As filed with the Securities and Exchange Commission on November 2, 2004
FILE NO. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
21ST CENTURY HOLDING COMPANY
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0248866
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3661 WEST OAKLAND PARK BLVD, SUITE 300, LAUDERDALE LAKES, FL 33311
(954) 581-9993
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD A. WIDDICOMBE
CHIEF EXECUTIVE OFFICER
21ST CENTURY HOLDING COMPANY
3661 WEST OAKLAND PARK BLVD., SUITE 300
LAUDERDALE LAKES, FL 33311
(954) 581-9993
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(Name, address, including zip code, and telephone number, including area
code, of agent for service)
COPIES TO:
NINA S. GORDON, P.A.
BROAD AND CASSEL
7777 GLADES ROAD, SUITE 300
BOCA RATON, FLORIDA 33434
TELEPHONE: (561) 218-8856
TELECOPIER: (305) 218-8978
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
========================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED (1) OFFERING PRICE PER UNIT (2) PRICE REGISTRATION FEE
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Common Stock, $.01 par value 69,200 shares $10.65 $736,980.00 $93.38
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE IN WHICH THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, NOVEMBER 2, 2004
PROSPECTUS
69,200 SHARES OF COMMON STOCK
21ST CENTURY HOLDING COMPANY
This prospectus covers 69,200 shares of our common stock issued by us as
payment of principal and interest due on our 6% Senior Subordinated Notes due
July 31, 2006. We will not receive any proceeds from the sale of the common
stock. We will pay our out-of-pocket expenses, legal and accounting fees, and
the other expenses of registering these shares for resale.
The shareholders named in this prospectus may offer and sell these shares
at any time using a variety of different methods. The actual number of shares
sold and the prices at which the shares are sold will depend upon the market
prices at the time of those sales; therefore, we have not included in this
prospectus information about the price to the public of the shares or the
proceeds to the selling shareholders.
Our common stock is traded on the Nasdaq National Market under the symbol
"TCHC." On October 29, 2004, the last reported sale price of the common stock on
the Nasdaq National Market was $10.77 per share.
The shares of common stock offered hereby involve a high degree of risk
and should be considered only by such persons capable of bearing the economic
risk of such investment. You should carefully consider the "Risks of Investing
in Our Shares" section beginning on page 3 of this prospectus.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is November ____, 2004.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY...............................................................................................1
RECENT DEVELOPMENTS..............................................................................................1
OVERVIEW ........................................................................................................2
RISKS OF INVESTING IN OUR SHARES.................................................................................3
The State of Florida, where our headquarters and a substantial portion of our
policies are located, has experienced four hurricanes since August 2004........................3
If we are unable to continue our growth because our capital must be used to pay
greater than anticipated claims, our financial results may suffer..............................3
If our ratings are downgraded or withdrawn, we may be unable to write or renew
desirable insurance policies or obtain adequate reinsurance, which would
limit or halt our growth and harm our business.................................................3
The maximum credit commitment under our revolving loan could be subject to reduction,
which would adversely affect our available working capital.....................................4
We are subject to significant government regulation, which can limit our growth and
increase our expenses, thereby reducing our earnings...........................................4
Emergency administrative orders have been adopted, and legislation may be enacted,
that would limit our ability to increase our premiums or cancel, reduce or
non-renew our existing policies, which could reduce our revenues or increase
our claims losses..............................................................................4
Our revenues and operating performance may fluctuate with business cycles in the
property and casualty insurance industry.......................................................4
We may not obtain the necessary regulatory approvals to expand the types of insurance
products we offer or the states in which we operate............................................5
Although we follow the industry practice of reinsuring a portion of our risks, our
costs of obtaining reinsurance have increased and we may not be able to
successfully alleviate risk through reinsurance arrangements...................................5
Our loss reserves may be inadequate to cover our actual liability for losses, causing
our results of operations to be adversely affected.............................................5
We currently rely on agents, most of whom are independent agents or franchisees, to
write our insurance policies, and if we are not able to attract and retain
independent agents and franchisees, our revenues would be negatively
affected.......................................................................................5
Nonstandard automobile insurance historically has a higher frequency of claims than
standard automobile insurance, thereby increasing our potential for loss
exposure beyond what we would be likely to experience if we offered only
standard automobile insurance..................................................................6
Florida's personal injury protection insurance statute contains provisions that favor
claimants, causing us to experience a higher frequency of claims than might
otherwise be the case if we operated only outside of Florida...................................6
Our business strategy is to avoid competition in our automobile insurance products
based on price to the extent possible. This strategy, however, may result in
the loss of business in the short term.........................................................6
Our investment portfolio may suffer reduced returns or losses, which would
significantly reduce our earnings..............................................................6
Our president and chief executive officer are key to the strategic direction of our
company. If we were to lose the services of either of them, our business
could be harmed................................................................................7
The trading of our warrants may negatively affect the trading prices of our common
stock if investors purchase and exercise the warrants to facilitate other
trading strategies, such as short selling......................................................7
Our largest shareholders control approximately 28% of the voting power of our
outstanding common stock, which could discourage potential acquirors and
prevent changes in management..................................................................7
We have authorized but unissued preferred stock, which could affect rights of holders
of common stock................................................................................7
Our articles of incorporation and bylaws and Florida law may discourage takeover
attempts and may result in entrenchment of management..........................................7
As a holding company, we depend on the earnings of our subsidiaries and their ability
to pay management fees and dividends to the holding company as the primary
source of our income...........................................................................8
NOTE REGARDING FORWARD-LOOKING STATEMENTS........................................................................8
USE OF PROCEEDS..................................................................................................8
SELLING SHAREHOLDERS.............................................................................................8
HOW THE SHARES MAY BE DISTRIBUTED...............................................................................10
LEGAL MATTERS...................................................................................................11
EXPERTS ........................................................................................................11
WHERE YOU CAN FIND MORE INFORMATION.............................................................................11
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...............................................................11
INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................................................................12
-i-
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. No
dealer, salesperson or other person is authorized to give any information that
is not contained in this prospectus. This prospectus is not an offer to sell nor
is it seeking an offer to buy these shares in any jurisdiction where the offer
or sale is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these shares.
PROSPECTUS SUMMARY
This is only a summary and does not contain all of the information that
may be important to you. You should read the more detailed information contained
in this prospectus and all other information, including the financial
information and statements with notes, as discussed in the "Where You Can Find
More Information" section of this prospectus.
RECENT DEVELOPMENTS
On September 30, 2004, we completed a private placement of 6% Senior
Subordinated Notes due September 30, 2007. These notes were offered and sold to
accredited investors as units consisting of one note with a principal amount of
$1,000 and warrants to purchase shares of our common stock, the terms of which
are similar to our notes and warrants sold in July 2003, except as described
below. We sold an aggregate of $12.5 million of units in this placement, which
resulted in proceeds (net of placement agent fees of $700,000 and offering
expenses of $32,500) to us of $11,767,500.
The notes pay interest at the annual rate of 6%, mature on September 30,
2007, and rank pari passu in terms of payment and priority to the 6% Senior
Subordinated Notes dated July 31, 2003 in the original principal amount of
$7,500,000 that we sold in 2003. Quarterly payments of principal and interest
due on these notes, like the notes we sold in 2003, may be made in cash or, at
our option, in shares of our common stock. If paid in shares of common stock,
the number of shares to be issued shall be determined by dividing the payment
due by 95% of the weighted-average volume price for the common stock on Nasdaq
as reported by Bloomberg Financial Markets for the 20 consecutive trading days
preceding the payment date.
