SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. ____________)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
TFC ENTERPRISES, INC.
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box);
[X] No fee required
[ ] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(4) and O-11.
1)Title of each class of securities to which transaction applies:
Common Stock
2)Aggregate number of securities to which transaction applies:
3)Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule O-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4)Proposed maximum aggregate value of transaction:
5)Total fee paid:
[ ] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
O-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1)Amount Previously Paid:
2)Form Schedule or Registration Statement No.:
3)Filing Party:
4)Date Filed:
[LETTERHEAD]
TFC Enterprises, Inc.
Corporate Executive Offices
April 9, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of TFC Enterprises, Inc. that will be held at the Norfolk Airport
Hilton Hotel, 1500 North Military Highway, Norfolk, Virginia, 23502, at 10:00
a.m. Eastern Time, on Tuesday, May 11, 1999.
Enclosed are a Notice of the Annual Meeting, a Proxy Card, and a Proxy
Statement containing information about the matters to be acted upon at the
meeting. Directors and Officers of the Company as well as a representative of
Ernst & Young LLP will be present at the Annual Meeting to respond to any
questions our shareholders may have.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
Accordingly, we urge you to sign and date the enclosed Proxy Card and promptly
return it to us in the enclosed, self-addressed, postage-paid envelope, even if
you are planning to attend the meeting. If you attend the meeting, you may vote
in person, even if you have previously returned a Proxy Card.
We look forward to the 1999 Annual Meeting of Shareholders, and we hope
you will attend the meeting or be represented by proxy.
Sincerely,
/s/ Robert S. Raley, Jr.
------------------------------------
ROBERT S. RALEY, JR., Chairman of the
Board, President and Chief Executive
Officer
TFC ENTERPRISES, INC.
5425 ROBIN HOOD ROAD
NORFOLK, VIRGINIA 23513
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
TUESDAY, MAY 11, 1999
TO THE SHAREHOLDERS:
NOTICE IS HERBY GIVEN THAT the Annual Meeting of Shareholders of TFC
Enterprises, Inc. will be held at the Norfolk Airport Hilton Hotel, 1500 North
Military Highway, Norfolk, Virginia 23502, at 10:00 a.m. Eastern Time, on
Tuesday, May 11, 1999, for the following purposes:
1. To elect three (3) directors to hold office for a term of three
years and until their respective successor is elected and qualified;
and
2. To ratify the appointment of Ernst & Young LLP as independent
auditors for 1999.
3. To act upon such other matters as may properly come before the
meeting or any adjournment thereof.
Information concerning the matters to be acted upon at the meeting is set
forth in the accompanying Proxy Statement. The Board of Directors has
established the close of business on March 31, 1999 as the record date for the
determination of shareholders entitled to notice of, and to vote at, the Annual
Meeting or any adjournments thereof.
By Order of the Board of Directors
/s/ Robert S. Raley, Jr.
-------------------------------------
Robert S. Raley, Jr., Chairman of the
Board, President and Chief Executive
Officer
Norfolk, Virginia
April 9, 1999
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN
PERSON OR THROUGH YOUR PROXY.
PROXY STATEMENT
This Proxy Statement and the enclosed proxy card ("Proxy") are furnished
in connection with the solicitation of proxies on behalf of the Board of
Directors of TFC Enterprises, Inc. (the "Company") to be voted at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at The Norfolk Airport
Hilton Hotel, 1500 North Military Highway, Norfolk, Virginia 23502, at 10:00
a.m. Eastern Time, on Tuesday, May 11, 1999, and at any adjournment thereof, for
the purposes set forth in the accompanying Notice of Meeting.
Only shareholders of record at the close of business on March 31, 1999
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. This Proxy is being mailed on or about April 9, 1999.
Revocability of Proxy
Execution of the enclosed Proxy will not affect a shareholder's right to
attend the Annual Meeting and vote in person. If your Proxy is properly signed,
received by the Company and not revoked by you, the shares to which it pertains
will be voted at the Annual Meeting in accordance with your instructions. If a
shareholder does not return a signed Proxy, his or her shares cannot be voted by
proxy.
Person Making the Solicitation
The cost of soliciting Proxies will be borne by the Company. The Company
has retained American Stock Transfer & Trust Company to assist in the
solicitation of proxies from brokers and nominees and in the counting of
proxies. The Company pays American Stock Transfer & Trust Company $300 per month
plus out-of-pocket expenses for this assistance as well as for the transfer
agent services it provides to the Company. In addition to solicitation by mail,
the Company will request banks, brokers and other custodians, nominees and
fiduciaries to send proxy material to the beneficial owners and to secure their
voting instructions if necessary. The Company, upon request, will reimburse them
for their expenses in so doing. Officers of the Company may solicit Proxies
personally, by telephone or by telegram from some shareholders if Proxies are
not received promptly, for which no additional compensation will be paid.
Voting Shares And Vote Required
On the Record Date, the Company had 11,404,882 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote on each matter
presented at the Annual Meeting.
Directors are elected by a plurality of shares of Common Stock present in
person or represented by proxy and entitled to vote at the Annual Meeting,
meaning that those nominees receiving the greatest number of votes will be
elected. Under the laws of Delaware, the Company's state of incorporation,
"shares present in person or represented by proxy and entitled to vote" are
determinative of the outcome of the matter subject to vote. Abstentions will be,
but broker non-votes will not be, considered "shares present in person or
represented by proxy" based on the Company's understanding of state law
requirements and the Company's Certificate of Incorporation and Bylaws.
