As filed with the Securities and Exchange Commission on February 2, 2005
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
(Exact name of registrant as specified in its charter)
Florida 65-0248866
--------------------------------- ------------------------------------
(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
(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
(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: (561) 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 Price Registration Fee
----------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value 159,407 shares $13.42 $2,139,242 $251.79
============================================================================================================================
(1) Also includes, pursuant to Rule 416 under the Securities Act of 1933, an
indeterminant number of shares and warrants that may be issued, offered or
sold to prevent dilution resulting from stock splits, stock dividends, or
similar transactions.
(2) 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 THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, FEBRUARY 2, 2005
PROSPECTUS
159,407 SHARES OF COMMON STOCK
21ST CENTURY HOLDING COMPANY
This prospectus covers 159,407 shares of our common stock issued by us as
payment of principal and interest due on both our 6% senior subordinated notes
due July 31, 2006 and our 6% senior subordinated notes due September 30, 2007.
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 the resale of the shares.
The shareholders named in this prospectus may offer and sell these
securities 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 January 31, 2005, the last reported sale price of the common stock on
the Nasdaq National Market was $13.94 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 Securities" 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 February _____, 2005.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY..................................................................................................1
RECENT DEVELOPMENTS.................................................................................................1
OVERVIEW 3
RISKS OF INVESTING IN OUR SHARES....................................................................................5
The State of Florida, where our headquarters and a substantial
portion of our policies are located, has experienced four
hurricanes in August and
September 2004....................................................................................5
As a result of the hurricanes striking Florida in August and September 2004, we are
not in compliance with certain regulatory requirements............................................5
We requested that A.M. Best cease rating our insurance subsidiaries. As a result, 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..........................................................................................6
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.................................6
The maximum credit commitment under our revolving loan could be subject to reduction,
which would adversely affect our available working capital........................................7
We are subject to significant government regulation, which can limit our growth and
increase our expenses, thereby reducing our earnings..............................................7
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.................................................................................8
Our revenues and operating performance may fluctuate with business cycles in the
property and casualty insurance industry..........................................................8
We may not obtain the necessary regulatory approvals to expand the types of insurance
products we offer or the states in which we operate...............................................8
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......................................9
Our loss reserves may be inadequate to cover our actual liability for losses, causing
our results of operations to be adversely affected................................................9
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.........................................................................................10
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....................................................................10
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.....................................10
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...........................................................11
Our investment portfolio may suffer reduced returns or losses, which would
significantly reduce our earnings................................................................11
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..................................................................................12
i
TABLE of CONTENTS
(Continued)
PAGE
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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........................................................12
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....................................................................13
We have authorized but unissued preferred stock, which could affect rights of holders
of common stock..................................................................................13
Our articles of incorporation and bylaws and Florida law may discourage takeover
attempts and may result in entrenchment of management............................................13
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.............................................................................14
Note regarding forward-looking statements..........................................................................14
USE OF PROCEEDS....................................................................................................14
SELLING Security holderS...........................................................................................15
HOW THE Securities MAY BE DISTRIBUTED..............................................................................17
LEGAL MATTERS......................................................................................................19
EXPERTS ...........................................................................................................19
WHERE YOU CAN FIND MORE INFORMATION................................................................................19
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................................................20
INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................................................................21
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.
ii
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
Sale of Assets Related to Our Non-Standard Automobile Insurance Agency Business
On December 31, 2004, we, along with our wholly owned subsidiaries,
Federated Agency Group, Inc., Fed USA, Inc. and Assurance Managing General
Agents, Inc., sold certain assets related to our non-standard automobile
insurance agency business located in Florida to Fed USA Retail, Inc. and Fed USA
Franchising, Inc. As consideration for these assets, we received a cash payment
at closing of $7,000,000. In addition, we are entitled to receive an additional
payment of up to $2,500,000 calculated based on 10% of the "Gross Net Written
Premiums" (as defined in the asset purchase agreement) through our two insurance
company subsidiaries or through any insurance company affiliated with the buyers
for gross net written premiums that exceed $15,000,000 in the aggregate and are
less than $40,000,000 in the aggregate with respect to agency business written
by the buyers during the 12-month period following the closing. Fed USA Retail,
Inc. and Fed USA Franchising, Inc., which also assumed certain liabilities
related to the assets that were sold, are affiliates of Affirmative Insurance
Holdings, Inc., an insurance holding company based in Addison, Texas.
Affirmative has agreed to guarantee the buyers' obligations to make the
post-closing payment described above.
Sale of Express Tax
On January 13, 2005, we sold our 80% interest in Express Tax Service, Inc.
