-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KswX6oEtOtM2r5XxwvtWSuneEHomG9SfuSwXaIeSvOGR0tC80nSD8zCpHrIozHYl GEkjkX7fV/56p04b+ta2Qg== 0001144204-04-017445.txt : 20041102 0001144204-04-017445.hdr.sgml : 20041102 20041102145332 ACCESSION NUMBER: 0001144204-04-017445 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20041102 DATE AS OF CHANGE: 20041102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 21ST CENTURY HOLDING CO CENTRAL INDEX KEY: 0001069996 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 650248866 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-120157 FILM NUMBER: 041112988 BUSINESS ADDRESS: STREET 1: 4161 N W 5TH STREET CITY: PLANTATION STATE: FL ZIP: 33317 BUSINESS PHONE: 9545819993 MAIL ADDRESS: STREET 1: 4161 N W 5TH STREET CITY: PLANTATION STATE: FL ZIP: 33317 S-3 1 v07949_s3.txt As filed with the Securities and Exchange Commission on November 2, 2004 FILE NO. 333- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 21ST CENTURY HOLDING COMPANY ---------------------------- (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: (305) 218-8978 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE ======================================================================================================================== PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED (1) OFFERING PRICE PER UNIT (2) PRICE REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Common Stock, $.01 par value 69,200 shares $10.65 $736,980.00 $93.38 - ------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE IN WHICH THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, NOVEMBER 2, 2004 PROSPECTUS 69,200 SHARES OF COMMON STOCK 21ST CENTURY HOLDING COMPANY This prospectus covers 69,200 shares of our common stock issued by us as payment of principal and interest due on our 6% Senior Subordinated Notes due July 31, 2006. We will not receive any proceeds from the sale of the common stock. We will pay our out-of-pocket expenses, legal and accounting fees, and the other expenses of registering these shares for resale. The shareholders named in this prospectus may offer and sell these shares at any time using a variety of different methods. The actual number of shares sold and the prices at which the shares are sold will depend upon the market prices at the time of those sales; therefore, we have not included in this prospectus information about the price to the public of the shares or the proceeds to the selling shareholders. Our common stock is traded on the Nasdaq National Market under the symbol "TCHC." On October 29, 2004, the last reported sale price of the common stock on the Nasdaq National Market was $10.77 per share. The shares of common stock offered hereby involve a high degree of risk and should be considered only by such persons capable of bearing the economic risk of such investment. You should carefully consider the "Risks of Investing in Our Shares" section beginning on page 3 of this prospectus. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is November ____, 2004.
TABLE OF CONTENTS ----------------- PAGE ---- PROSPECTUS SUMMARY...............................................................................................1 RECENT DEVELOPMENTS..............................................................................................1 OVERVIEW ........................................................................................................2 RISKS OF INVESTING IN OUR SHARES.................................................................................3 The State of Florida, where our headquarters and a substantial portion of our policies are located, has experienced four hurricanes since August 2004........................3 If we are unable to continue our growth because our capital must be used to pay greater than anticipated claims, our financial results may suffer..............................3 If our ratings are downgraded or withdrawn, we may be unable to write or renew desirable insurance policies or obtain adequate reinsurance, which would limit or halt our growth and harm our business.................................................3 The maximum credit commitment under our revolving loan could be subject to reduction, which would adversely affect our available working capital.....................................4 We are subject to significant government regulation, which can limit our growth and increase our expenses, thereby reducing our earnings...........................................4 Emergency administrative orders have been adopted, and legislation may be enacted, that would limit our ability to increase our premiums or cancel, reduce or non-renew our existing policies, which could reduce our revenues or increase our claims losses..............................................................................4 Our revenues and operating performance may fluctuate with business cycles in the property and casualty insurance industry.......................................................4 We may not obtain the necessary regulatory approvals to expand the types of insurance products we offer or the states in which we operate............................................5 Although we follow the industry practice of reinsuring a portion of our risks, our costs of obtaining reinsurance have increased and we may not be able to successfully alleviate risk through reinsurance arrangements...................................5 Our loss reserves may be inadequate to cover our actual liability for losses, causing our results of operations to be adversely affected.............................................5 We currently rely on agents, most of whom are independent agents or franchisees, to write our insurance policies, and if we are not able to attract and retain independent agents and franchisees, our revenues would be negatively affected.......................................................................................5 Nonstandard automobile insurance historically has a higher frequency of claims than standard automobile insurance, thereby increasing our potential for loss exposure beyond what we would be likely to experience if we offered only standard automobile insurance..................................................................6 Florida's personal injury protection insurance statute contains provisions that favor claimants, causing us to experience a higher frequency of claims than might otherwise be the case if we operated only outside of Florida...................................6 Our business strategy is to avoid competition in our automobile insurance products based on price to the extent possible. This strategy, however, may result in the loss of business in the short term.........................................................6 Our investment portfolio may suffer reduced returns or losses, which would significantly reduce our earnings..............................................................6 Our president and chief executive officer are key to the strategic direction of our company. If we were to lose the services of either of them, our business could be harmed................................................................................7 The trading of our warrants may negatively affect the trading prices of our common stock if investors purchase and exercise the warrants to facilitate other trading strategies, such as short selling......................................................7 Our largest shareholders control approximately 28% of the voting power of our outstanding common stock, which could discourage potential acquirors and prevent changes in management..................................................................7 We have authorized but unissued preferred stock, which could affect rights of holders of common stock................................................................................7 Our articles of incorporation and bylaws and Florida law may discourage takeover attempts and may result in entrenchment of management..........................................7 As a holding company, we depend on the earnings of our subsidiaries and their ability to pay management fees and dividends to the holding company as the primary source of our income...........................................................................8 NOTE REGARDING FORWARD-LOOKING STATEMENTS........................................................................8 USE OF PROCEEDS..................................................................................................8 SELLING SHAREHOLDERS.............................................................................................8 HOW THE SHARES MAY BE DISTRIBUTED...............................................................................10 LEGAL MATTERS...................................................................................................11 EXPERTS ........................................................................................................11 WHERE YOU CAN FIND MORE INFORMATION.............................................................................11 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...............................................................11 INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................................................................12
-i- ABOUT THIS PROSPECTUS You should rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to give any information that is not contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these shares in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is correct only as of the date of this prospectus, regardless of the time of the delivery of this prospectus or any sale of these shares. PROSPECTUS SUMMARY This is only a summary and does not contain all of the information that may be important to you. You should read the more detailed information contained in this prospectus and all other information, including the financial information and statements with notes, as discussed in the "Where You Can Find More Information" section of this prospectus. RECENT DEVELOPMENTS On September 30, 2004, we completed a private placement of 6% Senior Subordinated Notes due September 30, 2007. These notes were offered and sold to accredited investors as units consisting of one note with a principal amount of $1,000 and warrants to purchase shares of our common stock, the terms of which are similar to our notes and warrants sold in July 2003, except as described below. We sold an aggregate of $12.5 million of units in this placement, which resulted in proceeds (net of placement agent fees of $700,000 and offering expenses of $32,500) to us of $11,767,500. The notes pay interest at the annual rate of 6%, mature on September 30, 2007, and rank pari passu in terms of payment and priority to the 6% Senior Subordinated Notes dated July 31, 2003 in the original principal amount of $7,500,000 that we sold in 2003. Quarterly payments of principal and interest due on these notes, like the notes we sold in 2003, may be made in cash or, at our option, in shares of our common stock. If paid in shares of common stock, the number of shares to be issued shall be determined by dividing the payment due by 95% of the weighted-average volume price for the common stock on Nasdaq as reported by Bloomberg Financial Markets for the 20 consecutive trading days preceding the payment date. We issued also warrants to purchase shares of our common stock to the purchasers of the notes and to the