE>
Gross contracts purchased or originated were as follows for the three months
ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended
March 31,
- ---------------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Contracts purchased or originated:
Auto finance:
Point-of-sale $ 36,383 $ 39,303
Bulk 14,798 14,304
Consumer finance 5,909 4,916
- ---------------------------------------------------------------------------------------------------------------
Total $ 59,790 $ 58,523
===============================================================================================================
Number of contracts purchased or originated:
Auto finance:
Point-of-sale 2,753 3,150
Bulk 2,878 2,745
Consumer finance 2,856 2,361
- ---------------------------------------------------------------------------------------------------------------
Total 8,487 8,256
===============================================================================================================
</TABLE>
Net interest revenue
Net interest revenue for the first quarter of 2000 totaled $8.7 million, an
increase of 7%, from $8.1 million in the prior year period. The increase was
attributable to higher average interest-earning assets. The yield on interest-
earning assets was 22.93% in the first quarter of 2000, compared to 23.27% in
the first quarter of 1999. The slight decrease in yield is attributable to the
introduction of a variable APR and discount program which resulted in a higher
mix of contracts with lower APR's.
The cost of interest-bearing liabilities increased to 9.62% for the first
quarter of 2000 from 8.96% for the first quarter of 1999. The increase for the
first quarter was primarily attributable to an increase in the one-month LIBOR
rate. The Company continues to explore ways to reduce its interest-rate risk and
the overall cost of interest bearing liabilities.
TFC ENTERPRISES, INC.
13
<PAGE>
Net interest revenue, net interest spread, and net interest margin were as
follows for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended
March 31,
- ----------------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average interest earning assets (a) $217,550 $191,712
Average interest bearing liabilities 158,322 135,833
- ----------------------------------------------------------------------------------------------------------------
Net interest earning assets $ 59,228 $ 55,879
================================================================================================================
Interest and other finance revenue $ 12,470 $ 11,153
Interest expense 3,810 3,044
- ----------------------------------------------------------------------------------------------------------------
Net interest revenue $ 8,660 $ 8,109
================================================================================================================
Yield on interest-earning assets 22.93% 23.27%
Cost of interest-bearing liabilities 9.62 8.96
- ----------------------------------------------------------------------------------------------------------------
Net interest spread 13.31% 14.31%
================================================================================================================
Net interest margin (b) 15.92% 16.92%
===============================================================================================================
</TABLE>
(a) Gross contract receivables net of unearned interest revenue.
(b) Net interest margin is annualized net interest revenue divided by average
interest-earning assets.
Operating expense
Operating expense as a percentage of interest-earning assets, calculated on
anannualized basis, increased to 13.40% for the first quarter of 2000 from
12.15% for the first quarter of 1999. The first quarter of 2000 includes a one-
time charge of approximately $750,000 (pre-tax) relating primarily to severance
costs, duplicate payroll costs, and lease termination charges associated with
the relocation of the Jacksonville Service Center to Norfolk, Virginia. The
relocation was completed prior to March 31, 2000. The Company accrued all
costs prior to March 31, 2000 and only lease termination charges of
approximately $200,000 were unpaid at March 31, 2000. Excluding these costs,
operating expense as percentage of interest-earning assets would have been
12.15%.
Provision for income taxes
The effective tax rate for the first quarter of 2000 and 1999 of approximately
43.5% for book purposes is higher than the expected statutory rate primarily due
to the amortization of certain intangible assets and the effect of state income
taxes.
14
<PAGE>
TFC ENTERPRISES, INC.
Financial Condition
-------------------
Assets
Total assets increased by $8.0 million, or 4%, to $216.5 million at March 31,
2000, from $208.5 million at December 31, 1999. The increase was primarily
attributable to an increase in net contract receivables.
Net contract receivables were as follows at March 31, 2000 and December 31,
1999:
<TABLE>
<CAPTION>
March 31, Dec. 31,
(in thousands) 2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Auto finance:
Point-of-sale $126,858 $116,849
Bulk 46,164 45,672
Consumer finance 19,779 19,518
- --------------------------------------------------------------------------------------------------------
Total $192,801 $182,039
========================================================================================================
</TABLE>
Liabilities
Total liabilities were $173.8 million at March 31, 2000, an increase of $7.1
million, or 4%, from $166.7 million at December 31, 1999. The increase in
liabilities compared with year-end 1999 primarily reflected increased borrowings
under the Company's credit facilities resulting from the increase in net
contract receivables.
Credit Quality and Reserves
---------------------------
Auto finance contract receivables- Net charge-offs
Net charge-offs to the allowance for credit losses and nonrefundable dealer
reserve were $8.4 million in the first quarter of 2000, representing an
annualized rate of 17.1% of average contract receivables net of unearned
interest revenue. This compares to $6.9 million, or 15.7%, in the first quarter
of 1999. The increase in net charge-offs in the first quarter of 2000 relative
to the first quarter of 1999 was due primarily to servicing problems in the
Jacksonville Service Center prior to consolidation.
Auto finance contract receivables- Provision for credit losses
TFC's primary business involves purchasing installment sales contracts at a
discount to the remaining principal balance. A portion of the discount is
generally held in a nonrefundable dealer reserve against which credit losses are
first applied. Additional provisions for credit losses, if necessary, are
charged to income in amounts considered by management to be adequate to absorb
future credit losses. There was no loss provision related to the auto finance
contracts for all of 1999 and the first three months of 2000.
15
<PAGE>
TFC ENTERPRISES, INC.
Provision for credit losses is dependent on a number of factors, including, but
not limited to, the level and trend of delinquencies and net charge-offs, the
amount of nonrefundable and refundable dealer reserves and the overall economic
conditions in the markets in which TFC operates. Due to the inherent uncertainty
involved in predicting the future performance of these factors, there can be no
assurance regarding the future level of provision for credit losses.
Auto finance contract receivables- Reserves
The static pool reserve methodology is used to analyze and reserve for TFC's
credit losses. This methodology allows TFC to stratify its portfolio into
separate and identifiable annual pools. The loss performance of these annual
pools is analyzed monthly to determine the adequacy of the reserves. The loss
performance to date combined with estimated future losses by pool year
establishes the gross estimated loss for each pool year. The combined expected
losses are reduced by estimated future recoveries that are based on historical
recovery performance to establish the estimated required reserve for credit
losses.
At March 31, 2000 the combination of TFC's allowance for credit losses and
nonrefundable dealer reserve totaled $21.1 million, or 10.5%, of contract
receivables net of unearned interest revenue. This compares to $22.7 million, or
11.6%, at December 31, 1999. The decrease in reserves and in the percentage of
reserves to contract receivables is primarily due to increased charge-off in the
Jacksonville Service Center prior to the consolidation.
TFC's refundable dealer reserve, which is available to absorb losses relating to
contracts purchased from certain dealers, totaled $2.0 million at March 31, 2000
and $1.5 million at December 31, 1999. Under certain of TFC's programs,
contracts from dealers were purchased under a refundable, rather than
nonrefundable reserve relationship. Under certain circumstances, TFC may have to
remit some or all of the refundable reserve back to the dealer. No such
liability exists under a nonrefundable reserve relationship. Accordingly, the
refundable reserve is carried as a liability on the Company's Consolidated
Balance Sheets.
The reserves as a percentage of gross auto finance contract receivables net of
unearned interest at March 31, 2000, of 10.5% are less than net charge-offs as a
percentage of average net contracts receivable for the three months ended March
31, 2000, of 17.1% on an annualized basis. This difference exists because the
reserves include an estimate of future recoveries on prior year charge-offs and
future recoveries on current year charge-offs that are not reflected in the
current year charge-off percentage. These estimated future recoveries are based
on historical recovery performance and this estimate is an integral part of the
evaluation of the adequacy of the reserves performed by management quarterly.
Consumer finance charge-offs, provision for credit losses and reserves (FCF)
Net charge-offs to the allowance for credit losses were $0.1 million in the
first quarter of 2000 and 1999, representing an annualized rate of 3.26% and
2.87% of average gross contract receivables net of unearned interest revenue,
respectively. The provision for credit losses was $0.2 million for the first
quarter of 2000 and $0.1 million for the first quarter of 1999 and the allowance
for credit losses was $0.8 million or 3.95% and $0.8 million or 3.84% of
outstanding gross contract receivables at March 31, 2000 and December 31, 1999,
respectively. Management has established the level of allowance that it
considers to be adequate based on FCF's experience through March 31, 2000.
16
<PAGE>
TFC ENTERPRISES, INC.
Charge-offs net of recoveries, by line of business, for the three months ended
March 31, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
- ---------------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Auto finance:
Point-of-sale $ 4,978 $ 3,703
Bulk 3,458 3,162
Consumer finance 170 121
- ---------------------------------------------------------------------------------------------------------------
Total $ 8,606 $ 6,986
===============================================================================================================
</TABLE>
Delinquencies
Gross auto finance contract receivables that were 60 days or more past due
totaled $14.3 million, or 5.93% of gross auto finance contract receivables at
March 31, 2000, compared to $14.9 million, or 6.32%, at December 31, 1999. Gross
auto finance contract receivables that were 30 days or more past due totaled
$21.2 million, or 8.77% of gross auto finance contract receivables at March 31,
2000, compared to $22.6 million, or 9.57%, at December 31, 1999.
Gross consumer finance receivables that were 60 days or more past due totaled
$0.5 million, or 2.49% of gross receivables at March 31, 2000, compared to $0.6
million, or 2.79% at December 31, 1999. Gross consumer finance receivables that
were 30 days or more past due totaled $0.8 million, or 3.91% of gross
receivables at March 31, 2000, compared to $0.9 million, or 4.36% at December
31, 1999.