(along with its wholly owned subsidiary, Express Tax Franchise Corporation) to
Robert J. Kluba, the president of Express Tax and the holder of the 20% minority
interest in Express Tax, and Robert H. Taylor. In exchange for our shares, we
received a net cash payment of $311,350.75, which reflected a purchase price of
$660,000 less $348,649.25 in intercompany receivables we owed to Express Tax. In
addition, we received a cash payment of $1,200,000 for our agreement not to
compete with the current businesses of Express Tax for five years after the
sale.
Private Placement
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.
1
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 due July 31, 2006 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 also issued 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 the purchasers in our 2004 private placement 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.
Impact of 2004 Hurricane Season
In August and September 2004, the State of Florida experienced four
hurricanes, Charley, Frances, Ivan and Jeanne. One of our subsidiaries,
Federated National Insurance Company, incurred significant losses relative to
its homeowners' insurance line of business. As of September 30, 2004,
approximately 7,500 policyholders have filed hurricane-related claims totaling
an estimated $62.0 million, of which we currently estimate that our share of the
costs associated with these hurricanes will be approximately $33.0 million, net
of our reinsurance recoveries. As of September 30, 2004, approximately $9.1
million of reinsurance has been received to settle hurricane losses.
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). In connection
with this review, we requested that A.M. Best cease its ratings of these
subsidiaries. The withdrawal of our ratings could limit or prevent us from
writing or renewing desirable insurance policies or from obtaining adequate
reinsurance. Federated National and American Vehicle are currently rated "A"
("Unsurpassed," which is first of six ratings) by Demotech, Inc.
To retain our certificates of authority, Florida insurance laws and
regulations require that our insurance company subsidiaries, Federated National
and American Vehicle Insurance Company, maintain capital surplus equal to the
greater of 10% of its liabilities or the 2003 statutory minimum capital and
surplus requirement of $3.60 million as defined in the Florida Insurance Code.
As of September 30, 2004, Federated National was not in compliance with its
requirement to maintain capital surplus equal to the greater of 10% of its
liabilities by approximately $0.3 million. Based on Federated National's payment
patterns associated with the settlement of its claims, compliance with the 10%
provision has been fully restored as of the date of this prospectus and we do
not currently anticipate any regulatory action relative to this matter. American
Vehicle remains in compliance with statutory minimum capital and surplus
requirement.
2
The insurance companies are also required to adhere to prescribed
premium-to-capital surplus ratios. As of September 30, 2004, Federated National
did not comply with the prescribed premium-to-capital surplus ratio, primarily
based on the incurred losses associated with the four hurricanes that occurred
in August and September 2004. Pursuant to verbal representations made to us by
senior officials from the Florida Office of Insurance Regulation of the Florida
Department of Financial Services, strict adherence to the prescribed
premium-to-capital surplus ratio requirement may not be immediately imposed. We
are in regular communications with the Florida Office of Insurance Regulation
and have complied with the office's verbal requests and have relied on their
verbal representation that immediate regulatory action will not be imposed
relative to its non-compliance with the prescribed premium-to-capital surplus
ratio. American Vehicle is in compliance with the prescribed premium-to-capital
surplus ratios.
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
our 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.
Stock Split
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 our
wholly owned subsidiaries, Federated National and American Vehicle. American
Vehicle has recently been authorized to write commercial general liability
policies in Kentucky and Texas and expects to begin writing policies in those
states 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.
3
During the nine months ended September 30, 2004, 21.4%, 63.8%, 1.6% and
13.2% 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
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.
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 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
independent agents to be a "one stop" shop for insurance 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 and Texas. 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. 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.
4
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 in August and September
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. One of our subsidiaries,
Federated National Insurance Company, incurred significant losses relative to
its homeowners' insurance line of business. As of the date of this prospectus,
approximately 7,500 policyholders have filed hurricane-related claims totaling
an estimated $62.0 million, of which we estimate that our share of the costs
associated with these hurricanes will be approximately $33.0 million, net of
reinsurance recoveries. As of September 30, 2004, approximately $9.1 million of
reinsurance has been received to settle hurricane losses.
As a result of the hurricanes striking Florida in August and September 2004, we
are not in compliance with certain regulatory requirements.
To retain our certificates of authority, Florida insurance laws and
regulations require that our insurance company subsidiaries, Federated National
and American Vehicle Insurance Company, maintain capital surplus equal to the
greater of 10% of its liabilities or the 2003 statutory minimum capital and
surplus requirement of $3.60 million as defined in the Florida Insurance Code.