We issued also warrants to purchase shares of our common stock to the
purchasers of the notes and to the placement agent in the offering, J. Giordano
Securities Group. Each warrant entitles the holder to purchase one share of our
common stock at an exercise price of $12.75 per share and will be exercisable
until September 30, 2007. By comparison, the warrants we sold in 2003 are each
exercisable for one-half share of common stock at an exercise price of $12.74
per whole share. The number of shares issuable upon exercise of the warrants
issued to purchasers equaled $12.5 million divided by the exercise price of the
warrants, and totaled 980,392. The number of shares issuable upon exercise of
the warrants issued to J. Giordano equaled $500,000 divided by the exercise
price of the warrants, and totaled 39,216. The terms of the warrants provide for
adjustment of the exercise price and the number of shares issuable thereunder
upon the occurrence of certain events typical for private offerings of this
type.
In August and September 2004, the State of Florida experienced four
hurricanes, Charley, Frances, Ivan and Jeanne. We are currently receiving and
processing claims made under its homeowners' and mobile home owners' policies
resulting from these storms, a process that is expected to continue for many
months.
We have made initial estimations that our exposure from Hurricane Charley
will be between 1,000 and 1,500 claims, which will result in a $5 to $6 million
charge to the surplus of our subsidiary, Federated National Insurance Company.
Our exposure from Hurricanes Frances, Ivan and Jeanne cannot be estimated at
this time. As a result of all four hurricanes, however, we reduced our estimated
earnings for 2004 to approximately breakeven. Although the occurrence of four
hurricanes hitting Florida within one year has not previously occurred for as
long as records for weather events have been kept, some weather analysts believe
that a period of greater hurricane activity has begun. To address this
possibility, we are exploring alternatives to reduce its exposure to these types
of storms. Although these measures may increase operating expenses, management
believes that they will protect long-term profitability, although there can be
no assurances that will be the case.
In August 2004, A.M. Best Company notified us that Federated National and
American Vehicle Insurance Company were being placed under review with negative
implications. A.M. Best in 2003 had assigned Federated National a B rating
("Fair," which is the seventh of 14 rating categories) and American Vehicle a B+
rating ("Very Good," which is the sixth of 14 rating categories). Federated
National and American Vehicle are currently rated "A" ("Unsurpassed," which is
first of six ratings) by Demotech, Inc. We will most likely not maintain our A.
M. Best ratings due to the recent hurricanes. A downgrade or withdrawal of our
ratings could limit or prevent us from writing or renewing desirable insurance
policies or from obtaining adequate reinsurance.
1
On September 7, 2004, we completed a three-for-two stock split in the form
of a stock dividend, whereby shareholders received three shares of common stock
for every two shares of our common stock held on the record date. Just prior to
the three-for-two stock split, we had approximately 3,957,000 shares
outstanding, and following the stock split, we had approximately 5,936,000
shares outstanding.
OVERVIEW
We are a vertically integrated insurance holding company that, through its
subsidiaries, controls substantially all aspects of the insurance underwriting,
distribution and claims process. We underwrite personal automobile insurance,
general liability insurance, flood insurance and homeowners' and mobile home
property and casualty insurance in Florida, Louisiana and Georgia through its
wholly owned subsidiaries, Federated National and American Vehicle. American
Vehicle has recently been authorized to write commercial general liability
policies in Kentucky and expects to begin writing policies in that state in the
near future. American Vehicle is a fully admitted insurance carrier in Florida
and Louisiana and is admitted as a surplus lines carrier in Georgia and
Kentucky.
We internally process claims made by our own and third-party insureds
through a wholly owned claims adjusting company, Superior Adjusting, Inc. We
also offer premium financing to our own and third-party insureds through our
wholly owned subsidiary, Federated Premium Finance, Inc.
During the six months ended June 30, 2004, 23.7%, 61.7%, 1.8% and 12.8% of
the policies we underwrote were for personal automobile insurance, homeowners'
property and casualty insurance, mobile home property and casualty insurance,
and commercial general liability, respectively. During the year ended December
31, 2003, 67.5%, 23.0%, 2.4% and 7.1% of the policies we underwrote were for
personal automobile insurance, homeowners' property and casualty insurance,
mobile home property and casualty insurance, and commercial general liability,
respectively.
We market and distribute our own and third-party insurers' products and
our other services primarily in South and Central Florida, through a network of
24 agencies owned by Federated Agency Group, Inc., a wholly-owned subsidiary, 45
franchised agencies, approximately 1,500 independent agents and a select number
of general agents. Our independent agents and general agents are primarily
responsible for the distribution of our homeowners' insurance and commercial
general liability products. Through our wholly owned subsidiary, FedUSA, Inc.,
we franchise agencies under the FedUSA name. As of June 30, 2004, franchises
were granted for 45 Fed USA agencies, of which 40 were operating and five were
pending.
Assurance Managing General Agents, Inc., a wholly owned subsidiary, acts
as Federated National's and American Vehicle's exclusive managing general agent.
Assurance MGA currently provides all underwriting policy administration,
marketing, accounting and financial services to Federated National, American
Vehicle and our agencies, and participates in the negotiation of reinsurance
contracts. Assurance MGA generates revenue through policy fee income and other
administrative fees from the marketing of companies' products through the
Company's distribution network. Assurance MGA plans to establish relationships
with additional carriers and add additional insurance products in the future.
We offer electronic tax filing services through Express Tax Service, Inc.,
an 80%-owned subsidiary, as well as franchise opportunities for these services
through EXPRESSTAX. As of June 30, 2004, there were 235 franchises granted in 18
states. Revenue is generated through franchise sales, collection of royalties on
tax preparation fees, incentives from business partners as well as fees from the
preparation of income tax returns and income tax refund anticipation loans. In
addition, Express Tax offers tax preparation services through approximately 500
licensees nationwide.
We believe that we can be distinguished from our competitors because we
generate revenue from substantially all aspects of the insurance underwriting,
distribution and claims process. We provide quality service to both our agents
and insureds by utilizing an integrated computer system, which links our
insurance and service entities. Our computer and software systems allow for
automated premium quotation, policy issuance, billing, payment and claims
processing and enables us to continuously monitor substantially all aspects of
our business. Using these systems, our agents can access a customer's driving
record, quote a premium, offer premium financing and, if requested, generate a
policy on-site. We believe that these systems have facilitated our ability to
market and underwrite insurance products on a cost-efficient basis, allow our
owned and franchised agencies to be a "one stop" shop for insurance, tax
preparation and other services, and will enhance our ability to expand in
Florida and to other states.
We currently underwrite and sell insurance in Florida, Louisiana and
Georgia and were recently approved to do so in Kentucky. We intend to expand to
other selected states and have applied to obtain licenses to underwrite and sell
personal automobile insurance and general liability insurance in Alabama and
Texas. We select additional states for expansion based on a number of criteria,
including the size of the personal automobile insurance market, statewide loss
results, competition and the regulatory climate. Our ability to expand into
other states will be subject to the prior regulatory approval of each state.