All shareholder meeting proxies, ballots and tabulations that identify
individual shareholders are kept confidential, and no such document shall be
available for examination, nor shall the identity or the vote of any shareholder
be disclosed except as may be necessary to meet legal requirements and the laws
of Delaware. Votes will be counted and certified by the Company's general
counsel who will act as the inspector of elections.
Unless specified otherwise, the Proxy will be voted FOR the election of
the three (3) nominees to serve as directors of the Company for a three-year
term and until their respective successor is duly elected and qualified and FOR
the ratification of the appointment of Ernst & Young LLP as independent auditors
for 1999. In the discretion of the Proxy holders, the Proxies will also be voted
for or against such other matters as may properly come before the Annual
Meeting. Management is not aware of any other matters to be presented for action
at the Annual Meeting.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of March 1, 1999 relating to
the beneficial ownership of the Company's Common Stock by (i) each of the
Company's directors and named executive officers who own Common Stock, (ii) each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the Common Stock, and (iii) all of the Company's
directors and executive officers as a group.
Beneficial Ownership of Common Stock
Name and Address of Amount of Beneficial
Beneficial Owner(1) Ownership Percent of Class
- ------------------------------- --------- ----------------
Robert S. Raley, Jr. 1,330,665(2) 11.55%
Walter S. Boone, Jr. 396,224(3) 3.47%
Douglas E. Bywater 388,409(4) 3.41%
Andrew M. Ockershausen 150,000 1.32%
Phillip R. Smiley 35,100(5) *
Linwood R. Watson 77,576(6) *
Ronald G. Tray 76,568(7) *
Rick S. Lieberman 8,878(8) *
Delma H. Ambrose 3,951(9) *
Craig D. Poppen 27,100(10) *
All directors and executive
officers as a group (12 persons) 2,542,457 21.91%
- -----------------------------------
*Less than 1% beneficial ownership.
(1) All directors and executive officers receive mail at the Company's
corporate executive offices at 5425 Robin Hood Road, Suite 101B, Norfolk,
Virginia 23513.
(2) Includes 29,254 shares owned jointly by Mr. Raley and his wife, 10,100
shares owned solely by his wife and 120,000 shares which Mr. Raley has the
right to acquire within 60 days through the exercise of stock options
granted to Mr. Raley in January 1997 under the Company's 1995 Long-Term
Incentive Plan ("Incentive Plan") in connection with his 1998 compensation
package. See "Executive Compensation - Raley Employment Agreement and
Stock Options."
(3) Includes 203,112 shares owned by the Walter S. Boone, Jr. Living Trust and
193,112 shares owned by the Rose K. Boone Living Trust.
(4) Includes 387,224 shares owned jointly by Mr. Bywater and his wife and
1,185 shares owned jointly by Mr. Bywater and his children.
(5) Owned jointly by Mr. Smiley and his wife.
(6) Includes 71,576 shares held of record by the Charles F. Barnes Revocable
Trust, for which Mr. Watson serves as a co-trustee. As co-trustee, Mr.
Watson has shared voting and investment power regarding the shares owned
by this trust, but does not otherwise have a beneficial ownership interest
in these shares.
(7) Includes 2,000 shares owned jointly by Mr. Tray and his wife. Includes
40,935 shares which Mr. Tray has the right to acquire within 60 days
through the exercise of stock options granted under the Incentive Plan.
(8) Includes 4,400 shares that Mr. Lieberman has the right to acquire within
60 days through the exercise of stock options granted under the Incentive
Plan.
(9) Includes 3,400 shares that Ms. Ambrose has the right to acquire within 60
days through the exercise of stock options granted under the Incentive
Plan.
(10) Includes 21,600 shares that Mr. Poppen has the right to acquire within 60
days through the exercise of stock options granted under the Incentive
Plan.
PROPOSAL 1. ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the Board of
Directors to be divided into three classes, with each class serving a staggered
three-year term. The directors for each class are elected at the Annual Meeting
of Shareholders held in the year in which the term of such class expires.
Directors serve for three years and until their successors are duly elected and
qualify. The Company's bylaws currently provide that the size of the Board is
comprised of six persons.
The terms of Walter S. Boone, Jr., Robert S. Raley, Jr. and Phillip R.
Smiley expire at the Annual Meeting on May 11, 1999. The Board of Directors
recommends that the nominees, Messrs. Boone, Raley and Smiley, be re-elected and
Proxies received will be voted for the election of these nominees unless marked
to the contrary. A shareholder who desires to withhold voting of the Proxy for
any one of the nominees may so indicate on the Proxy. Each nominee is currently
a member of the Board of Directors, has consented to be named and has indicated
his intent to serve if elected. If a nominee becomes unable to serve, an event
that is not anticipated, the Proxy will be voted for a substitute nominee to be
designated by the Board of Directors, or the number of directors will be
reduced.
The following information relates to the nominees and the directors whose
terms of office will continue after the Annual Meeting. There are no family
relationships among any of the nominees or directors nor among any of the
nominees or directors and any officer, nor is there any arrangement or
understanding between any nominee or director and any other person pursuant to
which the nominee or director was selected.
