As filed with the Securities and Exchange Commission on May 20, 2005
FILE NO. 333-124842
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT No. 1
TO
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
---------------------------------------------------------
(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. |_|
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, MAY 20, 2005
PROSPECTUS
300,000 SHARES OF COMMON STOCK
21ST CENTURY HOLDING COMPANY
Edward J. Lawson, President and Chairman of the Board of 21st Century
Holding Company, and his spouse, Michele V. Lawson, are offering to sell from
time to time, pursuant to this prospectus, up to 300,000 shares of our common
stock owned directly and beneficially by them. We will not receive any proceeds
from this sale of our common stock.
These shareholders intend to offer and sell these shares only to
institutional investors, including but not limited to hedge funds and other
investment companies.
We will pay our out-of-pocket expenses, legal and accounting fees, and the
other expenses of registering the resale of the shares. The selling shareholders
will pay selling commissions, if any, in connection with the sale of the shares.
Our common stock is traded on the Nasdaq National Market under the symbol
"TCHC." On May 18, 2005, the last reported sale price of the common stock on the
Nasdaq National Market was $12.24 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 4 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 May _____, 2005.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY..................................................................................................1
RECENT DEVELOPMENTS.................................................................................................1
OVERVIEW............................................................................................................2
RISKS OF INVESTING IN OUR SHARES....................................................................................4
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..............................................................................................4
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..........................................................................................5
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........................................6
We are subject to significant government regulation, which can limit our growth and
increase our expenses, thereby reducing our earnings..............................................7
Our revenues and operating performance may fluctuate with business cycles in the
property and casualty insurance industry..........................................................7
We may not obtain the necessary regulatory approvals to expand the types of insurance
products we offer or the states in which we operate...............................................7
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......................................8
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..........................................................................................9
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.....................................................................9
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...........................................................10
Our investment portfolio may suffer reduced returns or losses, which would
significantly reduce our earnings................................................................10
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..................................................................................11
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........................................................11
Our largest shareholders control approximately 22% of the voting power of our outstanding
common stock, and after selling the shares covered by this prospectus will control
approximately 18%, which could discourage potential acquirors and prevent changes in
management.......................................................................................12
We have authorized but unissued preferred stock, which could affect rights of holders
of common stock..................................................................................12
Our articles of incorporation and bylaws and Florida law may discourage takeover
attempts and may result in entrenchment of management............................................12
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
NOTE REGARDING FORWARD-LOOKING STATEMENTS..........................................................................13
USE OF PROCEEDS....................................................................................................14
SELLING SECURITY HOLDERS...........................................................................................14
HOW THE SECURITIES MAY BE DISTRIBUTED..............................................................................14
LEGAL MATTERS......................................................................................................16
EXPERTS............................................................................................................16
WHERE YOU CAN FIND MORE INFORMATION................................................................................16
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................................................16
INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................................................................17
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
IMPACT OF 2004 HURRICANE SEASON
In August and September 2004, the State of Florida experienced four
hurricanes, Charley, Frances, Ivan and Jeanne. Since then, we have been
receiving and processing claims made under our homeowners' and mobile home
owners' policies, a process that is expected to be substantially completed
during the first half of 2005. One of our subsidiaries, Federated National
Insurance Company ("Federated National"), incurred significant losses relative
to its homeowners' insurance line of business. As of March 31, 2005,
approximately 8,500 policyholders had filed hurricane-related claims totaling an
estimated $117.2 million, of which we currently estimate that our share of the
costs associated with these hurricanes will be approximately $45.0 million, net
of our reinsurance recoveries and amortized reinstatement premiums.
In August 2004, A.M. Best Company notified us that Federated National and
American Vehicle Insurance Company ("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, from obtaining
adequate reinsurance or from borrowing on our line of credit. 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, maintain capital surplus equal to the greater of 10% of
its liabilities or $4.0 million, as defined in the Florida Insurance Code. As of
March 31, 2005, Federated National and American Vehicle were in compliance with
statutory minimum capital and surplus requirement.
The insurance companies are also required to adhere to prescribed
premium-to-capital surplus ratios. As of December 31, 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. As a result of a $6.1 million contribution made
during the first quarter of 2005 from the Company, Federated National's
compliance with the prescribed premium-to-capital surplus ratio has been
restored. American Vehicle has remained in compliance with the prescribed
premium-to-capital surplus ratios.
1
Although we believe that 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
assist us in protecting long-term profitability, although there can be no
assurances that will be the case.