Certain states impose operating requirements upon licensee applicants, which may
impose burdens on our ability to obtain a license to conduct insurance business
in those other states. There can be no assurance that we will be able to obtain
the required licenses, and the failure to do so would limit our ability to
expand geographically.
2
As we expand our operations, we continue to review our operations and
lines of business for strategies to further improve our efficiency and results
of operations. These strategies may include expansion of operations into
additional states; possible acquisitions or dispositions of assets; and
development of procedures to improve claims history and mitigate losses from
claims. There can be no assurances, however, that any such strategies will be
developed or successfully implemented.
Our executive offices are located at 3661 West Oakland Park Boulevard,
Suite 300, Lauderdale Lakes, Florida and our telephone number is (954) 581-9993.
RISKS OF INVESTING IN OUR SHARES
You should carefully consider the following risks, in addition to the
other information presented in this prospectus or incorporated by reference into
this prospectus, before making an investment decision. If any of these risks or
uncertainties actually occur, our business, results of operations, financial
condition, or prospects could be substantially harmed, which would adversely
affect your investment.
RISKS RELATED TO OUR BUSINESS
THE STATE OF FLORIDA, WHERE OUR HEADQUARTERS AND A SUBSTANTIAL PORTION OF OUR
POLICIES ARE LOCATED, HAS EXPERIENCED FOUR HURRICANES SINCE AUGUST 2004.
We write insurance policies that cover automobile owners, homeowners' and
business owners for losses that result from, among other things, catastrophes.
Catastrophic losses can be caused by hurricanes, tropical storms, tornadoes,
wind, hail, fires, riots and explosions, and their incidence and severity are
inherently unpredictable. The extent of losses from a catastrophe is a function
of two factors: the total amount of the insurance company's exposure in the area
affected by the event and the severity of the event. Our policyholders are
currently concentrated in South and Central Florida, which is especially subject
to adverse weather conditions such as hurricanes and tropical storms.
In August and September 2004, the State of Florida experienced four
hurricanes, Charley, Frances, Ivan and Jeanne. We are currently receiving and
processing claims made under our homeowners' and mobile home owners' policies, a
process that is expected to continue for many months. As a result of these four
hurricanes, however, we reduced our estimated earnings for 2004 to approximately
breakeven.
As of the date of this prospectus, we have estimated that our exposure
from Hurricane Charley will be between 1,000 and 1,500 claims, which will result
in a $5 to $6 million charge to Federated National's surplus. The Company's
exposure from Hurricanes Frances, Ivan and Jeanne cannot be estimated at this
time.
IF WE ARE UNABLE TO CONTINUE OUR GROWTH BECAUSE OUR CAPITAL MUST BE USED TO PAY
GREATER THAN ANTICIPATED CLAIMS, OUR FINANCIAL RESULTS MAY SUFFER.
We have grown rapidly over the last few years. Our future growth will
depend on our ability to expand the types of insurance products we offer and the
geographic markets in which we do business. We believe that our company is
sufficiently capitalized to operate our business as it now exists and as we
currently plan to expand it. Our existing sources of funds include our revolving
loan from Flatiron Funding Company LLC, sales of our securities such as our
September 2004 and July 2003 private placements of $12,500,000 and $7,500,000,
respectively, of our senior subordinated notes, and our earnings from operations
and investments. Unexpected catastrophic events in our market areas, such as the
hurricanes recently experienced in Florida, will result in greater claims losses
than anticipated, which could require us to limit or halt our growth while we
redeploy our capital to pay these unanticipated claims unless we are able to
raise additional capital or increase our earnings in our other divisions.
IF OUR RATINGS ARE DOWNGRADED OR WITHDRAWN, WE MAY BE UNABLE TO WRITE OR RENEW
DESIRABLE INSURANCE POLICIES OR OBTAIN ADEQUATE REINSURANCE, WHICH WOULD LIMIT
OR HALT OUR GROWTH AND HARM OUR BUSINESS.
Third-party rating agencies assess and rate the ability of insurers to pay
their claims. These financial strength ratings are used by the insurance
industry to assess the financial strength and quality of insurers. These ratings
are based on criteria established by the rating agencies and reflect evaluations
of each insurer's profitability, debt and cash levels, customer base, adequacy
and soundness of reinsurance, quality and estimated market value of assets,
adequacy of reserves, and management. Ratings are based upon factors of concern
to agents, reinsurers and policyholders and are not directed toward the
protection of investors, such as purchasers of our common stock. In August 2004,
A.M. Best Company notified the Company that Federated National and American
Vehicle were being placed under review with negative implications. A.M. Best in
2003 had assigned Federated National a B rating ("Fair," which is the seventh of
14 rating categories) and American Vehicle a B+ rating ("Very Good," which is
the sixth of 14 rating categories). Federated National and American Vehicle are
currently rated "A" ("Unsurpassed," which is first of six ratings) by Demotech,
Inc. We will most likely not maintain our A. M. Best ratings due to the recent
hurricanes. A downgrade or withdrawal of our ratings could limit or prevent us
from writing or renewing desirable insurance policies or from obtaining adequate
reinsurance.
3
THE MAXIMUM CREDIT COMMITMENT UNDER OUR REVOLVING LOAN COULD BE SUBJECT TO
REDUCTION, WHICH WOULD ADVERSELY AFFECT OUR AVAILABLE WORKING CAPITAL.
During September 2004, we negotiated a new revolving loan agreement in
which the maximum credit commitment available to us was reduced at our request
to $2.0 million with built-in options to incrementally increase the maximum
credit commitment up $4.0 million over the next three years. We believe that
this available credit is sufficient based on our current operations. Our lender,
however, could determine to reduce our available credit based on a number of
factors, including the A.M. Best ratings of Federated National and American
Vehicle. If the A.M. Best rating of Federated National falls below a "C", or if
the financial condition of American Vehicle, as determined by our lender (in its
sole and absolute discretion) suffers a material adverse change, then under the
terms of our revolving loan agreement, policies written by that subsidiary will
no longer be eligible collateral, causing our available credit to be reduced. If
that occurs and we are not able to obtain working capital from other sources,
then we would have to restrict our growth and, possibly, our operations.
WE ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION, WHICH CAN LIMIT OUR GROWTH
AND INCREASE OUR EXPENSES, THEREBY REDUCING OUR EARNINGS.
We are subject to laws and regulations in Florida, our state of domicile,
and in Georgia, Louisiana and Kentucky, states in which we have been authorized
to do business, and will be subject to the laws of any other state in which we
conduct business in the future. These laws and regulations cover all aspects of
our business and are generally designed to protect the interests of insurance
policyholders. For example, these laws and regulations relate to licensing
requirements, authorized lines of business, capital surplus requirements,
allowable rates and forms, investment parameters, underwriting limitations,
restrictions on transactions with affiliates, dividend limitations, changes in
control, market conduct, and limitations on premium financing service charges.
The cost to monitor and comply with these laws and regulations adds
significantly to our cost of doing business. Further, if we do not comply with
the laws and regulations applicable to us, we may be subject to sanctions or
monetary penalties by the applicable insurance regulator.
EMERGENCY ADMINISTRATIVE ORDERS HAVE BEEN ADOPTED, AND LEGISLATION MAY BE
ENACTED, THAT WOULD LIMIT OUR ABILITY TO INCREASE OUR PREMIUMS OR CANCEL, REDUCE
OR NON-RENEW OUR EXISTING POLICIES, WHICH COULD REDUCE OUR REVENUES OR INCREASE
OUR CLAIMS LOSSES.
