UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TFC ENTERPRISES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share
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(2) Aggregate number of securities to which transaction applies: 11,551,033
shares of Common Stock and 1,214,179 options
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0- 11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
Each of the 11,551,033 issued and outstanding shares of Common Stock will,
upon consummation of the merger, be converted into the right to receive
$1.87 in cash. With respect to the 1,214,179 options to purchase Common
Stock, holders thereof will receive, in consideration for the cancellation
thereof, an amount per option share in cash equal to the excess of $1.87,
if any, over the exercise price (which exercise prices range from $1.25 per
share to $3.125 per share), which would be an aggregate amount of $200,138,
assuming the cancellation of all such options. The fee is calculated on the
basis of 1/50 of 1% of the aggregate merger consideration of $21,800,569.
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(4) Proposed maximum aggregate value of transaction:
1
$21,800,569
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(5) Total fee paid:
$4,360.11
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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2
To the Stockholders of TFC ENTERPRISES, INC.:
You are cordially invited to attend a special meeting of the
stockholders of TFC Enterprises, Inc. that will be held at the Norfolk Airport
Hilton Hotel, 1500 North Military Highway, Norfolk, Virginia, 23502, at 9:00
a.m. Eastern Time, on May __, 2003.
At the special meeting, you will be asked to approve and adopt a merger
agreement, which provides for the merger of TFC and a subsidiary of Consumer
Portfolio Services, Inc. In connection with the merger, you will be entitled to
receive $1.87 in cash for each share of TFC common stock that you own, other
than shares for which you properly exercise statutory appraisal rights.
Your Board of Directors has unanimously adopted the merger agreement
and recommends that you vote "FOR" approval of the merger agreement. The Board
believes that the merger is advisable and in the best interests of our
stockholders. Our financial advisor has delivered an opinion to the effect that,
as of the date of the opinion and based upon the assumptions made, matters
considered, and limitations contained in the opinion, the consideration to be
received by you in the merger is fair to you from a financial point of view.
We urge you to read the attached Proxy Statement carefully. It
describes the merger agreement in detail and includes a copy of the merger
agreement as Appendix A.
It is very important that your shares are represented at the special
meeting. Whether or not you plan to attend the special meeting, please complete,
date and sign the enclosed proxy card and return it promptly in the postage-paid
envelope provided. If you attend the special meeting, you may vote in person,
even if you previously returned your proxy card. An abstention or failure to
vote or failure to submit a proxy will have the same effect as voting "AGAINST"
the merger.
Please do not send your stock certificates with the enclosed proxy
card. Promptly after the merger, a letter of transmittal will be mailed to you
for the surrender of your stock certificates.
On behalf of the Board of Directors, I thank you for your prompt
attention to this important matter.
Sincerely,
Robert S. Raley, Jr.
Chairman of the Board, and Chief Executive Officer
April __, 2003
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TFC ENTERPRISES, INC.
5425 ROBIN HOOD ROAD
NORFOLK, VIRGINIA 23513
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On May __, 2003
---------------
Notice is hereby given that a special meeting of the stockholders of
TFC Enterprises, Inc. will be held at the Norfolk Airport Hilton Hotel, 1500
North Military Highway, Norfolk, Virginia, 23502, at 9:00 a.m. Eastern Time, on
May ___, 2003.
A proxy card, a Proxy Statement and a postage-paid envelope for the
special meeting are enclosed. The special meeting is for the following purposes:
1. To approve and adopt the Agreement and Plan of Merger, dated March 31, 2003,
among TFC Enterprises, Inc. ("TFC"), CPS Mergersub, Inc. and Consumer Portfolio
Services, Inc. ("CPS"). Under the terms of the merger agreement, CPS Mergersub,
Inc., a wholly-owned subsidiary of Consumer Portfolio Services, Inc., will merge
with and into TFC, and TFC will become a wholly owned subsidiary of CPS. You
will be entitled to receive $1.87 in cash for each share of our common stock
that you own. A copy of the merger agreement is included as Appendix A to the
accompanying Proxy Statement; and
2. To transact such other matters as may properly come before the special
meeting or any adjournments or postponements thereof. We are not currently aware
of any other business to come before the special meeting. Only those
stockholders of record at the close of business on April 15, 2003 are entitled
to the notice hereof and to attend and vote at the special meeting, and any
adjournments or postponements of the special meeting. The accompanying Proxy
Statement and proxy card are being sent to our stockholders on or about April
__, 2003.
You are cordially invited to attend the special meeting of
stockholders. However, to ensure your representation at the special meeting,
please complete, sign, date and promptly mail your proxy card in the enclosed
postage-paid envelope. The proxy card will not be used if you attend and vote at
the special meeting in person.
By Order of the Board of Directors,
Robert S. Raley, Jr.
Chairman of the Board, and Chief Executive Officer
Norfolk, Virginia
April __, 2003
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
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TFC Enterprises, Inc.
5425 Robin Hood Road
Norfolk, Virginia 23513
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PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON May ___, 2003
---------------
The Boards of Directors of TFC Enterprises, Inc. and Consumer Portfolio
Services, Inc. have agreed on a merger that will combine our businesses. This
Proxy Statement and the accompanying proxy card are being furnished in
connection with the solicitation by the Board of Directors of TFC of proxies for
use at the special meeting of our stockholders to be held on May ____, 2003, at
the Norfolk Airport Hilton Hotel, 1500 North Military Highway, Norfolk,
Virginia, 23502, at 9 AM local time, or at any postponements or adjournments
thereof.
At the special meeting, TFC stockholders will be asked to approve the
Agreement and Plan of Merger, dated as of March 31, 2003, among TFC Enterprises,
Inc., Consumer Portfolio Services, Inc. and CPS Mergersub, Inc., a wholly owned
direct subsidiary of CPS. Consummation of the merger will result in:
. CPS Mergersub, Inc. merging with and into TFC, with TFC surviving and
becoming a direct wholly owned subsidiary of CPS;
. each share of TFC common stock outstanding immediately prior to the
closing of the merger being converted into the right to receive $1.87
in cash, other than shares held by stockholders of TFC who are
entitled to and who have perfected their appraisal rights.
TFC cannot complete the merger without the approval of its
stockholders. Approval of the merger agreement requires the affirmative vote of
at least a majority of the outstanding shares of TFC common stock entitled to
vote.
The Board of Directors of TFC has unanimously approved the merger
agreement, has declared the merger advisable and in the best interests of TFC
and its stockholders, and recommends that you vote "FOR" approval of the merger
agreement and the merger.
This Proxy Statement and the accompanying proxy card are first being
mailed or otherwise distributed to our stockholders on or about April __, 2003.
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TABLE OF CONTENTS
Page
------
SUMMARY ................................................................................................
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING .........................................
WHERE YOU CAN FIND MORE INFORMATION ....................................................................
THE SPECIAL MEETING ....................................................................................
General ................................................................................................
Matters to Be Considered at the Special Meeting ........................................................
Record Date; Vote Required .............................................................................
Voting of Proxies ......................................................................................
Revocability of Proxies ................................................................................
TFC Enterprises, Inc. Common Stock .....................................................................
Solicitation of Proxies and Expenses ...................................................................
Board Recommendation ...................................................................................
THE PROPOSED MERGER ....................................................................................
General ................................................................................................
The Companies ..........................................................................................
Background of the Merger ...............................................................................
Reasons for the Merger and the Recommendation of the Board of Directors ................................
Opinion of Houlihan Lokey Howard & Zukin ...............................................................
CPS's Financial Ability to Consummate the Merger .......................................................
Interests of Certain Persons and Management in the Merger ..............................................
Certain Material U.S. Federal Income Tax Consequences of the Merger ....................................
Accounting Treatment of the Merger .....................................................................
TFC STOCKHOLDER PROPOSAL: APPROVAL OF THE MERGER AGREEMENT AND THE MERGER ..............................
Overview of the Transaction Structure ..................................................................
You Will Receive Cash for Your Shares of TFC Enterprises, Inc. Common Stock ............................
Treatment of Options ...................................................................................
Effective Date .........................................................................................
The Paying Agent .......................................................................................
Payment of Merger Consideration and Surrender of Stock Certificates ....................................
Do Not Forward Your Stock Certificates to the Paying Agent Without a Letter of
Transmittal ............................................................................................
Fees and Expenses of the Merger ........................................................................
Appraisal Rights .......................................................................................
Material Provisions of the Merger Agreement ............................................................
BENEFICIAL OWNERSHIP OF TFC ENTERPRISES, INC. COMMON STOCK .............................................
STOCKHOLDER PROPOSALS ..................................................................................
OTHER MATTERS ..........................................................................................
FORWARD-LOOKING STATEMENTS .............................................................................
INDEPENDENT ACCOUNTANTS ................................................................................
APPENDIX A--AGREEMENT AND PLAN OF MERGER ...............................................................
APPENDIX B--FAIRNESS OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN ..........................................
APPENDIX C--DELAWARE GENERAL CORPORATION LAW--SECTION 262 ..............................................
6
SUMMARY
This summary highlights selected information from this Proxy Statement. It does
not contain all of the information that is important to you. You should
carefully read this entire Proxy Statement, including the merger agreement, and
the other documents we refer to for a more complete understanding of the merger.
We have included page references in this summary to direct you to other places
in this Proxy Statement where you can find a more complete description of the
topics we discuss below. Please also see "Where You Can Find More Information"
on page _____.
The Companies (see page ____)
Consumer Portfolio Services, Inc.
16355 Laguna Canyon Road
Irvine, CA 92618
(949) 753-6800
Nasdaq/NMS: "CPSS"
CPS purchases, securitizes and services consumer automobile installment
purchase contracts originated primarily by car dealers affiliated with major
foreign and domestic manufacturers. CPS purchases the contracts at its
headquarters in Irvine, California. CPS services contracts from its headquarters
and from a branch location in Chesapeake, Virginia.
TFC Enterprises, Inc.
5425 Robin Hood Road
Norfolk, VA 23513
Telephone: (757) 858-1400
Nasdaq/NMS: "TFCE"
TFC Enterprises, Inc. conducts operations primarily through The Finance
Company, a wholly-owned subsidiary. Through The Finance Company, we purchase and
service retail installment sales contracts originated by automobile and
motorcycle dealers in the sale of vehicles, consisting of new and used
automobiles, vans, light trucks, and motorcycles on an individual basis. The
primary focus of our business is retail installment sales contracts originated
by dealers with consumers who are United States enlisted military personnel, in
the E-1 through E-4 pay grades and non-military consumers who do not have access
to traditional sources of credit.
The Merger (see page ___)
We have entered into a merger agreement that provides for our merger
with a newly-formed subsidiary of Consumer Portfolio Services, Inc. As a result
of the merger, we will become a wholly-owned subsidiary of CPS. We expect to
complete the merger by the end of May, 2003. We urge you to read the merger
agreement, which is included as Appendix A to this Proxy Statement, carefully
and in its entirety.
Our Reasons for the Merger (see page ____)
Our Board of Directors believes that the merger is advisable and in the
best interests of TFC and our stockholders and unanimously recommends that our
stockholders vote "FOR" the approval of the merger agreement. The Board of
Directors believes that the merger will enable our stockholders to realize value
on their investment in TFC. In reaching its decision to adopt the merger
agreement, our Board considered various factors which are discussed in detail in
this Proxy Statement.
7
Each Share Will Be Exchanged for $1.87 in Cash (see page ____)
Upon completion of the merger, each outstanding share of our common stock,
except shares for which TFC stockholders have validly asserted appraisal rights,
will be converted into the right to receive $1.87 in cash. For example, if you
own 100 shares of our common stock, you will be entitled to receive $187.00 upon
the surrender of your certificate for those shares. In addition, each
outstanding option to acquire shares of our common stock will be cancelled and
converted into the right to receive the amount by which $1.87 exceeds the
applicable option exercise price.
We Recommend That Our Stockholders Approve the Merger (see page ____)
Our Board of Directors has determined that the terms and conditions of the
merger are fair, advisable and in your best interests and unanimously recommends
that you vote "FOR" approval of the merger and the merger agreement.
Summary Effects of the Merger (see page ____)
Following the merger, CPS will own all of our outstanding shares of common
stock. CPS will have complete control over the management and conduct of our
business, all income we generate and any future increase in our value.
Similarly, CPS will also bear the risk of any losses incurred in our operation
and any decrease in our value. As a result of the merger, TFC will be privately
held and there will be no public market for TFC common stock. When we complete
the merger, our common stock will no longer be quoted or traded on any market,
and will no longer be registered under the Securities Exchange Act of 1934, as
amended.
Our Financial Advisor Has Provided an Opinion as to the Fairness of the Merger
Consideration from a Financial Point of View (see page ___).
Houlihan Lokey Howard & Zukin has delivered an oral opinion to the Board of
Directors that, as of March 25, 2003, the date the Board approved the merger,
the merger consideration was fair from a financial point of view to the TFC
Enterprises shareholders. This opinion was subsequently confirmed in writing on
March 28, 2003. The written opinion is included as Appendix B to this document.
You should read this opinion completely to understand the procedures followed,
assumptions made, matters considered and limitations of the review undertaken by
Houlihan Lokey. Houlihan Lokey's opinion is directed to the TFC Enterprises
board of directors and does not constitute a recommendation to any shareholder
as to any matters relating to the merger. TFC Enterprise has agreed to pay
Houlihan Lokey $145,000 as well as up to an additional $35,000 if Houlihan Lokey
further confirms its opinion.
The Transaction Will Be a Taxable Event for Our Stockholders (see page ___)
The receipt of cash in exchange for your common stock pursuant to the
merger will be a taxable transaction for federal income tax purposes and may
also be a taxable transaction under applicable state, local and foreign tax
laws. You will be required to recognize gain or loss equal to the difference
between the amount of cash received in the merger and the adjusted basis in your
common stock surrendered in the merger. The gain or loss will be a long-term
capital gain or loss if you have held your common stock for more than 1 year. If
you are a non-corporate stockholder, a long-term capital gain will be subject to
a maximum federal income tax rate of 20%.
You should consult your own tax advisors regarding all of the tax
consequences of the merger.
Appraisal Rights (see page ___)
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You have the right to demand the "fair value" of your shares in cash and to
receive a cash amount that the Delaware Chancery Court decides is the "fair
value" of your shares of common stock. This amount may be more or less than the
value of the merger consideration you would receive pursuant to the merger
agreement. This right is known as your "appraisal right."
If you wish to exercise your appraisal right, do not vote in favor of the
merger and take the series of steps summarized on pages ___ and set out in full
in Appendix C to this Proxy Statement.
CPS's obligation to effect the merger is subject to the condition that
appraisal rights are exercised by the holders of no more than 10% of our common
stock.
The Special Meeting (see page ___)
The special meeting will be held on May __, 2003 at 9 AM local time, at the
Norfolk Airport Hilton Hotel, 1500 North Military Highway, Norfolk, Virginia,
23502. At the special meeting, you will be asked to consider and vote upon a
proposal to approve the merger and the merger agreement.
Record Date; Vote Required (see page ___)
You can vote at the special meeting if you owned our common stock at the
close of business on April 15, 2003. On that date, there were 11,551,033 shares
of our common stock outstanding and entitled to vote. You can cast one vote for
each share of our common stock that you owned on that date. In order to approve
the merger and the merger agreement, the holders of a majority of the
outstanding shares of our common stock must vote in favor of doing so.
Officers and Directors Have Interests in the Merger That Are Different from, or
in Addition to, their Interests as Stockholders (see page ___)
When considering the recommendation of our Board, you should be aware that
some directors and officers have interests in the merger that are different
from, or in addition to, yours. As a result, these directors and officers may be
more likely to vote to approve the merger than our stockholders generally. These
interests include:
. The consummation of the merger will result in substantial payments being
made and/or benefits being provided to our Chairman of the Board and Chief
Executive Officer under a newly executed consulting agreement, replacing
his previous employment agreement, and may result in substantial payments
being made and/or benefits being provided to three executive officers under
change of control agreements between TFC and these executive officers.
. CPS also has agreed to pay for a run-off or "tail" policy on our insurance
to indemnify our officers and directors for events that occurred prior to
the merger or that arise from the merger agreement or any transaction
contemplated by it.
Our Board of Directors was aware of these interests and considered them in
its decision to approve the merger agreement.
9
Conditions to Completion of the Merger (see page ___)
The completion of the merger depends on a number of conditions being
satisfied, including replacement financing to repay our principal lender and
approval of the merger and the merger agreement by our stockholders.
CPS and TFC May Amend the Terms of the Merger (see page ___)
CPS and TFC may jointly amend the terms of the merger. However, after you
approve the merger, you must approve any amendment if required by law.
CPS and TFC May Decide Not to Complete the Merger (see ____)
CPS and TFC may jointly decide at any time not to complete the merger, even
if our stockholders have approved it. Also, either of TFC or CPS may decide not
to complete the merger if the merger is not completed by July 31, 2003.
We also may terminate the merger agreement in order to accept a superior
proposal to acquire TFC.
Furthermore, CPS may terminate the merger agreement if:
. our Board withdraws or materially changes its recommendation to approve the
merger and the merger agreement; or
. our Board recommends or accepts another acquisition proposal.
. on or before April 30, 2003, if CPS, in its good faith judgment determines
that a material portion of our contract receivables or our servicing
methods fail to meet certain standards.
. our "total shareholders' equity" (as adjusted under the terms of the merger
agreement) at closing is less than it was as of December 31, 2002.
Termination Fees (see page ____)
In the event the merger agreement is terminated by either CPS or TFC in
certain cases and as provided in the merger agreement, CPS or TFC, as the case
may be, must reimburse the other for expenses in an amount not to exceed
$500,000, depending on the reason for such termination and TFC may be required
to pay CPS an additional termination fee of $650,000 (with credit given for any
expenses TFC reimburses CPS for), depending on the reason for such termination.
Procedures Relating to Your Vote at the Special Meeting (see page ___)
. In order to have a quorum at the special meeting, a majority of all
outstanding shares of common stock as of the record date must be present,
in person or by proxy.
. In order to approve and adopt the merger agreement, we must obtain the
affirmative vote of the holders of a majority of the shares of our
outstanding common stock. Abstentions and broker non-votes will have the
effect of a vote "AGAINST" the approval and adoption of the merger
agreement and the merger.
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. You should complete, date and sign your proxy card and mail it in the
enclosed return envelope as soon as possible so that your shares are
represented at the meeting, even if you plan to attend the meeting in
person. Unless you specify to the contrary, all of your shares represented
by valid proxies will be voted "FOR" the approval and adoption of the
merger agreement and the merger.
. If your shares are held in "street name" by your broker, your broker will
vote your shares, but only if you provide instructions on how to vote. You
should follow the procedures provided by your broker regarding the voting
of your shares.
Revoking Your Proxy (see page ____)
Until voting occurs at the special meeting, you can revoke your proxy and
change your vote in any of the following ways:
. delivering a proxy of a later date by mail;
. sending a written notice to the person to whom you submitted your proxy
stating that you would like to revoke your proxy;
. if you have instructed your broker to vote your shares, by following the
directions received from your broker to change those instructions; or
. unless you have voted through your broker, by attending the meeting and
voting in person. Your attendance at the meeting will not, by itself revoke
your proxy; you must vote in person at the meeting.
The Merger Is Expected to Be Completed by the end of May 2003 (see page ____)
The merger will occur only after all the conditions to its completion have
been satisfied or waived. Currently, we anticipate that the merger will be
completed by the end of May 2003.
Employee Benefit Plans and Stock Options (see page ___ and page ___)
In connection with the merger, three of our officers will be eligible to
receive change-of-control payments under certain conditions as a result of the
merger.
Stock options to purchase common stock made pursuant to our stock option
plan will become vested immediately prior to the closing of the merger and our
stock option plans will terminate as of the closing of the merger. TFC options
will be cancelled and holders of TFC options will receive a cash payment equal
to the excess of $1.87, if any, over the exercise price for the TFC option.
After the closing of merger, CPS shall provide our employees with employee
benefit plans that are no less favorable, in the aggregate, than those TFC
maintains for its similarly situated employees.
No Warrants will Remain Outstanding (see page ___)
On March 31, 2003, we paid our principal lender $167,000 in return for
canceling its outstanding warrants to purchase 1,135,280 shares of our common
stock. Accordingly, no warrants currently exist or will remain outstanding after
the merger.
11
QUESTIONS AND ANSWERS ABOUT
THE MERGER AND THE SPECIAL MEETING
Q: What am I being asked to vote on? What is the proposed transaction?
A: We are asking you to vote on the approval and adoption of an agreement that
provides for the merger of a wholly owned subsidiary of Consumer Portfolio
Services, Inc. with and into TFC Enterprises, Inc. As a result of the merger, we
will cease to be an independent, publicly traded company and will become a
wholly owned subsidiary of CPS.
Q: What will I receive in the merger?
A: If the merger is completed and you do not exercise your appraisal rights
under Delaware law, you will receive $1.87 in cash for each share of our common
stock that you own (the "merger consideration").
Q: Why is my vote important?
A: The merger agreement must be approved by a majority of the outstanding
shares of our common stock entitled to vote. If you do not return your proxy
card or vote in person at the special meeting, it will have the same effect as a
vote against the merger agreement.
Q: When do you expect to complete the merger?
A: We are working to complete the merger by the end of May 2003. Because the
merger is subject to various conditions, however, we cannot predict the exact
timing.
Q: Does the Board of Directors recommend voting in favor of the merger?
A: Yes. After careful consideration, your Board of Directors unanimously
recommends that you vote to approve the merger and the merger agreement.
Q: What are the federal income tax consequences of the merger to me?
A: The receipt of the merger consideration in exchange for common stock
surrendered in the merger will constitute a taxable transaction for federal
income tax purposes. In general, if you surrender common stock pursuant to the
merger, you will recognize a gain or loss equal to the difference, if any,
between $1.87 per share and the stockholder's adjusted tax basis in that share.
We urge you to consult your own tax advisor regarding the specific tax
consequences that may result from your individual circumstances as well as the
foreign, state and local tax consequences of the surrender of shares in the
merger.
Q: How do I vote?
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the special meeting. You may
also attend the meeting in person instead of submitting a proxy.
Q: If my shares are held in street name by my broker, will my broker
automatically vote my shares for me?
A: No. Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker to vote your shares, following the
directions your broker provides.
Q: What if I fail to instruct my broker?
A: If you fail to instruct your broker to vote your shares, it will have the
same effect as a vote against the merger agreement. You should follow the
directions provided by your broker regarding how to instruct your broker to vote
your shares.
Q: Can I change my vote after submitting my proxy?
12
A: Yes. If you have not voted through your broker, there are three ways you
can change your vote after you have sent in your proxy card:
. You may send a written notice to the person to whom you submitted your
proxy stating that you would like to revoke your proxy. For proxies
returned to us, the notice should be submitted to our Secretary, Patricia
Piccola.
. You may complete and submit a new proxy card. Any earlier proxies will be
revoked automatically.
. You may attend the special meeting and vote in person. Simply attending the
special meeting without voting in person, however, will not revoke your
proxy.
If you have instructed your broker or other nominee to vote your shares,
you must follow directions you receive from such broker or other nominee to
change your vote.
Q: Should I send in my stock certificates now?
A: No. After we complete the merger, instructions explaining how to exchange
your shares of TFC common stock for the merger consideration will be sent to
you.
Q: What if I oppose the merger? Am I entitled to appraisal rights?
A: Yes. You are entitled to appraisal rights in connection with the merger by
properly complying with the requirements of Delaware law. For a more complete
description of appraisal rights, see the information under the caption
"Appraisal Rights" beginning on page ___.
In addition, we have attached to this Proxy Statement (as Appendix C) the full
text of the applicable provisions of Delaware law.
Q: Whom can I call with questions?