OVERVIEW
We are an insurance holding company, which, through our subsidiaries and
our contractual relationships with our independent agents, control substantially
all aspects of the insurance underwriting, distribution and claims process. We
are authorized to underwrite personal automobile insurance, commercial general
liability insurance, homeowners' property and casualty insurance, and mobile
home property and casualty insurance in various states with various lines of
authority through our wholly owned subsidiaries, Federated National Insurance
Company ("Federated National") and American Vehicle Insurance Company ("American
Vehicle").
Federated National is authorized to underwrite personal automobile
insurance, homeowners' property and casualty insurance, and mobile home property
and casualty insurance in Florida as an admitted carrier. American Vehicle is
authorized to underwrite personal automobile insurance and commercial general
liability insurance in Florida as an admitted carrier. American Vehicle is also
authorized to underwrite homeowners' property and casualty insurance and
commercial general liability insurance in Louisiana as an admitted carrier. In
addition, American Vehicle is authorized to underwrite commercial general
liability insurance in Georgia as a surplus lines carrier and in Texas as an
admitted carrier. American Vehicle is authorized as a surplus lines carrier for
commercial general liability insurance in Kentucky and Alabama, and we
anticipate that underwriting will begin in these states in the near future.
American Vehicle's operations in Florida, Georgia and Louisiana are ongoing.
American Vehicle operations in Texas, Alabama and Kentucky are expected to begin
this year. American Vehicle has pending applications, in various stages of
approval, to be authorized as a surplus carrier in the states of California and
Virginia.
We select additional states for expansion based on a number of criteria,
including the size of the insurance market for our authorized lines of business,
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.
We internally process claims made by our own and third-party insureds
through our 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 three months ended March 31, 2005, 52.0%, 30.0%, 17.1% and .9%
of the policies we underwrote were for homeowners' property and casualty
insurance, personal automobile insurance, commercial general liability
insurance, and mobile home property and casualty insurance, respectively.
2
During the year ended December 31, 2004, 62.0%, 24.1%, 12.4% and 1.5% of
the policies we underwrote were for homeowners' property and casualty insurance,
personal automobile insurance, commercial general liability insurance, and
mobile home property and casualty insurance, respectively.
We market and distribute our own and third-party insurers' products and
other services primarily in South and Central Florida, through a network of
approximately 1,500 independent agents and a select number of general agents.
Assurance Managing General Agents, Inc. ("Assurance MGA"), 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 and American Vehicle, and participates in the negotiation of
reinsurance contracts. Assurance MGA generates revenue through a 6% commission
fee from the insurance company's net written premium, policy fee income of $25
per policy and other administrative fees from the marketing of companies'
products through the Company's distribution network. The 6% commission fee from
Federated National and American Vehicle was made effective January 1, 2005.
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 insurance underwriting and claims processing. We provide
quality service to both 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, 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.
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 will most likely include expansion of operations
into additional states; possible acquisitions or dispositions of assets;
insurance policy enhancements 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.
3
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. One of our subsidiaries,
Federated National, incurred significant losses relative to its homeowners' and
mobile homeowners' insurance lines of business. Approximately 8,500
policyholders have filed hurricane-related claims totaling an estimated $117.2
million, of which we estimate that our share of the costs associated with these
hurricanes will be approximately $45.0 million, net of reinsurance recoveries
and amortized reinstatement premiums.
For each hurricane season, the excess of loss treaty will insure us for
$24 million with the Company retaining the first $10 million of loss and loss
adjustment expenses. The treaty has a provision which, for an additional
prorated premium, will insure us for another $24 million of loss and loss
adjustment expense for subsequent occurrences with the Company retaining the
first $10 million in loss and loss adjustment expense. As a result of the loss
and loss adjustment expense incurred in connection with the Hurricanes Charles
and Frances, the Company has exhausted its recoveries of $48 million under the
terms of this treaty.
The excess of loss treaty also insures us for an additional $34 million in
excess of the Company's $10 million retention plus the next $24 million as
described above. Accordingly, loss and loss adjustment expense incurred for
Hurricanes Ivan, Jeanne and any subsequent catastrophic events through June 30,
2005, up to $34 million each, are the responsibility of the Company, as
illustrated in the accompanying table.