In the aftermath of Hurricane Frances, the Florida Office of Insurance
Regulation issued emergency orders that imposed a moratorium on cancellations
and non-renewals of various types of insurance coverages. For personal and
commercial residential policies, the moratorium is through November 30, 2004.
The orders also prohibit cancellations or non-renewals based solely upon claims
resulting from the hurricanes. Legislation has also been proposed from time to
time in Florida, which is where our operations are now primarily located, that
would limit our ability to increase our premiums or that would restrict our
ability to cancel, reduce or non-renew existing policies. If one or more of
these proposals are enacted in Florida, or in any other state in which we
conduct significant business operations, our results of operations could be
materially adversely affected if we are not able to increase our premiums to
offset higher expenses or if we are not able to cancel, reduce or non-renew
existing policies where our claims experience has been unacceptably high.
OUR REVENUES AND OPERATING PERFORMANCE MAY FLUCTUATE WITH BUSINESS CYCLES IN THE
PROPERTY AND CASUALTY INSURANCE INDUSTRY.
Historically, the financial performance of the property and casualty
insurance industry has tended to fluctuate in cyclical patterns characterized by
periods of significant competition in pricing and underwriting terms and
conditions, which is known as a "soft" insurance market, followed by periods of
lessened competition and increasing premium rates, which is known as a "hard"
insurance market. Although an individual insurance company's financial
performance is dependent on its own specific business characteristics, the
profitability of most property and casualty insurance companies tends to follow
this cyclical market pattern, with profitability generally increasing in hard
markets and decreasing in soft markets. At present, we are beginning to
experience a soft market in our automobile sector while a hard market persists
in our property sector. We cannot predict, however, how long these market
conditions will persist. In the current soft automobile market, increased price
competition may cause us to have to reduce our premiums in order to maintain our
market share, which would result in a decrease in our automobile revenues.
4
WE MAY NOT OBTAIN THE NECESSARY REGULATORY APPROVALS TO EXPAND THE TYPES OF
INSURANCE PRODUCTS WE OFFER OR THE STATES IN WHICH WE OPERATE.
We currently have applications pending in Alabama and Texas to underwrite
and sell general liability insurance. The insurance regulators in these states
may request additional information, add conditions to the license that we find
unacceptable, or deny our application. This would delay or prevent us from
operating in that state. If we want to operate in any additional states, we must
file similar applications for licenses, which we may not be successful in
obtaining.
ALTHOUGH WE FOLLOW THE INDUSTRY PRACTICE OF REINSURING A PORTION OF OUR RISKS,
OUR COSTS OF OBTAINING REINSURANCE HAVE INCREASED AND WE MAY NOT BE ABLE TO
SUCCESSFULLY ALLEVIATE RISK THROUGH REINSURANCE ARRANGEMENTS.
We follow the insurance industry practice of reinsuring a portion of our
risks and paying for that protection based upon premiums received on all
policies subject to this reinsurance. Our business depends on our ability to
transfer or "cede" significant amounts of risk insured by us. Reinsurance makes
the assuming reinsurer liable to the extent of the risk ceded. Prior to 2004,
both Federated National and American Vehicle ceded varying amounts their
premiums from automobile insurance policies to Transatlantic Reinsurance
Company. For 2004, neither company has elected to cede any automobile premiums.
Federated National also obtains reinsurance for its property insurance policies
on the private market in Bermuda and London and through the Florida Hurricane
Catastrophe Fund. The private markets in Bermuda and London, as well as the
Florida Hurricane Catastrophe Fund, currently reinsure Federated National for
liabilities resulting from a storm causing damage in excess of the first $10
million and extend coverage up to approximately $200 million in the aggregate,
which we believed to constitute an event expected to occur no more often than
once in a period of 100 years. As a result of the hurricanes experienced in
Florida in August and September 2004, however, we will review, and may determine
to modify, our reinsurance.
Because our ceded automobile reinsurance treaties are from one reinsurer
and remain in effect for various years prior to 2004, we are also subject to
credit risk with respect to that reinsurer, as the ceding of risk does not
relieve us of liability to our insureds regarding the portion of the risk that
has been reinsured, if the reinsurer fails to pay for any reason. The insolvency
of our primary reinsurer or any of our other current or future reinsurers, or
their inability otherwise to pay claims, would increase the claims that we must
pay, thereby significantly harming our results of operations. In addition,
prevailing market conditions have limited the availability and increased the
cost of reinsurance, which may have the effect of increased costs and reduced
profitability.
OUR LOSS RESERVES MAY BE INADEQUATE TO COVER OUR ACTUAL LIABILITY FOR LOSSES,
CAUSING OUR RESULTS OF OPERATIONS TO BE ADVERSELY AFFECTED.
We maintain reserves to cover our estimated ultimate liabilities for loss
and loss adjustment expenses. These reserves are estimates based on historical
data and statistical projections of what we believe the settlement and
administration of claims will cost based on facts and circumstances then known
to us. Actual losses and loss adjustment expenses, however, may vary
significantly from our estimates. For example, after we compared our reserve
levels to our actual claims for the prior years, we increased our liability for
loss and loss adjustment expenses by $1,234,047 in 2003, $90,874 in 2002, and
$2,568,476 in 2001. These increases reflected primarily our loss experience
under our personal automobile policies. Because of the uncertainties that
surround estimated loss reserves, we cannot be certain that our reserves will be
adequate to cover our actual losses. If our reserves for unpaid losses and loss
adjustment expenses are less than actual losses and loss adjustment expenses, we
will be required to increase our reserves with a corresponding reduction in our
net income in the period in which the deficiency is identified. Future loss
experience substantially in excess of our reserves for unpaid losses and loss
adjustment expenses could substantially harm our results of operations and
financial condition.
WE CURRENTLY RELY ON AGENTS, MOST OF WHOM ARE INDEPENDENT AGENTS, TO WRITE OUR
INSURANCE POLICIES, AND IF WE ARE NOT ABLE TO ATTRACT AND RETAIN INDEPENDENT
AGENTS, OUR REVENUES WOULD BE NEGATIVELY AFFECTED.
We currently market and distribute Federated National's, American
Vehicle's and third-party insurers' products and our other services through a
network of approximately 1,500 independent agents, 24 agencies that we own and
45 agencies that we franchise to others. Our independent agents are our primary
source for our property insurance policies. Many of our competitors also rely on
independent agents. As a result, we must compete with other insurers for
independent agents' business and with other franchisors of insurance agencies
for franchisees. Our competitors may offer a greater variety of insurance
products, lower premiums for insurance coverage, or higher commissions to their
agents. If our products, pricing and commissions do not remain competitive, we
may find it more difficult to attract business from independent agents and to
attract franchisees for our agencies to sell our products. A material reduction
in the amount of our products that independent agents sell would negatively
affect our revenues.
5
NONSTANDARD AUTOMOBILE INSURANCE HISTORICALLY HAS A HIGHER FREQUENCY OF CLAIMS
THAN STANDARD AUTOMOBILE INSURANCE, THEREBY INCREASING OUR POTENTIAL FOR LOSS
EXPOSURE BEYOND WHAT WE WOULD BE LIKELY TO EXPERIENCE IF WE OFFERED ONLY
STANDARD AUTOMOBILE INSURANCE.