A: If you have questions about the merger or how to submit your proxy card, or
if you need additional copies of this Proxy Statement or the enclosed proxy card
or additional voting instructions, please call Denise L. Newlon, our Chief
Financial Officer, at (757) 858-1400.
WHERE YOU CAN FIND MORE INFORMATION
As public companies, both CPS and TFC are required to file annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). You may read and copy any
reports, statements or other information that TFC and CPS file at the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. In addition, both CPS's and TFC's public filings are
available to the public from commercial document retrieval services and on the
SEC's Internet website located at "http://www.sec.gov."
13
THE SPECIAL MEETING
General
We are furnishing this Proxy Statement to our holders of common stock in
connection with the solicitation of proxies by our Board of Directors for use at
the special meeting of stockholders of TFC. The special meeting will be held on
May __, 2003 at 9 AM local time, at the Norfolk Airport Hilton Hotel, 1500 North
Military Highway, Norfolk, Virginia, 23502.
This Proxy Statement is first being furnished to our stockholders on or
about April __, 2003.
Matters to Be Considered at the Special Meeting
At the special meeting, you will be asked:
. to consider and vote on the approval of the merger and the merger
agreement; and
. to transact any other business that may properly come before the special
meeting.
As of April __, 2003, we do not know of any business that will be presented
for consideration at the special meeting other than the approval of the merger
agreement.
Record Date; Vote Required
Our Board has fixed the close of business on April 15, 2003 as the record
date for determination of our stockholders entitled to notice of and to vote at
the special meeting. As of April 15, 2003, there were 11,551,033 shares of our
common stock outstanding and entitled to vote at the special meeting. CPS does
not own any shares of our common stock.
Each outstanding share of our common stock will be entitled to cast one
vote per share at the special meeting. You may vote in person or by submitting a
properly executed proxy. The presence, in person or by properly executed
proxies, of the holders of a majority of the outstanding shares entitled to vote
at the special meeting will constitute a quorum. Abstentions and broker
non-votes will be treated as shares present at the special meeting for purposes
of determining the presence of a quorum. A broker non-vote is an unvoted proxy
submitted by a broker. Under applicable rules, brokers or other nominees who
hold shares in street name for customers who are the beneficial owners of such
shares may not vote those shares with respect to the merger agreement unless
they have received specific instructions from their customers.
To approve and adopt the merger agreement, the holders of a majority of the
outstanding shares of our common stock entitled to vote must vote in favor of
the approval of the merger agreement. Consequently, the failure to return a
proxy, a failure to vote in person, an abstention or a broker non-vote will have
the same effect as voting against the merger agreement. Brokers holding shares
for beneficial owners cannot vote on the actions proposed in this Proxy
Statement without the owners' specific instructions. Accordingly, we urge you to
return the enclosed proxy card marked to indicate your vote or provide your
broker with instructions on how your shares should be voted.
Voting of Proxies
To assure that your shares are represented at the special meeting, we urge
you to complete, date and sign the enclosed proxy and promptly return it in the
enclosed postage-paid envelope or otherwise mail it to
14
our headquarters. If your shares are held in "street name" by your broker, your
broker will vote your shares only if you provide instructions how to vote. Your
broker will provide you directions how to instruct the broker to vote your
shares. All properly executed proxies that we receive before the vote at the
special meeting, and that are not revoked, will be voted in accordance with the
instructions indicated on the proxies or, if no direction is indicated, to
approve the merger and the merger agreement.
Revocability of Proxies
If you are the record holder of your shares, you can revoke your proxy at
any time before the vote is taken at the special meeting by:
. submitting written notice of revocation to the Secretary of TFC,
. submitting a properly executed proxy of a later date, or
. voting in person at the special meeting, but simply attending the special
meeting without voting will not revoke an earlier proxy.
Written notice of revocation and other communications about revoking your
proxy should be addressed to:
TFC Enterprises, Inc.
5425 Robin Hood Road
Norfolk, VA 23513
Telephone: (757) 858-1400
Attention: Patricia Piccola, Secretary
If your shares are held in a "street name" by your broker, please follow
your broker's instructions on revoking your proxy or changing your vote.
TFC Enterprises, Inc. Common Stock
Our common stock is quoted on the Nasdaq National Market under the symbol
"TFCE." On March 31, 2003, the last trading day before the announcement that we
had entered into the merger agreement, the closing market price per share of our
common stock was $1.34. On April ___, 2003, the last practicable date before
printing this Proxy Statement, the closing market price per share of our common
stock was $____.
Solicitation of Proxies and Expenses
We will not retain the services of a proxy solicitor to assist in the
solicitation of proxies from our stockholders. In addition to solicitation by
mail, our directors, officers, employees and representatives may solicit proxies
from stockholders by telephone, facsimile or in person.
We will bear our own expenses in connection with the solicitation of
proxies for the special meeting. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
proxy materials to beneficial owners.
15
Board Recommendation
Our Board has determined that the merger is advisable, fair to and in the
best interests of, TFC and our stockholders. Accordingly, the Board has
unanimously approved the merger and the merger agreement and unanimously
recommends that stockholders vote for approval of the merger and the merger
agreement. In considering this recommendation, you should be aware that some of
our directors and officers have interests in the merger that are different from,
or in addition to, yours.
The matters to be considered at the special meeting are of great importance
to you as a TFC stockholder. Accordingly, we urge you to read and carefully
consider the information presented in this Proxy Statement, and to complete,
date, sign and promptly return the enclosed proxy card in the enclosed
postage-paid envelope, following the instructions outlined on the enclosed
proxy.
You should not send any stock certificates with your proxy card. A
transmittal form with instructions for the surrender of your common stock
certificates will be mailed to you promptly after completion of the merger.
THE PROPOSED MERGER
The information in this Proxy Statement concerning the terms of the merger
is qualified in its entirety by reference to the full text of the merger
agreement, attached as Appendix A. We urge all stockholders to read the merger
agreement in its entirety, as well as the opinion of our financial advisor
attached as Appendix B.
General
As soon as possible after the conditions to consummation of the merger
described below have been satisfied or waived, and, unless the merger agreement
has been terminated as discussed below, a wholly-owned subsidiary of CPS will be
merged with and into TFC in accordance with Delaware law. TFC will be the
surviving corporation of the merger and will become a wholly owned subsidiary of
CPS. On completion of the merger, our stockholders will be entitled to receive
$1.87 in cash, without interest, for each share of TFC common stock they own and
will cease to be stockholders of TFC.
The Companies
TFC Enterprises, Inc. We began operations in 1977 in Alexandria, Virginia,
with the founding of The Finance Company by Robert S. Raley, Jr., our current
Chairman of the Board and Chief Executive Officer. Mr. Raley has spent his
entire 43-year career exclusively within the consumer finance industry. We now
conduct operations primarily through The Finance Company, a wholly-owned
subsidiary.
Through The Finance Company, we purchase and service retail installment
sales contracts originated by automobile and motorcycle dealers in the sale of
vehicles, consisting of new and used automobiles, vans, light trucks, and
motorcycles on an individual basis. Retail installment sales contracts are
acquired after we have reviewed and approved the vehicle purchaser's credit
application. The primary focus of our business is retail installment sales
contracts originated by dealers with consumers who are United States enlisted
military personnel, in the E-1 through E-4 pay grades and non-military consumers
who do not have access to traditional sources of credit. To achieve an
acceptable rate of return and provide for credit risks, contracts are purchased
from dealers at a discount to the remaining principal balance. The discount is
held in a nonrefundable reserve against which credit losses are first applied.
Our headquarters are located in Norfolk, Virginia, with Contract Production
Offices throughout the United States.
16
Our purchases provide us with the ability to direct the credit underwriting
process at the initiation of the retail installment sales contract.
Participating dealers benefit by having a source of financing for a group of
customers who typically find financing difficult to obtain. This financing
allows a dealer to increase the number of vehicles sold and improves dealer
profitability. Consumers also benefit because the financing we provide enables
them to purchase a vehicle they otherwise might not be able to buy. As of
December 31, 2002, $200.8 million, or 99%, of our gross contract receivables
represented point-of-sale purchases, compared to $227.8 million, or 91%, at
December 31, 2001 and $202.5 million, or 75%, at December 31, 2000.
Although we underwrite and purchase contracts through the various contract
production offices, the responsibility for servicing the accounts is centralized
at our service center in Norfolk, Virginia.
In our bulk purchase business, that ceased operations in March, 2001, we
emphasized acquisitions of portfolios of seasoned retail installment sales
contracts. These contracts normally had a payment history of at least three
months. While the typical bulk purchase was approximately $250,000, we had, at
times, purchased portfolios totaling more than $12 million. As of December 31,
2002, $2.4 million, or 1%, of our gross contract receivables was attributable to
bulk purchases, compared to $20.3 million, or 9%, at December 31, 2001, and
$64.5 million, or 25%, at December 31, 2000.
Through First Community Finance, formerly headquartered in Richmond,
Virginia, we originated and serviced small consumer loans and purchased and
serviced retail installment sales contracts. First Community Finance began
operations in the second quarter of 1995 with the opening of two branches in
Richmond, Virginia. As of December 31, 2001, it had 20 branches in Virginia and
North Carolina. As previously announced, TFC sold the majority of its First
Community Finance receivables to a non-affiliated consumer finance company and
First Community Finance ceased originating loans. As reported in net assets from
discontinued operations, as of December 31, 2002, $1.4 million represented gross
contract receivables, compared to $28.6 million at December 31, 2001 and $26.9
million, at December 31, 2000.
TFC Enterprises, Inc. is incorporated under the laws of Delaware. Our
principal executive and administrative offices are located at 5425 Robin Hood
Road, Suite 101B, Norfolk, Virginia 23513, and our telephone number is (757)
858-1400.
Consumer Portfolio Services, Inc. CPS is a consumer finance company
specializing in the business of purchasing, selling and servicing retail
automobile installment purchase contracts ("Contracts") originated by licensed
motor vehicle dealers ("Dealers") in the sale of new and used automobiles, light
trucks and passenger vans. Through its purchases, CPS provides indirect
financing to Dealer customers with limited credit histories, low incomes or past
credit problems. CPS serves as an alternative source of financing for Dealers,
allowing sales to customers who otherwise might not be able to obtain financing.
CPS does not lend money directly to consumers. Rather, it purchases installment
Contracts from Dealers.
CPS was incorporated and began its operations in 1991. From its inception
through December 31, 2002, CPS has purchased approximately $4.6 billion of
Contracts. In March 2002, CPS obtained an additional $381.8 million of Contracts
when it acquired MFN Financial Corporation and subsidiaries in a merger (the
"MFN Merger"). MFN Financial Corporation and its subsidiaries (collectively, the
"MFN Companies") engaged in business similar to that of CPS: buying Contracts
from Dealers, pooling and selling those Contracts in securitization
transactions, and servicing those Contracts.
17
CPS decides which Contracts to purchase exclusively from its headquarters
in California. Prior to the MFN Merger, CPS primarily serviced Contracts from
two regional centers, one in its California headquarters, and the other in
Virginia, as well as from a small satellite office in Dallas, Texas. Currently
CPS also services Contracts obtained in the MFN Merger from multiple other
locations acquired as part of that transaction. As of December 31, 2002, CPS had
an outstanding servicing portfolio, net of unearned income on pre-computed
Contracts, of approximately $595.2 million, including the remaining outstanding
balance of Contracts acquired in the MFN Merger.
CPS is incorporated under the laws of California. CPS's principal executive
offices are located at 16355 Laguna Canyon Road, Irvine, California 92618 and
its main telephone number is (949) 753-6800.
Background of the Merger
In December 2000, GE Capital announced that it would no longer participate
in the business of financing automobiles or automobile finance companies. Since
then, TFC has been attempting to find a lender to replace this line of credit,
which GE Capital has extended five times since the December 2000 announcement,
including the recent extension announced April 1, 2003. We also obtained a $75
million warehouse credit facility, now a $40 million facility, to reduce our
reliance on the GE facility. Recognizing the need to replace the GE facility,
our management and Board of Directors decided in early 2001 to engage an
investment banking firm to help search for additional capital and to evaluate
strategic alternatives for TFC.
After interviewing four firms, TFC engaged E & Y Capital Advisors ("EY") on
July 2, 2001 for this purpose. In this process, EY initially isolated and
contacted approximately 45 potential buyers and entered into confidentiality
agreements with most of them. During August and September, 2001, TFC met with
six of these companies to review possible transactions of various natures.
On November 15, 2001, a potential buyer began additional due diligence and
management began preliminary negotiations with this potential buyer. These
negotiations ended in January, 2002, as the parties were unable to reach
mutually acceptable terms.
EY introduced TFC to a second potential acquirer in February 2002, which
entered into a confidentiality agreement, non-binding letter of understanding
and an exclusivity agreement. Due diligence and negotiations continued over
several months and ended unsuccessfully in August 2002. Throughout this process,
the Board of Directors was kept informed regarding the status of the
negotiations. Legal counsel to TFC continually rendered legal advice to the
Board regarding its fiduciary obligations to its shareholders, the legal aspects
of potential merger possibilities and related public disclosure requirements.
Later in August 2002, TFC was approached by a third company that had
previously expressed a possible interest in acquiring TFC in August 2001. TFC
soon entered into a confidentiality agreement and an exclusivity arrangement
with this potential buyer, who performed due diligence and negotiated with our
management through early December 2002. At that time it became clear that the
parties were unable to agree on acceptable terms.
During the period of these negotiations, our management and Board
determined it was in the best interests of our shareholders to sell the majority
of the assets of its direct lending subsidiary, First Community Finance. We sold
the majority of these assets on November 4, 2002.
Throughout 2002, we continued to attempt to replace the GE facility and in
late 2002, we executed a term sheet with a lender (the "GE Replacement Lender")
who offered us a $40 million facility that would replace GE and keep us in
compliance with a covenant contained in our warehouse facility that we maintain
18
a $40 million revolving line of credit. Management continually kept the Board
informed regarding the status of the important negotiations with the GE
Replacement Lender.
When the exclusivity period of the third potential buyer ended in December
2002, management and the Board determined that EY was unlikely to find a buyer
in the current market and terminated the engagement of EY effective December 13,
2002.
On December 18, 2002, we entered into a confidentiality agreement and an
exclusivity arrangement with a fourth potential buyer who had been introduced to
us by EY. We assured EY that if we were acquired by this potential acquiror, we
would protect EY on its fee, but we were doubtful that we would be able to reach
agreement with this potential buyer for various reasons. This fourth potential
buyer performed due diligence during late December 2002 through January 2003.
During this time, management continued negotiations with the GE Replacement
Lender.
Management negotiated terms with the fourth potential buyer throughout
January, but we were unable to reach agreement with this buyer. Discussions
ceased and the exclusivity period expired January 31, 2003.
On February 11, 2003, TFC received a call from one of its primary funding
sources regarding the possibility that its client Consumer Portfolio Services,
Inc. ("CPS") might be interested in acquiring TFC. The funding source explained
that CPS was interested in expanding its business into the military market.
During a subsequent phone call, arrangements were made to meet at TFC corporate
offices on February 20, 2003 with Charles E. Bradley Jr., the President and CEO
of CPS to discuss a possible transaction with CPS. Following these discussions,
the parties entered into a confidentiality and exclusivity agreement. Soon
thereafter CPS gave TFC a preliminary indication of a proposed acquisition
price.
On March 6, 2003, management called for a special telephonic meeting of the
Board to inform them of the status of negotiations with the GE Replacement
Lender, efforts to obtain an extension of the GE facility through January 1,
2004 and the status of discussions with CPS. Ronald G. Tray, our President,
informed the Board that, recently, the GE Replacement Lender had not been
responsive to management's requests for updates and that Mr. Tray was concerned
that the GE Replacement Lender may have decided not to pursue this facility. Mr.
Tray also informed the Board that GE had not given any indication that they
would extend their facility unless we were able to send them a binding
commitment from a replacement lender or acquiror prior to April 1, 2003.
Management informed the Board that unless TFC was able to get a replacement
facility for GE that kept TFC in compliance with covenants contained in its
warehouse and securitization facilities, TFC would receive a "going concern"
explanatory paragraph in its audit report that would cause defaults under
several of its credit facilities.
At this March 6, 2003 meeting, Robert S. Raley, Jr., our Chairman of the
Board, and Mr. Tray discussed the background of CPS, its management team, and
its business model. They discussed CPS's east coast service facility, which is
less than ten miles away from TFC's Norfolk, Virginia headquarters, and the
desire expressed by CPS to expand into the military market. Mr. Raley discussed
certain preliminary negotiating matters, including CPS's request that the
holders of TFC's $2.4 million subordinated debt agree upon a change of control
not to call these notes. On this point, each member of the Board who held
subordinated debt agreed that they would waive their right to call notes
outstanding at the time of the closing of any potential merger. Legal counsel to
TFC then reviewed certain legal matters, in connection with the Board's
consideration of any potential transactions with CPS, including the advisability
of retaining a nationally recognized investment banking firm to act as financial
advisor to the Board should the CPS discussions result in a proposal to come
before the Board. After significant deliberation and discussion, the Board
unanimously authorized management to continue discussions with CPS. Management
requested that legal counsel contact two investment banking firms to assess
their interest in acting as TFC's financial advisor and willingness to assess
the fairness of any offer presented to TFC. Counsel subsequently
19
contacted two investment banking firms, including Houlihan Lokey Howard & Zukin
("Houlihan Lokey"). TFC was familiar with Houlihan Lokey as it had discussed
potential strategic alternatives with the firm in June 2002. On March 20, 2003,
TFC engaged Houlihan Lokey to assist the Board in connection with certain
aspects of any potential transaction.
After the March 6, 2003 meeting, management continued its attempts to
negotiate with the GE Replacement Lender. Then, on March 17, 2003, the GE
Replacement Lender informed management that it was no longer interested in
providing us the facility we had been working on with them over the previous
five months.
On March 11, 2003, legal counsel to CPS delivered to TFC counsel a legal
due diligence request and on March 14, 2003, a draft merger agreement. The
parties then began negotiating the terms of the merger agreement and TFC
continued to provide requested due diligence items.
On March 20, 2003, representatives of Houlihan Lokey met with TFC
management to review the terms of the merger agreement and certain financial and
operating information provided to Houlihan Lokey with respect to TFC in
connection with Houlihan Lokey's efforts to assess the fairness of the merger
consideration offered by CPS.
On March 25, 2003, the TFC Board convened for several purposes, including
to discuss the status of negotiations with CPS and to review the current draft
of the merger agreement in detail. Management informed the Board that, as a
result of the existence of certain "in the money" stock options, a $22.0 million
purchase price would provide merger consideration of $1.89 per share to TFC
shareholders. Management also informed the Board that the CPS offer included a
condition that GE Capital return its warrant for 1,135,280 shares of TFC common
stock without consideration other than a payoff of the GE facility. GE
previously had requested that TFC pay GE $333,333 in exchange for cancellation
of the warrant trust GE held to acquire TFC common stock and CPS had indicated
any cash necessary to buy the warrant back be included in the $22.0 million
proposed purchase price. Mr. Tray informed the Board that paying off the GE
warrant would reduce the merger consideration to $1.86 per share. Houlihan Lokey
then made on oral presentation to the Board of a financial analysis of the
proposed merger. In addition, Houlihan Lokey delivered on oral opinion
concerning the fairness from a financial point of view. TFC's legal counsel
discussed in detail the terms of the merger agreement and the transactions
contemplated thereby. The Board then analyzed and deliberated the terms of the
transaction. After this discussion, the Board encouraged management to continue
negotiating the terms of the merger agreement.
TFC management and its advisors continued negotiating the terms of the
merger agreement with CPS, completed negotiations with GE regarding the
disposition of the GE warrants, and negotiated the terms of waivers of certain
existing defaults necessary before the merger agreement could be executed,
including waivers from GE, Westside Funding, N. M. Rothschild & Sons Limited,
Royal Indemnity Company (the insurer of the Westside facility), Radian Asset
Assurance, Inc. (the insurer of our three outstanding securitizations), Wells
Fargo Bank Minnesota, National Association (the trustee, trust collateral agent,
back-up servicer and P.O Box owner of our three securitizations) Wells Fargo
Financial America, Inc.(the successor-servicer of our three securitizations) and
Wilmington Trust.
On March 28, 2003, the TFC Board convened to further consider the terms of
the merger agreement. Mr. Tray informed the Board that GE had agreed to reduce
the consideration required to cancel the GE warrant to $167,000 and that the
merger consideration would therefore be $1.87 per share. He and legal counsel
reviewed in significant detail the differences between the draft of the merger
agreement the Board had reviewed on March 25, 2003
20
and the final form presented at the March 28th meeting. Mr. Tray further
informed the Board that Houlihan Lokey had updated its financial analysis to
take into account the revised merger consideration of a $1.87 that would be
received by TFC stockholders and that Houlihan Lokey had delivered a written
opinion, dated March 28, 2003, to the effect that $1.87 per share was fair to
TFC stockholders from a financial point of view. After significant deliberation,
the Board then reviewed and approved the Consulting Agreement between TFC and
Mr. Raley, the termination of the TFC stock option plans effective upon a
merger, the form of the stock option cancellation agreements, and the terms of
the merger agreement. Because certain material consents and waivers were
necessary to execute the merger agreement, the Board agreed to reconvene if any
changes were required to be made to the form of the merger agreement approved at
this meeting.
TFC and its advisors continued to contact and work with the necessary
parties to obtain the various waivers and consents, including GE, which needed
to extend its current facility to enable the closing of the merger. During this
period, no changes were made to the merger agreement. On the morning of April 1,
2003, the last consent was obtained and the parties announced the execution of
the merger agreement.
Reasons for the Merger and the Recommendation of the Board of Directors
As indicated under "Background of the Merger," our Board of Directors
unanimously determined on March 28, 2003 that the terms of the merger agreement
were in the best interests of our company and our stockholders.
In the course of reaching its decision to approve the merger agreement and
the merger and not to remain as an independent company, our Board of Directors
consulted with its legal and financial advisors, as well as senior management,
and considered numerous factors. The following are some of the material factors
considered by the Board:
. The opinion of our financial advisor that the cash merger consideration of
$1.87 per share of common stock was fair to our stockholders from a
financial point of view, as more fully discussed below under the caption
"Opinion of Financial Advisor";
. The relationship of the cash consideration of $1.87 per share to the
historical and then current market prices for shares of our common stock,
including the fact that the $1.87 per share consideration represented
premiums of approximately 40%, 47%, 47% and 41% over the closing market
prices of our common stock immediately before, and the average of the last
30, 60, and 90 trading days, respectively, before the execution and
delivery of the merger agreement;
. The prices and premiums paid in comparable acquisition transactions
involving other consumer finance institutions of which members of our Board
of Directors were aware, based on, among other things, information supplied
by our financial advisor;
. A review of the terms of the proposal by CPS, including the fact that CPS
was offering cash as the form of consideration to be paid for our shares of
common stock. Our Board believed that the holders of a majority of the
shares of our common stock would prefer cash because cash provides a fixed
value to stockholders and is not a security that would be subject to
possible decline in value. The tax effect on our shareholders of accepting
a cash proposal was also considered;
. The fact that GE refused to extend the GE facility beyond April 1, 2003 and
the related consequences of that refusal on our other credit facilities;
21
.. The fact that we had received a "going concern" explanatory paragraph in
the audit report relating to our audited December 31, 2002 financial
statements because of the uncertainties resulting in our not having
replaced the GE facility and the related consequences associated with the
receipt of this paragraph on our other credit facilities;
.. Information concerning our financial condition, results of operations,
capital levels and prospects;
.. The size of TFC relative to the market in which we compete;
.. Our relative inability to access capital markets and its effect on our
prospects of increasing our market share;
.. Providing our stockholders with liquidity;
. Industry and economic conditions;
. CPS's ability to pay the aggregate merger consideration and redeem $620,000
of certain subordinated debt without the need to obtain additional
financing;
. The general structure of the transaction;
. The results of our due diligence investigation of CPS, its management team,
and its ability to close this merger as shown by its ability to close its
merger with MFN Financial in early 2002;
. Our understanding that CPS can terminate the merger agreement if we are
unable to obtain financing to replace the GE facility;
. Our strategic alternatives to the merger, including our assessment of our
prospects if we continue the operation of TFC as an independent company or
liquidate our assets;
. The results of the extensive process that had been undertaken over a period
of 19 months to identify and solicit proposals from third parties to enter
into a strategic transaction with us;
. The Board's familiarity with and review of our business, results of
operations, financial condition and prospects, as well as consumer finance
industry conditions generally and the changing environment for such
services, as presented at its meetings on July 24, 2001, October 1, 2001,
October 16, 2001, November 19, 2001, December 10, 2001, December 11, 2001,
December 14, 2001, February 11, 2002, February 26, 2002, July 30, 2002,
September 24, 2002, October 1, 2002, October 11, 2002, October 23, 2002,
October 29, 2002, January 14, 2003, March 6, 2003, March 25, 2003, and
March 28, 2003;
. The Board's view, based on advice received from both outside counsel and
our financial advisor, that the terms of the merger agreement, including
the termination fee provisions, contain provisions customary for this type
of transaction and allow the Board to continue to fulfill its fiduciary
duties; and
. The effect of the proposed merger on the customers and employees of TFC.