Nominees for Terms Expiring in 1999
Walter S. Boone, Jr., 72, was a director of the Company from 1984
through 1988 and has been a director since 1990. Mr. Boone has been President
of Virginia General Investment, Inc., a private investment firm, since 1978
and is a director of Herald Newspapers, Inc. He was President of Scope Inc.,
Reston, Virginia, a director of First Virginia Bank and a director of
Arlington Mortgage Company. Mr. Boone is a member of the Executive and Audit
Committees.
Robert S. Raley, Jr., 61, founded TFC in 1977 and has served as Chairman
of the Board from that time until April 1990 and again from May 1990 to the
present. Additionally, he served as President and Chief Executive Officer from
1977 to April 1990, from May 1990 to December 1992 and from August 1996 to the
present. Mr. Raley has also served as Chairman of the Board of TFCE since
inception in 1984 and as its President and Chief Executive Officer from 1984
through 1992 and from August 1996 to the present. Mr. Raley initially entered
the consumer finance industry in 1959. Mr. Raley is a member of the Executive
Committee.
Phillip R. Smiley, 60, is a Field Services Regional Manager for Lockheed
Martin, a position for which Mr. Smiley is delegated responsibility for
computer hardware installation, documentation and maintenance. Mr. Smiley has
been employed by Lockheed Martin, and its predecessors, UNISYS and Sperry
Corp. in various positions for 25 years. Mr. Smiley has been a director of the
Company since 1994. Mr. Smiley is a member of the Audit Committee.
Directors Whose Terms Expire in 2000
Douglas E. Bywater, 55, has been a director of the Company since 1990.
Mr. Bywater is a partner in the law firm of Tate & Bywater, Ltd., with whom he
has practiced law since 1972. He was also a director and General Counsel for
the Bank of Vienna. Mr. Bywater is a member of the Executive and Compensation
Committees.
Linwood R. Watson, 62, has been a director of the Company since 1993.
Mr. Watson is employed with Thompson, Greenspon & Co., P.C., certified public
accountants and management consultants, of Fairfax, Virginia. Mr. Watson, a
certified public accountant since 1965, was engaged in public accounting since
1974. Mr. Watson is a member of the Audit Committee and Compensation Committee.
Directors Whose Terms Expire in 2001
Andrew M. Ockershausen, 69, has been a director of the Company since
1990. Mr. Ockershausen is currently the Director of Business Development for
the cable television regional sports network Home Team Sports, Washington,
D.C. He is a director of the Police Boys/Girls Club and Hero's Inc., and a
past Chairman of the National Association of Broadcasters. From 1987 to 1993,
Mr. Ockershausen was Vice President and General Manager of WBSO television in
Rockville, Maryland. Mr. Ockershausen is a member of the Compensation
Committee.
Meetings and Committees of the Board of Directors
Meetings
The business of the Company is managed under the direction of the Board of
Directors. The Board of Directors meets on a regularly scheduled basis during
the year to review significant developments affecting the Company and to act on
matters requiring approval by the Board of Directors. It also holds special
meetings when an important matter requires action by the Board of Directors
between scheduled meetings. The Board of Directors held four meetings during
1998. In accordance with the Rules of the NASDAQ National Market System, Messrs.
Boone, Bywater, Ockershausen, Smiley and Watson are independent directors.
During 1998, each member of the Board of Directors participated in at least 75%
of all meetings of the Board of Directors and at least 75% of all meetings of
the applicable committees during the period for which he was a director. Each
director of the Company who is not also an executive officer of the Company
receives (i) a $5,000 annual retainer, (ii) a $1,000 fee for personal attendance
at each Board Meeting, (iii) a $500 fee for attendance on a telephonic Board
Meeting and (iv) a $500 fee is paid to each director who personally attends
Committee Meetings held on days on which there is no Board meeting. Directors
who are also employees of the Company receive no additional compensation for
serving as directors. The Company reimburses all of its directors for travel and
out of pocket expenses in connection with their attendance at meetings of the
Board of Directors.
Committees
The Board of Directors has established Executive, Audit and Compensation
Committees. The members of these committees are noted in the director
biographies set forth above. The Executive Committee is delegated the power,
with certain exceptions, of the Board of Directors to act in place of the full
Board during all periods between regular meetings of the Board. The Executive
Committee did not meet during 1998. The Audit Committee is empowered by the
Board of Directors to, among other things, recommend the firm to be employed by
the Company as its independent auditor and to consult with such auditor
regarding audits and the adequacy of internal accounting controls. The Audit
Committee held two meetings in 1998. The Compensation Committee makes
recommendations to the Board of Directors as to, among other things, the
compensation of the Chief Executive Officer, each officer who is also a director
of the Company and designated other members of senior management, as well as new
compensation and stock plans. The Compensation Committee met one time in 1998.
How do Shareholders recommend directors?