placement agent in the offering, J. Giordano Securities Group. Each warrant entitles the holder to purchase one share of our common stock at an exercise price of $12.75 per share and will be exercisable until September 30, 2007. By comparison, the warrants we sold in 2003 are each exercisable for one-half share of common stock at an exercise price of $12.74 per whole share. The number of shares issuable upon exercise of the warrants issued to purchasers equaled $12.5 million divided by the exercise price of the warrants, and totaled 980,392. The number of shares issuable upon exercise of the warrants issued to J. Giordano equaled $500,000 divided by the exercise price of the warrants, and totaled 39,216. The terms of the warrants provide for adjustment of the exercise price and the number of shares issuable thereunder upon the occurrence of certain events typical for private offerings of this type. In August and September 2004, the State of Florida experienced four hurricanes, Charley, Frances, Ivan and Jeanne. We are currently receiving and processing claims made under its homeowners' and mobile home owners' policies resulting from these storms, a process that is expected to continue for many months. We have made initial estimations that our exposure from Hurricane Charley will be between 1,000 and 1,500 claims, which will result in a $5 to $6 million charge to the surplus of our subsidiary, Federated National Insurance Company. Our exposure from Hurricanes Frances, Ivan and Jeanne cannot be estimated at this time. As a result of all four hurricanes, however, we reduced our estimated earnings for 2004 to approximately breakeven. Although the occurrence of four hurricanes hitting Florida within one year has not previously occurred for as long as records for weather events have been kept, some weather analysts believe that a period of greater hurricane activity has begun. To address this possibility, we are exploring alternatives to reduce its exposure to these types of storms. Although these measures may increase operating expenses, management believes that they will protect long-term profitability, although there can be no assurances that will be the case. In August 2004, A.M. Best Company notified us that Federated National and American Vehicle Insurance Company were being placed under review with negative implications. A.M. Best in 2003 had assigned Federated National a B rating ("Fair," which is the seventh of 14 rating categories) and American Vehicle a B+ rating ("Very Good," which is the sixth of 14 rating categories). Federated National and American Vehicle are currently rated "A" ("Unsurpassed," which is first of six ratings) by Demotech, Inc. We will most likely not maintain our A. M. Best ratings due to the recent hurricanes. A downgrade or withdrawal of our ratings could limit or prevent us from writing or renewing desirable insurance policies or from obtaining adequate reinsurance. 1 On September 7, 2004, we completed a three-for-two stock split in the form of a stock dividend, whereby shareholders received three shares of common stock for every two shares of our common stock held on the record date. Just prior to the three-for-two stock split, we had approximately 3,957,000 shares outstanding, and following the stock split, we had approximately 5,936,000 shares outstanding. OVERVIEW We are a vertically integrated insurance holding company that, through its subsidiaries, controls substantially all aspects of the insurance underwriting, distribution and claims process. We underwrite personal automobile insurance, general liability insurance, flood insurance and homeowners' and mobile home property and casualty insurance in Florida, Louisiana and Georgia through its wholly owned subsidiaries, Federated National and American Vehicle. American Vehicle has recently been authorized to write commercial general liability policies in Kentucky and expects to begin writing policies in that state in the near future. American Vehicle is a fully admitted insurance carrier in Florida and Louisiana and is admitted as a surplus lines carrier in Georgia and Kentucky. We internally process claims made by our own and third-party insureds through a wholly owned claims adjusting company, Superior Adjusting, Inc. We also offer premium financing to our own and third-party insureds through our wholly owned subsidiary, Federated Premium Finance, Inc. During the six months ended June 30, 2004, 23.7%, 61.7%, 1.8% and 12.8% of the policies we underwrote were for personal automobile insurance, homeowners' property and casualty insurance, mobile home property and casualty insurance, and commercial general liability, respectively. During the year ended December 31, 2003, 67.5%, 23.0%, 2.4% and 7.1% of the policies we underwrote were for personal automobile insurance, homeowners' property and casualty insurance, mobile home property and casualty insurance, and commercial general liability, respectively. We market and distribute our own and third-party insurers' products and our other services primarily in South and Central Florida, through a network of 24 agencies owned by Federated Agency Group, Inc., a wholly-owned subsidiary, 45 franchised agencies, approximately 1,500 independent agents and a select number of general agents. Our independent agents and general agents are primarily responsible for the distribution of our homeowners' insurance and commercial general liability products. Through our wholly owned subsidiary, FedUSA, Inc., we franchise agencies under the FedUSA name. As of June 30, 2004, franchises were granted for 45 Fed USA agencies, of which 40 were operating and five were pending. Assurance Managing General Agents, Inc., a wholly owned subsidiary, acts as Federated National's and American Vehicle's exclusive managing general agent. Assurance MGA currently provides all underwriting policy administration, marketing, accounting and financial services to Federated National, American Vehicle and our agencies, and participates in the negotiation of reinsurance contracts. Assurance MGA generates revenue through policy fee income and other administrative fees from the marketing of companies' products through the Company's distribution network. Assurance MGA plans to establish relationships with additional carriers and add additional insurance products in the future. We offer electronic tax filing services through Express Tax Service, Inc., an 80%-owned subsidiary, as well as franchise opportunities for these services through EXPRESSTAX. As of June 30, 2004, there were 235 franchises granted in 18 states. Revenue is generated through franchise sales, collection of royalties on tax preparation fees, incentives from business partners as well as fees from the preparation of income tax returns and income tax refund anticipation loans. In addition, Express Tax offers tax preparation services through approximately 500 licensees nationwide. We believe that we can be distinguished from our competitors because we generate revenue from substantially all aspects of the insurance underwriting, distribution and claims process. We provide quality service to both our agents and insureds by utilizing an integrated computer system, which links our insurance and service entities. Our computer and software systems allow for automated premium quotation, policy issuance, billing, payment and claims processing and enables us to continuously monitor substantially all aspects of our business. Using these systems, our agents can access a customer's driving record, quote a premium, offer premium financing and, if requested, generate a policy on-site. We believe that these systems have facilitated our ability to market and underwrite insurance products on a cost-efficient basis, allow our owned and franchised agencies to be a "one stop" shop for insurance, tax preparation and other services, and will enhance our ability to expand in Florida and to other states. We currently underwrite and sell insurance in Florida, Louisiana and Georgia and were recently approved to do so in Kentucky. We intend to expand to other selected states and have applied to obtain licenses to underwrite and sell personal automobile insurance and general liability insurance in Alabama and Texas. We select additional states for expansion based on a number of criteria, including the size of the personal automobile insurance market, statewide loss results, competition and the regulatory climate. Our ability to expand into other states will be subject to the prior regulatory approval of each state. Certain states impose operating requirements upon licensee applicants, which may impose burdens on our ability to obtain a license to conduct insurance business in those other states. There can be no assurance that we will be able to obtain the required licenses, and the failure to do so would limit our ability to expand geographically. 2 As we expand our operations, we continue to review our operations and lines of business for strategies to further improve our efficiency and results of operations. These strategies may include expansion of operations into additional states; possible acquisitions or dispositions of assets; and development of procedures to improve claims history and mitigate losses from claims. There can be no assurances, however, that any such strategies will be developed or successfully implemented. Our executive offices are located at 3661 West Oakland Park Boulevard, Suite 300, Lauderdale Lakes, Florida and our telephone number is (954) 581-9993. RISKS OF INVESTING IN OUR SHARES You should carefully consider the following risks, in addition to the other information presented in this prospectus or incorporated by reference into this prospectus, before making an investment decision. If any of these risks or uncertainties actually occur, our business, results of operations, financial condition, or prospects could be substantially harmed, which would adversely affect your investment. RISKS RELATED TO OUR BUSINESS THE STATE OF FLORIDA, WHERE OUR HEADQUARTERS AND A SUBSTANTIAL PORTION OF OUR POLICIES ARE LOCATED, HAS EXPERIENCED FOUR HURRICANES SINCE AUGUST 2004. We write insurance policies that cover automobile owners, homeowners' and business owners for losses that result from, among other things, catastrophes. Catastrophic losses can be caused by hurricanes, tropical storms, tornadoes, wind, hail, fires, riots and explosions, and their incidence and severity are inherently unpredictable. The extent of losses from a catastrophe is a function of two factors: the total amount of the insurance company's exposure in the area affected by the event and the severity of the event. Our policyholders are currently concentrated in South and Central Florida, which is especially subject to adverse weather conditions such as hurricanes and tropical storms. In August and September 2004, the State of Florida experienced four hurricanes, Charley, Frances, Ivan and Jeanne. We are currently receiving and processing claims made under our homeowners' and mobile home owners' policies, a process that is expected to continue for many months. As a result of these four hurricanes, however, we reduced our estimated earnings for 2004 to approximately breakeven. As of the date of this prospectus, we have estimated that our exposure from Hurricane Charley will be between 1,000 and 1,500 claims, which will result in a $5 to $6 million charge to Federated National's surplus. The Company's exposure from Hurricanes Frances, Ivan and Jeanne cannot be estimated at this time. IF WE