In reaching its determination to approve and recommend the merger, our
Board of Directors did not assign any relative or specific weights to these
factors, and individual directors may have given differing weights to different
factors. After considering, among other things, the matters discussed above and
deliberating with respect to the merger and the other transactions
22
contemplated by the merger agreement, the Board of Directors unanimously
approved the merger agreement and unanimously recommends our stockholders vote
in favor of the approval and adoption of the merger agreement and the merger.
Opinion of Houlihan Lokey Howard & Zukin
Our Board of Directors engaged Houlihan Lokey to render an opinion as to
the fairness, from a financial point of view, of the consideration to be
received by our public stockholders in connection with the proposed merger. At
the March 25, 2003 meeting of the Board, Houlihan Lokey rendered its oral
opinion that, as of that date, and based upon and subject to the factors and
assumptions set forth in its opinion, the consideration to be received by the
holders of TFC common stock was fair, from a financial point of view.
Subsequently, on March 28, 2003, Houlihan Lokey confirmed its oral opinion in
writing, by delivering to the Board of Directors of TFC a written opinion of
that date.
Houlihan Lokey was retained based on its reputation, experience and
expertise in the valuation of businesses and their securities in connection with
mergers and acquisitions. Neither Houlihan Lokey nor its affiliates have had any
material business relationships with TFC or its affiliates during the previous
two years. No limitations were placed on the procedures or investigations
undertaken by Houlihan Lokey in connection with arriving at its opinion.
TFC agreed to pay Houlihan Lokey a fee of $145,000 as compensation for its
services in connection with the merger and related transactions, as well as
reimbursement of its out-of-pocket expenses incurred in connection with its
engagement. Additionally, if requested by the Board and Houlihan Lokey renders a
"bring-down" opinion within 45 days of the Opinion, the Company will pay
Houlihan Lokey an additional fee of $20,000. If requested by the Board and
Houlihan Lokey renders a "bring-down" opinion between 46 days and 90 days of the
Opinion, the Company will pay Houlihan Lokey an additional fee of $35,000. No
portion of Houlihan Lokey's fee is contingent upon the successful completion of
the merger or any other related transaction. TFC has further agreed to
indemnify Houlihan Lokey against certain liabilities and expenses in connection
with the rendering of its services.
In arriving at its fairness opinion, Houlihan Lokey, among other things:
. reviewed the Company's recent public filings;
. visited the Company's headquarters in Norfolk, Virginia and held
discussions with certain members of the senior management of the Company to
discuss certain matters regarding the Company's operations and its
prospects;
. reviewed the historical market prices and trading volume for the Company's
publicly traded common stock;
. reviewed certain other publicly available financial data for certain
companies that were deemed relevant, including prices and premiums paid in
other transactions;
. reviewed the Company's projections for FY 2003 under certain scenarios;
. reviewed the Company's interim financial statements for the period ending
February 28, 2003;
. reviewed a draft of the merger agreement provided to Houlihan Lokey and
23
discussed its terms and the merger with certain members of the senior
management of the Company and Williams Mullen (the Company's legal
counsel); and
. conducted such other studies, analyses and inquiries as it deemed
appropriate.
Analyses
Houlihan Lokey used several methodologies to assess the fairness of the
consideration per share to be received in the proposed merger. The following is
a summary of the material financial analyses used by Houlihan Lokey in
connection with providing its opinion. This summary is qualified in its entirety
by reference to the full text of such opinion, which is attached as Appendix B
to this proxy statement. You are urged to read the full text of the Houlihan
Lokey opinion carefully and in its entirety.
Houlihan Lokey performed the following analyses in order to assess the
fairness of the consideration to be received by the public stockholders.
Public Market Pricing: Houlihan Lokey reviewed the historical market prices
and trading volume for TFC's publicly held common stock and certain other
publicly available information. Houlihan Lokey noted that TFC is not covered or
followed by any stock equity analysts. Houlihan Lokey further noted that the
Company's closing stock price, as of March 31, 2003, was $1.34, with a 52-week
low and high of $0.70 (July 24, 2002) and $1.85 (June 21, 2002), respectively.
Houlihan Lokey also analyzed the per share transaction value as a premium to the
closing price of the TFC common stock on March 21, 2003 (the last trading day of
the week prior to the announcement of the merger). The analysis performed
indicated that the per share transaction value represented a 54.5% premium over
the March 21, 2003 closing price. Houlihan Lokey also reviewed the ratio of
TFC's average daily trading volume to public float and noted that only
approximately $7,500 worth of shareholder liquidity is traded on a daily basis.
Market Multiple Methodology: Houlihan Lokey also compared selected
operating and stock market results of TFC to the publicly available
corresponding data for the following companies in the sub-prime lending sector
that Houlihan Lokey determined were comparable to TFC:
. AmeriCredit Corporation;
. Consumer Portfolio Services, Inc.;
. Onyx Acceptance Corporation;
. Credit Acceptance Corporation; and
. First Invest Financial Services Group.
Houlihan Lokey calculated certain financial ratios of the comparable
companies based on the most recent publicly available information. Houlihan
Lokey calculated certain financial ratios, including, the multiples of: (1)
market value of common equity ("MVE") to latest twelve months ("LTM") earnings,
and (3) MVE to book value.
The analysis indicated that the multiples exhibited by the comparable
companies were as follows:
- -------------------------------------------------------------------------
Multiple Median Mean High Low
- -------------------------------------------------------------------------
MVE to LTM earnings 9.1x 8.1x 11.9x 2.4x
MVE to Book Value 0.43x 0.47x 0.67x 0.27x
- -------------------------------------------------------------------------
24
Houlihan Lokey then determined the imputed per share value of TFC common
stock based on the multiples arrived at as part of its comparability analysis.
Houlihan Lokey derived indications of TFC's MVE by applying the derived earnings
and book value multiples to certain adjusted operating results for the latest
twelve months period ended September 30, 2002. Based on the foregoing, the
resulting indications of TFC's MVE, ranged from approximately $18.9 million to
$19.2 million in the aggregate or $1.64 to $1.67 per share, respectively on a
fully-diluted basis.
Comparable Transaction Methodology: Houlihan Lokey also reviewed certain
multiples achieved in selected domestic merger transactions involving companies
engaged in the sub-prime lending sector that occurred between November 2000 and
November 2002 to determine the imputed per share value of TFC common stock based
on the comparable multiples achieved in those transactions. The following
transactions were reviewed by Houlihan Lokey in this process:
- ------------------------------------------------------------------------------
Seller Buyer
- ------------------------------------------------------------------------------
Household International, Inc. HSBC Holdings, Plc.
Universal Premium Acceptance GE Vendor Financial Services
MFN Financial Corp. Consumer Portfolio Services, Inc.
Park Meridian Financial Corp. Regions Financial Corp.
HD Vest, Inc. Wells Fargo Company.
Associates First Capital Corp. Citigroup, Inc.
- ------------------------------------------------------------------------------
Houlihan Lokey considered these transactions to be reasonably similar to
the merger, but none of the transactions is identical to the merger. In
performing its analysis, Houlihan Lokey also considered that the merger and
acquisition transaction environment varies over time because of, among other
things, interest rate and equity market fluctuations and industry results and
growth expectations. Houlihan Lokey's analysis indicated that the multiples
exhibited in the change of control transactions were as follows:
- ------------------------------------------------------------------------------
Multiple Median Mean High Low
- ------------------------------------------------------------------------------
MVE to LTM earnings 16.9x 25.2x 77.8x 6.1x
MVE to book value 2.0x 3.4x 10.0x 0.7x
- ------------------------------------------------------------------------------
Houlihan Lokey derived indications of TFC's MVE by applying the data
derived from its comparable transaction analysis to certain adjusted operating
results for the latest twelve months period ended September 30, 2002. Based on
the foregoing, the resulting indications of TFC's MVE, using the comparable
transaction methodology, ranged from approximately $17.2 million to $18.8
million in the aggregate, or $1.49 to $1.63 per share, respectively on a
fully-diluted basis.
Liquidation Methodology: Houlihan Lokey also performed a liquidation
analysis to determine the net realizable value of the Company's assets in a
liquidation scenario and estimate the surplus that would be available to TFC
common stockholders in such a setting. Based on the foregoing, Houlihan Lokey
determined that the resulting market value of the common stock after the payment
of all debt and other liabilities, would be approximately $3.8 million, or $0.33
per share, on a fully-diluted basis.
Houlihan Lokey delivered its written opinion, dated March 28, 2003, to our
Board stating that, as of that date, based upon the assumptions made, matters
considered and limitations on the review described in its written opinion, the
consideration per share to be received by our public stockholders in connection
with the transaction was fair to them from a financial point of view.
25
In connection with its review, Houlihan Lokey considered financial
projections prepared by TFC management. The financial projections were prepared
under market conditions as they existed at the time of their preparation and TFC
management does not intend to provide Houlihan Lokey with any updated or revised
financial projections in connection with the merger. The financial projections
did not take into account any circumstances or events occurring after the date
they were prepared. In addition, factors such as industry performance, general
business, economic, regulatory, market and financial conditions, as well as
changes to the business, financial condition or results of operations, may cause
the financial projections or the underlying assumptions to be inaccurate.
In arriving at its fairness opinion, Houlihan Lokey reviewed key economic
and market indicators, including, growth in the United States Gross Domestic
Product, inflation rates, interest rates, consumer spending levels,
manufacturing productivity levels, unemployment rates and general stock market
performance. Houlihan Lokey's opinion is based on the business, economic, market
and other conditions, as they existed as of March 25, 2003 and on TFC financial
projections provided to Houlihan Lokey for the year ending December 31, 2003. In
rendering its opinion, Houlihan Lokey relied upon and assumed, without
independent verification that the accuracy and completeness of the financial and
other information provided to Houlihan Lokey by TFC management, including the
financial projections, was reasonably prepared and reflects the best currently
available estimates of the financial results and condition of TFC, and that no
material changes have occurred in the information reviewed between the date the
information was provided and the date of the Houlihan Lokey opinion. Houlihan
Lokey does not assume responsibility for any information supplied to it.
Houlihan Lokey did not make any independent appraisal of TFC's specific
properties or assets.
Houlihan Lokey was not asked to opine and does not express any opinion as
to the tax or legal consequences of the merger, or the fairness of any aspect of
the merger not expressly addressed in its fairness opinion.
The Houlihan Lokey opinion does not address the underlying business
decision to effect the transactions, nor does it constitute a recommendation to
any stockholder as to how they should vote at the annual meeting. Houlihan Lokey
has no obligation to update the Houlihan Lokey opinion. Houlihan Lokey did not,
and was not requested by TFC or any other person to, solicit third party
indications of interest in acquiring all or any part of TFC or to make any
recommendations as to the form or amount of consideration in connection with the
transaction. Houlihan Lokey was not requested by the Board of TFC to negotiate
any portion of the transaction or advise the TFC Board with respect to
alternatives to the transaction.
The foregoing is a summary of the analyses performed by Houlihan Lokey in
arriving at its fairness opinion. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and application of those
methods to the particular circumstances and is therefore not readily susceptible
to summary description. In arriving at its opinion, Houlihan Lokey made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Houlihan Lokey believes that its analyses and summary set
forth herein must be considered as a whole and that selecting portions of its
analyses, without considering all analyses and factors, or portions of this
summary, could create an incomplete and/or inaccurate view of the processes
underlying the analyses set forth in Houlihan Lokey's fairness opinion. In its
analysis, Houlihan Lokey made numerous assumptions with respect to TFC, the
transaction, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
the respective entities. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values,
26
which may be more or less favorable than suggested by such analyses.
Additionally, analyses relating to the value of TFCE's businesses or securities
are not appraisals. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
The full text of Houlihan Lokey's opinion, which describes, among other
things, the assumptions made, general procedures followed, matters considered
and limitations on the review undertaken by Houlihan Lokey in rendering its
opinion is attached hereto and is incorporated herein by reference. The summary
of the Houlihan Lokey opinion in this proxy statement is qualified in its
entirety by reference to the full text of the Houlihan Lokey opinion. You are
urged to read Houlihan Lokey's opinion in its entirety.
Interests of Certain Persons and Management in the Merger
When considering the recommendation of our Board, you should be aware that
some directors and officers have interests in the merger that are different
from, or in addition to, yours. As a result, these directors and officers may be
more likely to vote to approve the merger than our stockholders generally.
Our President, Ronald G. Tray, our Chief Financial Officer, Denise L.
Newlon, and our Secretary, Patricia Piccola, have previously entered into change
of control agreements with TFC. Under the change-of-control agreements, upon the
closing of the merger, Mr. Tray, Ms. Newlon and Ms. Piccola become subject to
covenants not to compete and become entitled to various payment amounts should
the surviving corporation terminate their employment without cause or
constructively discharge them as provided in the respective agreements. Similar
change-of-control agreements with two of our other executive officers were
terminated before we entered into the merger agreement.
Certain stock options held by our chairman, Robert S. Raley, our President,
Ronald G. Tray, and our Chief Financial Officer, Denise L. Newlon, and members
of the Board of Directors will be or become vested on the closing of the merger
and the executives will receive the excess of $1.87, if any, over the exercise
price of such options. The rights of our executives with respect to their stock
options are identical to the rights of our other holders of stock options. On
the closing of the merger and cancellation of their respective options, Mr.
Raley will receive $86,000, Mr. Tray will receive $77,600, Ms. Newlon will
receive $30,238 and each non-employee Board member will receive $1,260 relating
to options they hold that have an exercise price below $1.87.
Mr. Raley has executed a consulting agreement, replacing his previous
employment agreement, that will become effective on the closing of the merger,
to work as a consultant no more than twenty hours a month, for the surviving
entity after the merger for the three-year period following the closing of the
merger. Under this consulting agreement, Mr. Raley will receive $25,000 monthly,
or $300,000 per year, plus health insurance benefits during the consulting
period provided he performs certain consulting services during this period.
CPS has also agreed to pay up to $300,000 for continued "tail" insurance
for the indemnification of the officers and directors of TFC for a 6-year period
after the closing of the merger for events that occurred before the merger or
that arise from the merger agreement or any transaction contemplated by it.
Additionally, CPS will indemnify, or will cause the surviving entity to
indemnify, all present and former TFC officers and directors to the fullest
extent under applicable law.
Certain Material U.S. Federal Income Tax Consequences of the Merger
The following summary addresses the material federal income tax
consequences of the exchange of TFC common stock under the merger agreement. The
summary is based on current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed U.S. Treasury regulations
27
promulgated thereunder, relevant administrative rulings and applicable judicial
decisions, all of which are subject to change, possibly with retroactive effect.
The summary does not address all aspects of federal income taxation that
may be relevant to particular TFC stockholders and thus, for example, may not be
applicable to stockholders who are financial institutions, tax-exempt
organizations, insurance companies, broker-dealers or stockholders who are not
citizens or residents of the United States, or stockholders who are employees
and who acquired their stock by the exercise of incentive stock options or as
compensation; nor does this summary address the effect of any applicable
foreign, state, local or other tax laws. The discussion assumes that each holder
of TFC common stock holds such stock as a capital asset within the meaning of
the Code.
The exchange of our common stock for cash under the terms of the merger
agreement will be a taxable transaction for federal income tax purposes under
the Code, and may also be a taxable transaction under state, local and other tax
laws. A stockholder of TFC will recognize gain or loss equal to the difference
between the amount of cash received by the stockholder in the exchange and the
tax basis in his or her common stock.
Gain or loss recognized by the stockholder exchanging his or her shares of
common stock under the merger agreement will be a capital gain or loss if such
common stock is a capital asset in the hands of the stockholder. If the TFC
common stock has been held for more than 1 year, the gain or loss will be
long-term. Capital gains recognized by an individual stockholder generally will
be subject to U.S. federal income tax at capital gain rates applicable to the
stockholder (up to a maximum of 38.6% in 2003 for short-term capital gains and
20% for long-term capital gains), and capital gains recognized by an exchanging
corporate stockholder generally will be subject to U.S. federal income tax at a
maximum rate of 35%.
Payments of cash to certain stockholders surrendering shares of TFC common
stock will be subject to information reporting and "backup" withholding at a
rate of 30% (for 2002), unless the stockholder furnishes his, her or its
taxpayer identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions. Any
amounts withheld from payments to a holder under the backup withholding rules
will be allowed as a refund or credit against the holder's U.S. federal income
tax liability, provided the required information is furnished to the Internal
Revenue Service.
This discussion is not binding on the Internal Revenue Service, and neither
TFC nor CPS has requested or will request a ruling from the Internal Revenue
Service as to any of the tax effects to our stockholders of the transactions
discussed in this Proxy Statement.
The federal income tax discussion set forth above is based on current law
and is intended for general information only. The discussion does not address
state, local, or foreign tax consequences, or all of the tax consequences that
might be relevant to a particular TFC stockholder. We urge each stockholder to
consult with his, her or its own tax advisor concerning the specific tax
consequences of the merger to the stockholder, including the applicability and
effect of foreign, state, local, or other tax laws and of any future changes in
the Code, or regulation issued thereunder, or under any tax rulings or court
decisions or other laws concerning taxes.
Accounting Treatment of the Merger
The merger will be accounted for under the purchase method of accounting.
Under this method of accounting, TFC and CPS will be treated as one company as
of the date of completion of the merger. CPS will record on its consolidated
balance sheet the fair market value of TFC's assets acquired less liabilities
assumed. Net assets acquired in excess of the purchase price and related
acquisition costs paid will be recorded as an extraordinary gain on CPS's
consolidated income statement as of the date of completion of the merger.
28
No TFC Warrants Remain Outstanding
On April 1, 2003, we paid GE $167,000 in return for canceling its
outstanding warrant to purchase 1,135,280 shares of our common stock.
Accordingly, no warrants currently exist or will remain outstanding after the
merger.
TFC STOCKHOLDER PROPOSAL:
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
The following information pertains to the transactions contemplated by the
merger agreement. This description does not provide a complete description of
all the terms and conditions of the merger agreement. This description is
qualified in its entirety by the Appendices attached to this Proxy Statement,
including the text of the merger agreement attached as Appendix A. The
Appendices are a part of this Proxy Statement, and we urge you to read the
Appendices in their entirety.
Overview of the Transaction
As soon as possible after the conditions to completing the merger described
below have been satisfied or waived, and, unless the merger agreement has been
terminated, the merger will be effected as follows:
. CPS Mergersub, Inc. will be merged with and into TFC, with TFC surviving
the merger; and
. immediately thereafter, TFC will be a wholly-owned subsidiary of CPS.
You Will Receive Cash for Your Shares of TFC Common Stock
On completion of the merger, each outstanding share of TFC Enterprises,
Inc. common stock (other than shares for which appraisal rights have been
asserted and perfected in accordance with Delaware law or any shares owned by
us, our subsidiaries, CPS or its subsidiaries) will be converted into and
represent the right to receive $1.87 in cash without any interest. After the
closing of the merger, each outstanding share of TFC common stock will represent
only the right to receive $1.87 in cash, without interest. The aggregate amount
of the cash to be paid for our outstanding common stock is approximately $21.6
million. In addition, we will pay approximately $200,000 to cancel outstanding
"in the money" stock options in connection with the merger and have paid GE
$167,000 to repurchase its warrant.
Treatment of Options
At the effective time of the merger, each stock option to purchase TFC
common stock issued under the TFC Enterprises, Inc. Employee Stock Purchase
Plan, the 1995 Long Term Incentive Plan and the Non-Employee Director Stock
Option Plan or pursuant to a separate option agreement will be cancelled and
converted into the right to receive a cash payment equal to the excess of $1.87,
if any, over the exercise price per share of the stock option, multiplied by the
number of shares of TFC common stock subject to the stock option, less any
required tax withholding. There are options to purchase an aggregate of
1,214,179 shares as of the date of this Proxy Statement, 411,250 of which have
exercise prices below $1.87.
29
Effective Date
The merger will be consummated if (i) the merger agreement is approved by
our stockholders and (ii) CPS and TFC obtain all required consents, and all
other conditions to the merger agreement are either satisfied or waived. The
merger will become effective on the date and at the time that a certificate of
merger is filed with the Secretary of State of the State of Delaware, or such
later date or time as may be indicated in such certificate, in accordance with
the merger agreement.
We anticipate that the merger will become effective by the end of May 2003.
However, it is possible that factors outside of the control of the parties could
require us to complete the transactions at a later time.
We cannot assure you that the necessary approvals of the merger will be
obtained or that other conditions to consummation of the merger can or will be
satisfied. If the merger is not completed by July 31, 2003, both CPS and TFC
have the right to terminate the merger agreement, unless the terminating party's
breach of the merger agreement caused the merger to not be completed by that
date.
The Paying Agent
At or before the closing of the merger, CPS must deposit with a bank or
trust company the cash to be paid for shares of TFC common stock. Promptly after
the closing of the merger, the paying agent will mail you a letter of
transmittal and instructions for surrendering your stock certificates in
exchange for the merger consideration.
Payment of Merger Consideration and Surrender of Stock Certificates
If we complete the merger, our common stockholders will be entitled to
receive $1.87 in cash for each share of common stock that they own. In addition,
each outstanding option to acquire shares of our common stock will be cancelled
and converted into the right to receive the excess, if any, of $1.87 over the
applicable exercise price. The paying agent will deliver to you your merger
consideration according to the procedure summarized below.
As soon as practicable after the closing of the merger, the paying agent
will send you a letter of transmittal and instructions advising you how to
surrender your certificates in exchange for the merger consideration.
The paying agent will promptly pay you your merger consideration after you
have (i) surrendered your certificates to the paying agent and (ii) provided to
the paying agent any other items specified by the letter of transmittal.
Interest will not be paid or accrue in respect of the cash payment of the
merger consideration. The paying agent will reduce the amount of any merger
consideration paid to you by applicable withholding taxes, if any.
If the paying agent is to pay some or all of your merger consideration to a
person other than you, you must have your certificates properly endorsed or
otherwise in proper form for transfer and you must pay any transfer or other
taxes payable by reason of the transfer or establish to the paying agent's
satisfaction that the taxes have been paid or are not required to be paid.