The Company will consider director-nominees recommended by shareholders,
although it has not actively solicited recommendations from shareholders for
nominees nor has the Company established any procedure for this purpose for the
Annual Meeting other than as set forth in the bylaws of the Company. Section
3.03 of the Company's bylaws provides that shareholders who wish to nominate
directors must send the Company a written notice (the "Nomination Notice")
containing the following information: as to each individual nominated, (i) the
name, date of birth, business address and residence address of such individual,
(ii) the business experience during the past five years of such nominee,
including his or her principal occupations and employment during such period,
the name and principal business of any corporation or other organization for
which such occupations and employment were carried on, and such other
information as to the nature of his or her responsibilities and level of
professional competence as may be sufficient to permit assessment of his or her
prior business experience, (iii) whether the nominee is or has ever been at any
time a director, officer or owner of 5% or more of any class of capital stock,
partnership interests or other equity interest of any corporation, partnership
or other entity, (iv) any directorships held by such nominee in any company with
a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940 and (v) whether, in the last
five years, such nominee has been subject to any judgments, orders, findings or
decrees which may be material to an evaluation of the ability or integrity of
the nominee. In addition, the person submitting the Nomination Notice must
provide certain information regarding his beneficial ownership of the Common
Stock of the Company. The nominee must consent to being named in a proxy
statement as a nominee and to serve as a director if elected. The shareholder
must deliver the Nomination Notice to the Secretary of the Company at the
Company's principal executive office not later than 120 days in advance of the
anniversary date of the Company's proxy statement for the previous year's annual
meeting or, in the case of special meetings, at the close of business on the
seventh day following the first date on which notice of the meeting is first
given to shareholders.
EXECUTIVE COMPENSATION
Summary Executive Compensation Table
The following table sets forth certain information regarding cash and
other compensation earned during the years 1998, 1997 and 1996 by Robert S.
Raley, Jr., the Company's current President and Chief Executive Officer and the
Company's other executive officers who earned in excess of $100,000 during 1998.
Annual Compensation Long Term Compensation
Securities
Underlying
Name and Principal Options All Other
Position Year Salary Bonus (#s) (2) Compensation(1)
------------------- ---- ------ ----- ------- ------------
Robert S. Raley, Jr., 1998 $ 300,000 $ 300,000 -0- $ 13,172
Chairman of the 1997 300,000 300,000 200,000 20,075
Board, President and 1996 300,000 71,966 -0- 16,238
Chief Executive
Officer
Ronald G. Tray, Vice 1998 $ 165,000 $ 8,332 54,679 $ 9,814
President, Assistant 1997 155,000 -0- -0- 14,739
Secretary, Chief 1996 115,885 -0- 50,000 9,047
Operating Officer
Craig D. Poppen, 1998 $ 105,502 $ -0- 8,000 $ 3,709
Vice President, 1997 (3) 100,000
Treasurer
Chief Financial
Officer
Rick S. Lieberman, 1998 $ 105,000 $ -0- 22,000 $ 7,445
Executive Vice 1997 100,000 -0- -0- 5,215
President and Chief 1996 73,831 -0- -0- 6,119
Lending Officer of
TFC
Delma H. Ambrose, 1998 $ 84,000 $ 21,110 17,000 $ 4,984
Senior Vice 1997 80,000 12,000 -0- 3,353
President of TFC 1996 59,000 2,299 -0- 3,117
- ------------------
(1) Includes the Company's matching contribution to its 401(k) retirement
savings plan and automobile benefits.
(2) Options granted pursuant to the Company's 1995 Long-Term Incentive Plan
("Incentive Plan").
(3) Mr. Poppen joined the Company in December 1997.
Option Grants in Last Fiscal Year
The table below sets forth information regarding stock option grants to
the Company's named executives officers during the fiscal year ended December
31, 1998. The grants were made pursuant to the Incentive Plan.
Number of % of Total
Securities Options Granted
Underlying to Employees Grant Date
Options in Fiscal Exercise Expiration Present
Name Granted(1) Year Price Date Value ($)(1)
- ---- ---------- --------------- -------- ---------- -----------
Ronald G. Tray 54,679 11.3% $2.94 12/31/03 $104,984
Craig D. Poppen 8,000 1.7% $2.94 12/31/03 $315,360
Rick S. Lieberman 22,000 4.5% $2.94 12/31/03 $ 42,240
Delma H. Ambrose 17,000 3.5% $2.94 12/31/03 $ 32,640
- ----------------
(1) The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for 1998 and 1997: risk-free interest rate of 6%; dividend
yield of 0%; volatility factor of the expected market price of the
Company's common stock of 1.92 for 1998 and 0.789 for 1997; and a
weighted-average expected life of the options of 5 years. The actual
value, if any, that may be realized will depend on the excess of the stock
price over the exercise price on the date the option is exercised, so
there can be no assurance that the value realized will be at or near the
value estimated by the Black-Scholes model.
Fiscal Year End Options Table
No stock options were exercised in 1998 by the named executive officers
whose compensation is disclosed in the Summary Executive Compensation Table
above. The table below sets forth exercisable and unexercisable stock options
held by those executive officers as of December 31, 1998, all of which were
granted pursuant to the Incentive Plan.
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-The-Money
at Fiscal Year-End Options at Fiscal Year-End (1)
------------------ ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Robert S. Raley 80,000 120,000 $28,800 $43,200
Ronald G. Tray 20,000 84,679 $11,000 $16,500
Craig D. Poppen 20,000 88,000 $18,000 $72,000
Rick S. Lieberman -0- 22,000 -0- -0-
Delma H. Ambrose -0- 17,000 -0- -0-
- ---------------
(1) On December 31, 1998, the average of the high and low sales prices of the
Company's Common Stock on the Nasdaq National Market System was $1.80 per
share.