4
As of March 31, 2005
----------------------------------------
Gross Reinsurance Net
Hurricane Losses Recoveries Losses
--------- ------------ ------------ ------------
(in millions)
Charley (August 13, 2004) ........... $ 50.9 $ 40.9 $ 10.0
Frances (September 3, 2004) ......... 41.3 31.3 10.0
Ivan (September 14, 2004) ........... 14.2 -- 14.2
Jeanne (September 25, 2004) ......... 10.8 -- 10.8
------------ ------------ ------------
Total Loss Estimate ................. $ 117.2 $ 72.2 $ 45.0
============ ============ ============
Furthermore, as a result of the 2004 hurricanes, we incurred a net
reinstatement insurance premium of $3.0 million that is amortized through
operations from the reinstatement date of August 13, 2004 to June 30, 2005.
AS A RESULT OF THE HURRICANES STRIKING FLORIDA IN AUGUST AND SEPTEMBER 2004, WE
WERE 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, maintain capital surplus equal to the greater of 10% of
its liabilities or the 2004 statutory minimum capital and surplus requirement of
$4.00 million as defined in the Florida Insurance Code. As of December 31, 2004,
Federated National was not in compliance with its requirement to maintain
minimum capital surplus primarily based on the incurred losses associated with
the four hurricanes that occurred in August and September 2004. Under the
provisions afforded Federated National according to Statement of Statutory
Accounting Principles No 72 titled "Surplus and Quasi-reorganizations",
compliance with this provision was restored by way of a surplus infusion from
21st Century. American Vehicle remains in compliance with statutory minimum
capital and surplus requirement. The insurance companies are also required to
adhere to prescribed premium-to-capital surplus ratios. As of December 31, 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. Under the provisions
afforded Federated National according to Statement of Statutory Accounting
Principles No 72, compliance with this provision was also restored 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.
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.
5
In August 2004, A.M. Best Company notified us that Federated National and
American Vehicle were being placed under review with negative implications. In
2003 A.M. Best 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 "NR-4 Not
rated, company's request". The withdrawal of our ratings could limit or prevent
us from writing or renewing desirable insurance policies, from obtaining
adequate reinsurance, or from borrowing on our line of credit, as described
below. 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.
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.
Pursuant to our loan agreement, 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 loan agreement, policies
written by that subsidiary will no longer be eligible collateral, causing our
available credit to be reduced if we do not have other collateral qualifying as
eligible collateral. As of December 31, 2004, policies written by Federated
National were not considered by our lender to be eligible collateral. In March
2005, our lender agreed to permit policies written by Federated National to be
eligible collateral up to $165,000. We currently believe that our available
credit under this loan agreement will be sufficient based on our current
operations. If policies written by our insurance subsidiaries again do not
qualify as eligible collateral under our loan agreement and we are not able to
obtain working capital from our operations or other sources, then we would have
to restrict our growth and, possibly, our operations.
6
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.
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 applications pending in California and Virginia to
underwrite and sell commercial 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.
7
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 have a reinsurance structure that is a combination of private
reinsurance and the Florida Hurricane Catastrophe Fund. For each catastrophic
occurrence, the excess of loss treaty will insure us for $24 million with the
Company retaining the first $10 million of loss and loss adjustment expense.
There are two layers involved with our excess of loss reinsurance treaties, the
$24 million is considered the first layer. The treaty has a provision which, for
an additional prorated premium will insure us for another $24 million of loss
and loss adjustment expense for subsequent occurrences with the Company
retaining the first $10 million in loss and loss adjustment expense. As a result
of the loss and loss adjustment expense incurred in connection with the
Hurricanes Charles and Frances, the Company has exhausted its recoveries of $48
million under the terms of this treaty.
The second layer of our excess of loss treaty insures us for an additional
$34 million in excess of the $34 million first layer noted above with the same
reinstatement provision. The excess of loss treaties expire on June 30, 2005 and
the Company is negotiating a new reinsurance treaty.
The Florida Hurricane Catastrophe Fund treaty provides protection for 90%
of loss and loss adjustment expense and attaches at approximately $36.2 million.
This treaty inures to the benefit of our excess of loss treaty and expires on
June 1, 2005.
Since our initial preliminary provision for losses from these hurricanes
of $33 million, net of reinsurance recoveries, as of September 30, 2004, we
revised our provision for losses as described above. Because the storms occurred
during the third quarter of 2004, we were not able to complete physical
inspections of a sufficiently large percentage of claims, nor were complete
repair estimates available. During the fourth quarter of 2004 and the first
quarter of 2005, as physical property inspections and repair estimates were
completed, our initial estimates of losses for these storms were increased to
reflect increased estimates of claim severity on our homeowners' policies in
Florida. We do not currently anticipate further material increases to our loss
estimates from the 2004 hurricanes.