Delinquency at March 31, 2000 and December 31, 1999 was as follows:
<TABLE>
<CAPTION>
March 31, Dec. 31,
(in thousands) 2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross contract receivables 263,086 257,391
Gross contract receivables 60+ days and over delinquent
Gross contract amount $ 14,863 $ 15,528
Percent of total gross contract receivables 5.65% 6.03%
Gross contract receivables 30+ days and over delinquent
Gross contract amount $ 22,023 $ 23,525
Percent of total gross contract receivables 8.37% 9.14%
</TABLE>
17
<PAGE>
TFC ENTERPRISES, INC.
Liquidity and Capital Resources
-------------------------------
Liquidity management
As shown in the Consolidated Statements of Cash Flows, cash and cash equivalents
decreased to 1.3 million for the first quarter of 2000. This reflected $1.1
million of net cash provided by operating activities and $7.3 million of net
cash provided by financing activities entirely offset by $9.4 million of net
cash used in investing activities. Net cash used in investing activities
resulted from net cost of acquiring contract receivables exceeding the repayment
of contract receivables. Net cash provided by financing activities reflected net
borrowings on the revolving lines of credit used to fund the increase in net
contract receivables. For the first three months of 1999, net cash reflected
$3.2 million of net cash provided by operating activities and $9.1 million of
net cash provided by financing activities partially offset by $12.3 million of
net cash used in investing activities. In both the first quarter of 2000 and
1999, the combination of cash on hand and net cash provided by financing
activities was sufficient to fund the growth in business volume. The Company
believes cash flows provided by operating activities and current availability
under its credit facilities will be adequate to meet the Company's liquidity
requirements for fiscal 2000. Management is currently exploring additional
sources of liquidity.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports of Form 8-K
(a) Exhibits
10.1 $6,000,000 Loan and Security Agreement between PC Acceptance
Corporation (name subsequently changed to PC Acceptance.com, Inc.) and
Sterling National Bank
10.2 Audit Committee Charter
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
(b) Reports on Form 8-K
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TFC ENTERPRISES, INC.
(Registrant)
Date: May 12, 2000 By: /s/ Robert S. Raley Jr.
------------------------
Robert S. Raley, Jr.
Chairman, President,
Chief Executive Officer and
Director
Date: May 12, 2000 By: /s/ Craig D. Poppen
--------------------
Craig D. Poppen
Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer
of the registrant)
20
<PAGE>
Index to Exhibits
Exhibit No. Description
10.1 $6,000,000 Loan and Security Agreement between PC
Acceptance Corporation (name subsequently changed to PC
Acceptance.com, Inc.) and Sterling National Bank
10.2 Audit Committee Charter
27.1 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
21
<PAGE>
EXHIBIT 10.1
LOAN, SECURITY AND SERVICE AGREEMENT
Loan, Security and Service Agreement ("Agreement") made this day of
November 1999 between STERLING NATIONAL BANK ("Lender"), having an address at
500 Seventh Avenue, New York, NY 10018 and PC ACCEPTANCE CORPORATION
("Borrower"), a Virginia corporation and wholly-owned subsidiary of TFC
Enterprises, Inc. ("TFCE") having its principal place of business at 5425 Robin
Hood Road, Suite 101A, Norfolk, Virginia 23513.
RECITAL
Borrower desires to obtain loans from Lender from time to time on a secured
basis, and Lender has agreed to do so, subject to and upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the Recital and the mutual covenants
herein contained, Lender and Borrower agree as follows:
1. REVOLVING LOAN
--------------
1.1 Amount of Revolving Loan.
-------------------------
(a) During the term of this Agreement, provided there has not
occurred an Event of Default hereunder (as hereinafter defined) or an event
which, with the giving of notice or the lapse of time, or both, would become an
Event of Default hereunder, Lender will provide in its sole and absolute
discretion, at one time or from time to time, at the request of Borrower, loans
to Borrower on a revolving basis (the "Revolving Loan") in an aggregate amount
up to Borrower's Advance Limit (as hereinafter defined) from time to time in
effect, which Revolving Loan shall be payable at the earlier of (i) the one year
anniversary date of this Agreement or (ii) such other time as provided in this
Agreement. If the outstanding amount of the Revolving Loan shall exceed the
Advance Limit at any time, such excess shall be deemed secured by the
"Collateral" (as hereinafter defined) and shall be subject to the terms of this
Agreement.
(b)(i) Definition of Advance Limit. The term 101A "Advance
---------------------------
Limit" shall mean the amount of the Revolving Loan up to the lesser of Six
Million Dollars ($6,000,000.00) or 55% of the aggregate amount of the total
payments due on Borrower's "Eligible Receivables" (as hereinafter defined).
(ii) Lender shall have the right, from time to time, in its
sole and absolute discretion, to increase the amount of the Advance Limit; and
the Revolving
<PAGE>
Loan advanced on the basis thereof shall nevertheless be secured by the
Collateral and subject to the terms of this Agreement.
(iii) If at any time the Obligations (as hereinafter defined)
exceed the dollar amount specified in section 1.1(b)(i) above or if the ratio of
the Obligations to Eligible Receivables (as hereinafter defined) exceeds the
percentage specified in section 1.1(b)(i) above, Borrower shall, upon
notification of such fact by Lender, forthwith pay to Lender such amount as will
reduce the Obligations to the foregoing dollar amount or percentage of Eligible
Receivables.
(c) Definitions of "Receivables", "Eligible Receivables",
-----------------------------------------------------
"Military Allotment Accounts", "Account Debtor", and "Military Account Debtor".
- -----------------------------------------------------------------------------
(i) The term "Receivables" shall mean all accounts, accounts
receivable, contract rights, chattel paper, and general intangibles as defined
in the Uniform Commercial Code of New York or of such other state the law of
which may be applicable, and, in addition, any and all obligations of any kind
at any time due and/or owing to Borrower and all rights of Borrower to receive
payment or any other consideration, including without limitation, consumer
obligations, consumer installment contracts, revolving credit obligations and
agreements, invoices, contract rights, choses-in-action, notes, drafts,
acceptances, instruments, and all other debts, obligations and liabilities in
whatever form owing to Borrower from any person, firm, governmental or taxing
authority, corporation or any other entity, including intercompany accounts and
notes receivable, all documents, contracts, invoices and instruments evidencing
or constituting the same, all security therefor, and all Borrower's rights to
goods, sold or unsold (whether delivered, undelivered, in transit, returned,
rejected by, or repossessed from customers), which may be represented thereby,
whether now existing or hereafter arising, together with all proceeds and
products of any and all of the foregoing. Receivables shall include any of the
foregoing now existing or hereafter created by Borrower or acquired by
Borrower from others.
(ii) The term "Eligible Receivables" shall mean the
Receivables (a) as to which Borrower has furnished to Lender adequate
information at such times and in such form as has been or, from time to time may
be requested by Lender to permit Lender to accept the Receivable as an Eligible
Receivable, and (b) which meet all of the following criteria on the origination
date of the said Receivables and continuing thereafter until collected:
(a) Borrower is the sole owner of the Receivables, and
has not sold, assigned, mortgaged or hypothecated, nor released from Lender's
security interest, all or any portion thereof, nor are they subject to any
claim, lien or security interest of any persons or entities, including without
limitation the United States of America, any state, city, town, county, or other
local governing unit, or any agencies, authorities, or instrumentalities
thereof, except as disclosed on Schedule 5 annexed hereto and made part hereof;
<PAGE>
(b) The Receivables shall be valid and legally
enforceable, owing to Borrower for the performance of services or the sale of
goods arising in the ordinary course of business, whether by Borrower or by
others, for which Borrower has delivered, or, at the time of origination of the
said Receivables, if required by Lender, will deliver to Lender invoices,
billings and shipping documents and other documents evidencing the obligation to
pay the Receivables;
(c) No financing statement covering any Receivables or
the proceeds thereof is on file in any public office except in favor of Lender,
and neither Borrower nor Lender has received any notice of any proposed
acquisition of a Receivable or security interest therein, except as disclosed in
Schedule 5 annexed hereto and made part hereof;
(d) The Account Debtors (as hereinafter defined)
obligated thereon shall remain less than two payments contractually delinquent
in the case of account debtors whose only payment is their down payment, or less
than three payments contractually delinquent in the case of account debtors who
have commenced making their required monthly installment payments;
(e) The Receivables are not subject to any offsets,
credits, allowances, counterclaims or adjustments due the Account Debtor except
usual and customary prompt payment discounts, nor has the Account Debtor
returned the goods or indicated any dispute or complaint concerning the goods;
(f) Omitted.
(g) Omitted.
(h) No petition under the Bankruptcy Act or any similar
federal or state statute or a petition for receivership or assignment for the
benefit of creditors has been filed by or against the Account Debtor or its
property.
(iii) Omitted.
(iv) The term "Military Allotment Account" shall mean the
account of a Military Account Debtor (as hereinafter defined) for which a
payroll allotment is initiated by the Military Account Debtor to provide for the
payment of the Military Account Debtor's monthly obligation to Borrower.
3
<PAGE>
(v) The term "Account Debtor" shall mean a person (other than
Borrower or a guarantor of the Obligations of Borrower) who is obligated on a
Receivable.
(vi) The term "Military Account Debtor" shall mean an Account
Debtor who is a member of the United States Armed Forces.
1.2 Interest Rate. The Revolving Loan shall bear interest during each
--------------
calendar month at a fluctuating interest rate per annum equal at all times to
Three and One-quarter percentage points (3.25%) above the Wall Street Journal
published prime rate of interest in effect from time to time, each change in
such fluctuating rate to take effect simultaneously with the corresponding
change in such prime rate, without notice to Borrower. In no event shall the
interest be higher than the maximum lawful rate. Interest shall be calculated
on a daily basis upon the unpaid balance with each day representing 1/360th of a
year.
1.3 Omitted.
--------
1.4 Payment of Interest. Lender shall send Borrower an invoice for
--------------------
interest on the Revolving Loan at the end of each calendar month. Interest
shall be due and payable upon Borrower's receipt of said invoice. Any failure
or delay by Lender in presenting invoices for interest payments shall not
discharge or relieve Borrower of the obligation to make such interest payments.