Option Repricing
The following table sets forth information concerning all repricings of options
held by the named executive officers of the Company since the Company became
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All such repricings were effected through the
grant of replacement options in exchange for existing options. Messrs. Raley and
Poppen did not participate in the Company's option repricing program in June
1998.
Ten Year Option Repricings
--------------------------
Number of
Securities Length of Original
Underlying Market Price of Exercise Price New Option Term
Options Stock at Time of at Time of Exercise Remaining at Date
Name Date Repriced Repricing ($) Repricing ($) Price ($) of Pricing
- ---- ---- -------- ------------- ------------- --------- ----------
Ronald G. Tray 06/01/98 39,679 $2.94 $11.50 $2.94 18 months
Rick S. Lieberman 06/01/98 10,000 $2.94 $11.50 $2.94 18 months
Delma H. Ambrose 06/01/98 5,000 $2.94 $11.50 $2.94 18 months
Raley Employment Agreement and Stock Options
Basic Terms of Employment Agreement
TFC and Robert S. Raley, Jr. entered into an employment agreement (the
"Raley Employment Agreement"), commencing January 1, 1993 and, as amended,
expiring December 31, 2002, unless terminated earlier in accordance with its
provisions. Under the terms of the Raley Employment Agreement, TFC agreed to pay
Mr. Raley (i) a base salary of $50,000 per annum and (ii) a bonus, after
deduction of Mr. Raley's base salary payments, equal to 3% of the consolidated
annual net pre-tax income of TFC. The computation of the consolidated annual net
pre-tax income of TFC is made without deducting federal or state income taxes or
bonuses paid by TFC to Mr. Raley or to any other employee. In addition, Mr.
Raley is reimbursed for all reasonable business expenses and is furnished with
two automobiles for his use, the reasonable expenses for the operation of which
are paid by TFC. Further, TFC has agreed to provide Mr. Raley with all other
employee benefits that he enjoyed on the date of such agreement or those
benefits that TFC may approve for employees generally or for its senior
executives.
In addition to termination upon the occurrence of Mr. Raley's disability
or death, TFC may terminate the Raley Employment Agreement prior to the
expiration of its term in the event that: (i) Mr. Raley ceases to serve as the
Chairman of TFC's Board of Directors; (ii) all or substantially all of TFC's
assets are sold to a third party; (iii) more than 50% of the then issued and
outstanding stock of TFC or the Company is sold to, or exchanged for equity
interests in, any person or entity, which sale or exchange would not constitute
a "continuity of interest;" (iv) TFC is involved in a business combination in
which it is not the surviving corporation; or (v) TFC is dissolved voluntarily
or by operation of law. Further, the Raley Employment Agreement provides that
TFC reserves the right to terminate such agreement, without notice for "cause,"
as defined therein. The Raley Employment Agreement also includes a covenant not
to compete which continues for as long as Mr. Raley receives payments
thereunder.
Bonus Repayment Obligation; 1997, 1998 and 1999 Compensation Package
Although the Company cannot make a final determination regarding the
amount, if any, of the 3% bonus of net pre-tax income of TFC until the end of
each year, in 1995 and prior years TFC made estimated bonus payments to Mr.
Raley and other executives throughout the year on a monthly basis. In 1995,
these estimated bonus payments to Mr. Raley totaled $354,982. However, because
TFC did not have any net pre-tax income in 1995, Mr. Raley was obligated to
return to TFC all estimated bonus payments made in 1995. In addition, although
Mr. Raley also received $50,000 in base salary during 1995, Mr. Raley elected to
repay that amount as well. To fulfill this obligation, Mr. Raley delivered a
Promissory Note to TFC dated as of January 1, 1996, in the principal amount of
$404,982 ("Raley Note") and an Excess Compensation Repayment Agreement also
dated as of January 1, 1996 ("Raley Repayment Agreement"). The Raley Note
expires on January 1, 2000. The Raley Note and Raley Repayment Agreement also
originally provided that TFC could offset estimated bonus payments otherwise due
under the Raley Employment Agreement until all amounts due under the Raley Note
were paid. However, as part of Mr. Raley's new compensation package described
below, the Board of Directors has agreed that there will not be any such bonus
offsets through January 1, 2000, and that no interest will accrue on the Raley
Note. If Mr. Raley ceases to be employed by TFC for certain reasons prior to
January 1, 2000, all amounts due under the Raley Note is payable within 30 days
of termination of employment.
The Board implemented a new incentive and compensation package for Mr.
Raley for 1997 and 1998. In January 1997, the Board voted to modify the
repayment terms of the Raley Note, as described above. In addition, pursuant to
the Company's 1995 Long-Term Incentive Plan ("Incentive Plan"), the Company
granted Mr. Raley options to purchase 200,000 shares of Company Common Stock.
The exercise price for these option shares is $1.44 per share, which was the
fair market value of the Company's Common Stock on the date of grant as
determined pursuant to the Incentive Plan. Of these options, 40,000 became
exercisable immediately, and the remaining 160,000 option shares vest in four
equal tranches of 40,000 shares on each of January 1, 1998, 1999, 2000, and
2001. The options expire if unexercised ten years after grant. Notwithstanding
the terms of the Raley Employment Agreement, which remains in effect in its
original form, the Board passed a resolution modifying the salary and bonus
components of his compensation for 1997 and 1998. Under the terms of this
agreement Mr. Raley received a base salary of $300,000 per year and a guaranteed
bonus of $300,000 to be credited against the bonus payable to Mr. Raley in each
year pursuant to the Raley Employment Agreement. In the event the terms of the
Raley Employment Agreement result in a bonus in excess of $300,000, Mr. Raley
will be paid such excess. However, should the bonus calculation under the Raley
Employment Agreement result in a bonus of less than $300,000, then Mr. Raley
will not be required to repay any of the $300,000 guaranteed bonus. The salary
arrangement is not guaranteed under the Raley Employment Agreement.