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 structure.
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.
8
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 expense. 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 expense, however, may vary
significantly from our estimates. For example, after we compared our reserve
levels to our actual claims for the prior years, we decreased our liability for
loss and loss adjustment expense by $1,430,278 in 2004 and increased our
liability for loss and loss adjustment expense by $1,234,047 in 2003. These
adjustments primarily reflect our loss experience under our personal automobile
policies.
Unpaid losses and loss adjustment expense decreased $19.8 million, or
42.5%, to $26.8 million as of March 31, 2005, as compared to $46.6 million as of
December 31, 2004. The decline in unpaid losses and loss adjustment expense
relates to our payment patterns relative to the settling of hurricane-related
claims.
Factors that affect unpaid losses and loss adjustment expense include the
estimates made on a claim-by-claim basis known as "case reserves" coupled with
bulk estimates known as "incurred but not reported." Periodic estimates by
management of the ultimate costs required to settle all claim files are based on
our analysis of historical data and estimations of the impact of numerous
factors such as (i) per claim information; (ii) company and industry historical
loss experience; (iii) legislative enactments, judicial decisions, legal
developments in the awarding of damages, and changes in political attitudes; and
(iv) trends in general economic conditions, including the effects of inflation.
Management revises its estimates based on the results of its analysis. This
process assumes that past experience, adjusted for the effects of current
developments and anticipated trends, is an appropriate basis for estimating the
ultimate settlement of all claims. There is no precise method for subsequently
evaluating the impact of any specific factor on the adequacy of the reserves,
because the eventual redundancy or deficiency is affected by multiple factors.
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 expense are less than
actual losses and loss adjustment expense, 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 expense 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.
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 that 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.
9
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 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.
10
Net investment income increased by $0.4 million or 69.1% to $0.9 million
for the three months ended March 31, 2005, as compared to $0.5 million for the
three months ended March 31, 2004. The increase in investment income is a result
of the additional amounts of invested assets. Our overall investment yield
increased to 4.35% for the three months ended March 31, 2005 as compared to a
yield of 3.82% for the three months ended March 31, 2004.
Net realized investment gains increased by $0.04 million, or 30.8%, to
$0.16 million for the three months ended March 31, 2005, as compared to $0.12
million for the three months ended March 31, 2004.
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.
Our warrants currently trade on the Nasdaq National Market under the
symbols "TCHCW" and "TCHCZ." Each of the TCHCW 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 TCHCZ 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.
11
OUR LARGEST SHAREHOLDERS CURRENTLY CONTROL APPROXIMATELY 22% OF THE VOTING POWER
OF OUR OUTSTANDING COMMON STOCK, AND AFTER SELLING THE SHARES COVERED BY THIS
PROSPECTUS WILL CONTROL APPROXIMATELY 18%, WHICH COULD DISCOURAGE POTENTIAL
ACQUIRORS AND PREVENT CHANGES IN MANAGEMENT.
Edward J. Lawson and Michele V. Lawson beneficially own approximately 22%
of our outstanding common stock. After selling the shares covered by this
prospectus, they will beneficially own approximately 18% of our outstanding
common stock. As our largest shareholders, 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.
In addition, Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations, such as our company.
12
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, commissions, dividends, loans, advances or
the reimbursement of expenses. These payments can be made only when our
subsidiaries have adequate earnings. In addition, dividend 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.
We received management fees from our subsidiaries, excluding Federated
National and American Vehicle, totaling $300,000 during the first quarter of
2005 and $2.0 million during each of 2004 and 2003.
No dividends were declared or paid by our insurance subsidiaries in 2004
or 2003. Under these laws, neither Federated National nor American Vehicle would
be permitted to pay dividends to 21st Century in 2005. 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.
13
USE OF PROCEEDS
We will not receive any proceeds from the resale of the common stock by
the selling shareholders.
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.
Edward J. Lawson is currently our Chairman of the Board and President.
Michele V. Lawson is Mr. Lawson's spouse and is currently employed by us.
OWNERSHIP OF OWNERSHIP OF
COMMON STOCK COMMON STOCK
BEFORE OFFERING(1) NUMBER OFFERED AFTER OFFERING(1)
SELLING ----------------------------------- BY SELLING -----------------------------------
SHAREHOLDER NUMBER PERCENT SHAREHOLDER NUMBER PERCENT
----------------- --------------- --------------- --------------- --------------- ---------------
Edward J. Lawson 789,216 12.3% 150,000 639,216 10.0%*
Michele V. Lawson 631,746(2) 9.9% 150,000 481,746(2) 7.6%*
-------------------
(1) Includes shares issuable upon exercise of options held by the selling
shareholder, as follows: 66,324 shares underlying options held by Mr.