30
Do Not Forward Your Stock Certificates to the Paying Agent Without a Letter of
Transmittal
The transmittal instructions will tell you what to do if you have lost your
certificate, or if it has been stolen or destroyed. You will have to provide an
affidavit to that fact and, if required by paying agent or CPS, post a bond in
an amount that the paying agent or CPS, as the case may be, reasonably directs
as indemnity against any claim that may be made against them in respect of the
certificate.
After the merger, subject to the exceptions in the next sentence, you will
cease to have any rights as stockholder of TFC. The exceptions include the right
to receive dividends or other distributions with respect to your shares with a
record date before the closing of the merger, the right to surrender your
certificate in exchange for payment of the merger consideration or, if you
exercise your appraisal rights, the right to perfect your right to receive
payment for your shares under Delaware law.
The paying agent will, 180 days following the closing of the merger, return
to CPS all funds in its possession that constitute any portion of the merger
consideration, and the paying agent's duties will terminate. After that time,
stockholders who have not surrendered their certificates will be entitled to
look to CPS only as its general creditors with respect to the cash payable and
due on the surrender of their certificates. TFC, CPS and the paying agent will
not be liable to any former holder of TFC common stock or option for any amount
properly delivered to a public official under applicable abandoned property,
escheat or other similar laws.
You should NOT return your stock certificates with the enclosed proxy card,
and you should NOT send your stock certificates to the paying agent until you
receive the letter of transmittal.
Fees and Expenses of the Merger
Whether the merger is completed and, except as otherwise provided in the
merger agreement, all fees and expenses in connection with the merger will be
paid by the party incurring those fees and expenses. Excluding any termination
fees under the merger agreement, our total fees and expenses in connection with
the merger are estimated to be approximately $_______.
Appraisal Rights
Under Section 262 of the General Corporation Law of the State of Delaware,
stockholders of TFC who do not wish to accept the merger consideration of $1.87
in cash per share may elect to have the fair value of their shares of common
stock judicially determined and paid in cash, together with a fair rate of
interest, if any. The valuation will exclude any element of value arising from
the accomplishment or expectation of the merger. A stockholder may only exercise
appraisal rights on compliance with the provisions of Section 262.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the General Corporation Law of the State of Delaware,
and is qualified in its entirety by the full text of Section 262. We have
attached Section 262 in its entirety as Appendix C to this Proxy Statement. All
references in Section 262 and in this summary to a "stockholder" are to the
record holder of the shares of common stock as of April 15, 2003 as to which
appraisal rights are asserted. A person having a beneficial interest in shares
of common stock held of record in the name of another person, such as a broker
or nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect appraisal rights.
Under Section 262, when a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of our special meeting, the
corporation, not less than 20 days before the meeting,
31
must notify each of its stockholders entitled to appraisal rights that these
appraisal rights are available and include in that notice a copy of Section 262.
This Proxy Statement constitutes this notice to the holders of our common stock
and the applicable statutory provisions of the General Corporation Law of the
State of Delaware are attached to this Proxy Statement as Appendix C. Any
stockholder who wishes to exercise such appraisal rights or who wishes to
preserve the right to do so should review carefully the following discussion and
Appendix C. Failure to comply with the procedures specified in Section 262
timely and properly will result in the loss of appraisal rights. Moreover,
because of the complexity of the procedures for exercising the right to seek
appraisal of common stock, we believe that stockholders who consider exercising
such rights should seek the advice of counsel.
Any stockholder wishing to exercise the right to demand appraisal under
Section 262 of the General Corporation Law of the State of Delaware must satisfy
each of the following conditions:
. the stockholder must deliver to us a written demand for appraisal of his,
her or its shares before the vote on the merger agreement at the special
meeting. This demand will be sufficient if it reasonably informs us of the
identity of the stockholder and that the stockholder intends by that
writing to demand the appraisal of his, her or its shares;
. the stockholder must not vote his, her or its shares of common stock in
favor of the merger agreement. A proxy that does not contain voting
instructions will, unless revoked, be voted in favor of the merger
agreement. Therefore, a stockholder who votes by proxy and who wishes to
exercise appraisal rights must vote against the merger agreement or abstain
from voting on the merger agreement; and
. the stockholder must continuously hold his, her or its shares from the date
of making the demand through the effectiveness of the merger. A stockholder
who is the record holder of shares of common stock on the date the written
demand for appraisal is made but who thereafter transfers those shares
before the effectiveness of the merger will lose any right to appraisal in
respect of those shares.
Voting against, abstaining from voting on or failing to vote on the
proposal to adopt the merger agreement will not constitute a written demand for
appraisal within the meaning of Section 262. The written demand for appraisal
must be in addition to and separate from any proxy you deliver or vote you cast
in person.
Only a holder of record as of April 15, 2003 of shares of common stock is
entitled to assert appraisal rights for those shares registered in that holder's
name. A demand for appraisal should (i) be executed by or on behalf of the
stockholder of record, fully and correctly, as his, her or its name appears on
those stock certificates and (ii) specify the following:
. the stockholder's name and mailing address,
. the number of shares of common stock owned by the stockholder, and
. that the stockholder intends thereby to demand appraisal of its common
stock.
If the shares are owned of record by a person in a fiduciary capacity, such
as a trustee, guardian or custodian, the demand should be executed in that
capacity. If the shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all owners. An authorized agent, including an agent for two or more
joint owners, may execute a demand for appraisal on behalf of a stockholder;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is acting as agent
for such owner or
32
owners. A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners while not exercising these rights with respect
to the shares held for one or more other beneficial owners. In this case, the
written demand should set forth the number of shares for which appraisal is
sought, and where no number of shares is expressly mentioned the demand will be
presumed to cover all shares held in the name of the record owner. Stockholders
who hold their shares in brokerage accounts or other nominee forms and who wish
to exercise the appraisal rights must consult with their brokers to determine
appropriate procedures for the making of a demand for appraisal by such nominee.
A stockholder who elects to exercise appraisal rights pursuant to Section
262 should mail or deliver a written demand to: TFC Enterprises, Inc., 5425
Robin Hood Road, Norfolk, VA 23513, Attention: Patricia Piccola, Secretary
Within 10 days after the closing of the merger, the surviving corporation
must send a notice as to the effectiveness of the merger to each of our former
stockholders who has made a written demand for appraisal in accordance with
Section 262 and who has not voted to adopt the merger agreement. Within 120 days
after the closing of the merger, but not after that date, either the surviving
corporation or any stockholder who has complied with the requirements of Section
262 may file a petition in the Delaware Court of Chancery demanding a
determination of the value of the shares of common stock held by all
stockholders demanding appraisal of their shares. We are under no obligation to,
and have no present intent to, file a petition for appraisal, and stockholders
seeking to exercise appraisal rights should not assume that the surviving
corporation will file a petition or that the surviving corporation will initiate
any negotiations with respect to the fair market value of the shares.
Accordingly, stockholders who desire to have their shares appraised should
initiate any petitions necessary for the perfection of their appraisal rights
within the time periods and in the manner prescribed in Section 262. Because we
have no obligation to file a petition, your failure to do so within the period
specified could nullify your previous written demand for appraisal.
Under the merger agreement, we have agreed to give CPS prompt notice of any
demands for appraisal we receive. CPS has the right to participate in and
approve all negotiations and proceedings with respect to demands for appraisal
under the General Corporation Law of the State of Delaware. We will not, except
with the prior written consent of CPS, make any payment with respect to any
demands for appraisal, or offer to settle, or settle, any demands.
Within 120 days after the closing of the merger, any stockholder who has
complied with the provisions of Section 262 will be entitled to receive from the
surviving corporation, on written request, a statement setting forth the
aggregate number of shares not voted in favor of the merger agreement and with
respect to which we have received demands for appraisal and the aggregate number
of holders of those shares. The surviving corporation must mail this statement
to the stockholder by the later of 10 days after receipt of a request or 10 days
after expiration of the period for delivery of demands for appraisal under
Section 262.
A stockholder who timely files a petition for appraisal with the Delaware
Court of Chancery must serve a copy on the surviving corporation. The surviving
corporation must then within 20 days file with the Delaware Register in Chancery
a duly verified list containing the names and addresses of all stockholders who
have demanded appraisal of their shares and who have not reached agreements with
us as to the value of their shares. After such notice to stockholders ordered by
the Delaware Court of Chancery, the Delaware Court of Chancery is empowered to
conduct a hearing on the petition to determine which stockholders are entitled
to appraisal rights. The Delaware Court of Chancery may require stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates to the Register in Chancery for
notation on the certificates of the pendency of the appraisal proceedings, and,
if
33
any stockholder fails to comply with the requirement, the Delaware Court of
Chancery may dismiss the proceedings as to that stockholder.
After determining what stockholders are entitled to an appraisal, the
Delaware Court of Chancery will appraise the "fair value" of their shares. This
value will exclude any element of value arising from the accomplishment or
expectation of the merger, but will include a fair rate of interest, if any, to
be paid on the amount determined to be the fair value. The costs of the action
may be determined by the Delaware Court of Chancery and taxed upon the parties
as the Delaware Court of Chancery deems equitable. Costs do not, however,
include attorneys' or expert witness fees. On application of a stockholder, the
Delaware Court of Chancery may also order that all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding be
charged pro rata against the value of all of the shares entitled to appraisal.
These expenses may include, without limitation, reasonable attorneys' fees and
the fees and expenses of experts. Stockholders considering seeking appraisal
should be aware that the fair value of their shares as determined under Section
262 could be more than, the same as or less than the merger consideration they
would be entitled to receive under the merger agreement if they did not seek
appraisal of their shares. Stockholders should also be aware that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the closing of the merger, be entitled to vote the
shares subject to that demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares. Stockholders will, however, be
entitled to dividends or other distributions payable to holders of record of
shares as of a record date before the effectiveness of the merger.
Any stockholder may withdraw a demand for appraisal and accept the merger
consideration by delivering to the surviving corporation a written withdrawal of
the stockholder's demands for appraisal. Any attempt to withdraw made more than
60 days after the effectiveness of the merger will require written approval of
the surviving corporation and no appraisal proceeding before the Delaware Court
of Chancery as to any stockholder may be dismissed without the approval of the
Delaware Court of Chancery, and this approval may be conditioned on any terms
the Delaware Court of Chancery deems just.
If the surviving corporation does not approve a stockholder's request to
withdraw a demand for appraisal when the approval is required or if the Delaware
Court of Chancery does not approve the dismissal of an appraisal proceeding, the
stockholder will be entitled to receive only the appraised value determined in
any such appraisal proceeding. This value could be higher or lower than, or the
same as, the value of the merger consideration.
Failure to comply strictly with all of the procedures set forth in Section
262 of the General Corporation Law of the State of Delaware will result in the
loss of a stockholder's statutory appraisal rights. Consequently, we urge any
stockholder wishing to exercise appraisal rights to consult legal counsel before
attempting to exercise those rights.
Material Provisions of the Merger Agreement
This section of the Proxy Statement describes certain material terms of the
merger agreement. The following summary is qualified in its entirety by
reference to the complete text of the merger agreement, which is incorporated
into this Proxy Statement by reference and attached as Appendix A to this Proxy
Statement. We urge you to read the full text of the merger agreement.
34
Representations and Warranties
The merger agreement contains various representations and warranties with
respect to TFC and its subsidiaries relating to, among other things:
. our organization, qualification to do business and good standing;
. the validity of our organizational documents;
. our capitalization;
. the authorization, execution and enforceability of the merger agreement;
. the effect of the merger and the merger agreement on our obligations;
. applicable governmental consents and approvals in connection with the
merger;
. our possession of and compliance with permits and licenses required to
conduct our business;
. our compliance with applicable laws, rules and regulations of governmental
entities;
. our filings and reports with the SEC;
. the information contained in this Proxy Statement;
. the absence of material changes in our business operations since December
31, 2002;
. legal proceedings;
. taxes;
. employees, employee benefits and labor matters;
. financial statements;
. real property;
. title to property and assets;
. retail installment contracts;
. insurance;
. required vote of our stockholders at the special meeting;
. business relations with customers and service providers;
. brokers' fees and expenses; and
. our contract receivables.
35
The merger agreement contains various representations and warranties with
respect to CPS and CPS Mergersub, Inc. relating to, among other things:
. their organization, qualification to do business and good standing;
. the validity of their organizational documents;
. the authorization, execution and enforceability of the merger agreement;
. their legal proceedings;
. the absence of material changes in their business operations since December
31, 2002;
. the operation of CPS Mergersub, Inc.;
. their retail installment contracts;
. their SEC filings and reports;
. the effect of the merger and the merger agreement on obligations;
. governmental consents and approvals in connection with the merger;
. brokers' fees and expenses; and
. CPS's ability to pay the merger consideration and $620,000 of certain
subordinated debt in connection with the merger without the need to obtain
financing.
Certain of the representations and warranties listed above incorporate
knowledge standards and materiality qualifiers.
Conduct of Business Pending the Merger
TFC has agreed that, until the completion of the merger or unless CPS
consents in writing, TFC and its subsidiaries will:
. conduct their businesses in the usual, regular and ordinary course of
business consistent with past practices;
. use reasonable efforts to maintain and preserve intact its business
organization, employees and business relationships and retain the services
of its key officers and key employees; and
. take no action which would adversely affect or delay in any respect the
ability of either TFC or CPS to obtain any necessary approvals of any
governmental entity required for the transactions contemplated under the
merger agreement or to perform its covenants and agreements under the
merger agreement.
Except as permitted or required under the merger agreement, TFC has also
agreed that, until the completion of the merger, without the prior written
consent of CPS, it will not, nor will it permit its subsidiaries to:
36
. declare, set aside or pay any dividends on, or make any other distributions
on, any of our capital stock, or otherwise make any payments to our
stockholders, other than dividends and distributions by any subsidiary to
TFC;
. split, combine or reclassify any of our capital stock or issue or authorize
the issuance of any other securities;
. purchase, redeem or otherwise acquire any shares of our stock or any other
of our securities or any rights to acquire any such shares or other
securities;
. issue, deliver, sell, pledge, dispose of or encumber shares of our capital
stock or securities exchangeable for our capital stock, other than the
issuance of TFC common stock pursuant to the exercise of outstanding stock
options;
. amend our charter or bylaws;
. acquire or agree to acquire a substantial portion of the assets or equity
in another entity;
. acquire or agree to acquire any assets that are material to us other than
retail installment contracts purchased in the ordinary course of business;
. sell, lease, encumber or otherwise dispose of material assets, other than
in connection with sales in the ordinary course of business or in
connection with our warehouse facility and our securitization program;
. incur any indebtedness, guarantee any indebtedness or make any loans,
advances or investments in any other person, other than in the ordinary
course of business or between TFC and any of our subsidiaries or between
our subsidiaries;
. enter into, adopt or materially amend any employee plan or agreement,
except as required by applicable law or in the ordinary course of business;
. increase the compensation payable to our employees;
. change our independent public accountants or change any accounting methods
or policies, except as required by FASB;
. make any tax election not in the ordinary course of business;
. materially change any of our credit policies or hedging strategies; or
. agree or commit to do any of the foregoing.
TFC additionally has agreed, amongst other things:
. to expeditiously call and hold the special meeting;
. through our Board, to recommend the approval of the merger and the merger
agreement, except if the failure to withdraw such recommendation would
likely violate the Board's fiduciary duties to our stockholders;
37
. to submit the merger agreement to our stockholders for approval whether or
not our Board determines that the merger agreement is no longer advisable
and recommends that our stockholders reject it;
. to promptly prepare and file the Proxy Statement with the SEC;
. to use our reasonable best efforts to mail the Proxy Statement to our
stockholders promptly as practicable;
. subject to any existing restrictions, to provide to the representatives of
CPS reasonable access during normal business hours to all of our internally
available information and materials;
. to furnish CPS with copies of any our securities filings pursuant to the
requirements of federal or state securities laws;
. to use commercially reasonable efforts to obtain estoppel certificates from
our landlords.
Each of TFC and CPS has also agreed, among other things:
. to use our reasonable best efforts to take all actions, and to cooperate
with the other in doing all things advisable to expeditiously consummate
the merger;
. to use our reasonable best efforts to not take any action which would cause
any of our respective representations or warranties to be materially
untrue, result in a material breach of any covenant made in the merger
agreement, or which could reasonably be expected to delay the merger; and
. to use our reasonable best efforts to give prompt notice to the other party
of any event which could likely cause any representation or warranty to
become materially untrue, or cause any covenant to not be fulfilled.
We urge stockholders to carefully read the sections in the merger agreement
entitled "Covenants Relating to Conduct of Business" and "Additional
Agreements."
Regulatory Matters
The obligation of both parties to complete the merger is conditioned on the
receipt of any requisite material regulatory approvals. We cannot assure you
that all governmental agencies will approve or take the other required actions
with respect to the merger. This transaction does not require any consents to be
obtained under the terms of the Hart-Scott-Rodino Act.
No Solicitation of Alternative Transactions
Until the merger is completed or the merger agreement is terminated, TFC
has agreed not to directly or indirectly:
. solicit or initiate the submission of a takeover proposal involving TFC;
. enter into any agreement with respect to a takeover proposal involving TFC;
or
. participate in any discussions or negotiations or otherwise take any action
to facilitate a takeover proposal, including any action which could
reasonably be expected to lead to a takeover proposal.
38
Notwithstanding the forgoing, TFC and our Board may comply with SEC tender
offer and takeover rules (under Rules 14d-9 and 14e-2) and provide confidential
information and negotiate with a party in connection with an unsolicited
takeover proposal if, in our Board's good faith judgment and on the advice of
counsel, the failure to take any action would likely breach the Board's
fiduciary duty to our stockholders. TFC must advise CPS with respect to any such
takeover proposal, including the material terms of such takeover proposal.
A "takeover proposal" as it relates to TFC, is a third party proposal involving:
. a merger or business combination of TFC and any of its significant
subsidiaries; or
. the acquisition of 25% or more of the assets, equity or voting interests of
TFC and a significant subsidiary.
TFC may, however, in response and with respect to a bona fide unsolicited
takeover proposal from a third party submitted after the date of the merger
agreement that constitutes a "superior proposal," enter into or participate in
discussions or negotiations with such third party, provided that, based on the
advice of our outside counsel, TFC's Board of Directors determines in good faith
that failure to take such action in response to such a proposal would likely
constitute a breach by the Board of Directors of its fiduciary duties under
applicable law.
A "superior proposal" is a takeover proposal that our Board determines, in
its good faith judgment, after consultation with its financial advisors, is more
favorable to our stockholders from a financial point of view than the proposed
merger with CPS.
Nothing in the merger agreement prohibits our Board from disclosing to our
stockholders a position with respect to a transaction proposal by a third party
to the extent required under the Securities and Exchange Act of 1934, as
amended, including Rules 14e-2 and 14d-9, or from making such disclosure to our
stockholders that, based on advice of outside counsel, the Board determines in
good faith is required under applicable law.
Director and Officer Indemnification and Insurance
CPS must, or must cause the surviving corporation to, indemnify present and
former officers, directors, agents and employees of TFC and its subsidiaries to
the fullest extent that TFC and its subsidiaries would have been permitted under
applicable law, its charter documents or any existing agreement to indemnify
such persons. TFC or CPS must purchase, or must cause the surviving corporation
to purchase, a 6-year "tail" on our current director and officer insurance and
indemnification policy; provided however, that TFC, CPS and the surviving
corporation are not required to pay more than $300,000 for the 6-year tail
insurance.
Employee Benefits
For six months after the closing of the merger, the surviving entity must
provide those of our employees who continue employment with the surviving entity
with employee benefit plans no less favorable, in the aggregate, than the
employee benefit plans we provided to our employees immediately before the
merger.
39
CPS and the surviving entity have agreed to honor all employment
agreements, change of control agreements, bonus agreements, severance agreements
and any other agreements with our directors, officers and employees.
The surviving entity may amend or terminate any employee benefit plan or
policy or terminate any employee, provided, however, that no such termination or
amendment may impair the rights of any person with respect to any benefits
accrued as of the time of the termination or amendment.
Our stock option plans will terminate on the closing of the merger. Stock
options to purchase TFC common stock made under our stock option plans will
become immediately vested and holders of these options and awards will receive a
cash payment equal to the excess, if any, of $1.87 over the exercise price.
Conditions to Completion of the Merger
The completion of the merger depends on a number of conditions. The
respective obligation of each party to effect the merger are subject to the
fulfillment at or before closing of the merger of the following conditions:
. the merger and the merger agreement must have been duly approved by the
requisite vote of TFC stockholders;
. all material consents or approvals of, or filings with, or terminations or
expirations of waiting periods imposed by, any governmental entity must
have been obtained;
. no court or governmental entity having jurisdiction has issued any order or
injunction that has the effect of making the merger or any merger-related
transaction illegal;
. waivers and consents to the merger must be obtained from Westside Funding
Corporation, N.M., Rothschild & Sons, Ltd., Royal Sun Alliance, Radian
Asset Assurance, Inc. and Levine Leichtman Capital Partners II, L.P.;
. stock option cancellation agreements shall have been obtained from
substantially all holders of "out of the money" or "underwater" stock
options;
. no material suit, action or proceeding by any governmental entity relating
to the merger agreement or any merger-related transaction is pending;
. our respective representations and warranties in the merger agreement must
have been materially true and correct at the date the merger agreement was
executed and must remain materially true and correct as of the date of the
closing of the merger;
. each party has performed and complied in all material respects with its
obligations required by the merger agreement to be performed or complied
with on or before the date of the closing of the merger;
. each party has obtained the consent or approval of each non-governmental
entity or person whose consent or approval is materially required in
connection with the transactions contemplated in the merger agreement; and
. Robert S. Raley shall have entered into a new consulting agreement,
replacing his previous employment agreement.
40
Additionally, CPS's obligation to close the merger is subject to the
satisfaction or waiver of each of the following conditions before completion of
the merger:
. the holders of not more than 10% of our common stock have exercised their
appraisal rights under Delaware law; and
. we shall have entered into a securitization arrangement or obtained
alternate financing to repay all amounts due under the GE revolving line of
credit.
Termination of the Merger Agreement
Either of us may terminate the merger agreement at any time before the closing
of the merger, even after our stockholders vote to approve it, under the
following circumstances:
. by both of us on our mutual written consent;
. by either party if the other party has failed to materially comply with any
of its covenants or agreements contained in the merger agreement, and such
failure remains uncured for 30 business days after written notice from the
nonbreaching party of such failure;
. by either party if CPS fails to have the financing needed to pay the
aggregate merger consideration and $620,000 of certain subordinated debt;
. by either party if the other party breaches any of its representations or
warranties that are qualified as to materiality, and such breach remains
uncured for 30 business days after written notice from the nonbreaching
party of such breach;
. by either party if the other party breaches any of its representations or
warranties that are not qualified as to materiality, and such breach makes
such representation and warranty not true and correct in all material
respects;
. by either party if the merger has not closed by July 31, 2003, unless such
failure to close is caused by the terminating party's breach of its
obligations under the merger agreement;
. by either party if a governmental entity prohibits the consummation of the
merger and such governmental order or ruling is final and nonappealable; or
. by either party if our stockholders do not approve the merger agreement at
our special meeting, provided that we may not so terminate if we have
breached our obligations under the merger agreement, including, amongst
others, the failure to complete and file this Proxy Statement or to
recommend the merger to our stockholders.
CPS may terminate the merger agreement if any of the following occur:
. if a third party acquires 25% or more of our outstanding common stock;
. if our Board withdraws or modifies its recommendation to our stockholders
to approve the merger;
. if a tender or exchange offer for more than 25% of our common stock is
commenced, and our Board does not recommend that our stockholders do not
accept such offer;
41
. if the total shareholders' equity (as adjusted under the terms of the
merger agreement) of TFC at closing is less than the total shareholders'
equity of TFC on December 31, 2002; or
. if on or before April 30, 2003, CPS determines that any material portion of
our contract receivables are not valid or not enforceable, or that we have
failed to comply with the servicing requirements of applicable Servicing
and Sale and Servicing Agreements.