Lender may, at its option compute the interest due from Borrower and (a) debit
Borrower's account with Lender for the amount of interest due, or (b) add the
amount of interest due to the Revolving Loan balance as of the last day of the
preceding month, or at any time thereafter, and said interest shall become part
of the principal balance owing.
1.5 Omitted.
--------
2. SECURITY INTEREST
-----------------
2.1 Security Interest.
------------------
(a) As collateral security for (i) the due and punctual payment
of the Revolving Loan, all interest thereon, and any and all extensions,
renewals, substitutions and changes in form thereof; (ii) all Obligations (as
hereinafter defined); and (iii) all costs and expenses incurred or paid by
Lender to enforce its rights pursuant to this Agreement, the Relevant Documents
(as hereinafter defined) or otherwise (including without limitation outside or
in-house attorneys' fees), Borrower hereby pledges, transfers, assigns, sets
over and grants to Lender a first priority and
4
<PAGE>
continuing security interest in the Collateral (as hereinafter defined) wherever
located and whether now existing or hereafter created or acquired by Borrower,
except as may be set forth on Schedule 5 annexed hereto and made part hereof.
(b) Lender shall be under no obligation to proceed against any
or all of the Collateral before proceeding to collect the Revolving Loan and
Obligations directly from Borrower or any guarantor of Borrower.
2.2 Continuation of Security Interest. The security interest granted
----------------------------------
in this Agreement shall continue in full force and effect until the Borrower has
fully paid and discharged all of the sums referred to in Subsection 2.1(a)
hereof and until this Agreement is terminated.
2.3 Definitions of "Obligations", Relevant Documents" and
-----------------------------------------------------
"Collateral".
- -------------
(a) The term "Obligations" shall mean all indebtedness,
obligations, liabilities, and agreements of every kind and nature of Borrower to
or with Lender (including but not limited to the Revolving Loan) and to or with
any affiliate of Lender, or of any guarantor of Borrower's indebtedness,
obligations, liabilities and agreements to or with Lender, or to, or with any
affiliate of Lender, now existing or hereafter arising or acquired, and now or
hereafter contemplated, pursuant to this Agreement and the Relevant Documents
(as hereinafter defined), whether in the form of financing, letters of credit,
bankers acceptances, guarantees, loans, interest, charges, overdrafts, expenses
or otherwise, absolute or contingent, joint or several, matured or unmatured,
primary or secondary, due or to become due, liquidated or unliquidated, secured
or unsecured, arising by operation of law or otherwise, including without
limitation any future advances, renewals, extensions or changes in form of, or
substitutions for, any of said indebtedness, obligations or liabilities, the
other sums and charges to be paid to Lender pursuant to any other sections of
this Agreement, and all interest and late charges on any of the foregoing.
"Obligations" shall further include all charges and fees that Lender may have
incurred in filing public notices and any local taxes relating thereto, all
reasonable costs and expenses (including outside attorneys fees) incurred by
Lender in efforts made to enforce payment or to otherwise effect collection of
any Collateral, in protecting, maintaining, preserving, enforcing or foreclosing
the pledge, lien and security interest in Collateral of Lender hereunder, and in
defending or prosecuting any actions or proceedings arising out of or relating
to Lender's transactions with Borrower, through judicial proceedings or
otherwise, all of which Borrower agrees to pay as provided herein. If the Lender
shall become liable to the United States of America in relation to wages of
employees of Borrower by virtue of Section 3505 of the Internal Revenue Code of
1954 (as added by Section 105 of the Federal Tax Lien Act of 1966), whether or
not such amount has been paid by
5
<PAGE>
Lender, such amount shall be an Obligation by Borrower to Lender hereunder.
Borrower authorizes Lender to pay any such amount to the United States of
America on behalf of Borrower, but Lender shall not be obligated to do so or
continue to do so.
(b) The term "Relevant Documents" shall mean any and all documents and
instruments now or hereafter executed or delivered by Borrower or any guarantor
of Borrower to Lender pursuant or incident to this Agreement or otherwise.
(c) The term "Collateral" shall mean the following, whether now or
hereafter existing or created or now or hereafter acquired by Borrower:
(i) The Borrower's Receivables, as defined herein;
(ii) Omitted;
(iii) Any claims of Borrower against third parties for payment of
any Receivable or for loss or damage thereto, or destruction thereof, and all
documents of title, insurance policies, certificates of insurance, insurance
proceeds, securities, chattel paper, and other documents and instruments
evidencing or pertaining to any of the foregoing; and all files and
correspondence which contain information identifying, referring to or relating
to any one or more of the items referred to in this Section 2.3(c), or to any
Account Debtor, which information shows the amounts owed by each, payments made
thereon, or otherwise is necessary or helpful in the realization thereon or the
collection thereof;
(iv) Omitted.
(v) All other property of Borrower, now or hereafter held or
received by or in transit to Lender from or for Borrower, or which may now or
hereafter be in the possession of Lender, or as to which Lender may now or
hereafter control possession, by documents of title or otherwise, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and any and
all deposits, general or special, balances, sums, proceeds and credits of
Borrower, on the books of Lender or on the books of any affiliate of Lender, and
all rights and remedies which the Borrower might exercise with respect to any of
the foregoing but for the execution of this Agreement;
(vi) All renewals, substitutions, profits, accessions,
accessories, replacements, additions, proceeds and products of, to or for the
Collateral, including without limitation, the proceeds of any Receivable,
without regard to whether it is an Eligible Receivable; and
6
<PAGE>
(vii) Omitted.
2.4 Further Assurances. Borrower shall take such steps and execute
-------------------
and deliver such financing statements and other documents all in form and
substance satisfactory to Lender relating to the creation, validity, assignment
or perfection of the security interests provided for herein, under the Uniform
Commercial Code or other laws of the State of New York or of another state or
states as Lender may from time to time request. Borrower hereby constitutes
Lender and each of its officers, agents or designees as Borrower's Attorney in
Fact, with power to execute in Borrower's name and well as in Lender's name and
to file such financing statements and other documents. This power, being coupled
with an interest, is irrevocable while any Obligations shall remain unpaid.
Borrower authorizes Lender to file in its own name as secured party any
financing statement under the Uniform Commercial Code which Lender deems
necessary or advisable to perfect the security interest which it is intended
that Lender have under this Agreement.
2.5 Delivery of Collateral. Upon written notice to Borrower,
-----------------------
Borrower shall, at its expense promptly deliver any or all Collateral not
otherwise in the possession or control of Lender to such place as Lender may
designate.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower, knowing and intending that Lender shall rely thereon in
making the loans contemplated by this Agreement, hereby represents, covenants
and warrants to Lender (which representations, covenants and warranties shall be
deemed to be incorporated by reference in each confirmatory assignment submitted
by Borrower to Lender and shall in any event be deemed to be repeated and
confirmed with respect to each Receivable as it is created or otherwise acquired
by Borrower) that:
3.1 Organization and Qualification.
-------------------------------
(a) Borrower is and will continue to be duly organized and
validly existing and in good standing under the laws of the State in which
Borrower is organized, and is and will continue to be qualified and in good
standing in all jurisdictions wherein the character of the property owned or the
nature of the business transacted by Borrower makes licensing or qualification
as a foreign entity necessary.
(b) A true, accurate and complete copy of Borrower's valid
resolution authorizing the transactions contemplated herein, and Borrower's
certificate of incorporation and by-laws all as in effect on the date hereof and
certified by the Secretary of the Borrower, has been delivered to Lender.
7
<PAGE>
3.2 Due Authorization; No Default; Compliance with Law.
---------------------------------------------------
(a) The execution, delivery and performance by Borrower of this
Agreement and the Relevant Documents have been duly authorized by all necessary
action on the part of Borrower; are not inconsistent with its certificate of
incorporation, by-laws and other governing documents; do not contravene any law,
governmental rule, regulation or order applicable to Borrower; and do not and
will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument or any order, writ, injunction
or decree to which Borrower is a party or by which it or its properties or
assets are bound.
(b) This Agreement and the Relevant Documents, upon their
execution and delivery will constitute the legal, valid and binding agreements
of Borrower, enforceable in accordance with their terms.
(c) Borrower's conduct of its business, and all documents and
procedures used by Borrower in the conduct of its business, comply in all
respects with any and all federal, state or local laws and regulations
applicable thereto. At Lender's request, Borrower shall provide to Lender a
memorandum from in-house legal counsel for each jurisdiction where Borrower
enters into retail installment contracts for which payment is made, that such
contract and method of payment are valid and enforceable, and do not violate any
federal, state or local laws or regulations. The substance of each memorandum
shall be satisfactory to Lender's counsel in its sole discretion.
3.3 No Governmental Consent Necessary. No consent or approval of,
----------------------------------
giving of notice to, registration with or taking of any other action in respect
of, any governmental authority or agency is required with respect to the
execution, delivery and performance by Borrower of this Agreement and the
Relevant Documents.
3.4 No Proceedings. There are no actions, suits, or proceedings
---------------
pending or threatened against or affecting Borrower in any court or before any
governmental commission, board or authority and Borrower shall report to Lender
any such proceeding that would have a material adverse impact on Borrower's
ability to do business within a reasonable time after notification of such
proceeding.
3.5 Financial Statements.
---------------------
(a) Subject to any limitation stated therein, all balance
sheets, income statements and other financial data which have been or shall
hereafter be furnished to Lender to induce it to enter into this Agreement, and
to continue to provide financing under this Agreement or otherwise in connection
herewith, now do
8
<PAGE>
and hereafter will truly and accurately represent the financial condition of
Borrower as at the respective dates thereof and the results of its operations
for the periods for which the same are furnished to Lender. All other
information, reports and other papers and data furnished to Lender are, or will
be at the time the same are so furnished, true, accurate and complete in all
material respects. All such financial statements and other information have been
prepared, or will have been prepared at the time of issuance, in accordance with
generally accepted accounting principles consistently applied during all periods
by certified public accountants acceptable to Lender.