ARE UNABLE TO CONTINUE OUR GROWTH BECAUSE OUR CAPITAL MUST BE USED TO PAY GREATER THAN ANTICIPATED CLAIMS, OUR FINANCIAL RESULTS MAY SUFFER. We have grown rapidly over the last few years. Our future growth will depend on our ability to expand the types of insurance products we offer and the geographic markets in which we do business. We believe that our company is sufficiently capitalized to operate our business as it now exists and as we currently plan to expand it. Our existing sources of funds include our revolving loan from Flatiron Funding Company LLC, sales of our securities such as our September 2004 and July 2003 private placements of $12,500,000 and $7,500,000, respectively, of our senior subordinated notes, and our earnings from operations and investments. Unexpected catastrophic events in our market areas, such as the hurricanes recently experienced in Florida, will result in greater claims losses than anticipated, which could require us to limit or halt our growth while we redeploy our capital to pay these unanticipated claims unless we are able to raise additional capital or increase our earnings in our other divisions. IF OUR RATINGS ARE DOWNGRADED OR WITHDRAWN, WE MAY BE UNABLE TO WRITE OR RENEW DESIRABLE INSURANCE POLICIES OR OBTAIN ADEQUATE REINSURANCE, WHICH WOULD LIMIT OR HALT OUR GROWTH AND HARM OUR BUSINESS. Third-party rating agencies assess and rate the ability of insurers to pay their claims. These financial strength ratings are used by the insurance industry to assess the financial strength and quality of insurers. These ratings are based on criteria established by the rating agencies and reflect evaluations of each insurer's profitability, debt and cash levels, customer base, adequacy and soundness of reinsurance, quality and estimated market value of assets, adequacy of reserves, and management. Ratings are based upon factors of concern to agents, reinsurers and policyholders and are not directed toward the protection of investors, such as purchasers of our common stock. In August 2004, A.M. Best Company notified the Company that Federated National and American Vehicle were being placed under review with negative implications. A.M. Best in 2003 had assigned Federated National a B rating ("Fair," which is the seventh of 14 rating categories) and American Vehicle a B+ rating ("Very Good," which is the sixth of 14 rating categories). Federated National and American Vehicle are currently rated "A" ("Unsurpassed," which is first of six ratings) by Demotech, Inc. We will most likely not maintain our A. M. Best ratings due to the recent hurricanes. A downgrade or withdrawal of our ratings could limit or prevent us from writing or renewing desirable insurance policies or from obtaining adequate reinsurance. 3 THE MAXIMUM CREDIT COMMITMENT UNDER OUR REVOLVING LOAN COULD BE SUBJECT TO REDUCTION, WHICH WOULD ADVERSELY AFFECT OUR AVAILABLE WORKING CAPITAL. During September 2004, we negotiated a new revolving loan agreement in which the maximum credit commitment available to us was reduced at our request to $2.0 million with built-in options to incrementally increase the maximum credit commitment up $4.0 million over the next three years. We believe that this available credit is sufficient based on our current operations. Our lender, however, could determine to reduce our available credit based on a number of factors, including the A.M. Best ratings of Federated National and American Vehicle. If the A.M. Best rating of Federated National falls below a "C", or if the financial condition of American Vehicle, as determined by our lender (in its sole and absolute discretion) suffers a material adverse change, then under the terms of our revolving loan agreement, policies written by that subsidiary will no longer be eligible collateral, causing our available credit to be reduced. If that occurs and we are not able to obtain working capital from other sources, then we would have to restrict our growth and, possibly, our operations. WE ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION, WHICH CAN LIMIT OUR GROWTH AND INCREASE OUR EXPENSES, THEREBY REDUCING OUR EARNINGS. We are subject to laws and regulations in Florida, our state of domicile, and in Georgia, Louisiana and Kentucky, states in which we have been authorized to do business, and will be subject to the laws of any other state in which we conduct business in the future. These laws and regulations cover all aspects of our business and are generally designed to protect the interests of insurance policyholders. For example, these laws and regulations relate to licensing requirements, authorized lines of business, capital surplus requirements, allowable rates and forms, investment parameters, underwriting limitations, restrictions on transactions with affiliates, dividend limitations, changes in control, market conduct, and limitations on premium financing service charges. The cost to monitor and comply with these laws and regulations adds significantly to our cost of doing business. Further, if we do not comply with the laws and regulations applicable to us, we may be subject to sanctions or monetary penalties by the applicable insurance regulator. EMERGENCY ADMINISTRATIVE ORDERS HAVE BEEN ADOPTED, AND LEGISLATION MAY BE ENACTED, THAT WOULD LIMIT OUR ABILITY TO INCREASE OUR PREMIUMS OR CANCEL, REDUCE OR NON-RENEW OUR EXISTING POLICIES, WHICH COULD REDUCE OUR REVENUES OR INCREASE OUR CLAIMS LOSSES. In the aftermath of Hurricane Frances, the Florida Office of Insurance Regulation issued emergency orders that imposed a moratorium on cancellations and non-renewals of various types of insurance coverages. For personal and commercial residential policies, the moratorium is through November 30, 2004. The orders also prohibit cancellations or non-renewals based solely upon claims resulting from the hurricanes. Legislation has also been proposed from time to time in Florida, which is where our operations are now primarily located, that would limit our ability to increase our premiums or that would restrict our ability to cancel, reduce or non-renew existing policies. If one or more of these proposals are enacted in Florida, or in any other state in which we conduct significant business operations, our results of operations could be materially adversely affected if we are not able to increase our premiums to offset higher expenses or if we are not able to cancel, reduce or non-renew existing policies where our claims experience has been unacceptably high. OUR REVENUES AND OPERATING PERFORMANCE MAY FLUCTUATE WITH BUSINESS CYCLES IN THE PROPERTY AND CASUALTY INSURANCE INDUSTRY. Historically, the financial performance of the property and casualty insurance industry has tended to fluctuate in cyclical patterns characterized by periods of significant competition in pricing and underwriting terms and conditions, which is known as a "soft" insurance market, followed by periods of lessened competition and increasing premium rates, which is known as a "hard" insurance market. Although an individual insurance company's financial performance is dependent on its own specific business characteristics, the profitability of most property and casualty insurance companies tends to follow this cyclical market pattern, with profitability generally increasing in hard markets and decreasing in soft markets. At present, we are beginning to experience a soft market in our automobile sector while a hard market persists in our property sector. We cannot predict, however, how long these market conditions will persist. In the current soft automobile market, increased price competition may cause us to have to reduce our premiums in order to maintain our market share, which would result in a decrease in our automobile revenues. 4 WE MAY NOT OBTAIN THE NECESSARY REGULATORY APPROVALS TO EXPAND THE TYPES OF INSURANCE PRODUCTS WE OFFER OR THE STATES IN WHICH WE OPERATE. We currently have applications pending in Alabama and Texas to underwrite and sell general liability insurance. The insurance regulators in these states may request additional information, add conditions to the license that we find unacceptable, or deny our application. This would delay or prevent us from operating in that state. If we want to operate in any additional states, we must file similar applications for licenses, which we may not be successful in obtaining. ALTHOUGH WE FOLLOW THE INDUSTRY PRACTICE OF REINSURING A PORTION OF OUR RISKS, OUR COSTS OF OBTAINING REINSURANCE HAVE INCREASED AND WE MAY NOT BE ABLE TO SUCCESSFULLY ALLEVIATE RISK THROUGH REINSURANCE ARRANGEMENTS. We follow the insurance industry practice of reinsuring a portion of our risks and paying for that protection based upon premiums received on all policies subject to this reinsurance. Our business depends on our ability to transfer or "cede" significant amounts of risk insured by us. Reinsurance makes the assuming reinsurer liable to the extent of the risk ceded. Prior to 2004, both Federated National and American Vehicle ceded varying amounts their premiums from automobile insurance policies to Transatlantic Reinsurance Company. For 2004, neither company has elected to cede any automobile premiums. Federated National also obtains reinsurance for its property insurance policies on the private market in Bermuda and London and through the Florida Hurricane Catastrophe Fund. The private markets in Bermuda and London, as well as the Florida Hurricane Catastrophe Fund, currently reinsure Federated National for liabilities resulting from a storm causing damage in excess of the first $10 million and extend coverage up to approximately $200 million in the aggregate, which we believed to constitute an event expected to occur no more often than once in a period of 100 years. As a result of the hurricanes experienced in Florida in August and September 2004, however, we will review, and may determine to modify, our reinsurance. Because our ceded automobile reinsurance treaties are from one reinsurer and remain in effect for various years prior to 2004, we are also subject to credit risk with respect to that reinsurer, as the ceding of risk does not relieve us of liability to our insureds regarding the portion of the risk that has been reinsured, if the reinsurer fails to pay for any reason. The insolvency of our primary reinsurer or any of our other current or future reinsurers, or their inability otherwise to pay claims, would increase the claims that we must pay, thereby significantly harming our results of operations. In addition, prevailing market conditions have limited the availability and increased the cost of reinsurance, which may have the effect of increased costs and reduced profitability. OUR LOSS RESERVES MAY BE INADEQUATE TO COVER OUR ACTUAL LIABILITY FOR LOSSES, CAUSING OUR RESULTS OF OPERATIONS TO BE ADVERSELY AFFECTED. We maintain reserves to cover our estimated ultimate liabilities for loss and loss adjustment expenses. These reserves are estimates based on historical data and statistical projections of what we believe the settlement and administration of claims will cost based on facts and circumstances then known to us. Actual losses and loss adjustment expenses, however, may vary significantly from our estimates. For example, after we compared our reserve levels to our actual claims for the prior years, we increased our liability for loss and loss adjustment expenses by $1,234,047 in 2003, $90,874 in 2002, and $2,568,476 in 2001. These increases reflected primarily our loss experience under our personal automobile