Additionally, TFC may terminate the merger agreement if our Board
determines that a takeover proposal constitutes a superior proposal. As
described above, a "superior proposal" means a takeover proposal that our Board
determines in its good faith judgment, after consultation with its financial
advisors, is more favorable to our stockholders from a financial point of view
than the proposed merger.
Payment of Fees and Expenses
TFC has agreed to reimburse CPS up to $500,000 for its out-of-pocket fees
and expenses and to pay CPS a cash termination fee of $650,000, less the
out-of-pocket fees and expenses reimbursed by TFC, in the following
circumstances:
. TFC terminates the merger agreement to accept a superior proposal;
. CPS terminates the merger agreement because our Board does not recommend
the approval of the merger by our stockholders or recommends a third party
takeover proposal;
. CPS terminates the merger agreement because a third party acquires 25% or
more of our outstanding common stock; or
. CPS terminates the merger agreement because our Board does not recommend
against a third party tender or exchange offer for our common stock.
TFC has agreed to reimburse CPS up to $500,000 for its out-of-pocket fees
and expenses in the following circumstances:
. if either TFC or CPS terminate the agreement if our stockholders do not
approve the merger agreement, through no fault or inaction on the part of
our Board; or
. if the total stockholders' equity (as adjusted under the terms of the
merger agreement) of TFC at closing is less than the total stockholders'
equity of TFC on December 31, 2002.
CPS has agreed to reimburse TFC up to $500,000 for its out-of-pocket fees
and expenses if CPS terminates the merger agreement because of CPS's inability
to have the financing to pay the aggregate merger consideration and $620,000 of
certain subordinated debt.
Extension, Waiver and Amendment of the Merger Agreement
TFC and CPS may amend the merger agreement before completion of the merger;
provided, however, after our stockholders approve the merger and the merger
agreement, no change may be made that would by law require the further approval
of our stockholders.
Either TFC or CPS may, in writing, extend the other's time for or waive
compliance with the performance of any of the obligations or other acts under
the merger agreement, waive any inaccuracies in
42
the other's representations and warranties and waive compliance by the other
with any of the agreements or conditions contained in the merger agreement.
The Board of Directors unanimously recommends that you vote "FOR" adoption
and approval of the merger agreement.
43
BENEFICIAL OWNERSHIP OF TFC ENTERPRISES, INC. COMMON STOCK
The following table sets forth information as of April 1, 2003 relating to
the beneficial ownership of the Company's Common Stock by (i) each director
nominee and each of the Company's directors and named executive officers, (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.
Amount of Beneficial
--------------------
Name and Address of Beneficial Owner/(1)/ Ownership Percent of Class
- ------------------------------------ --------- ----------------
Robert S. Raley, Jr. 1,436,359 (2) 12.22%
Walter S. Boone, Jr. 412,224 (3)(6) 3.56%
Douglas E. Bywater 404,409 (4)(6) 3.50%
Andrew M. Ockershausen 166,000 (6) 1.44%
Phillip R. Smiley 51,200 (5)(6) *
Linwood R. Watson 22,000 (6) *
Ronald G. Tray 205,212 (7) 1.75%
Rick S. Lieberman 56,478 (8) *
Delma H. Ambrose 51,922 (9) *
New Generation Advisers, Inc. 770,900 (10) 6.67%
Grand Slam Capital Partners, LLC 1,131,400 (11) 9.79%
All directors and executive 2,874,744 23.72%
Officers as a group (11 persons)
- -----------------------------------------
*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 200,000 shares which Mr. Raley has the
right to acquire within 60 days through the exercise of stock options
granted to Mr. Raley in January 1997 under the Company's 1995 Long-Term
Incentive Plan ("Incentive Plan") in connection with his 1997 compensation
package.
(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) Includes 35,200 shares owned jointly by Mr. Smiley and his wife.
44
(6) Includes 16,000 shares that each has the right to acquire within 60 days
through the exercise of stock options granted under the Non-Employee
Director Stock Option Plan.
(7) Includes 144,679 shares which Mr. Tray has the right to acquire within 60
days through the exercise of stock options granted under the Incentive Plan
and 2,000 shares owned by his wife.
(8) Includes 52,000 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 47,000 shares that Ms. Ambrose has the right to acquire within 60
days through the exercise of stock options granted under the Incentive
Plan.
(10) Per a Schedule 13G dated March 13, 2002, New Generation Advisers, Inc, 225
Friend Street, Suite 801, Boston MA, 02114, an investment adviser, owned
6.68% of common stock at December 31, 2001.
(11) Per a Schedule 13D/A dated February 7, 2003, Grand Slam Capital Partners
LP, One Bridge Plaza, Fort Lee NJ, 07024, an asset management company,
owned 9.8% of common stock at February 18, 2003.
STOCKHOLDER PROPOSALS
Proposals submitted by stockholders of TFC for presentation at the 2003
annual meeting of stockholders, which will not be held if the merger is
consummated, must be received by the Secretary of TFC no later than June 1, 2003
for inclusion in the proxy statement and form of proxy relating to the 2003
annual meeting of stockholders.
OTHER MATTERS
Each proxy solicited also confers discretionary authority on the proxy
holders appointed by our Board of Directors to vote the proxy with respect to
matters incident to the conduct of the meeting and on such other matters as may
properly come before the special meeting. Our Board of Directors is not aware of
any business to come before the special meeting other than those matters
described above in this Proxy Statement. If, however, any other matter should
properly come before the special meeting, it is intended that proxy holders will
act in accordance with their best judgment.
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements that involve
risks, uncertainties and assumptions. In particular, the statement that the
acquisition is expected to close by the end of May 2003 is a forward-looking
statement. The acquisition may not close in May 2003, or at all, if required
consents are not obtained, replacement funding for the GE revolving line of
credit has not been obtained, or TFC stockholders do not approve the
transaction. More generally, all statements herein other than statements of
historical fact are statements that could be deemed forward-looking statements.
CPS and TFC assume no obligation to update and do not intend to update these
forward-looking statements.
INDEPENDENT ACCOUNTANTS
The TFC Board appointed McGladrey & Pullen LLP to act as our independent
public accountants for 2003. McGladrey & Pullen LLP continues to perform audit
professional services for and on behalf of TFC. McGladrey & Pullen LLP's
unqualified opinion including a going concern explanatory paragraph on the
consolidated financial statements, together with
45
our consolidated financial statements, are included in our Annual Report on Form
10-K to stockholders, previously filed with the SEC.
46
Appendix A
AGREEMENT AND PLAN OF MERGER
AMONG
CONSUMER PORTFOLIO SERVICES, INC.
CPS MERGERSUB, INC.
AND
TFC ENTERPRISES, INC.
DATED AS OF MARCH 31, 2003
TABLE OF CONTENTS
ARTICLE 1 THE MERGER .................................................................. 1
Section 1.1 The Merger .................................................... 1
Section 1.2 Effective Time ................................................ 1
Section 1.3 Effects of the Merger ......................................... 2
Section 1.4 Charter and Bylaws; Directors and Officers .................... 2
Section 1.5 Conversion of Securities ...................................... 2
Section 1.6 Exchange of Certificates ...................................... 3
Section 1.7 Return of Payment Fund ........................................ 4
Section 1.8 No Further Ownership Rights in Company Common Stock ........... 4
Section 1.9 Closing of Company Transfer Books ............................. 4
Section 1.10 Lost Certificates ............................................. 4
Section 1.11 Further Assurances ............................................ 4
Section 1.12 Dissenting Shares ............................................. 5
Section 1.13 Closing ....................................................... 5
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB ............................ 6
Section 2.1 Organization, Standing and Power .............................. 6
Section 2.2 Authority ..................................................... 6
Section 2.3 Consents and Approvals; No Violation .......................... 7
Section 2.4 SEC Documents and Other Reports ............................... 7
Section 2.5 Absence of Certain Changes or Events .......................... 8
Section 2.6 Brokers ....................................................... 8
Section 2.7 Operations of Sub ............................................. 8
Section 2.8 No Need for Financing ......................................... 9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............................... 9
Section 3.1 Organization, Standing and Power .............................. 9
Section 3.2 Capital Structure ............................................. 9
Section 3.3 Authority ..................................................... 10
Section 3.4 Consents and Approvals; No Violation .......................... 11
Section 3.5 SEC Documents and Other Reports ............................... 11
Section 3.6 Proxy Statement ............................................... 12
Section 3.7 Absence of Certain Changes or Events .......................... 12
Section 3.8 Permits and Compliance ........................................ 12
Section 3.9 Tax Matters ................................................... 13
Section 3.10 Actions and Proceedings ....................................... 15
Section 3.11 Employees; Employee Benefits .................................. 16
Section 3.12 Labor Matters ................................................. 18
Section 3.13 Contract Receivables .......................................... 19
Section 3.14 Title of Property and Assets .................................. 19
Section 3.15 Real Property ................................................. 19
Section 3.16 Insurance ..................................................... 20
Section 3.17 Business Relations. ........................................... 20
i
Section 3.18 Retail Installment Contracts ............................. 20
Section 3.19 Opinion of Financial Advisor ............................. 20
Section 3.20 Required Vote of Company Stockholders .................... 21
Section 3.21 Brokers .................................................. 21
ARTICLE 4 COVENANTS RELATING TO CONDUCT OF BUSINESS ................................. 21
Section 4.1 Conduct of Business Pending the Merger ................... 21
Section 4.2 No Solicitation by the Company ........................... 22
ARTICLE 5 ADDITIONAL AGREEMENTS ..................................................... 23
Section 5.1 Company Stockholder Meeting .............................. 23
Section 5.2 Preparation of the Proxy Statement ....................... 24
Section 5.3 Access to Information .................................... 24
Section 5.4 Certain Payments, Fees and Expenses ...................... 24
Section 5.5 Reasonable Best Efforts .................................. 25
Section 5.6 Public Announcements ..................................... 26
Section 5.7 State Takeover Laws ...................................... 26
Section 5.8 Indemnification; Directors and Officers Insurance ........ 26
Section 5.9 Notification of Certain Matters .......................... 26
Section 5.10 Employee Benefit Plans and Agreements .................... 26
Section 5.11 Estoppel Certificates .................................... 27
ARTICLE 6 CONDITIONS PRECEDENT TO THE MERGER ........................................ 28
Section 6.1 Conditions to Each Party's Obligation to Effect
the Merger ............................................... 28
Section 6.2 Conditions to Obligation of the Company to Effect
the Merger ............................................... 28
Section 6.3 Conditions to Obligations of Parent and Sub to
Effect the Merger ........................................ 29
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER ......................................... 29
Section 7.1 Termination .............................................. 29
Section 7.2 Effect of Termination .................................... 31
Section 7.3 Amendment ................................................ 31
Section 7.4 Waiver ................................................... 31
ARTICLE 8 GENERAL PROVISIONS ........................................................ 32
Section 8.1 Nonsurvival of Representations and Warranties ............ 32
Section 8.2 Notices .................................................. 32
Section 8.3 Interpretation ........................................... 33
Section 8.4 Counterparts ............................................. 33
Section 8.5 Entire Agreement; No Third Party Beneficiaries ........... 33
Section 8.6 Governing Law ............................................ 33
Section 8.7 Assignment ............................................... 34
Section 8.8 Severability ............................................. 34
ii
TABLE OF DEFINED TERMS
Agreement ........................................................... 1
Blue Sky Laws ....................................................... 7
Certificate of Merger ............................................... 1
Certificates ........................................................ 3
Closing ............................................................. 5
Code ................................................................ 4
Company ............................................................. 1
Company Annual Report ............................................... 10
Company Bylaws ...................................................... 10
Company Charter ..................................................... 10
Company Common Stock ................................................ 2
Company Letter ...................................................... 10
Company Permits ..................................................... 13
Company SEC Documents ............................................... 11
Company Stockholder Meeting ......................................... 23
Confidentiality Agreement ........................................... 24
Constituent Corporations ............................................ 1
D&O Insurance Tail .................................................. 26
DGCL ................................................................ 1
Dissenting Shares ................................................... 5
Effective Time ...................................................... 1
Employees ........................................................... 16
ERISA ............................................................... 17
Former Employees .................................................... 16
Governmental Entity ................................................. 7
Income Taxes ........................................................ 14
IRCA ................................................................ 17
IRS ................................................................. 17
Knowledge of the Company ............................................ 16
Leased Real Property ................................................ 19
Liens ............................................................... 10
Material Adverse Effect ............................................. 6
Merger .............................................................. 1
Merger Consideration ................................................ 2
Non-Employees ....................................................... 16
Option .............................................................. 2
Parent .............................................................. 1
Parent Bylaws ....................................................... 7
Parent Charter ...................................................... 7
Parent Letter ....................................................... 7
Parent SEC Documents ................................................ 8
Paying Agent ........................................................ 3
Payment Fund ........................................................ 3
Proxy Statement ..................................................... 12
Real Property Leases ................................................ 19
iii
Retained Employees ...................................................... 27
Sarbanes-Oxley Act of 2002 .............................................. 8
SEC ..................................................................... 7
SOX ..................................................................... 7
State Takeover Approvals ................................................ 7
Sub ..................................................................... 1
Sub Charter ............................................................. 2
Subsidiary .............................................................. 6
Superior Proposal ....................................................... 30
Surviving Corporation ................................................... 1
Takeover Proposal involving the Company ................................. 23
Tax Return .............................................................. 14
Taxes ................................................................... 14
Taxing Authority ........................................................ 14
United States Real Property Holding Corporation ......................... 15
iv
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 31, 2003 (this
"Agreement"), is among Consumer Portfolio Services, Inc., a California
corporation ("Parent"), CPS Mergersub Inc., a Delaware corporation and a direct
wholly owned subsidiary of Parent ("Sub"), and TFC Enterprises, Inc., a Delaware
corporation (the "Company", together with Sub, the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have determined that the merger of Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein, is
advisable and fair to and in the best interests of their respective
stockholders;
WHEREAS, the respective Boards of Directors of the Company, Parent and
Sub have each approved and adopted, at meetings of each such Boards of
Directors, this Agreement and have authorized the execution hereof; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the Delaware General Corporation Law (the
"DGCL"), Sub shall be merged with and into the Company at the Effective Time (as
hereinafter defined). Following the Merger, the separate corporate existence of
Sub shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the DGCL.
Section 1.2 Effective Time. The Merger shall become effective when a
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DGCL, is filed with the Secretary of State of the
State of Delaware; provided, however, that, upon mutual consent of the
Constituent Corporations, the Certificate of Merger may provide for a later date
of effectiveness of the Merger not more than 30 days after the date the
Certificate of Merger is filed. When used in this Agreement, the term "Effective
Time" shall mean the date and time at which the Certificate of Merger is
accepted for recording or such later time established by the Certificate of
Merger. The filing of the Certificate of Merger shall be made on the date of the
Closing (as hereinafter defined).
Section 1.3 Effects of the Merger. The Merger shall have the effects
set forth in this Agreement and in Section 259 of the DGCL.
Section 1.4 Charter and Bylaws; Directors and Officers.
(a) At the Effective Time, the Certificate of Incorporation of Sub (the
"Sub Charter"), as in effect at the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until amended as provided by
applicable law except that the name of the Surviving Corporation shall initially
be "The Finance Company" At the Effective Time, the Bylaws of Sub as in effect
at the Effective Time shall be the Bylaws of the Surviving Corporation until
thereafter changed or amended in accordance with applicable law.
(b) The directors of Sub at the Effective Time of the Merger shall be
the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be. The officers of the Sub at the Effective Time of
the Merger shall be the officers of the Surviving Corporation, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
Section 1.5 Conversion of Securities. As of the Effective Time, by
virtue of the Merger and without any action on the part of Sub, the Company or
the holders of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, par value $.01
per share, of Sub shall be converted into one (1) validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Each issued and outstanding share of common stock, par value $0.01
per share, of the Company (the "Company Common Stock") that is held in the
treasury of the Company or by any wholly owned Subsidiary of the Company, and
any shares of Company Common Stock owned by Parent, shall be cancelled and no
capital stock of Parent or other consideration shall be delivered in exchange
therefor.
(c) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be cancelled in
accordance with Section 1.5(b) and any Dissenting Shares (as hereinafter
defined)) shall be converted into the right to receive $1.87 in cash payable to
the holder thereof, without interest thereon (the "Merger Consideration"). All
such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and each holder of
a certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration pursuant
to this Section 1.5(c). The Merger Consideration shall be appropriately adjusted
for any stock dividend, stock split or like transaction affecting Company Common
Stock prior to the Effective Time.
(d) Each option to acquire shares of Company Common Stock (an "Option")
outstanding immediately prior to the Effective Time, that is vested and
exercisable at that time, shall be cancelled and converted into the fully vested
right to receive the excess of $1.87, if any, over the exercise price per share
for which shares of Company Common Stock may be acquired
2
pursuant to the Option. Prior to the Effective Time, the Company shall take all
actions within its control which are necessary (and shall use its reasonable
best efforts to obtain such consents, if any, from Option holders as may be
required) to cancel and convert all outstanding Options in accordance with this
Section 1.5(d). All Options, when so converted, shall no longer be outstanding,
and each holder of such an Option shall cease to have any rights with respect
thereto, except the right to receive the consideration described in this Section
1.5(d). The consideration described in this Section 1.5(d) shall be
appropriately adjusted for any stock dividend, stock split or like transaction
affecting Company Common Stock prior to the Effective Time.
All applicable withholding taxes attributable to the payments made
hereunder or to distributions contemplated hereby shall be deducted from the
cash amount payable above. Except as provided herein or as otherwise agreed to
by the parties and to the extent permitted by the Company Stock Purchase Plan,
the Incentive Plan or the Director Plan (each as defined in Section 3.2(a)
hereof), the Company shall cause the Company Stock Purchase Plan, the Incentive
Plan and the Director Plan to terminate as of the Effective Time.
Section 1.6 Exchange of Certificates.
(a) Parent shall appoint a trust company or a commercial bank
reasonably acceptable to the Company to act as Paying Agent hereunder (the
"Paying Agent"). Prior to the Effective Time, Parent shall deposit with the
Paying Agent the aggregate Merger Consideration under Section 1.5(c) hereof (the
"Payment Fund"). The Paying Agent shall deliver the Merger Consideration
contemplated to be paid pursuant to Section 1.5(c) out of the Payment Fund.
(b) Parent shall cause the Paying Agent, as soon as practicable after
the Effective Time, to mail to each record holder of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock converted in the Merger (the
"Certificates") a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon actual delivery of the Certificates to the Paying Agent, and shall contain
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration). Upon surrender for cancellation to the Paying
Agent of one or more Certificates held by any record holder of a Certificate,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration pursuant to this Article 1, and any Certificate so surrendered
shall forthwith be cancelled. No interest will be paid or accrued on the Merger
Consideration payable to the holder of the Certificates.
(c) The Paying Agent shall invest the Payment Fund, as directed by
Parent, in (i) direct obligations of the United States of America, (ii)
obligations for which the full faith and credit of the United States of America
is pledged to provide for the payment of principal and interest, or (iii)
certificates of deposit, bank repurchase agreements or bankers acceptances, of
commercial banks with assets exceeding $1,000,000,000, and any net earnings with
respect thereto shall be paid to Parent as and when requested by Parent;
provided that any such investment or any such payment of earnings shall not
delay the receipt by holders of Certificates of their Merger Consideration or
otherwise impair such holders' respective rights hereunder.
3
Parent must promptly replace any portion of the Payment Fund which the Paying
Agent loses through investments.
(d) If any Merger Consideration is to be paid to a name other than that
in which the Certificate surrendered is registered, it shall be a condition of
such payment that the Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
payment shall pay to the Paying Agent any taxes required by reason of payment or
shall establish to the satisfaction of the Paying Agent that such tax has been
paid or is not applicable. Parent or the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts as Parent
or the Paying Agent is required to deduct and withhold with respect to the
making of such payment under the Internal Revenue Code of 1986, as amended (the
"Code"), or under any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Parent or the Paying Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of Company Common Stock in respect of which such
deduction and withholding was made by Parent or the Paying Agent.
Section 1.7 Return of Payment Fund. Any portion of the Payment Fund
which remains undistributed to the former stockholders of the Company for six
months after the Effective Time shall be delivered to Parent, upon demand of
Parent, and any such former stockholders who have not theretofore complied with
this Article 1 shall thereafter look only to Parent for payment of their claim
for their Merger Consideration. Neither Parent nor the Surviving Corporation
shall be liable to any former holder of Company Common Stock for any such Merger
Consolidation that is delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Section 1.8 No Further Ownership Rights in Company Common Stock. The
Merger Consideration issued upon the surrender of Certificates in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to the shares of Company Common Stock represented by
such Certificates.
Section 1.9 Closing of Company Transfer Books. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock shall thereafter be made on the records of the
Company. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, the Paying Agent or the Parent, such Certificates shall
be cancelled as provided in this Article 1.
Section 1.10 Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent or the Paying Agent, the posting by such person of a bond, in
such reasonable amount as Parent or the Paying Agent may direct as indemnity
against any claim that may be made against them with respect to such
Certificate, the Paying Agent will pay the Merger Consideration for such lost,
stolen or destroyed Certificate.
Section 1.11 Further Assurances. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or
4
assurances or any other acts or things are necessary, desirable or proper (a) to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation
its right, title or interest in, to or under any of the rights, privileges,
powers, franchises, properties or assets of either of the Constituent
Corporations or (b) otherwise to carry out the purposes of this Agreement, the
Surviving Corporation and its proper officers and directors or their designees
shall be authorized to execute and deliver, in the name and on behalf of either
of the Constituent Corporations, all such deeds, bills of sale, assignments and
assurances and to do, in the name and on behalf of either Constituent
Corporation, all such other acts and things as may be necessary, desirable or
proper to vest, perfect or confirm the Surviving Corporation's right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of such Constituent Corporation and otherwise to carry out
the purposes of this Agreement.
Section 1.12 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time held by a holder (if any), who has the
right to demand, and who properly demands, an appraisal of such shares of
Company Common Stock in accordance with Section 262 of the DGCL (or any
successor provision) ("Dissenting Shares") shall not be converted into a right
to receive their Merger Consideration unless such holder fails to perfect or
otherwise loses such holder's right to such appraisal, if any. If, after the
Effective Time, such holder fails to perfect or loses any such right to
appraisal, each such share of Company Common Stock of such holder shall be
treated as a share of Company Common Stock that had been converted as of the
Effective Time into the right to receive the Merger Consideration in accordance
with Article 1. At the Effective Time, any holder of Dissenting Shares shall
cease to have any rights with respect thereto, except the rights provided in
Section 262 of the DGCL (or any successor provision) and as provided in the
immediately preceding sentence. The Company shall give prompt notice to Parent
of any demands received by the Company for appraisal of shares of Company Common
Stock, and Parent shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands. Parent shall be
responsible for all payments with respect to the Dissenting Shares, including
without limitation, all expenses associated with any negotiations and
proceedings with respect to demands for appraisal under the DGCL.
Section 1.13 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") and all actions specified in this Agreement to
occur at the Closing shall take place at the offices of Bingham McCutchen LLP,
399 Park Avenue, New York, New York at 10:00 a.m., local time, no later than the
second business day following the day on which the last of the conditions set
forth in Article 6 shall have been fulfilled or waived (if permissible) or at
such other time and place as Parent and the Company shall agree.