Lawson and 20,676 shares underlying options held by Ms. Lawson.
(2) Also includes 25,425 shares held as custodian for a minor child.
HOW THE SECURITIES MAY BE DISTRIBUTED
Edward J. Lawson our President and Chairman of the Board, and Michele V.
Lawson, Mr. Lawson's spouse, are offering to sell from time to time, pursuant to
this prospectus, up to an aggregate of 300,000 shares of our common stock.
With respect to the shares covered by this prospectus that may be sold
from time to time by Mr. and Mrs. Lawson, they intend to offer and sell the
shares only to institutional investors, including but not limited to hedge funds
and other investment companies, in transactions negotiated directly with such
investors.
14
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.
The selling shareholders and any other party, including broker-dealers or
agents, that participate with a selling shareholder in the distribution 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 a
party 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 will pay selling commissions, if any, in connection with
the sale of their 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.
15
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, 2004 and December 31, 2003, 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.
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 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 6,
2005, January 20, 2005, February 4, 2005, March 9, 2005, and May 5,
2005,
o Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2005, filed with the SEC on May 16, 2005,
o Our Annual Report on Form 10-K for the year ended December 31, 2004,
filed with the SEC on March 31, 2005,
16
o Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for
the year ended December 31, 2004, filed with the SEC on April 29,
2005, 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 2.02, 7.01 or 9.01 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: 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.
17
PART II
INFORMATION NOT 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 .............. $ 453.38
Accounting fees and expenses ...... 5,000.00
Legal fees and expenses ........... 5,000.00
Miscellaneous ..................... 1,546.62
-------------
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(1)
4.2 Form of 6% Senior Subordinated Note due July 31, 2006(2)
4.3 Form of Redeemable Warrant dated July 31, 2003(2)
4.4 Unit Purchase Agreement dated July 31, 2003 between the Company and
the Purchasers of the 6% Senior Subordinated Notes due July 31,
2006(3)
4.5 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(4)
4.6 Form of 6% Senior Subordinated Note due September 30, 2007(5)
4.7 Form of Redeemable Warrant dated September 30, 2004(5)
4.8 Unit Purchase Agreement dated September 30, 2004 between the Company
and the Purchasers of the 6% Senior Subordinated Notes due September
30, 2007(5)
II-1
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 De Meo, Young, McGrath(6)
24.1 Power of Attorney(7)
------------------
(1) Previously filed as an exhibit to the Registrant's Registration Statement
on Form SB-2 (File No. 333-63623) and incorporated herein by reference.
(2) Previously filed as exhibits to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003 and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-3 (File No. 333-109313) and incorporated herein by reference.
(4) Previously filed as an exhibit to Amendment No. 1 to the Registrant's
Registration Statement on Form S-3 (File No. 333-108739) and incorporated
herein by reference.
(5) Previously filed as exhibits to the Registrant's Registration Statement on
Form S-3 (File No. 333-120157) and incorporated herein by reference.
(6) Filed herewith.
(7) Included on page II-4 of the Registration Statement as originally filed.
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.
II-2
(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-3
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 20th day
of May, 2005.
21ST CENTURY HOLDING COMPANY
By: /s/ Richard A. Widdicombe
-------------------------------------
Richard A. Widdicombe,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, to the
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURES TITLE DATE
----------------------------------- ------------------------------------ ------------------
*
----------------------------------- Chairman of the Board of Directors May 20, 2005
Edward J. Lawson And President
/s/ Richard A. Widdicombe
----------------------------------- Chief Executive Officer and Director May 20, 2005
Richard A. Widdicombe (Principal Executive Officer)
*
----------------------------------- Chief Financial Officer (Principal May 20, 2005
James Gordon Jennings, III Financial and Accounting Officer)
*
----------------------------------- Director May 20, 2005
Bruce Simberg
*
----------------------------------- Director May 20, 2005
Carl Dorf
*
----------------------------------- Director May 20, 2005
Charles B. Hart, Jr.
*
----------------------------------- Director May 20, 2005
Peter J. Prygelski
----------------------------------- Director May __, 2005
Richard W. Wilcox, Jr.
*By: /s/ Richard A. Widdicombe
-----------------------------------
Richard A. Widdicombe, Attorney-in-Fact
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 De Meo, Young McGrath