policies. Because of the uncertainties that surround estimated loss reserves, we cannot be certain that our reserves will be adequate to cover our actual losses. If our reserves for unpaid losses and loss adjustment expenses are less than actual losses and loss adjustment expenses, we will be required to increase our reserves with a corresponding reduction in our net income in the period in which the deficiency is identified. Future loss experience substantially in excess of our reserves for unpaid losses and loss adjustment expenses could substantially harm our results of operations and financial condition. WE CURRENTLY RELY ON AGENTS, MOST OF WHOM ARE INDEPENDENT AGENTS, TO WRITE OUR INSURANCE POLICIES, AND IF WE ARE NOT ABLE TO ATTRACT AND RETAIN INDEPENDENT AGENTS, OUR REVENUES WOULD BE NEGATIVELY AFFECTED. We currently market and distribute Federated National's, American Vehicle's and third-party insurers' products and our other services through a network of approximately 1,500 independent agents, 24 agencies that we own and 45 agencies that we franchise to others. Our independent agents are our primary source for our property insurance policies. Many of our competitors also rely on independent agents. As a result, we must compete with other insurers for independent agents' business and with other franchisors of insurance agencies for franchisees. Our competitors may offer a greater variety of insurance products, lower premiums for insurance coverage, or higher commissions to their agents. If our products, pricing and commissions do not remain competitive, we may find it more difficult to attract business from independent agents and to attract franchisees for our agencies to sell our products. A material reduction in the amount of our products that independent agents sell would negatively affect our revenues. 5 NONSTANDARD AUTOMOBILE INSURANCE HISTORICALLY HAS A HIGHER FREQUENCY OF CLAIMS THAN STANDARD AUTOMOBILE INSURANCE, THEREBY INCREASING OUR POTENTIAL FOR LOSS EXPOSURE BEYOND WHAT WE WOULD BE LIKELY TO EXPERIENCE IF WE OFFERED ONLY STANDARD AUTOMOBILE INSURANCE. Nonstandard automobile insurance, which is second only to our property insurance product, is provided to insureds who are unable to obtain preferred or standard insurance coverage because of their payment histories, driving records, age, vehicle types, or prior claims histories. This type of automobile insurance historically has a higher frequency of claims than does preferred or standard automobile insurance policies, although the average dollar amount of the claims is usually smaller under nonstandard insurance policies. As a result, we are exposed to the possibility of increased loss exposure and higher claims experience than would be the case if we offered only standard automobile insurance. FLORIDA'S PERSONAL INJURY PROTECTION INSURANCE STATUTE CONTAINS PROVISIONS THAT FAVOR CLAIMANTS, CAUSING US TO EXPERIENCE A HIGHER FREQUENCY OF CLAIMS THAN MIGHT OTHERWISE BE THE CASE IF WE OPERATED ONLY OUTSIDE OF FLORIDA. Florida's personal injury protection insurance statute limits an insurer's ability to deny benefits for medical treatment that is unrelated to the accident, that is unnecessary, or that is fraudulent. In addition, the statute allows claimants to obtain awards for attorney's fees. Although this statute has been amended several times in recent years, primarily to address concerns over fraud, the Florida legislature has been only marginally successful in implementing effective mechanisms that allow insurers to combat fraud and other abuses. We believe that this statute contributes to a higher frequency of claims under nonstandard automobile insurance policies in Florida, as compared to claims under standard automobile insurance policies in Florida and nonstandard and standard automobile insurance polices in other states. Although we believe that we have successfully offset these higher costs with premium increases, because of competition, we may not be able to do so with as much success in the future. OUR BUSINESS STRATEGY IS TO AVOID COMPETITION IN OUR AUTOMOBILE INSURANCE PRODUCTS BASED ON PRICE TO THE EXTENT POSSIBLE. THIS STRATEGY, HOWEVER, MAY RESULT IN THE LOSS OF BUSINESS IN THE SHORT TERM. Although our pricing of our automobile insurance products is inevitably influenced to some degree by that of our competitors, we believe that it is generally not in our best interest to compete solely on price, choosing instead to compete on the basis of underwriting criteria, our distribution network, and our superior service to our agents and insureds. With respect to automobile insurance in Florida, we compete with more than 100 companies, which underwrite personal automobile insurance. Comparable companies which compete with us in the personal automobile insurance market include U.S. Security Insurance Company, United Automobile Insurance Company, Direct General Insurance Company and Security National Insurance Company, as well as major insurers such as Progressive Casualty Insurance Company. Comparable companies which compete with us in the homeowners' market include Florida Family Insurance Company, Florida Select Insurance Company, Atlantic Preferred Insurance Company and Vanguard Insurance Company. Comparable companies which compete with us in the general liability insurance market include Century Surety Insurance Company, Atlantic Casualty Insurance Company, Colony Insurance Company and Burlington/First Financial Insurance Companies. Competition could have a material adverse effect on our business, results of operations and financial condition. If we do not meet the prices offered by our competitors, we may lose business in the short term, which could also result in reduced revenues. OUR INVESTMENT PORTFOLIO MAY SUFFER REDUCED RETURNS OR LOSSES, WHICH WOULD SIGNIFICANTLY REDUCE OUR EARNINGS. As do other insurance companies, we depend on income from our investment portfolio for a substantial portion of our earnings. During the time that normally elapses between the receipt of insurance premiums and any payment of insurance claims, we invest the funds received, together with our other available capital, primarily in fixed- maturity investments and equity securities, in order to generate investment income. A significant decline in investment yields in our investment portfolio caused by fluctuations in interest rates or volatility in the stock market, or a default by issuers of securities that we own, could adversely affect the value of our investment portfolio and the returns that we earn on our portfolio, thereby substantially harming our financial condition and results of operations. During the first six months of 2004, net investment income increased by $0.6 million, or 81.9%, to $1.3 million, as compared to $0.7 million for the same six-month period ended June 30, 2003. The increase in investment income is a result of the additional amounts of invested assets. Also affecting our net investment income were our relatively stable yields of 4.1% for the six months ended June 30, 2004, as compared to 4.6% for the six months ended June 30, 2003. Although we experienced realized gains of $2,231,333 for 2003 and $121,919 for the first six months of 2004, we experienced net realized investment losses in the past of $1,369,961 for 2002 and $2,911,658 for 2001. The net realized losses experienced in 2001 were primarily a function of the widely publicized declines in the industrial common stock valuations. As a result of the declines in the equity markets in 2001, we acquired securities in the more conservative and highly rated industrial bond markets in late 2001 and the first half of 2002. During 2002, we incurred a $2,000,000 decline in value of our investment in WorldCom, Inc. bonds. This write down is reflected in the $1,369,961 loss incurred in 2002. 6 OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER ARE KEY TO THE STRATEGIC DIRECTION OF OUR COMPANY. IF WE WERE TO LOSE THE SERVICES OF EITHER OF THEM, OUR BUSINESS COULD BE HARMED. We depend, and will continue to depend, on the services of one of our founders and principal shareholders, Edward J. Lawson, who is also our president and chairman of the board, as well as Richard Widdicombe, who is our chief executive officer. We have entered into an employment agreement with each of them and we maintain $3 million and $1 million in key man life insurance on the lives of Mr. Lawson and Mr. Widdicombe, respectively. Nevertheless, because of Mr. Lawson's and Mr. Widdicombe's role and involvement in developing and implementing our current business strategy, the loss of either of their services could substantially harm our business. RISKS RELATED TO AN INVESTMENT IN OUR SHARES THE TRADING OF OUR WARRANTS MAY NEGATIVELY AFFECT THE TRADING PRICES OF OUR COMMON STOCK IF INVESTORS PURCHASE AND EXERCISE THE WARRANTS TO FACILITATE OTHER TRADING STRATEGIES, SUCH AS SHORT SELLING. The 816,000 warrants we issued in our July 2003 private offering currently trade on the Nasdaq National Market under the symbol of "TCHCW." Each of the warrants entitles the holder to purchase one-half of one share of our common stock at an exercise price per whole share of $12.74 after giving effect to the September 2004 three-for-two stock split. The 1,019,608 warrants we issued in our September 30, 2004 private offering are not yet currently listed for trading on the Nasdaq National Market, although we are obligated to list them for trading. Each of these warrants entitles the holder to purchase one share of our common stock at an exercise price per share of $12.75. Investors may purchase and exercise warrants to facilitate trading strategies such as short selling, which involves the sale of securities not yet owned by the seller. In a short sale, the seller must either purchase or borrow the security in order to complete the sale. If shares of our common stock received upon the exercise of warrants are used to complete short sales, this may have the effect of reducing the trading price of our common stock. OUR LARGEST SHAREHOLDERS CONTROL APPROXIMATELY 27% OF THE VOTING POWER OF OUR OUTSTANDING COMMON STOCK, WHICH COULD DISCOURAGE POTENTIAL ACQUIRORS AND PREVENT CHANGES IN MANAGEMENT. Edward J. Lawson and Michele V. Lawson beneficially own approximately 27% of our outstanding common stock. As our largest shareholders, and our only shareholders owning more than 10% of our common stock, the Lawsons have significant influence over the outcome of any shareholder vote. This voting power may discourage takeover attempts, changes in our officers and directors or other changes in our corporate governance that other shareholders may desire. WE HAVE AUTHORIZED BUT UNISSUED PREFERRED STOCK, WHICH COULD AFFECT RIGHTS OF HOLDERS OF COMMON STOCK. Our articles of incorporation authorize the issuance of preferred stock with designations, rights and preferences determined from time to time by our board of directors. Accordingly, our board of directors is empowered, without shareholder approval, to issue preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of common stock. In addition, the preferred stock could be issued as a method of discouraging a takeover attempt. Although we do not intend to issue any preferred stock at this time, we may do so in the future. OUR ARTICLES OF INCORPORATION AND BYLAWS AND FLORIDA LAW MAY DISCOURAGE TAKEOVER ATTEMPTS AND MAY RESULT IN ENTRENCHMENT OF MANAGEMENT. Our articles of incorporation and bylaws contain provisions that may discourage takeover attempts and may result in entrenchment of management. o Our board of directors is elected in classes, with only two or three of the directors elected each year. As a result, shareholders would not be able to change the membership of the board in its entirety in any one year. Shareholders would also be unable to bring about, through the election of a new board of directors, changes in our officers. o Our articles of incorporation prohibit shareholders from acting by written consent, meaning that shareholders will be required to conduct a meeting in order to vote on any proposals or take any action. o Our bylaws require at least 60 days' notice if a shareholder desires to submit a proposal for a shareholder vote or to nominate a person for election to our board of directors. 