5
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 2.1 Organization, Standing and Power. Each of Parent and Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each Subsidiary of Parent is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of their properties owned or
held under lease or the nature of their activities makes such qualification
necessary, except where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect (as hereinafter defined) on
Parent. For purposes of this Agreement (a) "Material Adverse Effect" means, when
used with respect to Parent, Sub or the Company, as the case may be, any event,
change or effect, including, without limitation, any event, change or effect
arising from acts of terrorism or war, that individually or when taken together
with all other such events, changes or effects is materially adverse to the
business, financial condition or results of operations of Parent and its
Subsidiaries, taken as a whole, or the Company and its Subsidiaries, taken as a
whole, as the case may be, except to the extent resulting from or relating to
(i) any event, change or effect affecting the economy of the United States or
the consumer finance industry generally other than any event, change or effect
arising from acts of terrorism or war, or (ii) the execution or announcement of,
or compliance with the terms of, this Agreement; and (b) "Subsidiary" means any
corporation, partnership, limited liability company, joint venture or other
legal entity of which Parent or the Company, as the case may be (either alone or
through or together with any other Subsidiary), owns, directly or indirectly,
50% or more of the stock or other equity interests, the holders of which are
generally entitled to vote for the election of the Board of Directors or other
governing body of such corporation, partnership, limited liability company,
joint venture, other legal entity, or a statutory or business trust (i) that
holds receivables, and (ii) of which the Company or a Subsidiary thereof is a
beneficiary or the holder of a beneficial interest.
Section 2.2 Authority. On or prior to the date of this Agreement, the
Boards of Directors of Parent and Sub have (i) declared the Merger advisable and
fair to and in the best interest of Parent and Sub, respectively, and their
respective stockholders and (ii) approved and adopted this Agreement in
accordance with the General Corporation Law of California and the DGCL. Each of
Parent and Sub has all requisite corporate power to enter into this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Parent and Sub and the consummation by Parent and
Sub of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Parent and Sub, subject to filing of
appropriate Merger documents as required by the DGCL. This Agreement and the
consummation of the transactions contemplated hereby have been approved by
Parent as the sole stockholder of Sub. This Agreement has been duly executed and
delivered by Parent and Sub, and (assuming the valid authorization, execution
and delivery of this Agreement by the Company and the validity and binding
effect hereof on the Company) this Agreement constitutes the valid and binding
obligation of Parent and Sub enforceable against each of them in accordance with
its terms except as the same may be limited by applicable
6
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
other laws or equitable principles in effect relating to creditors' rights and
remedies and general principles of equity.
Section 2.3 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
2.3 have been obtained and all filings and obligations described in this Section
2.3 have been made, and, except as set forth in Section 2.3 of the letter dated
the date hereof and delivered on the date hereof by Parent to the Company, which
letter relates to this Agreement and is designated the Parent Letter (the
"Parent Letter"), the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Parent
or any of its Subsidiaries under, any provision of (i) the Articles of
Incorporation of Parent (the "Parent Charter") or the Bylaws of Parent (the
"Parent Bylaws") or the Sub Charter or Bylaws of Sub, (ii) any provision of the
comparable charter or organization documents of any of Parent's Subsidiaries,
(iii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to Parent or any of its Subsidiaries or (iv) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or any of its
Subsidiaries or any of their respective properties or assets, other than, in the
case of clauses (ii), (iii) or (iv) , any such violations, defaults, rights,
liens, security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent, materially impair
the ability of Parent or Sub to perform their respective obligations hereunder
or prevent the consummation of any of the transactions contemplated hereby. No
filing or registration with, or authorization, consent or approval of, any
domestic (federal and state), foreign or supranational court, commission,
governmental body, regulatory agency, authority or tribunal (a "Governmental
Entity") is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Parent or Sub or
is necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement, except for (i) in connection or in compliance
with the Securities Exchange Act of 1934, as amended (together with the
applicable rules and regulations thereunder including without limitation, those
regulations adopted in accordance with the Sarbanes-Oxley Act of 2002 ("SOX"),
the "Exchange Act"), (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which the Company or any of its
Subsidiaries is qualified to do business, (iii) such filings, authorizations,
orders and approvals as may be required by state takeover laws (the "State
Takeover Approvals"), (iv) applicable requirements, if any, of state securities
or "blue sky" laws ("Blue Sky Laws") and NASDAQ, (v) as may be required under
foreign laws and (vi) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse Effect
on Parent, materially impair the ability of Parent or Sub to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby.
Section 2.4 SEC Documents and Other Reports. Parent has filed all
required documents with the U.S. Securities and Exchange Commission (the "SEC")
since December 31,
7
2002 (as they have been amended or supplemented since the time of their filing
to the date hereof and including all such forms, reports, schedules, statements
and documents filed with the SEC after the date of this Agreement, collectively
"Parent SEC Documents") in a timely manner. As of their respective dates, Parent
SEC Documents complied or will comply in all material respects with the
requirements of the Securities Act of 1933, as amended (together with the
applicable rules and regulations thereunder, including without limitation, those
regulations adopted in accordance with SOX, the "Securities Act"), or the
Exchange Act, as the case may be, to the extent applicable thereto, and, at the
respective times filed, none of Parent SEC Documents contained or will contain
any untrue statement of a material fact or omitted or will omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements (including, in each case, any
notes thereto) of Parent included in Parent SEC Documents complied or will
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared or will be prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto) and fairly
presented or will present in all material respects the consolidated financial
position of Parent and its consolidated Subsidiaries as at the respective dates
thereof and the consolidated results of their operations and their consolidated
cash flows for the periods then. Except as disclosed in Parent SEC Documents or
as required by generally accepted accounting principles, Parent has not, between
December 31, 2002 and the date hereof, made any material change in the
accounting practices or policies applied in the preparation of such financial
statements.
Section 2.5 Absence of Certain Changes or Events. Except as disclosed
in Parent SEC Documents filed with the SEC prior to the date of this Agreement
or as disclosed in Section 2.5 of Parent Letter, since December 31, 2002, (a)
Parent and its Subsidiaries have not incurred any liability or obligation
(indirect, direct or contingent) that, individually or in the aggregate, would
result in a Material Adverse Effect on Parent, (b) Parent and its Subsidiaries
have not sustained any loss or interference with their business or properties
from fire, flood, windstorm, accident or other calamity (whether or not covered
by insurance) that has had a Material Adverse Effect on Parent, (c) there has
been no dividend or distribution of any kind declared, paid or made by Parent on
any class of its stock and (d) there has been no Material Adverse Effect with
respect to Parent.
Section 2.6 Brokers. No broker, investment banker or other person,
other than Westdeutsche Landesbank Girozentrale, New York Branch, the fees and
expenses of which will be paid by Parent, is entitled to any broker's, finder's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent.
Section 2.7 Operations of Sub. Sub is a direct, wholly owned subsidiary
of Parent, was formed solely for the purpose of engaging in the transactions
contemplated hereby, and has engaged in no other business activities other than
those necessary to consummate the transaction described herein.
8
Section 2.8 No Need for Financing. Parent is in possession of sufficient
cash reserves to fund the Payment Fund in full and to redeem up to $620,000 of
the Private Placement Notes (as such term is defined in Section 3.4 of the
Company Letter) held by the individuals identified in Section 2.8 of the Company
Letter (the "Redeemable Placement Debt") without the need for additional
financing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 Organization, Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted. Each Subsidiary of the Company is
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate power and
authority to carry on its business as now being conducted, except where the
failure to be so organized, existing or in good standing or to have such power
or authority would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. The Company and each of its Subsidiaries are duly
qualified to do business, and are in good standing, in each jurisdiction where
the character of their properties owned or held under lease or the nature of
their activities makes such qualification necessary, except where the failure to
be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Section 3.2 Capital Structure.
(a) As of the date hereof, the authorized capital stock of the Company
consists of 41,000,000 shares of capital stock of which 40,000,000 are shares of
Company Common Stock, par value $.01 per share, and 1,000,000 are shares of
preferred stock, par value $.01 per share, of the Company. At the close of
business on March 17, 2003, (i) 11,551,033 shares of Company Common Stock were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable and free of preemptive rights, (ii) no shares of Company Common
Stock were held in the treasury of the Company, (iii) 856,679 shares of Company
Common Stock were reserved for issuance pursuant to Options issued and
outstanding pursuant to the 1995 Long Term Incentive Plan (the "Incentive Plan")
and the Non-Employee Director Stock Option Plan (the "Director Plan") and (iv)
307,500 shares of Common Stock were reserved for issuance pursuant to the change
of control agreements (the "Change of Control Agreements") disclosed in Section
3.2 of the Company Letter, which do not vest unless a change of control, as
defined in the Change of Control Agreements, occurs. No shares of Company Common
Stock are reserved for issuance under issued and outstanding Options under the
Employee Stock Purchase Plan (the "Company Stock Purchase Plan"). The Company
Stock Purchase Plan, the Incentive Plan and the Director Plan are the only
benefit plans of the Company or its Subsidiaries under which any securities of
the Company are issuable. All Options will be fully vested and exercisable at or
prior to the Effective Time. As of the date of this Agreement, except (i) as set
forth above and (ii) for the issuance of shares of Company Common Stock upon the
exercise of (x) Options, and (y) the General Electric Capital Corporation
warrants to purchase an aggregate of 1,135,280
9
shares of Company Common Stock, no shares of capital stock or other voting
securities of the Company were issued, reserved for issuance or outstanding. As
of the date of this Agreement, except (i) as set forth above, and (ii) as set
forth in Section 3.2 of the letter dated the date hereof and delivered on the
date hereof by the Company to Parent, which letter relates to this Agreement and
is designated the "Company Letter," there are no options, warrants, calls,
rights, puts or agreements to which the Company or any of its Subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver, sell or redeem, or cause to be issued,
delivered, sold or redeemed, any additional shares of capital stock (or other
voting securities or equity equivalents) of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right, put or agreement.
True, complete and correct copies of the Restated Certificate of Incorporation
of the Company (the "Company Charter") and the Bylaws of the Company, as amended
(the "Company Bylaws"), have been delivered to Parent.
(b) Each outstanding share of capital stock (or other voting security or
equity equivalent) of each Subsidiary of the Company is duly authorized, validly
issued, fully paid and nonassessable, and each such share (or other voting
security or equity equivalent) is owned by the Company or another Subsidiary of
the Company, free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on voting rights,
charges and other encumbrances of any nature whatsoever (collectively, "Liens")
other than such Liens which (individually or in the aggregate) would not have a
Material Adverse Effect on the Company. The Company does not have any
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or convertible into or exercisable for securities having
the right to vote) with the stockholders of the Company on any matter. Exhibit
21 to the Company's Annual Report on Form 10-K for the year ended December 31,
2002 (the "Company Annual Report"), a true and complete copy of which has been
delivered to the Parent prior to the date hereof, is and will be when filed with
the SEC, a true, accurate and correct statement in all material respects of all
of the information required to be set forth therein by the regulations of the
SEC. The Company's current Subsidiaries are identified in Section 3.2(b) of the
Company Letter.
Section 3.3 Authority. On or prior to the date of this Agreement, the
Board of Directors of the Company has unanimously (i) declared the Merger
advisable and fair to and in the best interest of the Company and its
stockholders, (ii) approved and adopted this Agreement in accordance with the
DGCL, (iii) resolved to recommend the approval and adoption of this Agreement by
the Company's stockholders and (iv) directed that this Agreement be submitted to
the Company's stockholders for approval and adoption. The Company has all
requisite corporate power to enter into this Agreement and, subject to approval
by the stockholders of the Company of this Agreement, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, subject to (x) approval of this Agreement by the
stockholders of the Company and (y) the filing of appropriate Merger documents
as required by the DGCL. This Agreement has been duly executed and delivered by
the Company and (assuming the valid authorization, execution and delivery of
this Agreement by Parent and Sub and the validity and binding effect of the
Agreement on Parent and Sub) constitutes the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
the
10
same may be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws or equitable principles in effect
relating to creditors' rights and remedies and general principles of equity. The
filing of the Proxy Statement with the SEC has been duly authorized by the
Company's Board of Directors.
Section 3.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
3.4 have been obtained and all filings and obligations described in this Section
3.4 have been made, except as set forth in Section 3.4 of the Company Letter,
the execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby and compliance with the provisions hereof
will not, result in any violation of, or default (with or without notice or
lapse of time, or both) under, or give to others a right of termination,
cancellation or acceleration of any obligation or the loss of a material benefit
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any of its
Subsidiaries under, any provision of (i) the Company Charter or the Company
Bylaws, (ii) any provision of the comparable charter or organization documents
of any of the Company's Subsidiaries, (iii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
Subsidiaries or (iv) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its Subsidiaries or any of
their respective properties or assets, other than, in the case of clauses (ii) ,
(iii) or (iv) , any such violations, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the aggregate, would
not have a Material Adverse Effect on the Company, materially impair the ability
of the Company to perform its obligations hereunder or prevent the consummation
of any of the transactions contemplated hereby. No filing or registration with,
or authorization, consent or approval of, any Governmental Entity is required by
or with respect to the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by the Company or is necessary for the
consummation of the Merger and the other transactions contemplated by this
Agreement except for (i) in connection or in compliance with the provisions of
the Exchange Act, (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which the Company or any of its
Subsidiaries is qualified to do business, (iii) such filings, authorizations,
orders and approvals as may be required to obtain the State Takeover Approvals,
(iv) applicable requirements, if any, of Blue Sky Laws, (v) as may be required
under foreign laws and (vi) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse Effect
on the Company, materially impair the ability of the Company to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby. Except as set forth in Section 3.4 of the Company Letter,
the Company and its Subsidiaries do not have outstanding, and have not arranged
any outstanding, "extensions of credit" to directors or executive officers
within the meaning of Section 402 of SOX.
Section 3.5 SEC Documents and Other Reports. On or prior to the date of
this Agreement, the Company has filed all required documents with the SEC since
December 31, 2002 (as they have been amended or supplemented since the time of
their filing to the date hereof and including all such forms, reports,
schedules, statements and documents filed with the SEC after the date of this
Agreement, collectively, the "Company SEC Documents") in a timely
11
manner. As of their respective dates, the Company SEC Documents complied or will
comply in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, to the extent applicable thereto, and, at
the respective times filed, none of the Company SEC Documents contained or will
contain any untrue statement of a material fact or omitted or will omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements (including, in each case,
any notes thereto) of the Company included in the Company SEC Documents complied
or will comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared or will be prepared in accordance with generally accepted
accounting principles (except, in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly presented or will present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
respective dates thereof and the consolidated results of their operations and
their consolidated cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year end audit adjustments and to any other
adjustments described therein). Except as disclosed in the Company SEC Documents
or as required by generally accepted accounting principles, the Company has not,
between December 31, 2002 and the date hereof, made any material change in the
accounting practices or policies applied in the preparation of financial
statements.
Section 3.6 Proxy Statement. None of the information to be included in
the Proxy Statement relating to the Company Stockholders Meeting (as defined in
Section 5.1) (the "Proxy Statement") will at the time of the mailing of the
Proxy Statement and at the time of the Company Stockholder Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed
in the Company SEC Documents filed with the SEC prior to the date of this
Agreement or as disclosed in Section 3.7 of the Company Letter, since December
31, 2002: (a) the Company and its Subsidiaries have not incurred any material
liability or obligation (indirect, direct or contingent) that would result in a
Material Adverse Effect on the Company; (b) the Company and its Subsidiaries
have not sustained any loss or interference with their business or properties
from fire, flood, windstorm, accident or other calamity (whether or not covered
by insurance) that has had a Material Adverse Effect on the Company; (c) there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its stock except for regular quarterly cash dividends to
shareholders of the Company; and (d) there has been no Material Adverse Effect
with respect to the Company.
Section 3.8 Permits and Compliance.
(a) Each of the Company and its Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates,
12
approvals and orders of any Governmental Entity necessary for the Company or any
of its Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Company Permits"), except where the
failure to have any of the Company Permits would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. Neither the Company
nor any of its Subsidiaries is in violation of (i) its charter, bylaws or other
organizational documents, (ii) any applicable law, ordinance, administrative or
governmental rule or regulation or (iii) any order, decree or judgment of any
Governmental Entity having jurisdiction over the Company or any of its
Subsidiaries, except, in the case of clauses (i), (ii) and (iii), for any
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company.
(b) Except as disclosed in the Company SEC Documents filed on or prior
to the date of this Agreement or as disclosed in Section 3.8 of the Company
Letter, as of the date hereof, there is no contract or agreement that is or was
required to be filed by the Company as a material contract pursuant to Item 601
of Regulation S-K under the Securities Act. Except as set forth in Section 3.8
of the Company Letter or disclosed in the Company SEC Documents, as of the date
hereof, neither the Company nor any of its Subsidiaries is a party to or bound
by any agreement evidencing, or guarantee relating to, indebtedness for borrowed
money, or which obligates the Company or any of its Subsidiaries to pay for
goods or services, to the extent the aggregate principal amount outstanding
thereunder with respect to indebtedness, or to the extent the total amount to be
paid with respect to goods or services, exceeds one percent of the aggregate
Merger Consideration to be paid pursuant to ss.1.5(c) hereof. Except as set
forth in Section 3.8 of the Company Letter, no event of default or event that,
but for the giving of notice or the lapse of time or both, would constitute an
event of default exists or, upon the consummation by the Company of the
transactions contemplated by this Agreement will exist under any indenture,
mortgage, loan agreement, note or other agreement or instrument for borrowed
money, any guarantee of any agreement or instrument for borrowed money or any
lease, contractual license or other agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which the Company or any such
Subsidiary is bound or to which any of the properties, assets or operations of
the Company or any such Subsidiary is subject, other than any defaults that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
Section 3.9 Tax Matters.
(a) Except as set forth in Section 3.9 of the Company Letter, or in
the Company Annual Report, or as would not have a Material Adverse Effect on the
Company, the Company and its Subsidiaries (i) have timely filed all Tax Returns
that are required to have been filed by each of them with all appropriate
governmental agencies (and all such returns are true and correct and fairly
reflect in all material respects its operations for tax purposes); and (ii) have
timely paid all Taxes due and payable (other than Taxes the validity of which
are being contested in good faith by appropriate proceedings). The assessment of
any additional Taxes for periods for which returns have been filed is not
expected to exceed an amount that would have a Material Adverse Effect on the
Company and, to the Knowledge of the Company, there are no material unresolved
claims concerning the Company's or any Subsidiary's Tax liability. The Company's
and the Subsidiaries' Tax Returns have not been reviewed or audited by any
Taxing Authority. There is no action, suit, proceeding, investigation, audit,
claim or assessment pending or
13
threatened in writing with respect to the Company or any Subsidiary with respect
to a liability for Taxes or with respect to any Tax Return, except for those
which would not have a Material Adverse Effect on the Company. No liens exist
for Taxes (other than liens for Taxes not yet due and payable) with respect to
any of the assets or properties of the Company, except for those which would not
have a Material Adverse Effect on the Company. For purposes of this Agreement,
(i) "Taxes" shall mean all federal, state, local and foreign income, profits,
franchise, gross receipts, payroll, sales, employment, use, property, excise,
withholding and other taxes, duties or assessments, together with all interest,
penalties and additions imposed with respect to such amounts; (ii) "Income
Taxes" shall mean all franchise Taxes and all Taxes imposed on or measured by
net income or gross profits or gross receipts or capital (but excluding sales,
use, value added and property Taxes), together with all interest, penalties and
additions imposed with respect to such amounts; (iii) "Taxing Authority" shall
mean any domestic, foreign, federal, national, state, county or municipal or
other local government, any subdivision, agency, commission or authority
thereof, or any quasi-governmental body exercising tax regulatory authority and
(iv) "Tax Return" shall mean any return, report or similar statement (including
the attached schedules) required to be filed with respect to any Tax, including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
(b) Neither the Company nor any Subsidiary has outstanding agreements
or waivers extending, or having the effect of extending, the statute of
limitations with respect to the assessment or collection of any Tax. The Tax
Returns of the Company and the Subsidiaries with respect to federal income taxes
have been examined by the IRS, or the statute of limitations with respect to the
assessment or collection of the relevant Tax liability has expired, for all
taxable periods through and including the year ended December 31, 1995.
(c) Neither the Company nor any Subsidiary is a party to or bound by
any tax-sharing agreement, tax indemnity obligation or similar agreement,
arrangement or practice with respect to Taxes (including any advance pricing
agreement, closing agreement or other agreement relating to Taxes with any
Taxing Authority).
(d) Except as set forth in Section 3.9 of the Company Letter or as
would not have a Material Adverse Effect on the Company, the Company and its
Subsidiaries shall not be required to include in a taxable period ending after
the Closing Date any taxable income attributable to income that accrued in a
prior taxable period but was not recognized in any prior taxable period as a
result of the installment method of accounting, the cash method of accounting or
Section 481 of the Code or any comparable provision of state, local or foreign
Tax law, or for any other reason.
(e) Except as set forth in Section 3.9 of the Company Letter or as
would not have a Material Adverse Effect on the Company, neither the Company,
nor any of its Subsidiaries, has made with respect to the Company any consent
under Section 341 of the Code, no property of the Company is "tax exempt use
property" within the meaning of Section 168(h) of the Code, the Company is not a
party to any lease made pursuant to Section 168(f)(8) of the Internal Revenue
Code of 1954, and none of the assets of the Company is subject to a lease under
Section 7701(h) of the Code or under any predecessor Section thereof.
14
(f) Except as set forth in Section 3.9 of the Company Letter, no
currently effective power of attorney with respect to any Taxes has been
executed or filed with any Taxing Authority by or on behalf of the Company or
any Subsidiary of the Company.
(g) The Company and its Subsidiaries have complied in all material
respects with all applicable laws relating to the payment and withholding of
Taxes (including withholding of Taxes pursuant to Sections 1441, 1442, 3121 and
3402 of the Code or any comparable provision of any state, local or foreign
laws) and have, within the time and in the manner prescribed by applicable law,
withheld from and paid over to the proper Taxing Authorities all amounts
required to be so withheld and paid over under applicable laws.
(h) Any deficiency resulting from any audit or examination relating to
Taxes of the Company or any Subsidiary by any Taxing Authority has been timely
paid.
(i) Section 3.9 of the Company Letter lists all jurisdictions in which
the Company and any Subsidiary currently files Tax Returns. No jurisdiction
where the Company or any Subsidiary does not file a Tax Return has made a claim
that the Company or any Subsidiary is required to file a Tax Return for such
jurisdiction.
(j) Except as set forth in Section 3.9 of the Company Letter, neither
the Company nor any Subsidiary has requested an extension of time within which
to file any Tax Return with respect to any taxable period or year for which such
Tax Return has not since been filed.
(k) Neither the Company nor any Subsidiary is or has been a "United
States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code and Parent or Merger Subsidiary is not required to
withhold Tax on the purchase of Company Common Shares pursuant to the Merger by
reason of Section 1445 of the Code.
(l) Except as set forth in Section 3.9 of the Company Letter or as
would not have a Material Adverse Effect on the Company, neither the Company nor
any Subsidiary has made any payment, is obligated to make any payment, or is a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 162(m) or Section
280G of the Code.