(b) Except as shown on the most recent financial statements and
projections which have been delivered to Lender and as set forth on Schedule 1
attached hereto and made part hereof, Borrower and any guarantors of Borrower
have no other liabilities as of the date hereof.
3.6 Borrower's Solvency; Changes in Financial Condition. Borrower
------------------------------------------------------
and all guarantors of Borrower's Obligations are solvent and will remain so and
have induced Lender to make advances hereunder upon the written representations
of Borrower and the guarantors of Borrowers concerning their financial
responsibility, which they agree to renew in writing to Lender upon request from
time to time, but in any event not less than once each year. No federal tax
lien has been assessed against Borrower or a guarantor of Borrower which
remains unpaid and undischarged. Borrower is not and will not be during the
term of this Agreement in default to the United States of America or to any
state in payment or deposit of any withholding taxes or F.I.C.A. taxes, and will
furnish proof in respect thereto on request. There has been no material
adverse change in the financial condition of Borrower or of any guarantors of
Borrower since the date of their last financial statements which have been
delivered to Lender and are listed on Schedule 1 attached hereto and made part
hereof.
3.7 Receivables.
------------
(a) Any list or schedule of Receivables delivered by Borrower to
Lender at any time shall be complete and shall contain an accurate aging of the
Receivables listed.
(b) At the time any Receivable becomes subject to a security
interest in favor of Lender, said Receivable shall be a good and valid account
representing an undisputed, unconditional bona fide indebtedness incurred by the
Account Debtor named therein for merchandise sold and delivered, or if so
indicated in the papers delivered to Lender, sold and shipped, or sold and held
subject to delivery instructions, or for services theretofore fully performed by
the Borrower for said
9
<PAGE>
Account Debtor. There are and shall be no set-offs or counterclaims or rights of
recoupment against any such Receivable; no agreement under which any deduction
or discount may be claimed shall have been made with Borrower on any such
Receivable except as indicated in a written list, statement, or invoice
furnished to Lender; and Borrower shall be the lawful owner of each such
Receivable and shall have the right to subject the same to a first and prior
security interest in favor of Lender, without limitation by any agreement or
document to which Borrower is a party or by which it is bound. No such
Receivable shall have been or shall thereafter be sold, assigned or transferred
to any person other than Lender or in any way encumbered except to Lender and no
other person shall have proceeds claims thereto, and the Borrower shall defend
the same against the claims and demands of all persons other than in the
ordinary course of business.
(c) To the best of Borrower's belief, all statements made and
all unpaid balances appearing in the invoices, documents and instruments
representing or constituting any Receivable or in the title retention or
security agreement accompanying such Receivable, and the nature of the
transaction as indicated, are true and correct and are in all respects what they
purport to be and all signatures and endorsements appearing thereon are genuine
and all signatories and endorsers have full capacity to contract.
3.8 Omitted.
--------
3.9 Taxes and Assessments. Borrower has paid and discharged when
----------------------
due, and shall continue to pay and discharge when due, all taxes, assessments
and other governmental charges which may lawfully be levied or assessed upon its
income and profits, or upon all or any portion of any property belonging to it,
whether real, personal or mixed, to the extent that such taxes, assessments and
other charges have become due. Borrower has filed all tax returns, federal,
state, and local, and all related information, required to be filed by it.
3.10 Location of Collateral. Schedule 2 to this Agreement accurately
-----------------------
lists (a) all lessors of property leased by Borrower; (b) all mortgagees of
property owned by Borrower; and (c) all premises where Collateral is or will be
located. Borrower will not remove any Collateral, or cause or suffer any
Collateral to be removed, from the premises listed on Schedule 2 except in the
ordinary course of Borrower's business or with Lender's prior written consent.
3.11 Other Liens. Borrower has good and marketable title to and owns
------------
all of the Collateral free and clear of any and all liens, encumbrances or
security interests whatsoever, except (i) those encumbrances created pursuant to
this Agreement; and (ii) those encumbrances set forth on Schedule 5 annexed
hereto and
10
<PAGE>
made part hereof. None of the Collateral is subject to any prohibition against
encumbering, pledging, hypothecating or assigning the same or requires notice or
consent pursuant to Borrower's doing of the same to Lender.
3.12 Books and Records. Borrower maintains its books and records at
------------------
the address set forth in Schedule 4 annexed hereto and made part hereof.
3.13 Representations, Covenants, Warranties, and Statements True,
------------------------------------------------------------
Accurate and Complete.
- ----------------------
(a) None of the representations, covenants, warranties or
statements made to Lender in, or in connection with, this Agreement or the
transactions contemplated thereby, contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary in
order to make such statements true and correct in light of the circumstances in
which they are or will be made.
(b) All representations, covenants, warranties, and statements
made herein or in the Relevant Documents by Borrower are, and will be true, and
accurate at all times.
3.14 Names; Locations of Offices. Schedule 4 annexed hereto and made
----------------------------
part hereof sets forth a complete and accurate list of:
(a) All names by which Borrower now is known or under which
Borrower now is conducting business, including without limitation, all trade
names, and all names by which Borrower has been known or under which Borrower
has conducted business during the past ten years, including without limitation,
all trade names; and
(b) All offices and locations from which Borrower conducts any
of its business or operations and its chief executive office if it has more than
one place of business.
4. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that it will pay all Obligations when
due. Until payment in full of all Obligations and the termination of this
Agreement, Borrower covenants and agrees that it will:
4.1 Notify Lender. Promptly notify Lender if any one or more of the
--------------
representations and warranties made by Borrower in this Agreement or in any
Relevant
11
<PAGE>
Documents shall no longer be entirely true, accurate and complete or upon the
occurrence of an Event of Default (as hereinafter defined).
4.2 Pay Taxes and Liabilities; Comply with Agreements. Promptly pay
--------------------------------------------------
when due all indebtedness, sums and liabilities of any kind now or hereafter
owing by Borrower to any party however created, incurred, evidenced, acquired,
arising or payable, including income and excise taxes with respect to any of
the Collateral, or any wages or salaries paid or payable by Borrower or
otherwise.
4.3 Observe Covenants etc. Observe, perform and comply with the
----------------------
covenants, terms and conditions of this Agreement, the Relevant Documents and
any other agreement or document entered into between Borrower and Lender or any
affiliate of Lender.
4.4 Maintain Legal Existence and Qualifications. Maintain and
--------------------------------------------
preserve, in full force and effect, its existence and rights, franchises,
licenses and qualifications necessary to continue its business, and comply with
all applicable statutes, rules and regulations pertaining to the operation,
conduct and maintenance of its existence and business.
4.5 Information and Documents to be Furnished to Lender.
----------------------------------------------------
(a) Borrower shall notify Lender if any Receivable includes any
tax due to any governmental taxing authority. If a Receivable includes a charge
for any tax payable to any governmental taxing authority, Lender is authorized,
in its discretion, to pay the amount thereof for the account of Borrower and to
charge the amount of such payment to the Revolving Loan.
(b) Lender shall have the right at any time and from time to
time to request from obligors indebted on Receivables, in the name of Borrower
or in the name of Lender's accountants, information concerning any Receivable
and the amounts owing thereon. Borrower agrees to maintain books and records
pertaining to Collateral in such detail, form, and scope as Lender shall require
and to promptly notify Lender of any change of name or address of Borrower or of
the legal entity of Borrower, or of the partnership structure of the Borrower or
of the location of Collateral. If applicable, Borrower shall mark Borrower's
ledger cards, books of account and other records relating to Collateral with
appropriate notations satisfactory to Lender disclosing that they are subject to
Lender's security interest. All records, ledger sheets, correspondence,
invoices, delivery receipts, documents and instruments relating to Collateral
shall be delivered to Lender, and until delivered to Lender, be kept by
Borrower, without cost to Lender, in appropriate containers and in safe places
at the same locations as they were located at the time this Agreement is entered
into and
12
<PAGE>
shall bear suitable legends identifying them as being under Lender's dominion
and control. Lender shall at all reasonable times have full access to and the
right to audit any and all of Borrower's books and records, including but not
limited to books and records pertaining to Collateral and including all files
and correspondence with creditors and customers and to confirm and verify the
amounts owing on Receivables and the value and collectibility of other
Collateral and to do whatever else Lender reasonably may deem necessary to
protect its interest.
(c) Borrower hereby irrevocably authorizes and directs all
accountants and auditors employed or engaged by Borrower at any time during the
term of this Agreement and all data processing centers or other persons holding
materials herein mentioned relating to Borrower to exhibit to Lender and to
deliver to it copies of any of Borrower's financial statements, trial balances
or other accounting records of any sort in their possession, or data processing
cards, disks, tapes, programs, tabulating runs, or similar material and to
disclose to Lender any information they may have concerning Borrower's financial
status and business operations, whether relating to Receivables or otherwise,
and authorizes Lender to rely thereon. Borrower will at the reasonable request
of Lender execute confirmatory letters of direction in accordance with this
paragraph.
(d) Borrower shall furnish confirmatory assignments and schedules of
Collateral to Lender with each transmittal of Collateral at the time the initial
Revolving Loan is made hereunder and from time to time thereafter, or as
requested by Lender, in form and substance satisfactory to Lender, confirming
Lender's continuing security interest in all present and future Collateral owned
by Borrower, and together with each such confirmatory assignment and schedule to
deliver to Lender the original consumer obligations, consumer contracts,
revolving credit obligations, notes, chattel paper, evidences of indebtedness,
leases, mortgages, certificates of title and such other instruments, contracts
and documents evidencing, constituting or relating to Collateral or any security
therefor as Lender may request, all of which shall bear or be accompanied by
such endorsements, signatures, transfers or specific assignments as Lender shall
require. Lender or any of Lender's agents or employees may, in the name and on
behalf of Borrower execute any missing endorsements, signature, transfer or
assignment or correct any defects therein, and Borrower hereby appoints Lender
and any of agents or employees as attorneys-in-fact for Borrower to do any of
the foregoing. To the extent such information is not otherwise known or
available to Lender, Borrower agrees to furnish to Lender from time to time such
reports in such detail and in such form as is satisfactory to Lender showing the
amount of the outstanding Collateral, the amounts collected thereon, and such
other information relating to Collateral as Lender may require. Borrower agrees
to cause each of its present and future subsidiaries, if any, to execute such
confirmatory assignments and schedules and to deliver such instruments and to
furnish
13
<PAGE>
such reports relating to any and all Collateral in the same manner and with the
same frequency as is required of Borrower under this Agreement.