7 In addition, Florida has enacted legislation that may deter or frustrate takeovers of Florida corporations, such as our company. o The Florida Control Share Act provides that shares acquired in a "control share acquisition" will not have voting rights unless the voting rights are approved by a majority of the corporation's disinterested shareholders. A "control share acquisition" is an acquisition, in whatever form, of voting power in any of the following ranges: (a) at least 20% but less than 33-1/3% of all voting power, (b) at least 33-1/3% but less than a majority of all voting power; or (c) a majority or more of all voting power. o The Florida Affiliated Transactions Act requires supermajority approval by disinterested shareholders of certain specified transactions between a public corporation and holders of more than 10% of the outstanding voting shares of the corporation (or their affiliates). AS A HOLDING COMPANY, WE DEPEND ON THE EARNINGS OF OUR SUBSIDIARIES AND THEIR ABILITY TO PAY MANAGEMENT FEES AND DIVIDENDS TO THE HOLDING COMPANY AS THE PRIMARY SOURCE OF OUR INCOME. We are an insurance holding company whose primary assets are the stock of our subsidiaries. Our operations, and our ability to service our debt, are limited by the earnings of our subsidiaries and their payment of their earnings to us in the form of management fees, dividends, loans, advances or the reimbursement of expenses. These payments can be made only when our subsidiaries have adequate earnings. In addition, these payments made to us by our insurance subsidiaries are restricted by Florida law governing the insurance industry. Generally, Florida law limits the dividends payable by insurance companies under complicated formulas based on the subsidiary's available capital and earnings. During 2003, 2002 and 2001, the parent company received management fees from our subsidiaries, excluding Federated National and American Vehicle, totaling $2.0 million, $1.9 million and $2.9 million. No dividends were declared or paid by any of our subsidiaries in 2003, 2002 or 2001. Whether our subsidiaries will be able to pay dividends in 2004 depends on the results of their operations and their expected needs for capital. We do not anticipate that our subsidiaries will begin to pay dividends to the parent company during 2004. NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements in this prospectus or in documents incorporated by reference that are not historical fact are forward-looking statements. Forward-looking statements are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," or "continue" or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements. The risks and uncertainties include, but are not limited to, the risks and uncertainties described in this prospectus or from time to time in our filings with the SEC. USE OF PROCEEDS We will not receive any proceeds from the resale of the common stock by the selling shareholders. SELLING SHAREHOLDERS The following table shows certain information as of the date of this prospectus regarding the number of shares of common stock owned by the selling shareholders and that are included for sale in this prospectus. The table assumes that all shares offered for sale in the prospectus are sold. No selling shareholder has been within the last three years, or is currently, affiliated with us. 8
- ------------------------------------------------------------------------------------------------------------------------------- Number Ownership of Common Stock Offered by Ownership of Common Stock Before Offering (1) Selling After Offering (1) ------------------------- Shareholder ------------------------- SELLING SHAREHOLDER Number Percent Number Percent - ------------------------------------------------------------------------------------------------------------------------------- Pandora Select Partners, LP(1)(2) 160,354 2.60% 9,227 151,127 2.45% - ------------------------------------------------------------------------------------------------------------------------------- Whitebox Hedged High Yield Partners, LP(1) 162,346 2.64% 18,453 143,893 2.34% - ------------------------------------------------------------------------------------------------------------------------------- Whitebox Convertible Arbitrage Partners, LP(1)(2) 552,618 8.45% 18,453 543,165 8.17% - ------------------------------------------------------------------------------------------------------------------------------- SilverCreek Limited Partnership(1) 26,851 0.45% 5,721 21,130 0.35% - ------------------------------------------------------------------------------------------------------------------------------- Newport Alternative Income Fund(1) 4,630 0.08% 923 3,707 0.06% - ------------------------------------------------------------------------------------------------------------------------------- SilverCreek II Limited(1) 14,917 0.25% 2,583 12,334 0.20% - ------------------------------------------------------------------------------------------------------------------------------- Coastal Convertibles LTD(1) 66,981 1.10% 6,920 60,061 0.99% - ------------------------------------------------------------------------------------------------------------------------------- OTAPE Investments LLC(1) 30,416 0.50% 2,307 28,109 0.47% - ------------------------------------------------------------------------------------------------------------------------------- Omicron Master Trust(1)(2) 200,712 3.24% 4,613 196,099 3.16% --------- ------ --------- - ------------------------------------------------------------------------------------------------------------------------------- TOTAL 1,219,823 69,200 1,150,623 ========= ====== ========= - -------------------------------------------------------------------------------------------------------------------------------
* Less than 1%. (1) Includes shares underlying warrants held by the selling shareholders (each of which is exercisable for .75 shares of common stock, which reflects the Company's three-for-two stock split on September 7, 2004) as follows: Coastal Convertibles LTD, 45,428 shares; Omicron Master Trust, 39,236 shares; OTAPE Investments, LLC, 28,108 shares; Newport Alternative Income Fund, 3,041 shares; Pandora Select Partners, LP, 72,696 shares; SilverCreek II Limited, 10,100 shares; SilverCreek Limited Partnership, 17,268 shares, Whitebox Convertible Arbitrage Partners, LP, 142,008 shares; and Whitebox Hedged High Yield Partners, LP, 143,892 shares. (2) Includes shares underlying warrants held by the selling shareholders (each of which is exercisable for one share of common stock) as follows: Omicron Master Trust, 156,863 shares; Pandora Select Partners, LP, 78,431 shares; and Whitebox Convertible Arbitrage Partners, LP, 392,156 shares. The selling shareholders listed above have provided us with additional information regarding the individuals or entities that exercise control over the selling shareholder. The proceeds of any sale of shares pursuant to this prospectus will be for the benefit of the individuals that control the selling entity. The following is a list of the selling shareholders and the entities that may exercise the right to vote or dispose of the shares owned by each selling shareholder: o Coastal Convertibles LTD is managed by Tradewinds. o Omicron Capital, L.P., a Delaware limited partnership ("Omicron Capital"), serves as investment manager to Omicron Master Trust, a trust formed under the laws of Bermuda ("Omicron"); Omicron Capital, Inc., a Delaware corporation ("OCI"), serves as general partner of Omicron Capital; and Winchester Global Trust Company Limited ("Winchester") serves as the trustee of Omicron. By reason of such relationships, Omicron Capital and OCI may be deemed to share dispositive power over the shares of our common stock owned by Omicron, and Winchester may be deemed to share voting and dispositive power over the shares of our common stock owned by Omicron. Omicron Capital, OCI and Winchester disclaim beneficial ownership of such shares of our common stock. Omicron Capital has delegated authority from the board of directors of Winchester regarding the portfolio management decisions with respect to the shares of common stock owned by Omicron and, as of November 1, 2004, Mr. Olivier H. Morali and Mr. Bruce T. Bernstein, officers of OCI, have delegated authority from the board of directors of OCI regarding the portfolio management decisions with respect to the shares of common stock owned by Omicron. By reason of such delegated authority, Messrs. Morali and Bernstein may be deemed to share dispositive power over the shares of our common stock owned by Omicron. Messrs. Morali and Bernstein disclaim beneficial ownership of such shares of our common stock and neither of such persons has any legal right to maintain such delegated authority. No other person has sole or shared voting or dispositive power with respect to the shares of our common stock being offered by Omicron, as those terms are used for purposes under Regulation 13D-G of the Securities Exchange Act of 1934, as amended. Omicron and Winchester are not "affiliates" of one another, as that term is used for purposes of the Securities Exchange Act of 1934, as amended, or of any other person named in this prospectus as a selling shareholder. No person or "group" (as that term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended, or the SEC's Regulation 13D-G) controls Omicron and Winchester. o OTAPE Investments, LLC is managed by OTA. Ira M. Leventhal, a U.S. citizen, may be deemed to have dispositive power with regard to the shares beneficially owned by OTAPE Investments, LLC. Mr. Leventhal disclaims beneficial ownership of those shares. 