Section 3.10 Actions and Proceedings. Except as set forth in the
Company SEC Documents filed prior to the date of this Agreement and except as
set forth in Section 3.10 of the Company Letter, there are no outstanding
orders, judgments, injunctions, awards or decrees of any Governmental Entity
against or involving the Company or any of its Subsidiaries, or against or
involving any of the present or former directors, officers, employees of the
Company or any of its Subsidiaries, as such, or any of its or their properties,
assets or business or any Benefit Plan (as hereinafter defined) that,
individually or in the aggregate, would have a Material Adverse Effect on the
Company or materially impair the ability of the Company to perform its
obligations hereunder. Except as set forth in the Company SEC Documents filed
prior to the date of this Agreement or in Section 3.10 of the Company Letter,
there are no actions, suits or claims or legal, administrative or arbitration
proceedings or investigations pending or, to the Knowledge of the Company,
threatened against or involving the Company or any of its Subsidiaries or any of
15
its or their present or former directors, officers, employees, as such, or any
of its or their properties, assets or business that, individually or in the
aggregate, would have a Material Adverse Effect on the Company or materially
impair the ability of the Company to perform its obligations hereunder. As of
the date hereof, there are no actions, suits, or other litigation, legal or
administrative proceedings or governmental investigations pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries or any of its or their present or former officers, directors,
employees or any of its or their properties, assets or business, in each case
relating to the transactions contemplated by this Agreement. Section 3.10 of the
Company Letter sets forth a list of all outstanding litigation to which the
Company or any of its Subsidiaries is a party as of the date hereof. For
purposes of this Agreement, "Knowledge of the Company" means the actual
knowledge of the individuals identified on Section 3.10 of the Company Letter.
Section 3.11 Employees; Employee Benefits.
(a) Complete and correct copies of all material written agreements
with or concerning all current employees of the Company and its Subsidiaries
(the "Employees"), including, without limitation, union and collective
bargaining agreements, and all material employment policies, and all amendments
and supplements thereto, have been delivered to Parent, and a list of all such
agreements and policies is set forth on Section 3.11(a) of the Company Letter.
The Company does not currently offer or provide retiree health and other
insurance benefits to former Employees of the Company and its Subsidiaries
("Former Employees"), or their dependents, survivors or beneficiaries, and the
Company has no liabilities (contingent or otherwise) with respect thereto. There
are no outstanding loans from the Company to any Employees or Former Employees.
Except as set forth on Section 3.11(a) of the Company Letter, since January 1,
2003, the Company and its Subsidiaries have not, in any material respect taken
as a whole, (i) except in the ordinary course of business and consistent with
past practice, increased the salary or other compensation payable or to become
payable to or for the benefit of any of the Employees, (ii) provided any of the
Employees with any increased security or tenure of employment, (iii) increased
the amounts payable to any of the Employees upon the termination of any such
person's employment or (iv) adopted, increased, augmented or improved benefits
granted to or for the benefit of any of the Employees or Former Employees under
any Benefit Plan (as hereinafter defined). All individuals who, in the last 24
months, have performed services for the Company or its Subsidiaries as a
consultant or independent contractor ("Non-Employees") are independent
contractors and are not employees of the Company or its Subsidiaries and the
Company has no material liability to or with respect to such Non-Employees for
the withholding or payment of any income or social security taxes, the provision
of benefits under any Benefit Plans (as hereinafter defined) or for any other
charges, taxes or benefits with respect thereto.
(b) The Company has complied in all material respects with all laws,
statutes, rules and regulations applicable with respect to employees, terms and
conditions of employment and wages and hours in each of the jurisdictions in
which it operates and/or does business, and there have been no claims made or,
to the Knowledge of the Company, threatened thereunder against the Company
arising out to of relating to or alleging any violation of any of the foregoing.
The Company has complied in all material respects with the employment
eligibility verification form requirements under the Immigration Reform Control
Act, as amended
16
("IRCA"), with respect to Employees and with the paperwork provisions and
anti-discrimination provisions of IRCA and has obtained and maintained the
employee records and I-9 forms with respect to the Employees in proper order as
required by law. To the Knowledge of Company, the Company is not currently
employing any Employees who are not citizens of the United States and who are
not authorized to work in the United States.
(c) Section 3.11(c) of the Company Letter sets forth a list of each
defined benefit and defined contribution plan, stock ownership plan, executive
compensation program or arrangement, bonus plan, incentive compensation plan or
arrangement, deferred compensation agreement or arrangement, supplemental
retirement plan or arrangement, vacation pay, sickness, disability or death
benefit plan (whether provided through insurance, on a funded or unfunded basis
or otherwise), medical or life insurance plan, providing benefits to any
Employee, retiree or Former Employee or any of their dependents, survivors or
beneficiaries, employee stock option or stock purchase plan, severance pay,
termination or salary continuation plan, and each other employee benefit plan,
program or arrangement, including, without limitation, each "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), which is maintained by the Company
for the benefit of or relating to any of the Employees or to any Former
Employees or their dependents, survivors or beneficiaries, whether or not
legally binding, and for which the Company could reasonably have any material
liabilities, all of which are hereinafter referred to as the "Benefit Plans."
Except as set forth in Section 3.11(c) of the Company Letter, neither Parent nor
the Company will incur any material liability under any severance agreement,
deferred compensation agreement, employment agreement, similar agreement or
Benefit Plan solely as a result of the consummation of the transactions
contemplated by this Agreement.
(d) Except as set forth on Section 3.11(d) of the Company Letter or as
would not otherwise have a Material Adverse Effect on the Company, each Benefit
Plan which is an "employee pension benefit plan" (as defined in Section 3(2) of
ERISA) meets the requirements of Section 401(a) of the Code; the trust, if any,
forming part of such plan is exempt from U.S. Federal Income Tax under Section
501(a) of the Code; a favorable determination letter has been issued by the
Internal Revenue Service (the "IRS") with respect to each plan and trust and
each amendment thereto, including all amendments required under the Uruguay
Round Agreement Act of 1994, the Uniformed Services Employment and Reemployment
Rights Act of 1994, the Small Business Job Protection Act of 1996 and the
Taxpayer Relief Act of 1997; and since the date of such determination letter
there have been no circumstances which are likely to adversely affect the
qualification of such plan. No Benefit Plan is a "voluntary employees
beneficiary association" (within the meaning of Section 501(c)(9) of the Code)
or a "multiple employer welfare arrangement" (within the meaning of Section
3(40) of ERISA) and there have been no other "welfare benefit funds" (within the
meaning of Section 419 of the Code) relating to Employees or Former Employees.
No event or condition exists with respect to any Benefit Plan that could subject
the Company to any material Tax under Section 4980B of the Code. With respect to
each Benefit Plan, the Company has heretofore delivered to Parent complete and
correct copies of the following documents, where applicable: (i) the three most
recent annual report (Form 5500 series), together with schedules, as required,
filed with the IRS, and any financial statements and opinions required by
Section 103(a)(3) of ERISA, (ii) the most recent determination letter issued by
the IRS, (iii) the most recent summary plan description and all modifications
thereof, (iv) the text of the Benefit Plan and of any trust, insurance or
annuity
17
contracts maintained in connection therewith, (v) the most recent actuarial
report, if any, relating to the Benefit Plan and (vi) the most recent actuarial
valuation, study or estimate of any retiree medical and life insurance benefits
plan or supplemental retirement benefit plan.
(e) The Company does not, and any corporation or other trade or
business under common control with the Company (as determined pursuant to
Section 414(b) or (c) of the Code) (an "ERISA Affiliate") does not, maintain or
contribute to or, to the Knowledge of the Company, in any way directly or
indirectly have any liability (whether contingent or otherwise) with respect to,
any "multiemployer plan," within the meaning of Section 3(37) or 4001(a)(3) of
ERISA. Except as otherwise set forth on Section 3.11(e) of the Company Letter,
no Benefit Plan or plan of any ERISA Affiliate is subject to Title IV of ERISA.
All contributions required to be made to or with respect to each Benefit Plan
with respect to the service of Employees or Former Employees prior to the date
hereof have been made or have been accrued for in the books and records of the
Company for all periods through the date hereof.
(f) Except as set forth on Section 3.11(f) of the Company Letter or as
would not otherwise have a Material Adverse Effect on the Company, none of the
Benefit Plans has been subject to a "reportable event," within the meaning of
Section 4043 of ERISA (whether or not the reporting for which has been waived),
within the 24-month period ended on the date hereof; there have been no
"prohibited transactions" within the meaning of Section 4975 of the Code or Part
4 of Subtitle B of Title I of ERISA in connection with any of the Benefit Plans
that, assuming the taxable period of such transaction expired as of the date
hereof, could subject the Company or any ERISA Affiliate to a Tax or penalty
imposed by either Section 4975 of the Code or Section 502(i) of ERISA; none of
the Benefit Plans which is subject to Section 412 of the Code has incurred any
"accumulated funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code and the Company is not subject to a lien under Section
412(n) of the Code; each Benefit Plan has, in all material respects, been
administered to date in accordance with the applicable provisions of ERISA, the
Code and other applicable law and with the terms and provisions of all
documents, contracts or agreements pursuant to which such Benefit Plan is
maintained; there has been no correction of any defects with respect to a
Benefit Plan subject to Section 401(a) of the Code or its operation pursuant to
any procedures established, or program permitted, by the IRS or otherwise within
the 36-month period prior hereto; all reports and information required to be
filed with the Department of Labor, the IRS or the PBGC with respect to any
Benefit Plan have been timely filed or delivered; there is no arbitration, claim
or suit pending or, to the Knowledge of the Company, threatened involving a
Benefit Plan (other than routine claims for benefits), and, to the Knowledge of
the Company, there is no basis for such a claim; none of the Benefit Plans nor
any fiduciary thereof has been, to the Knowledge of the Company, the direct or
indirect subject of an order or investigation or examination by a governmental
or quasi-governmental agency and there are no matters pending before the IRS,
the Department of Labor or any other governmental agency with respect to a
Benefit Plan; and there has not been and will be no "parachute payment" (as
defined in Section 280G(b)(2) of the Code) to any of the Employees prior to the
Closing or as a result of the transactions contemplated by this Agreement.
Section 3.12 Labor Matters. As of the date hereof, neither the Company
nor any of its Subsidiaries is a party to any collective bargaining agreement or
labor contract. No labor union or other collective bargaining unit represents or
has ever represented any of the Employees
18
in connection with their employment with the Company. There is no labor strike,
dispute, slowdown, work stoppage, picketing, filed grievance, unfair labor
practice charge, investigation, complaint or other proceeding pending or, to the
Knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries which may interfere with the respective business activities of
the Company, except where such dispute, strike, slowdown, work stoppage,
picketing, filed grievance, unfair labor practice charge, investigation,
complaint or other proceeding would not have a Material Adverse Effect on the
Company. No consent of any labor union or other collective bargaining unit
representing Employees is required to consummate the transactions contemplated
by this Agreement.
Section 3.13 Contract Receivables. The contract receivables shown on
the Company's balance sheet as of December 31, 2002 included in the Company
Annual Report, except for write-offs in amounts reserved against in such
financial statements, or thereafter acquired, subject to reserves created in the
ordinary course of business on a basis consistent with the periods covered in
such financial statements, (a) are collectible in all material respects and (b)
in all material respects and taken as a whole, (i) are valid and enforceable,
(ii) arose from bona-fide sales to third parties in ordinary course of business,
and (iii) are not subject to any counterclaims or setoffs and have not been
encumbered or sold, except as set forth in Section 3.14 of the Company Letter
and except for contract receivables sold in the Company's securitization program
(including warehouse financing arrangements.)
Section 3.14 Title of Property and Assets. Except as set forth in
Section 3.14 of the Company Letter or as would not otherwise have a Material
Adverse Effect on the Company, the Company or its Subsidiaries have good title
to, or a valid leasehold interest in or license to use, the property and assets
(real, personal, mixed, tangible and intangible) reflected in Company's Annual
Report or acquired since the date thereof, free and clear of all Liens, except
such Liens which do not materially impair Company's or any of its Subsidiary's
ownership or use of such property or assets. With respect to the property and
assets it leases, except as would otherwise not have a Material Adverse Effect
on Company, Company and its Subsidiaries are in compliance with such leases, all
leases to which Company or any of its Subsidiaries are a party are in full force
and effect and constitute valid and binding obligations of Company or the
Subsidiary, as the case may be. Except as would otherwise not have a Material
Adverse Effect on Company, Company's and its Subsidiaries' assets constitute all
of the properties, interests, assets and rights (real, personal, mixed, tangible
and intangible) held for use or used in connection with the business and
operations of Company.
Section 3.15 Real Property.
(a) Set forth in Section 3.15 of the Company Letter, is a list of all
material leases, subleases, licenses and other agreements (collectively, the
"Real Property Leases") under which the Company or any Subsidiary uses or
occupies or has the right to use or occupy, now or in the future, any real
property (the "Leased Real Property").
(b) Except as provided in Section 3.15 of the Company Letter, neither
the Company nor any Subsidiary owns or holds, or is obligated under or a party
to, any option, right of first refusal or other contractual right to purchase
any Leased Real Property or any portion thereof or interest therein.
19
(c) Except as provided in Section 3.15 of the Company Letter, neither
the Company nor any Subsidiary owns any real property.
(d) Except as set forth in Section 3.15 of the Company Letter, as to
all of the Real Property Leases, except as would otherwise not have a Material
Adverse Effect on the Company, (i) they are enforceable in accordance with their
respective terms and constitute valid and binding obligations of the respective
parties thereto, (ii) there have not been and there currently are not any
material defaults thereunder by the Company or any Subsidiary or, to the
Knowledge of the Company, any other party thereto, (iii) no event has occurred
which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default thereunder entitling
the landlord thereunder to terminate any of the Real Property Leases, (iv) all
rent and additional rent due and payable thereunder has been paid in full
through the date hereof, (v) no waiver, indulgence or postponement of the
Company's or any Subsidiary's obligations thereunder has been granted, (vi)
there are no oral agreements with respect to any of the Real Property Leases,
(vii) the continuation, validity and effectiveness of all of the Real Property
Leases under the current material terms thereof will in no way be affected by
the Merger, (viii) they may be assigned by the Company or any Subsidiary without
the consent or approval of any other person or entity, and (ix) there are no
material disputes, oral agreements or forbearance programs in effect as to any
of the Real Property Leases.
Section 3.16 Insurance. Section 3.16 of the Company Letter contains a
list, which is true and complete in all material respects, of all policies of
casualty, liability, theft, fidelity, life and other forms of insurance held by
Company or any of its Subsidiaries. All such insurance policies are in the name
of Company or its Subsidiaries, and all premiums with respect to such policies
which are due prior to the date hereof have been paid. All such policies are in
full force and effect, and neither Company nor any of its Subsidiaries has
received notice of cancellation or termination of any policy. To the Knowledge
of the Company, since December 31, 2000, neither Company nor any of its
Subsidiaries has been denied or had revoked or rescinded any policy of
insurance, nor borrowed against any such policies. Except as set forth in
Section 3.16 of the Company Letter, no material claim under any such policy is
pending as of the date hereof.
Section 3.17 Business Relations. Neither the Company nor any of its
Subsidiaries has received any written notice from any customer, consultant,
contractor, supplier or vendor indicating that it intends to terminate or modify
its business relationship with Company or any of its Subsidiaries, which
termination or modification would have a Material Adverse Effect on the Company.
Section 3.18 Retail Installment Contracts. The retail installment
contracts held by Company or any of its Subsidiaries are valid and enforceable
in accordance with their terms except where the failure of such retail
installment contracts to be valid and enforceable would not have a Material
Adverse Effect on the Company.
Section 3.19 Opinion of Financial Advisor. The Company has received
the written opinion of Houlihan Lokey Howard & Zukin, dated the date hereof, to
the effect that, as of the date hereof, the Merger Consideration is fair to the
Company's stockholders from a financial point of view.
20
Section 3.20 Required Vote of Company Stockholders. The affirmative
vote of the holders of a majority of the outstanding shares of Company Common
Stock is required to approve the Merger and adopt this Agreement. No other vote
of the securityholders of the Company is required by law, the Company Charter or
the Company Bylaws or otherwise in order for the Company to consummate the
Merger and the transactions contemplated hereby.
Section 3.21 Brokers. No broker, investment banker or other person,
other than Houlihan Lokey Howard & Zukin, the fees and expenses of which will be
paid as provided herein, is entitled to any broker's, finder's or other similar
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. Section
3.21 of the Company Letter contains disclosure relating to the Company's now
terminated relationship with the Company's former investment banker.
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger. Except as
expressly permitted by clauses (i) through (xiii) of this Section 4.1(a), during
the period from the date of this Agreement through the Effective Time, the
Company shall, and shall cause each of its Subsidiaries to, in all material
respects carry on its business in the ordinary course of its business as
currently conducted and, to the extent consistent therewith, use reasonable best
efforts to preserve intact its current business organizations, keep available
the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it. Without limiting the generality of the foregoing, and, except as otherwise
contemplated by this Agreement, or as set forth in Section 4.1 of the Company
Letter, the Company shall not, and shall not permit any of its Subsidiaries to,
without the prior written consent of Parent, which consent shall not be
unreasonably withheld or delayed:
(i) (A ) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, or otherwise
make any payments to its stockholders in their capacity as such other than
dividends and distributions by any Subsidiary to its parent, (B) split, combine
or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (C) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any Subsidiary or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities, equity equivalents or
convertible securities, other than (a) the issuance of shares of Company Common
Stock upon the exercise of Company Stock Options and (b) the issuance of Options
exercisable for Company Common Stock under the Company Stock Purchase Plan, the
Incentive Plan, the Director Plan (whether or not subject to subsequent approval
of Parent's stockholders);
21
(iii) amend its charter or bylaws or other comparable charter or
organizational documents;
(iv) acquire or agree to acquire (a) by merging or
consolidating with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any corporation, limited
liability company, partnership, association or other business organization or
division thereof or (b) any assets that are material, individually or in the
aggregate, to the Company and its Subsidiaries taken as a whole other than
retail installment contracts purchased in the ordinary course of business;
(v) sell, lease, license, mortgage, encumber or otherwise
dispose of material properties or assets other than in connection with sales in
the ordinary course of business to Westdeutsche Landesbank Girozentrale, New
York Branch, pursuant to the Company's warehouse facility or in connection with
the Company's securitization program;
(vi) [intentionally deleted];
(vii) incur any indebtedness for borrowed money, guarantee any
such indebtedness or make any loans, advances or capital contributions to, or
other investments in, any other person, other than (a) indebtedness or
guarantees in the ordinary course of business, (b) loans, advances, capital
contributions and other investments between the Company and any Subsidiary or
between Subsidiaries and (c) advances to employees in the ordinary course of
business;
(viii) enter into, adopt or amend in any material respect any
severance plan, agreement or arrangement, Benefit Plan or employment or
consulting agreement, except as required by applicable law or except in the
ordinary course of business;
(ix) increase the compensation (including bonuses, profit
sharing and pension benefits) payable or to become payable to its Employees, or
pay any bonuses to its Employees other than as set forth in Section 4.1 of the
Company Letter;
(x) change the Company's independent public accountants or
make any change in accounting methods or policies of the Company except as
required by FASB;
(xi) make any tax election not in the ordinary course of
business;
(xii) change, in any material respect, any of the Company's
credit policies or hedging strategies; or
(xiii) agree or commit to do any of the foregoing.
Section 4.2 No Solicitation by the Company.
(a) From the date hereof until the earlier of the Effective Time or the
date on which this Agreement is terminated in accordance with the terms hereof,
the Company shall not, nor shall it permit any of its officers, directors or
employees or any investment banker, financial advisor, attorney, accountant,
agent or other representative retained by it or by any of its
22
Subsidiaries to, directly or indirectly through any representative or otherwise
(i) solicit or initiate the submission of, any Takeover Proposal involving the
Company (as hereafter defined), (ii) enter into any agreement with respect to
any Takeover Proposal involving the Company (other than a confidentiality
agreement to the extent information is permitted to be furnished to any person
pursuant to this Section 4.2(a)), or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate knowingly any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal involving the Company; provided, however, that, nothing
contained in this Agreement shall prevent the Company or its Board of Directors
from (i) complying with Rules 14-d(9) and 14-e(2) under the Exchange Act or
publicly disclosing the existence of a Takeover Proposal involving the Company
to the extent required by applicable law or (ii) furnishing nonpublic
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide Takeover Proposal involving
the Company by such person or entity, if, (x) the failure to take such action
would, in the good faith judgment of the Board of Directors of the Company,
taking into consideration the advice of corporate counsel of the Company, likely
violate the fiduciary duties of the Board of Directors of the Company to the
Company's stockholders under applicable law, and (y) prior to furnishing such
nonpublic information to, or entering into discussions or negotiations with,
such person or entity, such Board of Directors receives from such person or
entity an executed confidentiality agreement with provisions not less favorable
to the Company than those contained in the Confidentiality Agreement (as defined
below). For purposes of this Agreement, "Takeover Proposal involving the
Company" means any proposal by any third party for a merger, consolidation or
other business combination involving the Company or any of its Subsidiaries or
any proposal or offer to acquire in any manner, directly or indirectly, a 25% or
greater equity interest in, 25% or more of the voting securities of, or 25% or
more of the assets of, the Company or any of its Subsidiaries, other than the
transactions contemplated by this Agreement and other than any warehouse
facility or securitization related transaction.
(b) The Company shall advise Parent as promptly as practicable of (i) any
Takeover Proposal involving the Company, and (ii) the material terms of such
Takeover Proposal involving the Company. The Company will keep Parent informed
of any material changes in such terms.
ARTICLE 5
ADDITIONAL AGREEMENTS
Section 5.1 Company Stockholder Meeting. The Company will, as soon as
practicable following the date of this Agreement, duly call, give notice of,
convene and, hold a meeting of stockholders (the "Company Stockholder Meeting")
for the purpose of considering the approval of this Agreement. The Company will,
through its Board of Directors, recommend to its stockholders approval of this
Agreement, shall use all reasonable efforts to solicit such approval by its
stockholders and shall not withdraw or modify, or propose to withdraw or modify
in a manner adverse to Parent, such recommendation, except if in the good faith
judgment of the Company's Board of Directors, taking into consideration the
advice of corporate counsel of the Company, the making of, or the failure to
withdraw or modify, such recommendation would violate the fiduciary duties of
such Board of Directors to the Company's stockholders under
23
applicable law. The Company agrees to submit the Merger Agreement to its
stockholders for approval whether or not the Board of Directors of the Company
determines at any time subsequent to the date hereof that the Merger Agreement
is no longer advisable and recommends that the stockholders of the Company
reject it.
Section 5.2 Preparation of the Proxy Statement. The Company shall
promptly prepare and file the Proxy Statement with the SEC. The Company shall
use its reasonable best efforts to mail the Proxy Statement to its stockholders
promptly as practicable thereafter.
Section 5.3 Access to Information. Subject to currently existing
contractual and legal restrictions applicable to the Company or any of its
Subsidiaries, the Company shall, and shall cause each of its Subsidiaries to,
afford to the accountants, counsel, financial advisors and other representatives
of Parent reasonable access to, and permit them to make such inspections as they
may reasonably require of, during normal business hours during the period from
the date of this Agreement through the Effective Time, all of its properties,
books, contracts, commitments and records (including, without limitation, the
work papers of independent accountants, if available and subject to the consent
of such independent accountants) and, during such period, the Company shall, and
shall cause each of its Subsidiaries to, furnish promptly to Parent (i) a copy
of each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and (ii) all other information concerning its business, properties and
personnel as the other may reasonably request. Without limiting the generality
of the foregoing, the Company shall afford Parent's representatives reasonable
access, upon reasonable prior notice during normal business hours, the
opportunity to investigate without limitation, at Parent's sole expense, all the
books and records relating to the Company's retail installment loan contracts
and other loan agreements held by the Company and its Subsidiaries, to the
extent Parent shall deem necessary or desirable. All information obtained
pursuant to this Section 5.3 shall be kept confidential in accordance with the
Confidentiality Agreement, dated February 21, 2003 between Parent and the
Company (the "Confidentiality Agreement").
Section 5.4 Certain Payments, Fees and Expenses.
(a) Except as provided in this Section 5.4 and Section 5.8, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby including, without
limitation, the fees and disbursements of counsel and accountants and all
financing commitment fees, shall be paid by the party incurring such costs and
expenses.