Nonstandard automobile insurance, which is second only to our property
insurance product, is provided to insureds who are unable to obtain preferred or
standard insurance coverage because of their payment histories, driving records,
age, vehicle types, or prior claims histories. This type of automobile insurance
historically has a higher frequency of claims than does preferred or standard
automobile insurance policies, although the average dollar amount of the claims
is usually smaller under nonstandard insurance policies. As a result, we are
exposed to the possibility of increased loss exposure and higher claims
experience than would be the case if we offered only standard automobile
insurance.
FLORIDA'S PERSONAL INJURY PROTECTION INSURANCE STATUTE CONTAINS PROVISIONS THAT
FAVOR CLAIMANTS, CAUSING US TO EXPERIENCE A HIGHER FREQUENCY OF CLAIMS THAN
MIGHT OTHERWISE BE THE CASE IF WE OPERATED ONLY OUTSIDE OF FLORIDA.
Florida's personal injury protection insurance statute limits an insurer's
ability to deny benefits for medical treatment that is unrelated to the
accident, that is unnecessary, or that is fraudulent. In addition, the statute
allows claimants to obtain awards for attorney's fees. Although this statute has
been amended several times in recent years, primarily to address concerns over
fraud, the Florida legislature has been only marginally successful in
implementing effective mechanisms that allow insurers to combat fraud and other
abuses. We believe that this statute contributes to a higher frequency of claims
under nonstandard automobile insurance policies in Florida, as compared to
claims under standard automobile insurance policies in Florida and nonstandard
and standard automobile insurance polices in other states. Although we believe
that we have successfully offset these higher costs with premium increases,
because of competition, we may not be able to do so with as much success in the
future.
OUR BUSINESS STRATEGY IS TO AVOID COMPETITION IN OUR AUTOMOBILE INSURANCE
PRODUCTS BASED ON PRICE TO THE EXTENT POSSIBLE. THIS STRATEGY, HOWEVER, MAY
RESULT IN THE LOSS OF BUSINESS IN THE SHORT TERM.
Although our pricing of our automobile insurance products is inevitably
influenced to some degree by that of our competitors, we believe that it is
generally not in our best interest to compete solely on price, choosing instead
to compete on the basis of underwriting criteria, our distribution network, and
our superior service to our agents and insureds. With respect to automobile
insurance in Florida, we compete with more than 100 companies, which underwrite
personal automobile insurance. Comparable companies which compete with us in the
personal automobile insurance market include U.S. Security Insurance Company,
United Automobile Insurance Company, Direct General Insurance Company and
Security National Insurance Company, as well as major insurers such as
Progressive Casualty Insurance Company. Comparable companies which compete with
us in the homeowners' market include Florida Family Insurance Company, Florida
Select Insurance Company, Atlantic Preferred Insurance Company and Vanguard
Insurance Company. Comparable companies which compete with us in the general
liability insurance market include Century Surety Insurance Company, Atlantic
Casualty Insurance Company, Colony Insurance Company and Burlington/First
Financial Insurance Companies. Competition could have a material adverse effect
on our business, results of operations and financial condition. If we do not
meet the prices offered by our competitors, we may lose business in the short
term, which could also result in reduced revenues.
OUR INVESTMENT PORTFOLIO MAY SUFFER REDUCED RETURNS OR LOSSES, WHICH WOULD
SIGNIFICANTLY REDUCE OUR EARNINGS.
As do other insurance companies, we depend on income from our investment
portfolio for a substantial portion of our earnings. During the time that
normally elapses between the receipt of insurance premiums and any payment of
insurance claims, we invest the funds received, together with our other
available capital, primarily in fixed- maturity investments and equity
securities, in order to generate investment income. A significant decline in
investment yields in our investment portfolio caused by fluctuations in interest
rates or volatility in the stock market, or a default by issuers of securities
that we own, could adversely affect the value of our investment portfolio and
the returns that we earn on our portfolio, thereby substantially harming our
financial condition and results of operations. During the first six months of
2004, net investment income increased by $0.6 million, or 81.9%, to $1.3
million, as compared to $0.7 million for the same six-month period ended June
30, 2003. The increase in investment income is a result of the additional
amounts of invested assets. Also affecting our net investment income were our
relatively stable yields of 4.1% for the six months ended June 30, 2004, as
compared to 4.6% for the six months ended June 30, 2003.
Although we experienced realized gains of $2,231,333 for 2003 and $121,919
for the first six months of 2004, we experienced net realized investment losses
in the past of $1,369,961 for 2002 and $2,911,658 for 2001. The net realized
losses experienced in 2001 were primarily a function of the widely publicized
declines in the industrial common stock valuations. As a result of the declines
in the equity markets in 2001, we acquired securities in the more conservative
and highly rated industrial bond markets in late 2001 and the first half of
2002. During 2002, we incurred a $2,000,000 decline in value of our investment
in WorldCom, Inc. bonds. This write down is reflected in the $1,369,961 loss
incurred in 2002.
6
OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER ARE KEY TO THE STRATEGIC DIRECTION OF
OUR COMPANY. IF WE WERE TO LOSE THE SERVICES OF EITHER OF THEM, OUR BUSINESS
COULD BE HARMED.
We depend, and will continue to depend, on the services of one of our
founders and principal shareholders, Edward J. Lawson, who is also our president
and chairman of the board, as well as Richard Widdicombe, who is our chief
executive officer. We have entered into an employment agreement with each of
them and we maintain $3 million and $1 million in key man life insurance on the
lives of Mr. Lawson and Mr. Widdicombe, respectively. Nevertheless, because of
Mr. Lawson's and Mr. Widdicombe's role and involvement in developing and
implementing our current business strategy, the loss of either of their services
could substantially harm our business.
RISKS RELATED TO AN INVESTMENT IN OUR SHARES
THE TRADING OF OUR WARRANTS MAY NEGATIVELY AFFECT THE TRADING PRICES OF OUR
COMMON STOCK IF INVESTORS PURCHASE AND EXERCISE THE WARRANTS TO FACILITATE OTHER
TRADING STRATEGIES, SUCH AS SHORT SELLING.
The 816,000 warrants we issued in our July 2003 private offering currently
trade on the Nasdaq National Market under the symbol of "TCHCW." Each of the
warrants entitles the holder to purchase one-half of one share of our common
stock at an exercise price per whole share of $12.74 after giving effect to the
September 2004 three-for-two stock split. The 1,019,608 warrants we issued in
our September 30, 2004 private offering are not yet currently listed for trading
on the Nasdaq National Market, although we are obligated to list them for
trading. Each of these warrants entitles the holder to purchase one share of our
common stock at an exercise price per share of $12.75. Investors may purchase
and exercise warrants to facilitate trading strategies such as short selling,
which involves the sale of securities not yet owned by the seller. In a short
sale, the seller must either purchase or borrow the security in order to
complete the sale. If shares of our common stock received upon the exercise of
warrants are used to complete short sales, this may have the effect of reducing
the trading price of our common stock.
OUR LARGEST SHAREHOLDERS CONTROL APPROXIMATELY 27% OF THE VOTING POWER OF OUR
OUTSTANDING COMMON STOCK, WHICH COULD DISCOURAGE POTENTIAL ACQUIRORS AND PREVENT
CHANGES IN MANAGEMENT.