9 o Each of Newport Alternative Income Fund, SilverCreek II Limited and SilverCreek Limited Partnership is managed by SilverCreek. o Each of Whitebox Convertible Arbitrage Partners, LP and Whitebox Hedged High Yield Partners, LP is managed by Whitebox Advisors, LLC. o Pandora Select Partners, LP is managed by Pandora Select Advisors, LLC. HOW THE SHARES MAY BE DISTRIBUTED The selling shareholders may sell shares of common stock in various ways and at various prices. Some of the methods by which the selling shareholders may sell shares include: o ordinary brokerage transactions and transactions in which the broker solicits purchasers or makes arrangements for other brokers to participate in soliciting purchasers; o privately negotiated transactions; o block trades in which the broker or dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker or dealer as principal and resale by that broker or dealer for the selling shareholder's account under this prospectus on the Nasdaq National Market at prices and on terms then-prevailing in the market; o sales under Rule 144, if available, rather than using this prospectus; o a combination of any of these methods of sale; and o any other legally permitted method. The applicable sales price may be affected by the type of transaction. The selling shareholders may also pledge shares as collateral for margin loans under their customer agreements with their brokers. If there is a default by a selling shareholder, the broker may offer and sell the pledged shares. When selling shares, the selling shareholders intend to comply with the prospectus delivery requirements under the Securities Act, by delivering a prospectus to each purchaser. We may file any supplements, amendments or other necessary documents in compliance with the Securities Act that may be required in the event a selling shareholder defaults under any customer agreement with brokers. Brokers and dealers may receive commissions or discounts from the selling shareholders or, in the event the broker-dealer acts as agent for the purchaser of the shares, from that purchaser, in amounts to be negotiated. These commissions are not expected to exceed those customary in the types of transactions involved. We cannot estimate at the present time the amount of commissions or discounts, if any, that will be paid by the selling shareholders in connection with the sales of the shares. The selling shareholders and any broker-dealers or agents that participate with a selling shareholder in sales of the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In that event, any commissions received by the broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Under the securities laws of certain states, the shares may be sold in those states only through registered or licensed broker-dealers. In addition, the shares may not be sold unless the shares have been registered or qualified for sale in the relevant state or unless the shares qualify for an exemption from registration or qualification. We have agreed to pay all of our out-of-pocket expenses and our professional fees and expenses incident to the registration of the shares. The selling shareholders and other persons participating in the distribution of the shares offered under this prospectus are subject to the applicable requirements of Regulation M promulgated under the Exchange Act in connection with sales of the shares. 10 LEGAL MATTERS Broad and Cassel, a partnership including professional associations, Miami, Florida, is giving an opinion regarding the validity of the offered shares of common stock. EXPERTS The financial statements of 21st Century Holding Company for the years ended December 31, 2003 and December 31, 2002, incorporated by reference in this prospectus, have been audited by De Meo, Young, McGrath, independent certified public accountants, to the extent and for the periods set forth in their report incorporated herein by reference, and are incorporated herein in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. The financial statements of 21st Century Holding Company for the year ended December 31, 2001, incorporated by reference in this prospectus, have been audited by McKean, Paul, Chrycy, Fletcher & Co., independent certified public accountants, to the extent and for the periods set forth in their report incorporated herein by reference, and are incorporated herein in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-3 with the SEC in connection with this offering. This prospectus does not contain all of the information set forth in the registration statement, as permitted by the rules and regulations of the SEC. This prospectus may include references to material contracts or other material documents of ours; any summaries of these material contracts or documents are complete and are either included in this prospectus or incorporated by reference into this prospectus. You may refer to the exhibits that are part of the registration statement for a copy of the contract or document. We also file annual, quarterly and current reports and other information with the SEC. You may read and copy any report or document we file, and the registration statement, including the exhibits, may be inspected at the SEC's public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's website at http://www.sec.gov. Quotations for the prices of our common stock appear on the Nasdaq National Market, and reports, proxy statements and other information about us can also be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents are incorporated by reference into this prospectus: o Our Current Reports on Form 8-K filed with the SEC on October 6, October 4, September 29, September 20, August 17, and August 5, 2004, o Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, filed with the SEC on August 16, 2004, o Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed with the SEC on May 17, 2004, o Our Annual Report on Form 10-K for the year ended December 31, 2003, filed with the SEC on April 2, 2004, o Our proxy statement for our 2004 Annual Meeting of Shareholders filed with the SEC on April 27, 2004, and o The description of our common stock contained in our registration statement on Form 8-A filed with the SEC on October 28, 1998, as this description may be updated in any amendment to the Form 8-A. 11 In addition, all documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, other than information furnished pursuant to Items 9 or 12 of Form 8-K, after the date of this prospectus and prior to the filing of a post-effective amendment that indicates that all securities registered hereby have been sold or that deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference into this prospectus and to be a part hereof from the date of filing of such documents with the SEC. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein, or in a subsequently filed document incorporated by reference herein, modifies or supersedes that statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this prospectus. You may obtain a copy of these filings, excluding all exhibits unless we have specifically incorporated by reference an exhibit in this prospectus or in a document incorporated by reference herein, at no cost, by writing or telephoning: 21st Century Holding Company 3661 West Oakland Park Boulevard, Suite 300 Lauderdale Lakes, Florida 33311 Attention: Gordon Jennings, Chief Financial Officer Telephone: (954) 581-9993 Our file number under the Securities Exchange Act of 1934 is 0-2500111. INDEMNIFICATION OF DIRECTORS AND OFFICERS We have authority under Section 607.0850 of the Florida Business Corporation Act to indemnify our directors and officers to the extent provided for in that law. Our articles of incorporation provide that we may insure, shall indemnify and shall advance expenses on behalf of our officers and directors to the fullest extent not prohibited by law. We also are a party to indemnification agreements with each of our directors and officers. The SEC is of the opinion that indemnification of directors, officers and controlling persons for liabilities arising under the Securities Act is against public policy and is, therefore, unenforceable. 12 PART II INFORMATION REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The Registrant estimates that its expenses in connection with this registration statement will be as follows: SEC registration fee............................. $ 93.38 Accounting fees and expenses..................... 5,000.00 Legal fees and expenses.......................... 5,000.00 Miscellaneous.................................... 2,906.62 ------------ Total..................................... $ 13,000.00 ============ ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Registrant has authority under Section 607.0850 of the Florida Business Corporation Act to indemnify its directors and officers to the extent provided for in such law. The Registrant's Amended and Restated Articles of Incorporation provide that the Registrant may insure, shall indemnify and shall advance expenses on behalf of its officers and directors to the fullest extent not prohibited by law. The Registrant is also a party to indemnification agreements with each of its directors and officers. ITEM 16. EXHIBITS. 4.1 Specimen of Common Stock Certificate(1) 4.2 Revised Representative's Warrant Agreement including form of Representative's Warrant(1) 4.3 Amendment dated October 1, 2003 to Warrant Agreement(2) 4.4 Form of 6% Senior Subordinated Note due July 31, 2006(3) 4.5 Form of Redeemable Warrant dated July 31, 2003(3) 4.6 Unit Purchase Agreement dated July 31, 2003 between the Company and the Purchasers of the 6% Senior Subordinated Notes due July 31, 2006(4) 4.7 Amendment to Unit Purchase Agreement and Registration Rights Agreement dated October 15, 2003 between the Company and the Purchasers of the 6% Senior Subordinated Notes(5) 4.8 Form of 6% Senior Subordinated Note due September 30, 2007(6) 4.9 Form of Redeemable Warrant dated September 30, 2004(6) 4.10 Unit Purchase Agreement dated September 30, 2004 between the Company and the Purchasers of the 6% Senior Subordinated Notes due September 30, 2007(6) 5.1 Opinion of Broad and Cassel(6) 23.1 Consent of Broad and Cassel (included in its opinion filed as Exhibit 5.1)(6) 23.2 Consent of McKean, Paul, Chrycy, Fletcher & Co.(6) 23.3 Consent of De Meo, Young, McGrath(6) 24.1 Power of Attorney(7) II-1 - --------------- (1) Previously filed as an exhibit of the same number to the Registrant's Registration Statement on Form SB-2 (File No. 333-63623) and incorporated herein by reference. (2) Previously filed as an exhibit of the same number to the Registrant's Registration Statement on Form S-3 (File No. 333-105221) and incorporated herein by reference. (3) Previously filed as Exhibits 4.1 and 4.2, respectively, to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference. (4) Previously filed as Exhibit 4.5 to the Registrant's Registration Statement on Form S-3 (333-109313) and incorporated herein by reference. (5) Previously filed as Exhibit 4.7 to Amendment No. 1 to the Registrant's Registration Statement on Form S-3 (333-108739) and incorporated herein by reference. (6) Filed herewith. (7) Included on page II-4 of this registration statement. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (a) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lauderdale Lakes, State of Florida on this 29th day of October, 2004. 21ST CENTURY HOLDING COMPANY By: /s/ Edward J. Lawson ----------------------------------------- Edward J. Lawson, Chairman of the Board and President POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Edward J. Lawson and Richard A. Widdicombe, or any one of them, as his or her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him or her and in his or her name, place and stead in any and all capacities to execute in the name of each such person who is then an officer or director of the Registrant any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the offering hereunder pursuant to Rule 462 under the Securities Act of 1933 and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them full power and authority to do and perform each and every act and thing required or necessary to be done in and about the premises as fully as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURES TITLE DATE - ------------------------------ ----------------------------- --------------- /s/ Edward J. Lawson Chairman of the Board of October 29, 2004 - ------------------------------ Directors and President Edward J. Lawson /s/ Richard A. Widdicombe Chief Executive Officer and October 29, 2004 - ------------------------------ Director (Principal Executive Richard A. Widdicombe Officer) /s/ James Gordon Jennings, III Chief Financial Officer October 29, 2004 - ------------------------------ (Principal Financial and James Gordon Jennings, III Accounting Officer) /s/ Bruce Simberg Director October 29, 2004 - ------------------------------ Bruce Simberg /s/ Carl Dorf Director October 29, 2004 - ------------------------------ Carl Dorf /s/ Charles B. Hart, Jr. Director October 29, 2004 - ------------------------------ Charles B. Hart, Jr. /s/ Peter J. Prygelski Director October 29, 2004 - ------------------------------ Peter J. Prygelski /s/ Richard W. Wilcox, Jr. Director October 29, 2004 - ------------------------------ Richard W. Wilcox, Jr.