As of September 30, 2004, Federated National was not in compliance with its
requirement to maintain capital surplus equal to the greater of 10% of its
liabilities by approximately $0.3 million. Based on Federated National's payment
patterns associated with the settlement of its claims, compliance with the 10%
provision has been fully restored as of the date of this prospectus and we do
not currently anticipate any regulatory action relative to this matter. American
Vehicle remains in compliance with statutory minimum capital and surplus
requirement.
5
The insurance companies are also required to adhere to prescribed
premium-to-capital surplus ratios. As of September 30, 2004, Federated National
did not comply with the prescribed premium-to-capital surplus ratio, primarily
based on the incurred losses associated with the four hurricanes that occurred
in August and September 2004. Pursuant to verbal representations made to us by
senior officials from the Florida Office of Insurance Regulation of the Florida
Department of Financial Services, strict adherence to the prescribed
premium-to-capital surplus ratio requirement may not be immediately imposed. We
are in regular communication with the OIR and have complied with their verbal
requests and have relied on their verbal representation that immediate
regulatory action will not be imposed relative to Federated National's
non-compliance with the prescribed premium-to-capital surplus ratio. American
Vehicle is in compliance with the prescribed premium-to-capital surplus ratios.
We requested that A.M. Best cease rating our insurance subsidiaries. As a
result, 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 us 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). In connection with this review, we
requested that A.M. Best cease its ratings of these subsidiaries. The withdrawal
of our ratings could limit or prevent us from writing or renewing desirable
insurance policies or from obtaining adequate reinsurance. Federated National
and American Vehicle are currently rated "A" ("Unsurpassed," which is first of
six ratings) by Demotech, Inc.
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, possible sales of our investment
securities, and our earnings from operations and investments. Unexpected
catastrophic events in our market areas, such as the hurricanes experienced in
Florida in August and September 2004, have resulted and 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.
6
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, Kentucky and Texas, 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.
7
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 the hurricanes in Florida, the Florida Office of
Insurance Regulation issued emergency orders that imposed a moratorium on
cancellations and non-renewals of various types of insurance coverages and that
require mediation to resolve disputes over personal property insurance claims.
For personal residential and commercial residential policies, the moratorium was
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.
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 an application pending in Alabama 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.
8
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 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.
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 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.
9
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. 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. 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.
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.
10
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 Affirmative Insurance Holdings,
Inc., which recently acquired our non-standard automobile agency business in
Florida, 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 nine months of
2004, net investment income increased by $0.9 million, or 74.2%, to $2.1
million, as compared to $1.2 million for the same nine-month period ended
September 30, 2003. The increase in investment income is a result of the
additional amounts of invested assets. Our total investment yield declined as of
September 30, 2004 to 3.64%, as compared to 8.55% as of September 30, 2003,
reflecting primarily a decline in our net realized investment gains.
Although we experienced realized gains of $261,386 for the nine months
ended September 30, 2004 and $2,231,333 for the year ended December 31, 2003, 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.
11
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 warrants we issued in our July 2003 private offering currently trade
on the Nasdaq National Market under the symbol of "TCHCW" and the warrants we
issued in our September 2004 private offering currently trade on the NASDAQ
National Market under the symbol of "TCHCZ." Each of the 2003 warrants entitles
the holders to purchase three quarters 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. Each of the 2004 warrants entitles the holders
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 25% 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 25%
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.
12
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.
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.
13
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.
Our 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 for 2003, 2002 and 2001, respectively, and totaling
$1.5 million for the nine months ended September 30, 2004. 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 2005 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 2005.
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.
14
SELLING SECURITY HOLDERS
The following tables show 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.
Ownership of Ownership of
Common Stock Common Stock
Before Offering(1) Number Offered After Offering(1)
--------------------- By Selling -----------------------
Selling Shareholder Number Percent After Offering(1) Number Percent
-------------------------------------- -------- --------- ----------------- -------- ---------
Coastal Convertibles LTD. (1) 72,535 1.14% 5,554 66,981 1.06%
Corsair Capital Partners, LP 55,947 * 5,359 50,588 *
Corsair Capital Partners 100, LP 2,169 * 208 1,961 *
Corsair Capital Partners Investors,
LTD 6,940 * 665 6,275 *
Cranshire Capital, LP 86,741 1.36% 8,310 78,431 1.23%
Hillson Partners Limited Partnership 161,609 2.51% 8,310 153,299 2.38%
Iroquois Capital LP 86,741 1.36% 8,310 78,431 1.23%
Newport Alternative Income Fund (1) 4,447 * 740 3,707 *
Omicron Master Trust (1) (2) 216,420 3.34% 20,321 196,099 3.03%
OTAPE Investments LLC (1) 39,769 * 1,851 37,918 *
Pandora Select Partners, LP (1) (2) 174,644 2.71% 15,715 158,929 2.47%
SilverCreek II Limited (1) 12,173 * 2,073 10,100 *
SilverCreek Limited Partnership(1) 21,859 * 4,591 17,268 *
Whitebox Convertible Arbitrage
Partners, LP (1) (2) 603,657 8.84% 56,358 547,299 8.02%
Whitebox Hedged High Yield
Partners, LP (1) 176,406 2.74% 14,810 161,596 2.51%
Whitebox Intermarket Partners, LP 65,056 1.03% 6,232 58,824 *
----------
* Less than 1%.