Edward J. Lawson and Michele V. Lawson beneficially own approximately 27%
of our outstanding common stock. As our largest shareholders, and our only
shareholders owning more than 10% of our common stock, the Lawsons have
significant influence over the outcome of any shareholder vote. This voting
power may discourage takeover attempts, changes in our officers and directors or
other changes in our corporate governance that other shareholders may desire.
WE HAVE AUTHORIZED BUT UNISSUED PREFERRED STOCK, WHICH COULD AFFECT RIGHTS OF
HOLDERS OF COMMON STOCK.
Our articles of incorporation authorize the issuance of preferred stock
with designations, rights and preferences determined from time to time by our
board of directors. Accordingly, our board of directors is empowered, without
shareholder approval, to issue preferred stock with dividends, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of common stock. In addition, the preferred stock
could be issued as a method of discouraging a takeover attempt. Although we do
not intend to issue any preferred stock at this time, we may do so in the
future.
OUR ARTICLES OF INCORPORATION AND BYLAWS AND FLORIDA LAW MAY DISCOURAGE TAKEOVER
ATTEMPTS AND MAY RESULT IN ENTRENCHMENT OF MANAGEMENT.
Our articles of incorporation and bylaws contain provisions that may
discourage takeover attempts and may result in entrenchment of management.
o Our board of directors is elected in classes, with only two or three
of the directors elected each year. As a result, shareholders would
not be able to change the membership of the board in its entirety in
any one year. Shareholders would also be unable to bring about,
through the election of a new board of directors, changes in our
officers.
o Our articles of incorporation prohibit shareholders from acting by
written consent, meaning that shareholders will be required to
conduct a meeting in order to vote on any proposals or take any
action.
o Our bylaws require at least 60 days' notice if a shareholder desires
to submit a proposal for a shareholder vote or to nominate a person
for election to our board of directors.
7
In addition, Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations, such as our company.
o The Florida Control Share Act provides that shares acquired in a
"control share acquisition" will not have voting rights unless the
voting rights are approved by a majority of the corporation's
disinterested shareholders. A "control share acquisition" is an
acquisition, in whatever form, of voting power in any of the
following ranges: (a) at least 20% but less than 33-1/3% of all
voting power, (b) at least 33-1/3% but less than a majority of all
voting power; or (c) a majority or more of all voting power.
o The Florida Affiliated Transactions Act requires supermajority
approval by disinterested shareholders of certain specified
transactions between a public corporation and holders of more than
10% of the outstanding voting shares of the corporation (or their
affiliates).
AS A HOLDING COMPANY, WE DEPEND ON THE EARNINGS OF OUR SUBSIDIARIES AND THEIR
ABILITY TO PAY MANAGEMENT FEES AND DIVIDENDS TO THE HOLDING COMPANY AS THE
PRIMARY SOURCE OF OUR INCOME.
We are an insurance holding company whose primary assets are the stock of
our subsidiaries. Our operations, and our ability to service our debt, are
limited by the earnings of our subsidiaries and their payment of their earnings
to us in the form of management fees, dividends, loans, advances or the
reimbursement of expenses. These payments can be made only when our subsidiaries
have adequate earnings. In addition, these payments made to us by our insurance
subsidiaries are restricted by Florida law governing the insurance industry.
Generally, Florida law limits the dividends payable by insurance companies under
complicated formulas based on the subsidiary's available capital and earnings.
During 2003, 2002 and 2001, the parent company received management fees
from our subsidiaries, excluding Federated National and American Vehicle,
totaling $2.0 million, $1.9 million and $2.9 million. No dividends were declared
or paid by any of our subsidiaries in 2003, 2002 or 2001. Whether our
subsidiaries will be able to pay dividends in 2004 depends on the results of
their operations and their expected needs for capital. We do not anticipate that
our subsidiaries will begin to pay dividends to the parent company during 2004.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this prospectus or in documents incorporated by reference
that are not historical fact are forward-looking statements. Forward-looking
statements are subject to certain risks and uncertainties that could cause
actual events and results to differ materially from those discussed herein.
Without limiting the generality of the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "would," "estimate," or
"continue" or the negative other variations thereof or comparable terminology
are intended to identify forward-looking statements. The risks and uncertainties
include, but are not limited to, the risks and uncertainties described in this
prospectus or from time to time in our filings with the SEC.
USE OF PROCEEDS
We will not receive any proceeds from the resale of the common stock by
the selling shareholders.
SELLING SHAREHOLDERS
The following table shows certain information as of the date of this
prospectus regarding the number of shares of common stock owned by the selling
shareholders and that are included for sale in this prospectus. The table
assumes that all shares offered for sale in the prospectus are sold.
No selling shareholder has been within the last three years, or is
currently, affiliated with us.
8
-------------------------------------------------------------------------------------------------------------------------------
Number
Ownership of Common Stock Offered by Ownership of Common Stock
Before Offering (1) Selling After Offering (1)
------------------------- Shareholder -------------------------
SELLING SHAREHOLDER Number Percent Number Percent
-------------------------------------------------------------------------------------------------------------------------------
Pandora Select Partners, LP(1)(2) 160,354 2.60% 9,227 151,127 2.45%
-------------------------------------------------------------------------------------------------------------------------------
Whitebox Hedged High Yield Partners, LP(1) 162,346 2.64% 18,453 143,893 2.34%
-------------------------------------------------------------------------------------------------------------------------------
Whitebox Convertible Arbitrage Partners, LP(1)(2) 552,618 8.45% 18,453 543,165 8.17%
-------------------------------------------------------------------------------------------------------------------------------
SilverCreek Limited Partnership(1) 26,851 0.45% 5,721 21,130 0.35%
-------------------------------------------------------------------------------------------------------------------------------
Newport Alternative Income Fund(1) 4,630 0.08% 923 3,707 0.06%
-------------------------------------------------------------------------------------------------------------------------------
SilverCreek II Limited(1) 14,917 0.25% 2,583 12,334 0.20%
-------------------------------------------------------------------------------------------------------------------------------
Coastal Convertibles LTD(1) 66,981 1.10% 6,920 60,061 0.99%
-------------------------------------------------------------------------------------------------------------------------------
OTAPE Investments LLC(1) 30,416 0.50% 2,307 28,109 0.47%
-------------------------------------------------------------------------------------------------------------------------------
Omicron Master Trust(1)(2) 200,712 3.24% 4,613 196,099 3.16%
--------- ------ ---------
-------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,219,823 69,200 1,150,623
========= ====== =========
-------------------------------------------------------------------------------------------------------------------------------
* Less than 1%.
(1) Includes shares underlying warrants held by the selling shareholders (each
of which is exercisable for .75 shares of common stock, which reflects the
Company's three-for-two stock split on September 7, 2004) as follows:
Coastal Convertibles LTD, 45,428 shares; Omicron Master Trust, 39,236
shares; OTAPE Investments, LLC, 28,108 shares; Newport Alternative Income
Fund, 3,041 shares; Pandora Select Partners, LP, 72,696 shares;
SilverCreek II Limited, 10,100 shares; SilverCreek Limited Partnership,
17,268 shares, Whitebox Convertible Arbitrage Partners, LP, 142,008
shares; and Whitebox Hedged High Yield Partners, LP, 143,892 shares.