II-3 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- ----------- 4.8 Form of 6% Senior Subordinated Note due September 30, 2007 4.9 Form of Redeemable Warrant dated September 30, 2004 4.10 Unit Purchase Agreement dated September 30, 2004 between the Company and the Purchasers of the 6% Senior Subordinated Notes due September 30, 2007 5.1 Opinion of Broad and Cassel 23.1 Consent of Broad and Cassel (included in its opinion filed as Exhibit 5.1) 23.2 Consent of McKean, Paul, Chrycy, Fletcher & Co. 23.3 Consent of De Meo, Young, McGrath EX-4.8 2 v07862_seniorsubnote.txt THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY ARE RESTRICTED AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, ACCEPTABLE TO THE COMPANY, IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. Dated as of , 2004 No. W -------------------------------- ------------- 21ST CENTURY HOLDING COMPANY (INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA) REDEEMABLE WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK FOR VALUE RECEIVED, 21st Century Holding Company, a Florida corporation (the "Company"), hereby certifies that _________________________________, its successors and assigns (the "Holder"), is the owner of such number of warrants (the "Warrants") as set forth in Section 1 hereof. Each Warrant initially entitles the Holder, subject to the provisions hereof, to purchase from the Company at any time and from time to time on and after the date hereof until 5:00 p.m. Florida local time on the Expiration Date (as described in Section 3 herein), one fully paid and non-assessable share of Common Stock (as defined below) at the Exercise Price per share of Common Stock (as described in Section 2 herein) on the terms and conditions hereinafter set forth. The term "Common Stock" means the Common Stock, par value $0.01 per share, of the Company as constituted on the date hereof (the "Base Date"). The number of shares of Common Stock to be received upon the exercise of this warrant certificate may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as "Warrant Shares." The term "Other Securities" means any other equity or debt securities that may be issued by the Company in addition thereto or in substitution for the Warrant Shares. The term "Company" means and includes the corporation named above as well as any immediate successor corporation resulting from a reorganization. Upon receipt by the Company of documentation reasonably satisfactory to it of the loss, theft, destruction or mutilation of this warrant certificate, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this warrant certificate, if mutilated, the Company shall execute and deliver a new warrant certificate of like tenor and date. Any such new warrant certificate executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this warrant certificate so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. 1 The Holder agrees with the Company that this warrant certificate is issued, and all the rights hereunder shall be held subject to, all of the conditions, limitations and provisions set forth herein. 1. NUMBER OF WARRANTS. The Holder is the owner of a number of warrants equal to the aggregate principal amount of the 6% Senior Subordinated Notes the Holder has purchased pursuant to the terms of the Unit Purchase Agreement (as hereinafter defined) divided by the Exercise Price. 2. EXERCISE PRICE. The Exercise Price shall equal 115% of the weighted-average volume price for the Common Stock on Nasdaq as reported by Bloomberg Financial Markets ("Bloomberg") for the 5 consecutive trading days prior to the date of the Closing as set forth in the Unit Purchase Agreement; provided, however, that in no event shall the Exercise Price be lower than $12.75 per share. 3. EXERCISE OF WARRANT. This warrant certificate may be exercised in whole or in part, at any time, or from time to time during the period commencing on the date hereof and expiring three years after the date hereof (the "Expiration Date"). The Warrants must be exercised so as to purchase one full Warrant Share. 4. NOTICE OF EXERCISE. Exercise of the Warrants shall be effected in any such case by presentation and surrender of this warrant certificate to the Company at its principal office, at the office of its stock transfer agent or any other warrant agent designated by the Company (the "Warrant Agent") if any, with the Warrant Exercise Form, a form of which is attached hereto as Exhibit A, duly executed and accompanied by payment (either in cash or by certified or official bank check, payable to the order of the Company) of the Exercise Price for the number of Warrant Shares specified in such form and instruments of transfer, if appropriate, duly executed by the Holder or its duly authorized attorney. If this warrant certificate should be exercised in part only, the Company shall, upon surrender of this warrant certificate for cancellation, execute and deliver a new warrant certificate evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this warrant certificate, together with the Exercise Price, at its office, or by the Warrant Agent at its office, in proper form for exercise, the Holder shall be deemed to be the Holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on exercise of this warrant certificate, but in no event shall the Company be responsible or liable for income taxes or transfer taxes upon the issuance or transfer of the Warrants or the Warrant Shares. 5. REDEMPTION RIGHTS. The Warrants may be redeemed, in whole or in part, at any time or from time to time, at the Company's sole option, commencing a year from the date hereof at a redemption price of $0.01 per Warrant Shares; provided, however, that before any such call for redemption of the Warrants the weighted-average volume price for the Company's Common Stock quoted on the Nasdaq National Market ("Nasdaq") shall have for 20 consecutive trading days ending not more than 10 days prior to the notice of redemption been in excess of 150% of the Exercise Price, as such may be adjusted from time to time. Redemption of the Warrants may only occur upon 30 days' prior written notice to the Holder, such notice to include certification of the trading price of the Company's Common Stock on Nasdaq as reported by Bloomberg. If the Company exercises its right to redeem the Warrants, in whole or in part, it shall mail a notice of redemption to the Holder, first class, postage prepaid, not later than the 30th day before the date fixed for redemption, at such Holder's last address as shall appear on the records of the Company or the Company's Warrant Agent, if any. Any notice mailed in the manner provided herein shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. The notice of redemption shall specify the redemption price, the date fixed for redemption, the place where the warrant certificate shall be delivered and the redemption price shall be paid, and that the right to exercise the Warrants shall terminate at 5:00 p.m. Florida local time on the business day immediately preceding the date fixed for redemption. The date fixed for the redemption of the Warrants shall be the Redemption Date. Any right to exercise a Warrant shall terminate at 5:00 p.m. Florida local time on the business day immediately preceding the Redemption Date. On and after the Redemption Date, the Holder shall have no further rights except to receive, upon surrender of a certificate evidencing Warrants duly endorsed or accompanied by a written instrument or instruments of redemption in form satisfactory to the Company, the redemption price of $0.01, without interest, per Warrant Shares. 2 6. RESERVATION OF SHARES. The Company will at all times reserve for issuance and delivery upon exercise of this warrant certificate all shares of Common Stock or other shares of capital stock of the Company (and Other Securities) from time to time receivable upon exercise of this warrant certificate. All such shares (and Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights. 7. FRACTIONAL SHARES. No fractional shares or script representing fractional shares shall be issued upon the exercise of the Warrants, but the Company shall pay the Holder an amount equal to the fair market value of such fractional share of Common Stock in lieu of each fraction of a share otherwise called for upon any exercise of the Warrants, as determined by the Board of Directors of the Company. 8. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This warrant certificate is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its Warrant Agent, if any, for other warrant certificates of different denominations, entitling the Holder to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this warrant certificate to the Company or at the office of its Warrant Agent, if any, with an appropriate form of assignment duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new warrant certificate in the name of the assignee named in such instrument of assignment and this warrant certificate shall promptly be canceled. This warrant certificate may be divided or combined with other warrant certificates that carry the same rights upon presentation hereof at the office of the Company or at the office of its Warrant Agent, if any, together with a written notice specifying the names and denominations in which new warrant certificates are to be issued and signed by the Holder hereof. 3 9. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights as a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this warrant certificate. 10. ANTI-DILUTION PROVISIONS. 10.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at any time subdivide its outstanding shares of Common Stock (or Other Securities at the time receivable upon the exercise of the Warrants) by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its shareholders, the number of shares of Common Stock subject to this warrant certificate immediately prior to such subdivision shall be proportionately increased and the Exercise Price shall be proportionately decreased, and if the Company shall at any time combine the outstanding shares of Common Stock by recapitalization, reclassification or combination thereof, the number of shares of Common Stock or Other Securities subject to this warrant certificate immediately prior to such combination shall be proportionately decreased and the Exercise Price shall be proportionately increased. Any such adjustments pursuant to this Section 10.1 shall be effective at the close of business on the effective date of such subdivision or combination or if any adjustment is the result of a stock dividend or distribution then the effective date of such adjustment based thereon shall be the record date therefor. 10.