Tray Employment Agreement and Stock Options
Ronald G. Tray, the Chief Operating Officer, Vice President and Assistant
Secretary of the Company, entered into an Employment Agreement with TFC that, as
amended, became effective January 1, 1995 and expires December 31, 1999 ("Tray
Employment Agreement"). The Tray Employment Agreement provides that TFC will pay
Mr. Tray (i) an annual base salary and (ii) an annual bonus equal to a fixed
percentage of the consolidated net pre-tax earnings of TFC. The computation of
the consolidated net pre-tax earnings of TFC and its subsidiaries is made
without deducting the amount of Mr. Tray's bonus paid by TFC to Mr. Tray or to
any other executive employee. In addition, no bonus is paid unless the net
pre-tax earnings of the Company meet or exceed 65% of a budgeted amount approved
by the Board of Directors.
Pursuant to Mr. Tray's revised compensation package his annual salary for
1997, 1998 and 1999 was established at $155,000, $165,000 and $175,000,
respectively. In addition, on November 14, 1996, pursuant to the Incentive Plan,
the Company granted Mr. Tray options to purchase 50,000 shares of Company Common
Stock at an exercise price of $1.25 per share. which was the fair market value
of the Company's Common Stock on the date of grant as determined pursuant to the
Incentive Plan. The options become exercisable in five 10,000-option tranches on
January 1 of 1997, 1998, 1999, 2000 and 2001. Each tranche expires if
unexercised on the date that is five years after the date the tranche vests.
Poppen Severance Agreement and Stock Option
Craig D. Poppen, the Company's Chief Financial Officer, Vice President and
Treasurer, entered into a Severance Agreement with the Company on December 31,
1997 that provides that in the event that his employment were to be terminated
during the first three years of employment without cause, he would be entitled
to one year's salary as a severance payment. Mr. Poppen did not receive a
separate employment agreement. The Company did, however, grant Mr. Poppen
options to purchase 100,000 shares of Company Common Stock at an exercise price
of $0.90 per share which was the fair market value of the Company's Common Stock
on the date of grant as determined pursuant to the Incentive Plan. The options
become exercisable in five 20,000-option tranches on December 31 of 1998, 1999,
2000, 2001 and 2002. Each tranche expires if unexercised on the date that is
five years after the date the tranche vests.
Compensation Committee Interlocks and Insider Participation
No member of the Company's compensation committee was an officer or
employee of the Company or TFC during 1998. During 1998, no executive officer of
the Company served as a member of the compensation committee of another entity,
nor did any executive officer of the Company serve as a director of another
entity.
Compensation Committee Report Concerning 1998 Compensation of Certain
Executive Officers
This report describes the Company's officer compensation strategy, the
components of the compensation program and the manner in which the 1998
compensation determinations were made for the Company's senior management team,
including the President and Chief Executive Officer, Robert S. Raley, Jr., Chief
Operating Officer, Ronald G. Tray, Craig D. Poppen, Chief Financial Officer,
Rick S. Lieberman, TFC's Executive Vice President and Chief Lending Officer and
Delma H. Ambrose, TFC's Senior Vice President (collectively referred to as the
"Executive Officers") whose 1998 compensation is disclosed in the Summary
Compensation table of this Proxy Statement.
In addition to the information set forth under "Executive Compensation" in
this Proxy Statement, the Company's Compensation Committee (the "Compensation
Committee") is required to provide shareholders a report explaining the
rationale and considerations that led to the fundamental executive compensation
decisions affecting the Company's Executive Officers. In fulfillment of this
requirement, the Compensation Committee, at the direction of the Company's Board
of Directors, has prepared the following report for inclusion in this Proxy
Statement. None of the members of the Compensation Committee are executive
officers or employees of the Company.
Compensation Philosophy
The Company's compensation packages are designed to attract, retain,
motivate and reward qualified, dedicated executives, and to directly link
compensation with (i) previous and anticipated performance and (ii) the
Company's profitability. Historically, the principal components of executive
compensation have been (i) a base salary at a stated annual rate, together with
certain other benefits as may be provided from time to time, and (ii) bonuses
keyed to the net pre-tax earnings of TFC.
As of January 1, 1998, only Mr. Raley and Mr. Tray had employment
agreements with the Company. Under Mr. Tray's employment agreement, base salary
level during 1998 was set taking into account Mr. Tray's past contributions and
performance, experience and abilities, expected future contributions and the
Company's past performance. Unless the Board awards a specified bonus for a
uniquely beneficial contribution to the Company, no bonuses will be paid to Mr.