(2) Includes shares underlying warrants held by the selling shareholders (each
of which is exercisable for one share of common stock) as follows: Omicron
Master Trust, 156,863 shares; Pandora Select Partners, LP, 78,431 shares;
and Whitebox Convertible Arbitrage Partners, LP, 392,156 shares.
The selling shareholders listed above have provided us with additional
information regarding the individuals or entities that exercise control over the
selling shareholder. The proceeds of any sale of shares pursuant to this
prospectus will be for the benefit of the individuals that control the selling
entity. The following is a list of the selling shareholders and the entities
that may exercise the right to vote or dispose of the shares owned by each
selling shareholder:
o Coastal Convertibles LTD is managed by Tradewinds.
o Omicron Capital, L.P., a Delaware limited partnership ("Omicron Capital"),
serves as investment manager to Omicron Master Trust, a trust formed under
the laws of Bermuda ("Omicron"); Omicron Capital, Inc., a Delaware
corporation ("OCI"), serves as general partner of Omicron Capital; and
Winchester Global Trust Company Limited ("Winchester") serves as the
trustee of Omicron. By reason of such relationships, Omicron Capital and
OCI may be deemed to share dispositive power over the shares of our common
stock owned by Omicron, and Winchester may be deemed to share voting and
dispositive power over the shares of our common stock owned by Omicron.
Omicron Capital, OCI and Winchester disclaim beneficial ownership of such
shares of our common stock. Omicron Capital has delegated authority from
the board of directors of Winchester regarding the portfolio management
decisions with respect to the shares of common stock owned by Omicron and,
as of November 1, 2004, Mr. Olivier H. Morali and Mr. Bruce T. Bernstein,
officers of OCI, have delegated authority from the board of directors of
OCI regarding the portfolio management decisions with respect to the
shares of common stock owned by Omicron. By reason of such delegated
authority, Messrs. Morali and Bernstein may be deemed to share dispositive
power over the shares of our common stock owned by Omicron. Messrs. Morali
and Bernstein disclaim beneficial ownership of such shares of our common
stock and neither of such persons has any legal right to maintain such
delegated authority. No other person has sole or shared voting or
dispositive power with respect to the shares of our common stock being
offered by Omicron, as those terms are used for purposes under Regulation
13D-G of the Securities Exchange Act of 1934, as amended. Omicron and
Winchester are not "affiliates" of one another, as that term is used for
purposes of the Securities Exchange Act of 1934, as amended, or of any
other person named in this prospectus as a selling shareholder. No person
or "group" (as that term is used in Section 13(d) of the Securities
Exchange Act of 1934, as amended, or the SEC's Regulation 13D-G) controls
Omicron and Winchester.
o OTAPE Investments, LLC is managed by OTA. Ira M. Leventhal, a U.S.
citizen, may be deemed to have dispositive power with regard to the shares
beneficially owned by OTAPE Investments, LLC. Mr. Leventhal disclaims
beneficial ownership of those shares.
9
o Each of Newport Alternative Income Fund, SilverCreek II Limited and
SilverCreek Limited Partnership is managed by SilverCreek.
o Each of Whitebox Convertible Arbitrage Partners, LP and Whitebox Hedged
High Yield Partners, LP is managed by Whitebox Advisors, LLC.
o Pandora Select Partners, LP is managed by Pandora Select Advisors, LLC.
HOW THE SHARES MAY BE DISTRIBUTED
The selling shareholders may sell shares of common stock in various ways
and at various prices. Some of the methods by which the selling shareholders may
sell shares include:
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers or makes arrangements for other brokers to
participate in soliciting purchasers;
o privately negotiated transactions;
o block trades in which the broker or dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by that
broker or dealer for the selling shareholder's account under this
prospectus on the Nasdaq National Market at prices and on terms
then-prevailing in the market;
o sales under Rule 144, if available, rather than using this
prospectus;
o a combination of any of these methods of sale; and
o any other legally permitted method.
The applicable sales price may be affected by the type of transaction.
The selling shareholders may also pledge shares as collateral for margin
loans under their customer agreements with their brokers. If there is a default
by a selling shareholder, the broker may offer and sell the pledged shares. When
selling shares, the selling shareholders intend to comply with the prospectus
delivery requirements under the Securities Act, by delivering a prospectus to
each purchaser. We may file any supplements, amendments or other necessary
documents in compliance with the Securities Act that may be required in the
event a selling shareholder defaults under any customer agreement with brokers.
Brokers and dealers may receive commissions or discounts from the selling
shareholders or, in the event the broker-dealer acts as agent for the purchaser
of the shares, from that purchaser, in amounts to be negotiated. These
commissions are not expected to exceed those customary in the types of
transactions involved.
We cannot estimate at the present time the amount of commissions or
discounts, if any, that will be paid by the selling shareholders in connection
with the sales of the shares.
The selling shareholders and any broker-dealers or agents that participate
with a selling shareholder in sales of the shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In that event, any commissions received by the broker-dealers or agents
and any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
Under the securities laws of certain states, the shares may be sold in
those states only through registered or licensed broker-dealers. In addition,
the shares may not be sold unless the shares have been registered or qualified
for sale in the relevant state or unless the shares qualify for an exemption
from registration or qualification.
We have agreed to pay all of our out-of-pocket expenses and our
professional fees and expenses incident to the registration of the shares.
The selling shareholders and other persons participating in the
distribution of the shares offered under this prospectus are subject to the
applicable requirements of Regulation M promulgated under the Exchange Act in
connection with sales of the shares.
10
LEGAL MATTERS
Broad and Cassel, a partnership including professional associations,
Miami, Florida, is giving an opinion regarding the validity of the offered
shares of common stock.
EXPERTS
The financial statements of 21st Century Holding Company for the years
ended December 31, 2003 and December 31, 2002, incorporated by reference in this
prospectus, have been audited by De Meo, Young, McGrath, independent certified
public accountants, to the extent and for the periods set forth in their report
incorporated herein by reference, and are incorporated herein in reliance upon
such reports given upon the authority of said firm as experts in auditing and
accounting.
The financial statements of 21st Century Holding Company for the year
ended December 31, 2001, incorporated by reference in this prospectus, have been
audited by McKean, Paul, Chrycy, Fletcher & Co., independent certified public
accountants, to the extent and for the periods set forth in their report
incorporated herein by reference, and are incorporated herein in reliance upon
such reports given upon the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the SEC in
connection with this offering. This prospectus does not contain all of the
information set forth in the registration statement, as permitted by the rules
and regulations of the SEC. This prospectus may include references to material
contracts or other material documents of ours; any summaries of these material
contracts or documents are complete and are either included in this prospectus
or incorporated by reference into this prospectus. You may refer to the exhibits
that are part of the registration statement for a copy of the contract or
document.
We also file annual, quarterly and current reports and other information
with the SEC. You may read and copy any report or document we file, and the
registration statement, including the exhibits, may be inspected at the SEC's
public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public from
the SEC's website at http://www.sec.gov.