(e) Borrower agrees to furnish to Lender the following:
(i) Annual Financial Statements. As soon as
----------------------------
delivered to any other creditor or regulatory body, but in no event later than
one hundred twenty (120) days after the end of each fiscal year, the
consolidated annual financial statements of TFC Enterprises, Inc. and
Subsidiaries ("TFCE"), prepared in accordance with generally accepted accounting
principles consistently applied, and audited by independent certified public
accountants whose opinion thereon shall be unqualified. The certified public
accountants shall be of recognized standing selected by Borrower and
satisfactory to Lender.
(ii) Omitted.
--------
(iii) Quarterly Financial Statements. As soon as
-------------------------------
delivered to any other creditor or regulatory body, but in no event later than
sixty (60) days after the end of each of its fiscal quarters, the consolidated
financial statements of TFCE which shall include TFCE's consolidated balance
sheet as at the end of each such period and its cumulative consolidated
statement of income for the applicable period ended on the date of such balance
sheet, all in reasonable detail, all prepared in accordance with generally
accepted accounting principles consistently applied, and all of which shall be
certified by any two of TFCE's chief executive officer, chief financial officer
and executive vice president.
(iv) Monthly Financial Statements. As soon as
-----------------------------
delivered to any other creditor or regulatory body, but in no event later than
thirty (30) days after the end of each month TFCE's consolidating balance sheet
as at the end of such month and its cumulative consolidating statement of income
and retained earnings for the period beginning on the first day of its fiscal
year and ended on the date of such balance sheet, all in reasonable detail and
all of which shall be certified by any two of both Borrower's and TFCE's chief
executive officer, chief financial officer and vice president.
4.6 Collections.
------------
Any remittance received by Borrower from Account Debtors shall be
presumed to constitute collections on Receivables, shall be subject to the
security interest granted to Lender hereunder, and shall be deposited by
Borrower in the form received by Borrower directly into Lender's bank account.
All such deposits shall be credited to Borrower's current account with Lender.
No check, draft or other
14
<PAGE>
instrument received by Lender shall constitute payment to Lender unless and
until such instrument has actually been collected and credited as collected to
Lender's account. At Lender's option, up to two business days shall be allowed
subsequent to receipt of remittance checks of Account Debtors or Borrower to
permit bank clearance and collection of such checks before the amount thereof
shall be deemed collected by Lender. Lender shall have the right at all times to
receive, receipt for, endorse, assign, deposit and deliver in Lender's name or
in the name of Borrower any and all checks, notes, drafts and other instruments
for the payment of money which may at any time be delivered to or otherwise
received by Lender. Borrower hereby authorizes Lender to affix, by facsimile
signature or otherwise, the general or special endorsement of Borrower, in such
manner as Lender shall deem advisable, to any such check, note, draft or other
instrument in the event the same has been delivered to Lender without
appropriate endorsement, and Lender and any bank in which Lender may deposit any
such instrument is hereby authorized to consider such endorsement to be a
sufficient, valid and effective endorsement by Borrower to the same extent as
though it were manually executed by the duly authorized officer of Borrower,
regardless of whom or under what circumstances or by what authority such
facsimile signature or other endorsement is actually affixed, without duty of
inquiry or responsibility as to such matters, and Borrower and each guarantor of
Borrower and endorser of the Obligations hereby waives demand, presentment,
protest and notice of protest or dishonor and all other notices of every kind
and nature with respect to any such instrument.
4.7 Omitted.
--------
4.8 Condition of Collateral; No Liens. Borrower shall maintain all
----------------------------------
Collateral in good condition and repair at all times, preserve it against any
loss, damage, or destruction of any nature whatsoever relating to said
Collateral or its use, and keep said Collateral free and clear of any liens and
encumbrances whatsoever, except those liens and encumbrances created pursuant
hereto or disclosed herein.
4.9 Payment of Proceeds. Borrower shall forthwith upon receipt of
--------------------
all proceeds of Collateral, pay such proceeds over to Lender, and such proceeds
shall thereupon be credited to Borrower's current account with Lender.
4.10 Further Assurances. Borrower shall at any time or from time to
-------------------
time upon request of Lender, execute and deliver such further documents and do
such other acts and things as Lender may reasonably request in order to
effectuate more fully the purposes of this Agreement, the Relevant Documents and
any other instruments, documents and agreements which shall be executed
simultaneously herewith, or which may hereafter be executed by Borrower with
regard to the transactions contemplated hereby.
15
<PAGE>
4.11 Pay Legal Fees and Expenses. Borrower shall pay to Lender, upon
----------------------------
demand, together with interest at the rate set forth in Section 1.2 hereof, from
the date when incurred or advanced by Lender until repaid by Borrower all
reasonable out-of-pocket costs, expenses or other sums incurred or advanced by
Lender (including reasonable legal fees and disbursements) to preserve, collect,
protect its interest in or realize on the Collateral, and to enforce Lender's
rights as against Borrower, any Account Debtor, or guarantor of Borrower, or in
the prosecution or defense of any action or proceeding related to the subject
matter of this Agreement or the Relevant Documents including without limitation
reasonable out-of-pocket legal fees, expenses and disbursements and those
expenses referred to in Sections 6.5, 6.7 and 8.5 hereof. All such expenses,
costs and other sums shall be deemed Obligations secured by the Collateral.
4.12 Records. Borrower shall at all times keep accurate and complete
--------
records of the Collateral and the status of each Receivable.
4.13 Delivery of Documents. If any proceeds of Receivables shall
----------------------
include or any Receivable shall be evidenced by notes, trade acceptances or
instruments or documents, Borrower shall immediately deliver them to Lender
appropriately endorsed. Borrower waives protest regardless of the form of the
endorsement. If Borrower fails to endorse any instrument or document, Lender is
authorized to endorse the same on Borrowers behalf.
4.14 United States Contract. If any Receivables arise out of
-----------------------
contracts with the United States or any of its departments, agencies or
instrumentalities, Borrower will notify Lender and execute any necessary
instruments in order that all money due or to become due under such contract
shall be assigned to Lender and proper notice of the assignment given under the
Federal Assignment of Claims Act or other applicable law.
4.15 Name Changes; Location Changes.
-------------------------------
(a) Within a reasonable time, notify Lender if Borrower is known
by or conducting business under any names other than those set forth on Schedule
4 annexed hereto and made part hereof, and
(b) Within a reasonable time, notify Lender if Borrower is
conducting any of its business or operations at or from offices or locations
other than set forth on Schedule 4 annexed hereto and made part hereto, or if it
changes the location of its chief executive office.
16
<PAGE>
4.16 Debt to Equity Ratio. Borrower's shall maintain at all times a
---------------------
debt to equity ratio not exceed seven to one, i.e. Borrower's aggregate
borrowings shall not exceed seven times the aggregate total of Borrower's
tangible net worth and subordinated debt.
5. NEGATIVE COVENANTS
------------------
Until the termination of this Agreement or payment in full of all
Obligations, Borrower covenants and agrees that it will not, without Lender's
prior written consent which will not be unreasonably withheld, conditioned or
delayed:
5.1 No Consolidation, Merger, Acquisition. Consolidate with, merge
--------------------------------------
with, be acquired by, any person, firm, joint venture, partnership, corporation,
or other entity, whether by merger, consolidation, purchase of stock or
otherwise.
5.2 Disposition of Collateral. Sell, lease, transfer, convey or
--------------------------
otherwise dispose of any or all of the Collateral, other than the sale or lease
of goods in the ordinary course of business.
5.3 Other Liens. Incur, create or permit to exist any mortgage,
------------
assignment, pledge, hypothecation, security interest, lien or other encumbrance
on the Collateral, whether now owned or hereafter created or acquired, except
(a) liens for taxes not delinquent; (b) those liens in favor of Lender created
by this Agreement and Relevant Documents; and (c) those liens existing on the
date hereof and as set forth on Schedule 5 annexed hereto and made part hereof.
5.4 Other Liabilities. Incur, create, assume or permit to exist any
------------------
indebtedness or liability on account of borrowed money or the deferred purchase
price of property except (a) Obligations to Lender; (b) indebtedness
subordinated to payment of the Obligations on terms approved by Lender in
writing; or (c) those liabilities existing on the date hereof and appearing in
financial statements of Borrower delivered to Lender.
5.5 Loans. Except as otherwise allowed herein Borrower shall not
------
make loans to any person, firm or entity.
5.6 Guaranties. Assume, guarantee, endorse, contingently agree to
-----------
purchase or otherwise become liable upon the obligation of any person, firm or
entity except (a) by the endorsement of negotiable instruments for deposit or
collection or similar transactions with Lender in the ordinary course of
business; or (b) contingent obligations under letters of credit entered into in
the ordinary course of business for the purchase of merchandise for resale by
Borrower.
17
<PAGE>
5.7 Remove Collateral. Except as otherwise provided in this
------------------
Agreement, remove, or cause or permit to be removed, without Lender's prior
written consent, any Collateral of Borrower from those premises set forth on
Schedule 2 annexed hereto and made part hereof except in the ordinary course of
business.
5.8 Transfers of Notes or Receivables. Sell, assign, transfer,
-----------------------------------
discount or otherwise dispose of any Receivable or any promissory note payable
to it with or without recourse, except in the ordinary course of business.