(1) Includes shares underlying warrants held by the selling shareholders (each
of which is exercisable for .75 shares of common stock, reflecting our
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.
15
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.
o Each of Newport Alternative Income Fund, SilverCreek II Limited and
SilverCreek Limited Partnership is managed by SilverCreek.
16
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 SECURITIES 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.
17
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 securities 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.
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.
18
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 quotations for our warrants will appear on the Nasdaq
National Market if and when trading in the warrants begins. 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 January 20,
2005, January 6, 2005, December 27, 2004, December 13, 2004,
November 16, 2004, October 6, 2004, October 4, 2004, September 29,
2004, September 20, 2004, August 17, 2004, August 5, 2004, and May
7, 2004,
o Our Quarterly Report on Form 10-Q for the quarter ended September
30, 2004, filed with the SEC on November 15, 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.
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.
19
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: J. Gordon Jennings, III, 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.
20
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 ................................. $ 251.79
Accounting fees and expenses ......................... 5,000.00
Legal fees and expenses .............................. 5,000.00
Miscellaneous ........................................ 1,748.21
----------
Total .......................................... $12,000.00
==========
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(2)
4.2 Revised Representative's Warrant Agreement including form of
Representative's Warrant(2)
4.3 Amendment dated October 1, 2003 to Warrant Agreement(3)
4.4 Form of 6% Senior Subordinated Note due July 31, 2006(4)
4.5 Form of Redeemable Warrant dated July 31, 2003(4)
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(5)
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(6)
4.8 Form of 6% Senior Subordinated Note due September 30, 2007(7)
4.9 Form of Redeemable Warrant dated September 30, 2004(7)
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(7)
5.1 Opinion of Broad and Cassel(1)
23.1 Consent of Broad and Cassel (included in its opinion filed as
Exhibit 5.1)(1)
23.2 Consent of McKean, Paul, Chrycy, Fletcher & Co.(1)
23.3 Consent of De Meo, Young, McGrath(1)
II-1
24.1 Power of Attorney(8)
----------
(1) Filed herewith.
(2) 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.
(3) 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.
(4) 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.
(5) Previously filed as Exhibit 4.5 to the Registrant's Registration Statement
on Form S-3 (File No. 333-109313) and incorporated herein by reference.
(6) Previously filed as an exhibit of the same number to Amendment No. 1 to
the Registrant's Registration Statement on Form S-3 (File No. 333-108739)
and incorporated herein by reference.
(7) Previously filed as an exhibit of the same number to the Registrant's
Registration Statement on Form S-3 (File No. 333-120157) and incorporated
herein by reference.
(8) 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 2nd day of
February, 2005.
21ST CENTURY HOLDING COMPANY
By: /s/ Richard A. Widdicombe
-------------------------------------
Richard A. Widdicombe,
Chief Executive Officer
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 Amendment
No. 1 to the 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 February 2, 2005
------------------------------
Directors and President
Edward J. Lawson
/s/ Richard A. Widdicombe Chief Executive Officer and February 2, 2005
------------------------------ Director (Principal Executive
Richard A. Widdicombe Officer)
/s/ James Gordon Jennings, III Chief Financial Officer February 2, 2005
------------------------------ (Principal Financial and
James Gordon Jennings, III Accounting Officer)
Director February __, 2005
------------------------------
Bruce Simberg
/s/ Carl Dorf Director February 2, 2005
------------------------------
Carl Dorf
II-3
SIGNATURES TITLE DATE
------------------------------ ----------------------------- ---------------
/s/ Charles B. Hart, Jr. Director February 2, 2005
------------------------------
Charles B. Hart, Jr.
/s/ Peter J. Prygelski Director February 2, 2005
------------------------------
Peter J. Prygelski
/s/ Richard W. Wilcox, Jr. Director February 2, 2005
------------------------------
Richard W. Wilcox, Jr.
II-4
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
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