Quotations for the prices of our common stock appear on the Nasdaq
National Market, and reports, proxy statements and other information about us
can also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are incorporated by reference into this
prospectus:
o Our Current Reports on Form 8-K filed with the SEC on October 6,
October 4, September 29, September 20, August 17, and August 5,
2004,
o Our Quarterly Report on Form 10-Q for the quarter ended June 30,
2004, filed with the SEC on August 16, 2004,
o Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2004, filed with the SEC on May 17, 2004,
o Our Annual Report on Form 10-K for the year ended December 31, 2003,
filed with the SEC on April 2, 2004,
o Our proxy statement for our 2004 Annual Meeting of Shareholders
filed with the SEC on April 27, 2004, and
o The description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on October 28, 1998, as
this description may be updated in any amendment to the Form 8-A.
11
In addition, all documents filed by us pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, other than information
furnished pursuant to Items 9 or 12 of Form 8-K, after the date of this
prospectus and prior to the filing of a post-effective amendment that indicates
that all securities registered hereby have been sold or that deregisters all
securities then remaining unsold, shall be deemed to be incorporated by
reference into this prospectus and to be a part hereof from the date of filing
of such documents with the SEC. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein,
or in a subsequently filed document incorporated by reference herein, modifies
or supersedes that statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute part of this
prospectus.
You may obtain a copy of these filings, excluding all exhibits unless we
have specifically incorporated by reference an exhibit in this prospectus or in
a document incorporated by reference herein, at no cost, by writing or
telephoning:
21st Century Holding Company
3661 West Oakland Park Boulevard, Suite 300
Lauderdale Lakes, Florida 33311
Attention: Gordon Jennings, Chief Financial Officer
Telephone: (954) 581-9993
Our file number under the Securities Exchange Act of 1934 is 0-2500111.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We have authority under Section 607.0850 of the Florida Business
Corporation Act to indemnify our directors and officers to the extent provided
for in that law. Our articles of incorporation provide that we may insure, shall
indemnify and shall advance expenses on behalf of our officers and directors to
the fullest extent not prohibited by law. We also are a party to indemnification
agreements with each of our directors and officers.
The SEC is of the opinion that indemnification of directors, officers and
controlling persons for liabilities arising under the Securities Act is against
public policy and is, therefore, unenforceable.
12
PART II
INFORMATION REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that its expenses in connection with this
registration statement will be as follows:
SEC registration fee............................. $ 93.38
Accounting fees and expenses..................... 5,000.00
Legal fees and expenses.......................... 5,000.00
Miscellaneous.................................... 2,906.62
------------
Total..................................... $ 13,000.00
============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 607.0850 of the Florida
Business Corporation Act to indemnify its directors and officers to the extent
provided for in such law. The Registrant's Amended and Restated Articles of
Incorporation provide that the Registrant may insure, shall indemnify and shall
advance expenses on behalf of its officers and directors to the fullest extent
not prohibited by law. The Registrant is also a party to indemnification
agreements with each of its directors and officers.
ITEM 16. EXHIBITS.
4.1 Specimen of Common Stock Certificate(1)
4.2 Revised Representative's Warrant Agreement including form of
Representative's Warrant(1)
4.3 Amendment dated October 1, 2003 to Warrant Agreement(2)
4.4 Form of 6% Senior Subordinated Note due July 31, 2006(3)
4.5 Form of Redeemable Warrant dated July 31, 2003(3)
4.6 Unit Purchase Agreement dated July 31, 2003 between the Company and
the Purchasers of the 6% Senior Subordinated Notes due July 31,
2006(4)
4.7 Amendment to Unit Purchase Agreement and Registration Rights
Agreement dated October 15, 2003 between the Company and the
Purchasers of the 6% Senior Subordinated Notes(5)
4.8 Form of 6% Senior Subordinated Note due September 30, 2007(6)
4.9 Form of Redeemable Warrant dated September 30, 2004(6)
4.10 Unit Purchase Agreement dated September 30, 2004 between the Company
and the Purchasers of the 6% Senior Subordinated Notes due September
30, 2007(6)
5.1 Opinion of Broad and Cassel(6)
23.1 Consent of Broad and Cassel (included in its opinion filed as
Exhibit 5.1)(6)
23.2 Consent of McKean, Paul, Chrycy, Fletcher & Co.(6)
23.3 Consent of De Meo, Young, McGrath(6)
24.1 Power of Attorney(7)
II-1
---------------
(1) Previously filed as an exhibit of the same number to the Registrant's
Registration Statement on Form SB-2 (File No. 333-63623) and
incorporated herein by reference.
(2) Previously filed as an exhibit of the same number to the Registrant's
Registration Statement on Form S-3 (File No. 333-105221) and
incorporated herein by reference.
(3) Previously filed as Exhibits 4.1 and 4.2, respectively, to the
Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and
incorporated herein by reference.
(4) Previously filed as Exhibit 4.5 to the Registrant's Registration
Statement on Form S-3 (333-109313) and incorporated herein by
reference.
(5) Previously filed as Exhibit 4.7 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-3 (333-108739) and incorporated herein
by reference.
(6) Filed herewith.
(7) Included on page II-4 of this registration statement.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lauderdale Lakes, State of Florida on this 29th day
of October, 2004.
21ST CENTURY HOLDING COMPANY
By: /s/ Edward J. Lawson
-----------------------------------------
Edward J. Lawson,
Chairman of the Board and President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Edward
J. Lawson and Richard A. Widdicombe, or any one of them, as his or her true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him or her and in his or her name, place and stead in any and
all capacities to execute in the name of each such person who is then an officer
or director of the Registrant any and all amendments (including post-effective
amendments) to this Registration Statement, and any registration statement
relating to the offering hereunder pursuant to Rule 462 under the Securities Act
of 1933 and to file the same with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents and each of them full power and authority to
do and perform each and every act and thing required or necessary to be done in
and about the premises as fully as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURES TITLE DATE
------------------------------ ----------------------------- ---------------
/s/ Edward J. Lawson Chairman of the Board of October 29, 2004
------------------------------ Directors and President
Edward J. Lawson
/s/ Richard A. Widdicombe Chief Executive Officer and October 29, 2004
------------------------------ Director (Principal Executive
Richard A. Widdicombe Officer)
/s/ James Gordon Jennings, III Chief Financial Officer October 29, 2004
------------------------------ (Principal Financial and
James Gordon Jennings, III Accounting Officer)
/s/ Bruce Simberg Director October 29, 2004
------------------------------
Bruce Simberg
/s/ Carl Dorf Director October 29, 2004
------------------------------
Carl Dorf
/s/ Charles B. Hart, Jr. Director October 29, 2004
------------------------------
Charles B. Hart, Jr.
/s/ Peter J. Prygelski Director October 29, 2004
------------------------------
Peter J. Prygelski
/s/ Richard W. Wilcox, Jr. Director October 29, 2004
------------------------------
Richard W. Wilcox, Jr.
II-3
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
4.8 Form of 6% Senior Subordinated Note due September 30, 2007
4.9 Form of Redeemable Warrant dated September 30, 2004
4.10 Unit Purchase Agreement dated September 30, 2004 between the
Company and the Purchasers of the 6% Senior Subordinated Notes
due September 30, 2007
5.1 Opinion of Broad and Cassel
23.1 Consent of Broad and Cassel (included in its opinion
filed as Exhibit 5.1)
23.2 Consent of McKean, Paul, Chrycy, Fletcher & Co.
23.3 Consent of De Meo, Young, McGrath