5.9 Omitted.
--------
5.10 Modification of Documents. Materially change, alter or modify,
--------------------------
or permit any material change, alteration or modification of its certificate of
incorporation, by-laws, partnership agreements or other governing documents
without Lender's prior written consent which will not be unreasonably withheld.
5.11 Change Business. Materially change or alter the nature of its
----------------
business.
5.12 Settlements. Outside of the normal course of business,
------------
compromise, settle or adjust any claims in a material amount relating to any of
the Collateral, without the prior written consent of Lender.
5.13 Change Location or Name. Change the place where its books and
------------------------
records are maintained or change its name or transact business under any other
name without the prior written notice to Lender.
6. MISCELLANEOUS RIGHTS AND DUTIES OF LENDER
-----------------------------------------
6.1 Charges Against Credit Or Deposit Balances. Lender, without
-------------------------------------------
demand and acting in its sole and absolute discretion, in each instance, may
charge and withdraw from any credit or deposit balance which Borrower may then
have with Lender or with any affiliate of Lender, any amount which shall become
due from Borrower to Lender under this Agreement. Lender, within a reasonable
time thereafter, shall advise Borrower of each such charge.
6.2 Collections; Modification of Terms. Upon the occurrence of an
-----------------------------------
uncured Event of Default (as hereinafter defined) Lender may, in its sole and
absolute discretion, demand, sue for, collect or receive any money or property,
at any time payable or receivable on account of or in exchange for, or make any
compromises with respect to any Collateral it deems desirable including without
limitation extending the
18
<PAGE>
time of payment, arranging for payment in installments, or otherwise modifying
the terms with respect to payment or rights with respect to the Collateral, all
of which may be effected without notice to or consent by Borrower and without
otherwise discharging or affecting the Obligations, the Collateral or the
security interests granted hereunder.
6.3 Notification of Account Debtors. Upon the occurrence of an
--------------------------------
uncured Event of Default (as hereinafter defined) Lender may, in its sole and
absolute discretion, notify the Account Debtors or obligors on any of the
Collateral to make payment directly to Lender, and Lender may endorse all items
of payment received by it which are payable to Borrower. Borrower, at the
request of Lender, shall notify the Account Debtors or other obligors of
Lender's security interest in the Collateral.
6.4 Uniform Commercial Code. At all times during the term of this
------------------------
Agreement or until all sums due hereunder have been paid, and whether or not an
Event of Default has occurred or is continuing, Lender shall be entitled to all
the rights and remedies of a secured party under the Uniform Commercial Code as
enacted in New York, as the same may be amended from time to time.
6.5 Preservation of Collateral. At all times during the term of this
---------------------------
Agreement or until all sums due hereunder have been paid, or if an uncured Event
of Default has occurred or is continuing, Lender may take any and all action
which in its sole and absolute discretion is necessary or proper to preserve its
interest in the Collateral, including without limitation the payment of debts of
Borrower which might, in Lender's sole and absolute discretion, impair the
Collateral or Lender's security interest therein, purchase insurance on the
Collateral, repair the Collateral, or pay taxes or assessments thereon, and the
sums so expended by Lender shall be secured by the Collateral, shall constitute
a portion of the Obligations and shall be payable on demand with interest at the
rate set forth in Section 1.2 hereof from the date expended by Lender until
repaid by Borrower.
6.6 Mails. Upon the occurrence of an uncured Event of Default (as
------
hereinafter defined) Lender is authorized to (and Borrower shall, upon request
of Lender) notify the postal authorities to deliver all mail, correspondence or
parcels addressed to Borrower to Lender at such address as Lender may direct.
Lender will return to Borrower mail received by it that does not represent
collections of Receivables or matters relating to the Collateral after the
Lender has examined same.
6.7 Lender's Right to Cure. In the event Borrower is in default of
-----------------------
and shall fail to perform any of its obligations hereunder or under any of the
Relevant Documents, then Lender, in addition to all of its rights and remedies
hereunder, may perform the same at the cost and expense, or for the account, of
Borrower, but shall
19
<PAGE>
not be obligated to do so. In any such event, Borrower shall promptly reimburse
Lender together with interest at the rate set forth in Section 1.2 hereof from
the date such sums are expended until repaid by Borrower.
6.8 Test Verifications. Lender shall have the right to make test
-------------------
verifications of any and all Collateral in any manner and through any medium
Lender considers advisable, and Borrower shall render any necessary assistance
to Lender in such regard.
6.9 Power of Attorney. Borrower hereby irrevocably appoints Lender
------------------
as its lawful attorney and agent in fact to execute financing statements and
other documents and agreements as Lender may deem necessary for the purpose of
perfecting any security interests, mortgages or liens under any applicable law.
Further, Lender is hereby authorized to file on behalf of Borrower, in its name,
and at its expense, such financing statements, documents or agreements in any
appropriate governmental office. Lender shall give Borrower notice of any
filing made hereunder. Upon the occurrence of an Event of Default (as
hereinafter defined) Borrower hereby grants a power of attorney to Lender to
endorse Borrower's name on checks, notes, acceptances, drafts and any other
instruments requiring Borrower's endorsement, to change the address where
Borrower's mail pertaining to the collection and administration of Collateral
should be sent and to open all such mail and to do such other acts and things
necessary to effectuate the purposes of this Agreement. All such acts by
Lender, its agents, employees, and attorneys are hereby ratified and approved,
and neither the Lender, nor its agents, employees, and attorneys, shall be
liable for any acts of omission or commission, or for any error of judgment or
mistake except gross negligence and willful misconduct. The powers of attorney
granted to Lender in this Agreement are coupled with an interest and are
irrevocable so long as this Agreement is in force. Lender will provide
Borrower with copies of any documentation which the Lender creates or files
hereunder.
6.10 Lender's Agent. Lender hereby designates Sterling Financial
--------------
Services Company ("SFS") as its agent for the purpose of exercising Lender's
rights and carrying out Lender's duties under this Agreement, the Relevant
Documents, or otherwise arising. Borrower hereby recognizes SFS as Lender's
agent, agrees that SFS may give any notice, make any demand or do any act
required or permitted to be given, made, or done hereunder with the same effect
as if given, made or done by Lender, and agrees to discharge all of its duties
hereunder, including the payment of Obligations, as directed by SFS.
7. DEFAULT.
--------
20
<PAGE>
The occurrence of any of the following shall constitute an event of
default ("Event of Default"):
7.1 Failure to Pay. Failure to pay any Obligation or part thereof,
---------------
including any installment of principal or interest or other charges due and
owing to Lender or any of its Affiliates when due;
7.2 Failure to Perform. Failure to perform or abide by any covenant
-------------------
contained in this Agreement or the Relevant Documents and such failure has not
been cured within 20 days;
7.3 Cross Default; Default on Other Debt. The occurrence of any
-------------------------------------
default on any other obligation or indebtedness, with a balance in excess of
$50,000.00, of Borrower or any guarantor of Borrower to any third parties so
that the holder of such obligation or indebtedness declares such obligation or
indebtedness due prior to its date of maturity;
7.4 False Representation or Warranty. Borrower shall have made any
---------------------------------
representation or warranty in this Agreement, the Relevant Documents, or in any
document or certificate executed by Borrower incident to this Agreement, which
is at any time found to have been false in any material respect at the time such
representation or warranty was made or thereafter;
7.5 Petition By or Against Borrower. Borrower ceases to do business
--------------------------------
as a going concern or makes an assignment for the benefit of creditors, or any
proceeding shall have been commenced by or against Borrower under any bankruptcy
law or any amendment thereto (including without limitation a petition for
reorganization, arrangement or extension) or under any other insolvency laws
providing for the relief of debtors, or Borrower shall be adjudicated bankrupt,
insolvent or in need of any relief provided to debtors by any court, or if a
meeting of Borrower's creditors shall have been called;
7.6 Appointment of Receiver. A receiver, custodian, trustee,
------------------------
conservator or liquidator is appointed for Borrower, or all or a substantial
part of its assets;
7.7 Judgments; Levies. If any final nonappealable judgment or
------------------
judgments (except those covered by insurance), or any levy, sequestration, or
attachment, which in the aggregate exceed $25,000.00, against Borrower or its
property, remains unpaid, undischarged, unsatisfied, unbonded or undismissed;
21
<PAGE>
7.8 Change in Condition. There occurs any material adverse change
--------------------
in the condition or affairs, financial or otherwise, of Borrower or of any
endorser, guarantor of Borrower or surety for the liability of Borrower to
Lender which in the opinion of Lender impairs Lender's security;
7.9 Change in Ownership. At any time one hundred percent (51%) or
--------------------
more of the beneficial ownership of the Borrower shall not be owned by TFC
Enterprises, Inc.;
7.10 Omitted.
--------
7.11 Liquidation or Dissolution. The liquidation and/or dissolution
---------------------------
of Borrower.