Tray, Mr. Poppen or Mr. Lieberman, individually or collectively, (i) except as a
percentage of TFC and its subsidiaries' net pre-tax earnings for the accounting
period on which the bonus is based, and then, with respect to Mr. Tray only if
the Company's net pre-tax earnings meet certain budgeted thresholds, or (ii) if
the payment of the bonus will materially and adversely affect the Company's cash
flow requirements. To emphasize the importance of the Company's profitability,
bonuses may be paid monthly on the basis of the Company's performances during
the preceding month, but are limited cumulatively and are subject to adjustment
on the basis of the Company's fiscal year performance as determined by
independent auditors.
1995 Long-Term Incentive Plan
In 1994, the Board of Directors adopted the 1995 Long-Term Incentive Plan
(the "Incentive Plan"), which was approved by shareholders of the Company at the
1995 Annual Meeting. On June 1, 1998, the Compensation Committee granted options
to purchase 483,750 shares to eligible employees of the Company of which, 47,000
shares were granted to the Named Executive Officers. The exercise price of the
options is $2.94 per share which was the fair market value of the Company's
Common Stock on the date of grant as determined pursuant to the Incentive Plan.
These shares vest equally over five years beginning January 1, 1999. At December
31, 1998, 35,500 options had expired due to employment terminations. The options
expire if unexercised on December 31, 2003.
The purpose of the Incentive Plan is to support the business goals of the
Company and to attract, retain and motivate management officials of high caliber
by providing incentives to associate more closely the interest of certain
officers and key executives of the Company with the interests of the Company's
shareholders. Participation is limited to officers and other key employees of
the Company who are in positions in which their decisions, actions and counsel
significantly contribute to the success of the Company. Directors of the Company
who are not otherwise officers or employees of the Company are not eligible for
participation under the Incentive Plan. The Company has reserved 1,500,000
shares of the Company's Common Stock for issuance of awards under the Incentive
Plan. Awards under the Incentive Plan can be made in the form of nonqualified
stock options, incentive stock options, or restricted stock, separately or in
combination. The Incentive Plan is administered and interpreted by the
Compensation Committee. The Compensation Committee has full and final authority
to make and adopt rules and regulations for the administration of the Incentive
Plan, to interpret the provisions of the Incentive Plan, to determine the
employees to whom awards shall be made under the Incentive Plan and to determine
the type of award to be made and the amount, size and terms of each such award.
Employee Stock Purchase Plan
The Board adopted the Employee Stock Purchase Plan (the "Stock Purchase
Plan") on December 11, 1993, which provides for awards of Common Stock to
employees, including eligible officers of the Company, TFC and any future
majority owned subsidiary. Awards under the Stock Purchase Plan are in the form
of options to purchase Common Stock of the Company. The price at which shares of
Common Stock are sold under the Stock Purchase Plan to employees is the lower of
85% of the fair market value of a share of Common Stock on the date of grant or
85% of the fair market value of Common Stock on the date of purchase of the
shares. On June 1, 1998, the Compensation Committee granted options to purchase
508,700 shares to eligible employees of the Company of which, 30,000 shares were
granted to the Named Executive Officers. From June 1, 1998, to the expiration
date of September 30, 1998, 114,574 options were exercised at prices ranging
from $1.12 per share to $2.55 per share of which, 10,818 options were exercised
by the Named Executive Officers.
Awards granted pursuant to the Stock Purchase Plan are intended to
increase the recipients motivation for an interest in the Company's long-term
success as measured by the value of the Company's Common Stock. The Company has
reserved 530,000 shares of the Company's Common Stock for issuance of awards
under the Stock Purchase Plan. The Stock Purchase Plan is administered and
interpreted by the Compensation Committee. The Compensation Committee has full
and final authority to make and adopt rules and regulations for the
administration of the Stock Purchase Plan, to interpret the provisions of the
Stock Purchase Plan, to determine the employees to whom awards shall be made
under the Stock Purchase Plan and to determine the type of award to be made and
the amount, size and terms of each such award.
Limitation on Deductibility of Certain Compensation for Federal Income
Tax Purposes
Section 162(m) of the Internal Revenue Code ("162(m)") precludes the
Company from taking a deduction for compensation in excess of $1,000,000 for the
Chief Executive Officer or any of its four other highest paid officers. Certain
performance-based compensation, however, is specifically exempt from the
deduction limit. In adopting the Incentive Plan, the Compensation Committee duly
considered Section 162(m) and structured it accordingly. The Compensation
Committee believes that the Incentive Plan and the Employee Stock Purchase Plan
will both qualify as performance-based compensation under the regulations issued
under Section 162(m).
- Linwood R. Watson
- Douglas E. Bywater
- Andrew M. Ockershausen
THE PRECEDING "COMPENSATION COMMITTEE REPORT CONCERNING THE 1998
COMPENSATION OF CERTAIN EXECUTIVE OFFICERS" SHALL NOT BE DEEMED TO BE SOLICITING
MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OR INCORPORATED BY REFERENCE IN ANY DOCUMENTS SO FILED.
Compensation Committee Report On Repricing Of Options
On June 1, 1998, the Compensation Committee of the Board of Directors
approved reductions to the exercise prices of certain outstanding stock options
to $2.94, the fair market value of the Company's common stock on that date. The
reduction of the exercise price affected options to purchase 54,679 shares of
common stock with an exercise price $11.50. Under the terms of the repricing
program, the options vest in five equal installments beginning January 1, 1999.