(b) (i) Notwithstanding any provision in this Agreement to the contrary,
if this Agreement is terminated (A) by the Company or Parent pursuant to Section
7.1(e), (B) by the Company pursuant to Section 7.1(g), or (C) by Parent pursuant
to Section 7.1(h), 7.1(i) or Section 7.1(j) then, in each case the Company shall
reimburse Parent upon demand for all reasonable documented out-of-pocket fees
and expenses incurred or paid by or on behalf of Parent or any Affiliate (as
hereinafter defined) of Parent in connection with this Agreement and the
transactions contemplated herein, including all fees and expenses of counsel,
investment banking firms, lenders, accountants and consultants; provided,
however, that the Company shall not be obligated to make payments pursuant to
this Section 5.4(b)(i) in excess of $500,000 in the
24
aggregate. As used herein, "Affiliate" shall have the meaning set forth in Rule
405 under the Securities Act.
(ii) Notwithstanding any provision in this Agreement to the
contrary, if this Agreement is terminated by the Company or Parent pursuant to
Section 7.1(f), Parent shall reimburse the Company upon demand for all
reasonable out-of-pocket fees and expenses incurred or paid by or on behalf of
the Company or any Affiliate of the Company in connection with this Agreement
and the transactions contemplated herein, including all fees and expenses of
counsel, investment banking firms, lenders, accountants and consultants;
provided, that Parent shall not be obligated to make payments pursuant to this
Section 5.4(b)(ii) in excess of $500,000 in the aggregate.
(c) Notwithstanding any provision in this Agreement to the contrary, if
this Agreement is terminated by (i) by the Company pursuant to Section 7.1(g) or
(ii) by Parent pursuant to Section 7.1(h), then, in each case, the Company shall
in addition to any obligation under Section 5.4(b)(i) pay to Parent a fee of
$650,000 less the amount paid pursuant to Section 5.4(b)(i) in cash, such
payment to be made promptly, but in no event later than, the third day following
such termination.
Section 5.5 Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including, but not limited to: (i) obtaining all necessary actions or
nonactions, waivers, consents and approvals from all Governmental Entities and
the making of all necessary registrations and filings (including filings with
Governmental Entities) and taking all reasonable steps (including, without
limitation, divesting or holding separate any assets or agreeing to any
governmental conditions), as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any Governmental Entity (including
those in connection with State Takeover Approvals); (ii) obtaining all necessary
consents, approvals or waivers from third parties; (iii) defending any lawsuits
or other legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby, including
seeking to have any stay or temporary restraining order entered by any court or
other Governmental Entity vacated or reversed; and (iv) the execution and
delivery of any additional instruments necessary to consummate the transactions
contemplated by this Agreement. No party to this Agreement shall consent to any
voluntary delay of the consummation of the Merger at the behest of any
Governmental Entity without the consent of the other parties to this Agreement,
which consent shall not be unreasonably withheld.
(b) Each party shall use all reasonable best efforts to not take any
action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue in any
material respect or result in a material breach of any covenant made by it in
this Agreement or which could reasonably be expected to impede, interfere with,
prevent or delay in any material respect the Merger.
25
Section 5.6 Public Announcements. Parent and the Company will not issue
any press release with respect to the transactions contemplated by this
Agreement or otherwise issue any written public statements with respect to such
transactions without prior consultation with the other party, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any national securities exchange or the rules of NASDAQ.
Section 5.7 State Takeover Laws. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall use their
reasonable best efforts to grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby and thereby may be
consummated as promptly as practicable on the terms contemplated hereby and
thereby and otherwise act to minimize the effects of any such statute or
regulation on the transactions contemplated hereby and thereby.
Section 5.8 Indemnification; Directors and Officers Insurance.
(a) From and after the Effective Time, Parent shall, and shall cause the
Surviving Corporation to, indemnify and hold harmless all past and present
officers, directors, employees and agents of the Company and of its Subsidiaries
to the full extent such persons may be indemnified by the Company, for acts or
omissions occurring at or prior to the Effective Time, pursuant to the Company
Charter, the Company Bylaws, applicable laws (common law and statutory law) and
any existing agreements.
(b) On or prior to the Effective Time, the Company or Parent shall
purchase, or shall cause the Surviving Corporation to purchase, a 6-year "tail"
on the Company's current directors and officers insurance and indemnification
policy (the "D&O Insurance Tail"); provided, however, that the Company, Parent
and the Surviving Corporation shall not be required to pay more than $300,000
for the D&O Insurance Tail.
(c) The provisions of this Section 5.8 are intended for the benefit of, and
shall be enforceable by, each person entitled to indemnification under this
Section 5.8, his or her heirs and his or her personal representatives.
Section 5.9 Notification of Certain Matters. Parent shall use its
reasonable best efforts to give prompt notice to the Company, and the Company
shall use its reasonable best efforts to give prompt notice to Parent, of: (i)
the occurrence, or nonoccurrence, of any event of which it is aware and which
would be reasonably likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect, or (ii) any
failure of Parent or the Company, as the case may be, to comply in a timely
manner with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.9 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
Section 5.10 Employee Benefit Plans and Agreements.
(a) For a period of six months following the Effective Time, Parent shall
cause the Surviving Corporation to provide employees of the Company or any of
its Subsidiaries who
26
continue employment after the Effective Time with the Surviving Corporation
(including those on vacation, authorized leave of absence or short-term
disability who return to active employment within six months after the Effective
Time) (the "Retained Employees") with employee benefit plans that are no less
favorable, in the aggregate, than the employee benefit plans provided to the
Retained Employees immediately prior to the Effective Time.
(b) Except as otherwise provided in this Section, nothing in this
Agreement shall be interpreted as limiting the power of the Surviving
Corporation to amend or terminate any particular Benefit Plan or any other
particular employee benefit plan, program, agreement or policy or as requiring
the Surviving Corporation to offer to continue the employment of any employee
(other than as required by the terms of any written employment contract),
provided, however, that no such termination or amendment may impair the rights
of any person with respect to benefits or any other payments already accrued as
of the time of such termination or amendment without the consent of such person.
(c) Parent shall honor or cause to be honored by the Company, the
Surviving Corporation and their Subsidiaries, the Change of Control Agreements,
the consulting agreement with Robert S. Raley Jr. (the "Raley Consulting
Agreement"), all bonus agreements, severance agreements and any other agreements
with the persons who are directors, officers and employees of the Company and
its Subsidiaries. The terms of these arrangements are to be honored as to these
individuals in addition to the other provisions of this Section 5.10
(d) Subject to the approval of an insurer of any applicable welfare
benefit plan, Parent shall, or shall cause the Company and the Surviving
Corporation to, (i) waive all limitations as to preexisting conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Retained Employees and former employees of the
Company and its Subsidiaries under any welfare or fringe benefit plan in which
such employees and former employees may be eligible to participate after the
Effective Time, other than limitations or waiting periods that are in effect
with respect to such employees and that have not been satisfied under the
corresponding welfare or fringe benefit plan maintained by the Company for the
Retained Employees and former employees prior to the Effective Time, and (ii)
provide each Retained Employee and former employee with credit under any welfare
plans in which such employee or former employee becomes eligible to participate
after the Effective Time for any co-payments and deductibles paid by such
Retained Employee or former employee for the then current plan year under the
corresponding welfare plans maintained by the Company prior to the Effective
Time.
Section 5.11 Estoppel Certificates. The Company shall use commercially
reasonable efforts to obtain estoppel certificates reasonably satisfactory to
Parent from the landlords of the Company and its Subsidiaries as they exist as
of the Effective Time.
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ARTICLE 6
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved
by the requisite vote of stockholders of the Company in accordance with
applicable law and the Company Charter and Company Bylaws.
(b) Authorizations, Consents, Waivers and Extensions. The following
documents shall have been received: (i) Waivers and Consents to the Merger
executed by each of Westside Funding Corporation, NM Rothschild & Sons, Ltd.,
Royal Sun Alliance, and Radian Asset Assurance, Inc.; (ii) Extension and Warrant
Termination Agreement executed by General Electric Capital Corporation; (iii)
Consent to the Merger executed by Levine Leichtman Capital Partners II, L.P.;
and (iv) stock option cancellation agreements with respect to substantially all
underwater options.
(c) Redeemable Placement Debt. The $620,000 of Redeemable Placement
Debt shall have been paid.
(d) No Order. No court or other Governmental Entity having jurisdiction
over the Company or Parent, or any of their respective Subsidiaries, shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
the Merger or any of the transactions contemplated hereby illegal.
(e) Litigation. There shall not be instituted or pending any suit,
action or proceeding by any Governmental Entity relating to this Agreement or
any of the transactions contemplated herein which would have a Material Adverse
Effect on the Company or Parent.
(f) Raley Consulting Agreement. Robert S. Raley Jr. shall have waived
all rights to his current and former employment agreements with the Company or
any of its Subsidiaries and entered into the Raley Consulting Agreement.
Section 6.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
Performance of Obligations; Representations and Warranties. Each of
Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior to
the Effective Time, each of the representations and warranties of Parent and Sub
contained in this Agreement that is qualified by materiality shall be true and
correct on and as of the Effective Time as if made on and as of such date (other
than representations and warranties which address matters only as of a certain
date which shall be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of
28
the Effective Time as if made on and as of such date (other than representations
and warranties which address matters only as of a certain date which shall be
true and correct in all material respects as of such certain date), in each case
except as contemplated or permitted by this Agreement, and the Company shall
have received a certificate signed on behalf of Parent by its Chief Executive
Officer or its Chief Financial Officer to such effect.
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its agreements
contained in this Agreement required to be performed on or prior to the
Effective Time, each of the representations and warranties of the Company
contained in this Agreement that is qualified by materiality shall be true and
correct on and as of the Effective Time as if made on and as of such date (other
than representations and warranties which address matters only as of a certain
date which shall be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of such date (other than representations and warranties which address
matters only as of a certain date which shall be true and correct in all
material respects as of such certain date), in each case except as contemplated
or permitted by this Agreement, and Parent shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer or its Chief
Financial Officer to such effect.
(b) Dissenting Shares. The aggregate number of Dissenting Shares shall
not exceed 10% of the total number of Company Common Shares outstanding on the
Closing Date.
(c) Securitization. On or prior to the Effective Time, (i) the Company
shall have entered into a securitization arrangement, that, assuming an April
30, 2003 cut off date, would clear the Company's GECC warehouse line and its
warehouse line with Westside Funding Corporation of eligible receivables in the
normal course of business or (ii) the Company shall have adequate available
financing to terminate the GECC line.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after any approval of the matters
presented in connection with the Merger by the stockholders of the Company or
Parent:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the other party shall have
failed to comply in any material respect with any of its covenants or agreements
contained in this Agreement required to be complied with prior to the date of
such termination, which failure to comply has not been cured within thirty
business days following receipt by such other party of written notice from the
nonbreaching party of such failure to comply;
29
(c) by either Parent or the Company if there has been (i) a breach by
the other party (in the case of Parent, including any breach by Sub) of any
representation or warranty that is not qualified as to materiality which has the
effect of making such representation or warranty not true and correct in all
material respects or (ii) a breach by the other party (in the case of Parent,
including any breach by Sub) of any representation or warranty that is qualified
as to materiality, in each case which breach has not been cured within thirty
business days following receipt by the breaching party from the nonbreaching
party of written notice of the breach;
(d) by Parent or the Company if: (i) the Merger has not been effected
on or prior to the close of business on July 31, 2003; provided, however, that
the right to terminate this Agreement pursuant to this Section 7.1(d)(i) shall
not be available to any party whose failure to fulfill any of its obligations
contained in this Agreement has been the cause of, or resulted in, the failure
of the Merger to have occurred on or prior to the aforesaid date; or (ii) any
court or other Governmental Entity having jurisdiction over a party hereto shall
have issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the consummation of the Merger
and such order, decree, ruling or other action shall have become final and
nonappealable;
(e) by Parent or the Company if the stockholders of the Company do not
approve this Agreement at the Company Stockholder Meeting or at any adjournment
or postponement thereof; provided, however, that the Company may not terminate
this Agreement pursuant to this Section 7.1(e) if the Company has not complied
with its obligations under Sections 5.1 and 5.2 or has otherwise breached in any
material respect its obligations under this Agreement in any manner that could
reasonably have caused the failure of the stockholder approval to be obtained at
the Company Stockholder Meeting;
(f) by the Company or Parent due to the failure of Parent to have the
financing needed to pay the Merger Consideration and the $620,000 of Redeemable
Placement Debt;
(g) by the Company if the Board of Directors of the Company determines
that a Takeover Proposal constitutes a Superior Proposal. For purposes of this
Agreement "Superior Proposal" means a Takeover Proposal that the Board of
Directors of the Company determines in its good faith judgment, after
consultation with its financial advisors, is more favorable to the Company's
stockholders from a financial point of view than the Merger;
(h) by Parent if (i) the Board of Directors of the Company shall not
have recommended, or shall have resolved not to recommend, or shall have
adversely qualified, adversely modified or withdrawn its recommendation of the
Merger or declaration that the Merger is advisable and fair to and in the best
interest of the Company and its stockholders, or shall have resolved to do so,
(ii) any person (other than Parent or its Affiliates) acquires or becomes the
beneficial owner of 25% or more of the outstanding shares of Company Common
Stock, (iii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company any Takeover Proposal involving the Company or shall
have resolved to do so or (iv) a tender offer or exchange offer for 25% or more
of the outstanding shares of capital stock of the Company is commenced, and the
Board of Directors of the Company fails, within 10 business days of such
commencement, to recommend against acceptance of such tender offer or
30
exchange offer by its stockholders (including by taking no position with respect
to the acceptance of such tender offer or exchange offer by its stockholders);
(i) By Parent on or before April 30, 2003, if Parent in its good faith
judgment, after review pursuant to Section 5.3 of the receivables and other
assets held by Company and its Subsidiaries, determines that (i) any material
portion of such receivables are not valid or not enforceable, or did not arise
from bona fide transactions in the ordinary course of business, or are subject
to counterclaims or setoffs, or were purchased without compliance with the
Company's written standards, policies or procedures, or (ii) that the Company
has failed to comply with the servicing requirements of applicable Servicing or
Sale and Servicing Agreements, including without limitation (x) by modification
of terms of receivables, such as by extension of payment due dates, or (y) by
failure to charge off receivables defined therein as "Liquidated Contracts" or
"Liquidated Receivables," or (z) by keeping records of its servicing activities
that are inconsistent with the truth; or
(j) By Parent if as of the Closing, the "total shareholders' equity" of
the Company on a consolidated basis, determined in accordance with generally
accepted accounting principles applied on a consistent basis with the Company's
Annual Report (except as permitted for unaudited statements by Form 10-Q of the
SEC and except that there shall be no reduction in such amount for the monthly
fees of $133,000 payable to GECC since December 31, 2002) is less than the
"total shareholders' equity" of the Company on a consolidated basis shown on the
balance sheet as of December 31, 2002 included in the Company's Annual Report.
The right of any party hereto to terminate this Agreement pursuant to
this Section 7.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent, Sub or their respective officers or
directors (except for the Confidentiality Agreement and the entirety of Section
5.4, which shall survive the termination); provided, however, that nothing
contained in this Section 7.2 shall relieve any party hereto from any liability
for any willful breach of a representation or warranty contained in this
Agreement or the breach of any covenant contained in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger at the Company Stockholder Meeting, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein
31
or in any document delivered pursuant hereto and (iii) waive compliance with any
of the agreements or conditions contained herein which may legally be waived.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 Nonsurvival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate at the Effective Time.
Section 8.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given when delivered personally, one day
after being delivered to an overnight courier or when telecopied (with a
confirmatory copy sent by overnight courier) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
Consumer Portfolio Services, Inc.
16355 Laguna Canyon Road
Irvine, CA 92618-3801
Attention: General Counsel
Facsimile No.: (949) 753-6897
with a copy to:
Bingham McCutchen LLP
399 Park Avenue
New York, NY 10022-4689
Attention: Ann F. Chamberlain
Facsimile No.: (212) 752-5378
(b) if to the Company, to:
TFC Enterprises, Inc.
5425 Robin Hood Road
Norfolk, VA 23513
Facsimile: (757) - 858-4093
Telephone: (757) - 858-1400
Attention: President
with a copy to:
Williams Mullen
32
900 One Columbus Center
Virginia Beach, VA 23462
Telephone: (757) 473-5308
Facsimile: (757) 473-0395
Attention: John M. Paris Jr., Esq.
Section 8.3 Interpretation. When a reference is made in this Agreement
to a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, list of defined terms and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
Section 8.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.5 Entire Agreement; No Third Party Beneficiaries. This
Agreement and the Confidentiality Agreement constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof. This Agreement, except as
provided in the next sentence, is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder. The parties hereto
expressly intended the provisions of Sections 5.8 and 5.10 to confer a benefit
upon and be enforceable by, as third party beneficiaries of this Agreement, the
third persons referred to in, or intended to be benefited by such provision.
Section 8.6 Governing Law.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any
Delaware State court or federal court of the United States of America sitting in
Delaware, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement, or for recognition or enforcement
of any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any action or proceeding
may be heard and determined in any such Delaware State court or, to the extent
permitted by law, in such federal court. Such party agrees that a final,
nonappealable judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(c) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any Delaware State or
federal court. Such party hereby irrevocably waives, to the
33
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) EACH OF THE PARTIES HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE
PARTIES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
Section 8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
Section 8.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement may be
consummated as originally contemplated to the fullest extent possible.
* * * * *
REMAINDER OF PAGE INTENTIONALLY BLANK
34
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
CONSUMER PORTFOLIO SERVICES, INC.
By: /s/ Charles E. Bradley
---------------------------------------
Name: Charles E. Bradley
Its: President
CPS MERGERSUB, INC.
By: /s/ Charles E. Bradley
---------------------------------------
Name: Charles E. Bradley
Its: President
TFC ENTERPRISES, INC.
By: /s/ Ronald G. Tray
---------------------------------------
Name: Ronald G. Tray
Its: President
35
Appendix B
[LETTERHEAD OF HOULIHAN LOKEY HOWARD & ZUKIN]
March 28, 2003
Board of Directors
TFC Enterprises, Inc.
5425 Robin Hood Road
Suite 101B
Norfolk, VA 23513
Gentlemen:
We understand that TFC Enterprises, Inc. ("the Company") is contemplating
entering into a merger agreement whereby the Company will be merged with
Consumer Portfolio Services, Inc ("CPSS"). Each of the Company's issued and
outstanding common shares will, by virtue of the merger, be converted into the
right to receive $1.87 in cash, without interest, and the shares will be
cancelled. Further, each option to acquire shares of Company Common Stock
outstanding immediately prior to the effective time of the merger, that is
vested and exercisable at that time, shall be cancelled and converted into the
fully vested right to receive the excess of $1.87, if any, over the exercise
price per share for which shares of Company common stock may be acquired
pursuant to the option. Additionally, GE Capital Corporation's 1,135,288
outstanding warrants will be repurchased for $167,000. The merger implies an
equity value for the Company of approximately $22 million. Such transaction and
other related transactions are referred collectively herein as the
"Transaction".
You have requested our opinion (the "Opinion") as to the matters set forth
above. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's recent public filings;
2. visited the Company's headquarters in Norfolk, VA and held discussions
with certain members of the senior management of the Company to discuss
certain issues regarding the Company's operations and its prospects;
Board of Directors
TFC Enterprises, Inc.
March 28, 2003 -2-
3. reviewed the historical market prices and trading volume for the
Company's publicly traded common stock;
4. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, including prices and
premiums paid in other transactions;
5. reviewed the Company's projections and cashflow for 2003 under certain
scenarios;
6. reviewed the Company's interim financial statements for the period
ending February 28, 2003;
7. reviewed the draft Merger Agreement;
8. discussed the terms of the draft Merger Agreement with certain members
of the senior management of the Company and Williams Mullen (the
Company's legal counsel); and
9. conducted such other studies, analyses and inquires as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter. For
purposes of this opinion, we have assumed that this Company is not currently
involved in any material transaction other than the Transaction, and those
activities undertaken in the ordinary course of conducting its business.
This Opinion is furnished for your benefit and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Transaction. This Opinion is delivered to each
recipient subject to the conditions, scope of engagement, limitations and
understandings set forth in this Opinion, and subject to the understanding that
the obligations of Houlihan Lokey in the Transaction are solely corporate
obligations, and no officer, director, employee, agent, shareholder or
controlling person of Houlihan Lokey shall be subjected to any personal
liability whatsoever to any person, nor will any such claim be asserted by or on
behalf of you or your affiliates.
Board of Directors
TFC Enterprises, Inc.
March 28, 2003 -3-
Based upon the foregoing, and in reliance thereon, it is our opinion that the
consideration to be received by the public stockholders of the Company in
connection with the Transaction is fair to them from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
APPENDIX C
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Section 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at
the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to
act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger
if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in
subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of
any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of
merger or consolidation pursuant to (S)(S) 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository
receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security
on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by
more than 2,000 holders;
1
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or
fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under (S) 253 of this
title is not owned by the parent corporation immediately prior to
the merger, appraisal rights shall be available for the shares of
the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20
days prior to the meeting, shall notify each of its stockholders
who was such on the record date for such meeting with respect to
shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written
demand for appraisal of such stockholder's shares. Such demand
will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholder's shares. A
proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger
or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228
or (S) 253 of this title, then either a constituent corporation
before the effective date of the merger or consolidation or the
surviving or resulting corporation within 10 days thereafter
shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such
class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section. Such notice
may, and, if given on or after the effective date of the merger
or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving
or resulting corporation the appraisal of such
2
holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders
of the effective date of the merger or consolidation, either (i)
each such constitutent corporation shall send a second notice
before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of
such constitutent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice,
such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of
such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive
either notice, each constitutent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given
on or after the effective date of the merger or consolidation,
the record date shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
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(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
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(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
5
TFC ENTERPRISES, INC.
5425 ROBIN HOOD ROAD
NORFOLK, VIRGINIA 23513
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby appoints Robert S. Raley, Jr. and Ronald G. Tray and each of
them with power of substitution in each, as proxies to appear and vote, as
designated below, all common stock of TFC Enterprises, Inc. held of record by
the undersigned on April 15, 2003, at the Special Meeting of Stockholders to be
held on May __, 2003, and at all postponements and adjournments thereof. The
Board of Directors recommends a vote FOR the proposed transaction.
[_] FOR
[_] AGAINST
[_] ABSTAIN
Approval and Adoption of the Agreement and Plan of Merger, dated as of
March 31, 2003, among TFC Enterprises, Inc., Consumer Portfolio Services, Inc.
and CPS MergerSub, Inc. and the consummation of the transactions contemplated
thereby.
In their discretion, the proxies are authorized to vote upon such other
business matters as properly may come before the Special Meeting and any
postponements and adjournments thereof.
INSTRUCTION: TO VOTE FOR THE TRANSACTION, CHECK THE BOX MARKED "FOR," TO
VOTE AGAINST THE TRANSACTION, CHECK THE BOX MARKED "AGAINST." TO ABSTAIN, CHECK
THE BOX MARKED "ABSTAIN." (OVER)
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED. IF
NO INDICATION IS MADE, IT WILL BE VOTED IN FAVOR OF THE PROPOSAL LISTED ON THIS
CARD.
Dated this _______ day of ____________________, 2003
_____________________________________
Signature
_____________________________________
Printed Name
_____________________________________
Social Security Number
Please print, date and SIGN as name appears on proxy. When shares are held
by joint tenants, both should print and sign. (When signing in a fiduciary or
representative capacity, give full title as such.)
PLEASE MARK, DATE AND SIGN THIS PROXY, INDICATING ANY CHANGE OF ADDRESS,
AND RETURN IN THE ENCLOSED ENVELOPE ON OR BEFORE May__, 2003.
54