8. REMEDIES.
---------
8.1 Acceleration; Right To Proceed Against Collateral.
--------------------------------------------------
(a) Upon notice by Lender of the occurrence of an Event of
Default, the total amount (the "Default Amount") of (i) the aggregate amount of
the unpaid balance of principal and interest of the Revolving Loan and all other
sums which are then due and unpaid; and (ii) any other amount of principal and
interest remaining to be repaid on all Obligations together with interest on the
Default Amount at the rate provided for in Subsection 1.2 hereof, from said
occurrence until paid in full shall, at the option of Lender, become immediately
due and payable without further notice or demand; and
(b) Borrower shall, at its expense, promptly deliver any or all
Collateral not otherwise in the possession or control of Lender to such place as
Lender may designate. In addition, and not as an alternative to the preceding
sentence, Lender shall have the right to enter upon the premises where the
Collateral is located and (a) utilize any premises owned or leased by Borrower
for the purpose of selling the Collateral, or (b) take immediate possession of
and remove the Collateral, all without liability to Borrower except such as is
occasioned by the gross negligence of Lender, its employees or agents. Lender
may sell, or cause to be sold, on Borrower's premises or elsewhere, any or all
of the Collateral in one or more public or private sales or other dispositions,
on such terms and at such price as Lender may deem advisable, for cash or on
credit, for immediate or future delivery, in bulk or in parcels, without
assumption of any credit risk, without demand of performance (which demand is
hereby expressly waived), all on ten (10) days notice to Borrower (if any notice
is required by law) of any public sale or the time after which a private sale or
other disposition may be made,
22
<PAGE>
which Borrower hereby agrees shall be reasonable notice of such sale or other
disposition, and in connection therewith Lender may grant options and may impose
reasonable conditions thereon, and the purchasers of any Collateral so sold
shall thereafter hold the same absolutely, free from any claim or right of any
kind, including any equity of redemption of Borrower (any such equity being
hereby expressly waived and released), and Lender or any of its nominees or
agents may buy the Collateral at any public sale. Lender may also elect to
retain the Collateral or any part thereof and may apply the proceeds from the
liquidation of the Collateral to Borrower's Obligations. The proceeds, if any,
of any such sale or liquidation by Lender shall be applied: First, to the
-----
payment of all reasonable fees and expenses incurred by Lender as
a result of such Event of Default, including without limitation any legal fees
and expenses incurred in obtaining possession of the Collateral, preparing the
Collateral for sale or lease, and selling and/or liquidating it; Second, to pay
------
the Default Amount to the extent not previously paid by Borrower; and Third, to
-----
pay any excess remaining thereafter to Borrower.
(c) In addition to and notwithstanding any other rights granted
by law or this Agreement (or any limitations contained in this Agreement on any
such rights), Lender shall have the rights and remedies with respect to the
Collateral of a secured party under the Uniform Commercial Code of the State of
New York.
8.2 Set-Offs.
---------
(a) Upon the occurrence of an Event of Default, Lender shall
have the right, immediately and without notice or other action to set-off
against any Obligations any money owed by Lender (or any affiliate of Lender) in
any capacity to Borrower, including, without limitation money in any credit or
deposit account, whether or not then due, and Lender shall deemed to have
exercised such right of set off and to have made a charge against any such money
immediately upon the occurrence of such Event of Default even though the actual
book entries may be made at a time subsequent thereto.
(b) If other lenders, including without limitation, affiliates
of Lender, have participated with Lender with respect to loans to Borrower
pursuant to the terms hereof, then, Borrower hereby authorizes such other
participating lenders, upon the occurrence of an Event of Default, immediately
and without notice or other action, at the request of Lender, to set off against
any of Borrower's liabilities to Lender any money owed by such participating
lenders in any capacity to Borrower, whether or not due, and to remit the monies
set-off to Lender.
8.3 Cumulative Remedies; Waivers. No remedy referred to herein is
-----------------------------
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Lender at law or in
equity. No
23
<PAGE>
express or implied waiver by Lender of any default or Event of Default hereunder
shall in any way be, or be construed to be, a waiver of any future or subsequent
default or Event of Default. The failure or delay of Lender in exercising any
rights granted it hereunder upon any occurrence of any of the contingencies set
forth herein shall not constitute a waiver of any such right upon the
continuation or recurrence of any such contingencies or similar contingencies
and any single or partial exercise of any particular right by Lender shall not
exhaust the same or constitute a waiver of any other right provided herein. The
Events of Default and remedies provided herein are in addition to and are not
restrictive of and shall be in addition to any and all other rights and remedies
of Lender provided under the Uniform Commercial Code or other applicable law.
8.4 Waive Jury Trial Lender and Borrower hereby waive all right to a
----------------
trial by jury in any litigation relating to this Agreement, the Relevant
Documents or other agreements or instruments between them.
8.5 Costs and Expenses. Borrower shall be liable for all reasonable
-------------------
out of pocket costs, charges and expenses incurred by Lender by reason of the
occurrence of any Event of Default or the exercise of the Lender's remedies with
respect thereto.
8.6 No Marshaling. Lender shall be under no obligation whatsoever to
--------------
proceed first against any of the Collateral before proceeding against any other
of the Collateral. It is expressly understood and agreed that all of the
Collateral stands as equal security for all Obligations, and that Lender shall
have the right to proceed against any or all of the Collateral in any order, or
simultaneously, as in its sole and absolute discretion it shall determine. It
is further understood and agreed that Lender shall have the right, as it in its
sole and absolute discretion shall determine to sell any or all of the
Collateral in any order or simultaneously.
9. WAIVERS, CONSENTS
-----------------
9.1 Waivers. Borrower waives demand, presentment, notice of dishonor
--------
or protest of any instruments either of Borrower or others which may be included
in the Collateral.
9.2 Consents. Borrower consents:
---------
(a) To any extension, postponement of time of payment,
indulgence or to any substitution, exchange or release of Collateral.
24
<PAGE>
(b) To the addition or release of any party or persons primarily or
secondarily liable, or acceptance of partial payments due with respect to
Collateral and the settlement, compromising or adjustment of the Obligations
hereunder.
10. SURVIVAL
--------
All representations and warranties made herein or in any certificate
or instrument contemplated hereby shall survive any independent investigation
made by Lender and the execution and delivery of this Agreement, and said
certificates or instruments and shall continue so long as any Obligations are
outstanding and unsatisfied, applicable statutes of limitation to the contrary
notwithstanding. Lender's knowledge or notice of facts or circumstances that
would render any representation or warranty untrue or misleading shall not
discharge Borrower from liability arising by reason of such misrepresentation or
breach of warranty.
11. EFFECT OF HOLIDAY
-----------------
If any payment pursuant to this Agreement or the Relevant Documents
becomes due and payable on a Saturday, Sunday or legal holiday under the laws of
the State of New York, the maturity thereof shall be extended to the next
succeeding banking day.
12. NOTICES
-------
12.1 Written, Effective Date. All notices and other communications
------------------------
hereunder shall be in writing and shall be deemed to have been duly given 3 days
after being sent by registered or certified mail, return receipt requested,
facsimile transmission, overnight delivery service such as Federal Express, or
hand delivery.
12.2 To Lender.
----------
Notices to Lender shall be directed to:
STERLING FINANCIAL SERVICES CO.
Agent for Sterling National Bank
500 Seventh Ave.
New York, New York 10018
With a copy to:
25
<PAGE>
Legal Department
Sterling National Bank
430 Park Avenue
New York, New York 10022
12.3 To Borrower.
------------
Notices to Borrower shall be directed to:
PC ACCEPTANCE CORPORATION
5425 Robin Hood Road, Suite 101A
Norfolk, Virginia 23513
Attn: Chief Operating Officer
With a copy to:
Williams Mullen Clark & Dobbins
One Columbus Center, Suite 900
Virginia Beach, Virginia 23462
Attn: John Paris
13. TERMINATION OF AGREEMENT
------------------------
13.1 Upon the effective date of termination of this Agreement, all
Obligations shall be due and payable by Borrower to Lender.
13.2 Termination By Lender. In the event of a default by Borrower
----------------------
under the terms and conditions of this Agreement, Lender shall have the right,
in its sole and absolute discretion, to terminate this Agreement.
13.3 Termination By Borrower.
------------------------
(a) Borrower may terminate this Agreement, without penalty, upon
any anniversary date of the execution hereof by giving Lender no less than sixty
(60) days prior written notice. Borrower may rescind a termination notice to
Lender at any time prior to the anniversary date referred to in this paragraph.
This Agreement shall terminate upon the anniversary date if and only if the
Borrower has on the anniversary date paid to the Lender in full all of the
Obligations.
26
<PAGE>
(b) Notwithstanding the provisions of Subsection (a) hereof,
Borrower may terminate this Agreement at any time upon:
(i) giving sixty (60) days prior written notice to Lender
of its intention to do so; and
(ii) paying to Lender, in full all of Borrower's
Obligations; and
(iii) paying to Lender, as liquidated damages, an amount
equal to six (6) times the average monthly interest owed by Borrower to Lender
on the Obligations during the Twelve (12) month period immediately preceding the
Borrower's notice. The average monthly interest computation shall exclude any
month for which no interest is owed by Borrower to Lender.
(c) For purposes of Subsection (b) hereof, Lender may, at its
option, deem this agreement terminated by Borrower if, (i) within a ninety day
period, more than 50% of the average of the preceding six month's balances of
Borrower's Obligations to Lender are repaid, without Lender's express written
consent, from funds arising from sources other than payments made directly by
Account Debtors or other obligors on their respective obligations included in
the Collateral; or (ii) there has occurred an Event of Default or an event
which, with the giving of notice or the lapse of time, or both, would become an
Event of Default hereunder, the occurrence of which would permit Lender to
exercise any of its remedies under Section 8 of this Agreement (without regard
to whether such remedies have been exercised).
(d) Liquidated damages payable under Subsection (c) shall be an
amount equal to six (6) times the average monthly interest owed by Borrower to
Lender on the Obligations during the Twelve (12) month period, excluding any
month for which no interest is owed by Borrower to Lender, immediately preceding
the first day of the ninety day period under Subsection (c)(i) or the date of
occurrence under Subsection (c)(ii). The average monthly interest calculation
shall not exclude any month for which interest would have been owed by Borrower
to Lender but for Borrower's acts that caused termination hereunder.
13.4 Rights Upon Termination. Notwithstanding Lender's termination
------------------------
of this Agreement as herein provided, Lender's security interest, rights and
remedies herein set forth shall remain in full force and effect until all of
Borrower's Obligations to Lender are paid in full. Upon full payment of all
Obligations and termination of this Agreement, Lender shall, upon request of
Borrower, reassign all Receivables to Borrower without recourse and without
warranties express or implied and Lender's security interest will be released
immediately.
27
<PAGE>
14. AMENDMENTS AND MISCELLANEOUS
----------------------------
14.1 Amendments. The terms of this Agreement shall not be waived,
-----------
altered, modified, amended, or supplemented in any manner whatsoever except by a
written instrument signed by Lender and Borrower.