As set forth in the Company's Incentive Plan, stock options are intended to
provide incentives to the Company's officers and employees. The Compensation
Committee believes that such equity incentives are a significant factor in the
Company's ability to attract, retain and motivate employees who are critical to
the Company's long-term success. The Compensation Committee believed that at
their original exercise prices, the disparity between the exercise price of
these options and recent market prices for the Company's common stock did not
provide meaningful incentives to the employees holding these options. The
Compensation Committee approved the repricing of these options as a means of
ensuring that optionees will continue to have meaningful equity incentives to
work toward the success of the Company. The Compensation Committee deemed the
adjustment to be in the best interest of the Company and its shareholders.
- Linwood R. Watson
- Douglas E. Bywater
- Andrew M. Ockershausen
Related Party Transactions
From July 1998 to December 1998, the Company issued $0.7 million of
unsecured subordinated debt due three years from origination. The notes bear
interest at 15% per year. These notes were offered pursuant to a private
placement to a limited number of prospective investors, including but not
limited to, the board of directors, officers and certain existing shareholders
of the Company. Robert S. Raley, Jr., the Company's Chairman and Chief Executive
Officer purchased $200,000 and Andrew M. Ockershausen, a Company director,
purchased $100,000 of the notes.
COMPANY STOCK PRICE PERFORMANCE
The following graph shows a comparison of cumulative total stockholder
returns for the Company, the Nasdaq Composite Index, the SNL Auto Finance Index
(a published industry index) and an industry peer group constructed by the
Company from December 31, 1993 through December 31, 1998. The industry peer
group is described in detail below. The total stockholder return assumes $100
invested at the beginning of the period in the Company's Common Stock, the
Nasdaq Composite Index, the SNL Auto Finance Index and the peer group index. In
developing each index, the returns of the companies were weighted according to
stock market capitalization at the beginning of each period for which a return
is indicated. The Company changed from an industry peer group constructed by the
Company to the SNL Auto Finance Index, a published industry index, in 1998
because it determined the latter index provided a more relevant comparison for
the Company.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY, THE NASDAQ COMPOSITE
INDEX, THE SNL AUTO FINANCE INDEX AND PEER GROUP INDEX
[GRAPH]
Base
12/31/93 1994 1995 1996 1997 1998
Nasdaq $100 $97.8 $138.3 $170.0 $208.6 $293.2
TFCE 100 58.7 43.3 12.5 7.22 12.5
SNL Auto
Finance Index 100 84.5 122.4 122.8 50.5 36.0
Peer Group 100 81.1 119.0 121.8 43.2 32.8
- --------------------
*$100 invested on 12/31/93 in stock or index, including reinvestment of
dividends.
Peer Group: Americredit Corporation, AutoInfo Inc., Consumer Portfolio Services
Inc., Credit Acceptance Corporation, Eagle Finance Corporation, First Merchants
Acceptance Corporation, General Acceptance Corporation, Jayhawk Acceptance
Corporation, Mercury Finance Company, Monaco Finance Inc., Arcadia Financial
Inc., Ugly Duckling, Search Capital and MS Financial.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, officers and persons who beneficially own more than 10% of a
registered class of stock of the Company to file initial reports of ownership
(Forms 3) and reports of changes in beneficial ownership (Forms 4 and 5) with
the SEC and NASDAQ. Such persons are also required under the rules and
regulations promulgated by the SEC to furnish the Company with copies of all
Section 16(a) forms they file. One officer, Craig D. Poppen, inadvertently did
not report a purchase of 5,500 shares in the Company in July 1998 until March
1999.
PROPOSAL 2. RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon recommendation of its Audit Committee,
intends to appoint Ernst & Young LLP as the firm of independent certified public
accountants to audit the financial statements of the Company for the fiscal year
ending December 31, 1999, and the Board of Directors desires that such
appointment be ratified by the shareholders. Ernst & Young LLP has audited the
financial statements of the Company since December 31, 1988.
A representative of Ernst & Young LLP will be present at the Annual
Meeting and available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors does not know of any matters that will be presented
for action at the Annual Meeting other than those described above or matters
incident to the conduct of the Annual Meeting. If, however, any other matters
not presently known to management should come before the Annual Meeting, it is
intended that the shares represented by the Proxy will be voted on such matters
in accordance with the discretion of the holders of such proxy.
SUBMISSION OF PROPOSALS FOR 2000
The next Annual Meeting of Shareholders will be held on or about May 11,
2000. Any shareholder who wishes to submit a proposal for consideration at that
meeting, and who wishes to have such proposal included in the Company's proxy
statement for that meeting, must submit the proposal in writing to Robert S.
Raley, Jr., President and Chief Executive Officer, at 5425 Robin Hood Road,
Suite 101B, Norfolk, VA 23513 no later than December 13, 1999
GENERAL
The Company's 1998 Annual Report to Shareholders accompanies this Proxy
Statement. The 1998 Annual Report to Shareholders does not form any part of the
material for the solicitation of proxies. Upon written request, the Company will
provide shareholders with a copy of its Annual Report on Form 10-K for the year
ended December 31, 1998 (the "Form 10-K"), as filed with the Securities and
Exchange Commission, without charge. Please direct written requests for a copy
of the Form 10-K to: Robert S. Raley, Jr., President and Chief Executive
Officer, TFC Enterprises, Inc., 5425 Robin Hood Road, Suite 101B, Norfolk, VA
23513.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY
By Order of the Board of Directors
April 9, 1999