14.2 Assignment. This Agreement and all rights of Lender hereunder
-----------
shall be assignable by Lender without Borrower's consent. Without the prior
written consent of Lender, Borrower shall not assign this Agreement or its
obligations hereunder.
14.3 Binding on Successors. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
14.4 Invalidity. Any provision of this Agreement which may be
-----------
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
14.5 Gender. Throughout this Agreement, the masculine shall include
-------
the feminine and vice versa and the singular shall include the plural and vice
versa, unless the context of this Agreement indicates otherwise.
14.6 Joint Borrowers. If more than one entity executes this
----------------
Agreement as Borrower, then for the purpose of this Agreement the term Borrower
shall mean each entity and each entity shall be jointly and severally liable as
Borrower for the Obligation as defined herein without regard to which entity
receives the proceeds of the loans and advances made hereunder. Each such
entity hereby acknowledges that it expects to derive economic advantages from
each such loan or advance made hereunder.
14.7 Cross Default/Cross Collateral. All other agreements between
-------------------------------
Borrower and Lender and/or any of Lender's affiliates are hereby amended so
that (a) a default under this Agreement is a default under all other agreements
and a default under any one of the other agreements is a default under this
Agreement; and (b) the Collateral under this Agreement secures the Obligations
now or hereafter outstanding under all other agreements with Lender and/or its
affiliates and the collateral pledged
28
<PAGE>
under any other agreement with Lender and/or its affiliates secures the
Obligations under this Agreement.
14.8 Expenses of Lender. Borrower agrees to pay all costs and
-------------------
expenses of Lender, not to exceed $1,000.00, in connection with the preparation,
execution, delivery, and administration of this Agreement and other instruments
and documents to be executed contemporaneously herewith.
14.9 Section and Paragraph Headings. Section and paragraph headings
-------------------------------
are for convenience only and shall not be construed as part of this Agreement.
14.10 Law. This Agreement together with all assignments made
----
hereunder shall be deemed made in New York and subject to the laws of the State
of New York and Borrower consents to the jurisdiction of any State or Federal
Court located within the State of New York, and if Borrower is now, or in the
future becomes, a non-resident of the State of New York, Borrower hereby waives
personal service of any and all process and consents that all such service of
process shall be made by express courier service directed to Borrower at its
address appearing on the records of Lender and service so made shall be complete
on the next business day after the same has been delivered by Lender to such
courier service.
29
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed the day and year first above written.
BORROWER PC ACCEPTANCE CORPORATION
By: /s/ Robert S. Raley, Jr.,
--------------------------------
Robert S. Raley, Jr., President
LENDER STERLING NATIONAL BANK
By: /s/ John P. Murphy
--------------------------------
John P. Murphy, Sr. Vice Pres.
30
<PAGE>
Schedule 1
-----------
Most recent financial statements delivered by Borrower to Lender:
Balance Sheet Dated August 31, 1999
Financial Statements on Guarantor - TFCE Enterprises, Inc.:
Audited Financial Statements for the year ended December 31, 1998
Form 10-Q for the six months ended June 30, 1999
31
<PAGE>
Schedule 2
-----------
Location of Collateral
----------------------
All Collateral of the Borrower, unless and until such Collateral is
transferred to Lender's possession, is to be maintained at Borrower's places of
business located at:
5425 Robin Hood Road
Suite 101A
Norfolk, Virginia 23513
32
<PAGE>
Schedule 3
----------
Other Items
-----------
1. None
33
<PAGE>
Schedule 4
-----------
Names and Locations of Offices
------------------------------
Other names under which Borrower conducts business:
None
Locations where Borrower maintains Books and Records:
5425 Robin Hood Road
Suite 101A
Norfolk, Virginia 23513
Locations where Borrower conducts business or operations:
5425 Robin Hood Road
Suite 101A
Norfolk, Virginia 23513
34
<PAGE>
Schedule 5
----------
Financing Statements
--------------------
Existing financing statements on file against the Borrower naming the
following secured parties:
None
35
<PAGE>
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF TFC ENTERPRISES, INC.
CHARTER
(Effective June 1, 2000)
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by TFC Enterprises,
Inc. (the "Company") to the Securities and Exchange Commission ("SEC"); the
Company's systems of internal controls regarding finance, accounting, legal
compliance and ethics that management and the Board have established; and the
Company's auditing, accounting and financial reporting processes generally.
Consistent with this function, the Audit Committee should encourage continuous
improvement of, and should foster adherence to, the Company's policies,
procedures and practices at all levels. The Audit Committee's primary duties
and responsibilities are to:
. Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system.
. Review and appraise the audit efforts of the Company's independent
accountants and internal auditing department.
. Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal auditing
department, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by carrying
out the activities enumerated in Section IV. of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors, and free
from any relationship that, in the
<PAGE>
opinion of the Board, would interfere with the exercise of his or her
independent judgment as a member of the Audit Committee. An "independent
director" is a director who is not, nor has been within the last three years, an
employee of the Company, an immediate family member of an employee of the
Company or an individual who has a business relationship (in addition to the
director's relationship to the Company as an outside director) with the Company,
unless any such business relationship does not interfere with the director's
exercise of independent judgment, in the business judgment of the Board of
Directors. In addition, a director is not independent if such director is
employed as an executive of another corporation where any of the Company's
executives serves on that corporation's compensation committee. Nevertheless,
one former employee or immediate family member of a former employee who is not
considered independent due solely to the three-year restriction period may be
appointed to the Audit Committee if the company's Board determines in its
business judgment that membership on the Audit Committee is required by the best
interests of the company and its shareholders, and the company discloses, in the
next annual proxy statement subsequent to such determination, the nature of the
relationship and the reasons for the determination.
All members of the Audit Committee shall have a working familiarity with
basic finance and accounting practices, and at least one member of the Audit
Committee shall have accounting or related financial management expertise.
Audit Committee members may enhance their familiarity with finance and
accounting by participating in educational programs conducted by the Company or
an outside consultant.
The members of the Audit Committee shall be elected by the Board of
Directors at the annual organizational meeting of the Board of Directors or
until their successors shall be duly elected and qualified. Unless a Chairman
is elected by the full Board of Directors, the members of the Audit Committee
may designate a Chairman by majority vote of the full Audit Committee
membership.
III. MEETINGS
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Audit Committee
-2-
<PAGE>
should meet at least annually with management, the director of the internal
auditing department and the independent accountants in separate executive
sessions to discuss any matters that the Audit Committee or each of these groups
believe should be discussed privately. In addition, the Audit Committee or at
least its Chairman should meet with the independent accountants and management
quarterly to review the Company's financials consistent with IV.4. below).
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
- ------------------------
1. Review and update this Charter periodically, at least annually, as
conditions dictate.
2. Review the Company's annual financial statements and reports filed with the
SEC, including any certification, report, opinion, or review rendered by the
independent accountants.
3. Review the regular internal reports to management prepared by the internal
auditing department and management's response.
4. Review with financial management and the independent accountants the 10-Q
prior to its filing or prior to the release of earnings. The Chairman of the
Audit Committee may represent the entire Audit Committee for purposes of this
review.
Independent Accountants
- -----------------------
5. In recognition of the fact that the independent accountants are ultimately
accountable to the Board of Directors and to the Audit Committee, recommend to
the Board of Directors the selection of the independent accountants, considering
independence and effectiveness, and approve the fees and other compensation to
be paid to the independent accountants. On an annual basis, the Audit Committee
should ensure that the independent accountants submit a formal written statement
delineating all relationships between the independent accountants and the
-3-
<PAGE>
Company and review and discuss with the accountants all significant
relationships the accountants have with the Company to determine the
accountants' independence.
6. In consultation with the Board of Directors, review the performance of the
independent accountants and approve any proposed selection or discharge of the
independent accountants when circumstances warrant.
7. Periodically consult with the independent accountants out of the presence
of management about internal controls and the fullness and accuracy of the
Company's financial statements.
Financial Reporting Processes
- -----------------------------
8. In consultation with the independent accountants and the internal auditors,
review the integrity of the Company's financial reporting processes, both
internal and external.
9. Consider the independent accountants' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
10. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by the independent
accountants, management or the internal auditing department.
Process Improvement
- -------------------
11. Establish regular and separate systems of reporting to the Audit Committee
by each of management, the independent accountants and the internal auditors
regarding any significant judgments made in management's preparation of the
financial statements and the view of each as to appropriateness of such
judgments.
12. Following completion of the annual audit, review separately with each of
management, the independent accountants and the internal auditing department any
significant difficulties
-4-
<PAGE>
encountered during the course of the audit, including any restrictions on the
scope of work or access to required information.
13. Review any significant disagreement among management and the independent
accountants or the internal auditing department in connection with the
preparation of the financial statements.
14. Review with the independent accountants, the internal auditing department
and management the extent to which changes or improvements in financial or
accounting practices, as approved by the Audit Committee, have been implemented.
(This review should be conducted at an appropriate of time subsequent to
implementation of changes or improvements, as decided by the Audit Committee.)
Ethical and Legal Compliance
- ----------------------------
15. Review activities, organizational structure, and qualifications of the
internal audit department.
16. Review, with the Company's counsel, legal compliance matters including
corporate securities trading policies.
17. Review, with the Company's counsel, any legal matter that could have a
significant impact on the Company's financial statements.
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TFC
ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-01-2000
<CASH> 1,340
<SECURITIES> 0
<RECEIVABLES> 214,777
<ALLOWANCES> 21,976
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,067
<DEPRECIATION> 3,716
<TOTAL-ASSETS> 216,473
<CURRENT-LIABILITIES> 173,760
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 42,663
<TOTAL-LIABILITY-AND-EQUITY> 42,713
<SALES> 12,470
<TOTAL-REVENUES> 12,829
<CGS> 0
<TOTAL-COSTS> 7,290
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 3,810
<INCOME-PRETAX> 1,547
<INCOME-TAX> 672
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 875
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.07
</TABLE>