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In the case of a reorganization of the Company after the Base Date, the Holder, upon the exercise thereof as provided in Section 1, at any time after the consummation of such reorganization, shall be entitled to receive, in lieu of the securities and property receivable upon the exercise of this warrant certificate prior to such consummation, the securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this warrant certificate immediately prior thereto; in each such case, the terms of this warrant certificate shall be applicable to the securities or property receivable upon the exercise of this warrant certificate after such consummation. 10.3 ISSUANCES BELOW EXERCISE PRICE. Except in the case of the issuance of Common Stock issued (i) pursuant to any employee benefit plan of the Company now existing or to be implemented in the future, (ii) for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination, (iii) in connection with any transaction referred to in, or contemplated by, this Section 10 hereof, (iv) pursuant to any equipment leasing or loan arrangement, or debt financing from a bank or similar financial or lending institution, (v) issued by the Company pursuant to a registration statement filed under the Securities Act, or (v) issued in connection with strategic transactions involving the Company and other entities, including (a) joint ventures, manufacturing, marketing or distribution arrangements or (b) technology transfer or development arrangements, if the Company at any time while the Warrants are outstanding, shall issue shares of Common Stock at a price per share (an "Issuance Price") less than the Exercise Price (or in the case of an issuance of Common Stock in a private placement at less than 80% of the Exercise Price), then the Exercise Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Common Stock plus the number of shares of Common Stock which the price paid for such shares of Common Stock would purchase at the Exercise Price, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock so issued or issuable. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 10.2, the number of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 4 10.4 NOTICES OF RECORD DATE, ETC. In case: (a) the Company shall take a record of the holders of its Common Stock (or Other Securities at the time receivable upon the exercise of the Warrants) for the purpose of entitling them to receive any dividend (other than a cash dividend at the same rate as the rate of the last cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities, or to receive any other right; or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, or any consolidation or merger of the Company with or into another corporation; then, and in each such case, the Company shall mail or cause to be mailed to the Holder at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation or merger is to take place, and the time, if any, is to be fixed, as to which the holders of record of Common Stock (or such Other Securities at the time receivable upon the exercise of the Warrants) shall be entitled to exchange their shares of Common Stock (or such Other Securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation or merger. Such notice shall be mailed at least 20 days prior to the date therein specified and the Warrants may be exercised prior to said date during the term of the Warrants. 10.5 LIMITATION ON ANTI-DILUTION ADJUSTMENTS. Notwithstanding anything to the contrary contained herein, the Company shall not adjust the number of Warrant Shares as provided in this Section 10, if such adjustment would, either individually or together with one or more other adjustments or together with one or more issuances of Transaction Shares (as defined in the Unit Purchase Agreement dated as of ___________________, 2004 (the "Unit Purchase Agreement") among the Company and the Purchasers named therein), cause the issuance of shares of Common Stock to exceed the number of shares that the Company could then issue under Section 4350(i) of the rules and regulations of Nasdaq (the "Nasdaq Rules") or any successor rule or regulation. Under Section 4350(i) of the Nasdaq Rules, a company may not issue shares, and may not issue securities convertible into shares, where the shares issued could in the aggregate equal 20% or more of the voting power of the shares outstanding, without obtaining shareholder approval. The foregoing limitation shall only apply until such time as the Company obtains the requisite approval of its shareholders for the issuance of the Transaction Shares, as required by Section 4350(i) of the Nasdaq Rules or any successor rule or regulation. The Company covenants and agrees that it shall include a proposal for the approval of the issuance of the Transaction Shares in the Company's proxy statement for its next regular annual meeting of shareholders. If, due to the foregoing limitation, the Company cannot adjust the Warrant Shares as provided in Section 10.3 above, then, subject to NASD approval, the Company agrees that the Exercise Price hereof shall be reduced to equal the Issuance Price(s) of the shares of Common Stock that triggered the adjustment pursuant to Section 10.3. 5 11. TRANSFER TO COMPLY WITH THE SECURITIES ACT. The Warrants and any Warrant Shares or Other Securities may not be sold, transferred, pledged, hypothecated or otherwise disposed of unless registered under the Securities Act and any applicable state securities laws or pursuant to available exemptions from such registration, provided that the transferor delivers to the Company an opinion of counsel satisfactory to the Company confirming the availability of such exemption. 12. REGISTRATION RIGHTS. The Warrants and the Warrant Shares issuable upon exercise of the Warrants shall be subject to certain registration rights as provided in the registration rights agreement (the "Registration Rights Agreement") among the Company and the initial holders of the Warrants. If the Company fails to comply with the terms of the Registration Rights Agreement, the Exercise Price shall be reduced by 10% for each full period of 30 consecutive days of such non-compliance (and there shall be no pro rata reduction of the Exercise Price if a period of non-compliance is not a full 30-day period). 13. LEGEND. Unless the Warrant Shares or Other Securities have been registered under the Securities Act, upon exercise of any of the Warrants and the issuance of any of the Warrant Shares or Other Securities, all certificates representing such securities shall bear on the face thereof substantially the following legend: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or under applicable state securities laws and may not be sold, offered for sale, assigned, transferred or otherwise disposed of, unless registered pursuant to the provisions of the Act and any applicable state securities laws or unless an opinion of counsel to the Company is obtained stating that such disposition is in compliance with an available exemption from such registration." 14. NOTICES. All notices required hereunder shall be in writing and shall be deemed given when sent by facsimile, delivered personally or within two days after mailing when mailed by certified or registered mail, return receipt requested, to the Company at its principal office, or to the Holder at the address set forth on the record books of the Company, or at such other address of which the Company or the Holder has been advised by notice hereunder. 6 15. APPLICABLE LAW. The Warrants are issued under and shall for all purposes be governed by and construed in accordance with the laws of the State of Florida, without giving effect to the choice of law rules thereof. IN WITNESS WHEREOF, the Company has caused this warrant certificate to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written. 21ST CENTURY HOLDING COMPANY, a Florida corporation By: -------------------------------------- Richard A. Widdicombe, Chief Executive Officer 7 EXHIBIT A WARRANT EXERCISE FORM (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant) To 21st Century Holding Company: In accordance with the warrant certificate enclosed with this Warrant Exercise Form, the undersigned hereby irrevocably elects to purchase________ shares of Common Stock, $0.01 par value per share ("Common Stock"), of 21st Century Holding Company and, encloses herewith $__________ in cash, certified or official bank check or checks, which sum represents the aggregate Exercise Price (as defined in the Warrant) for the number of shares of Common Stock to which this Warrant Exercise Form relates, together with any applicable taxes payable by the undersigned pursuant to the warrant certificate. The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER ----------------------------------------- - -------------------------------------------------------------------------------- (Please print name and address) If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock that the undersigned is entitled to purchase in accordance with the enclosed warrant certificate, the undersigned requests that a new warrant certificate evidencing the right to purchase the shares of Common Stock not issuable pursuant to the exercise evidenced hereby be issued in the name of and delivered to: - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Dated: ----------------------- ----------------------------------------- (Print name of holder) By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) 8 EX-4.9 3 v07862_redeemablewarrant.txt 7777 GLADES ROAD SUITE 300 [GRAPHIC OMITTED BOCA RATON, FLORIDA 33434 BROAD AND CASSEL TELEPHONE: 561.483.7000 - ---------------- FACSIMILE: 561.483.7321 ATTORNEYS AT LAW www.broadandcassel.com November 1, 2004 21st Century Holding Company 3661 West Oakland Park Boulevard, Suite 300 Lauderdale Lakes, Florida 33311 Re: 21st Century Holding Company (the "Company") Registration Statement on Form S-3 Ladies and Gentlemen: We have acted as counsel to the Company with respect to the preparation and filing with the U.S. Securities and Exchange Commission of the accompanying Registration Statement on Form S-3 (the "Form S-3"), pursuant to the Securities Act of 1933, as amended (the "Securities Act"). You have requested our opinion with respect to the 69,200 shares (the "Shares") of the Company's common stock, par value $.01 per share (the "Common Stock"), issued by the Company in payment of the principal and interest due on the Company's 6% Senior Subordinated Notes due July 31, 2006, as set forth in the Form S-3. As counsel to the Company, we have examined the original or certified copies of such records of the Company, and such agreements, certificates of public officials, certificates of officers and representatives of the Company and others, and such other documents as we may deem relevant and necessary for the opinion expressed in this opinion letter. In such examination, we have assumed the genuineness of all signatures on original documents, and the conformity to original documents of all copies submitted to us as conformed or photostatic copies. As to various questions of fact material to such opinion, we have relied upon statements or certificates of officials and representatives of the Company and others. Based on, and subject to the foregoing, we are of the opinion that the Shares have been legally issued and are fully paid and nonassessable. 21st Century Holding Company November 1, 2004 Page 2 The opinion expressed herein is based on Florida law, including the statutes and constitution of the State of Florida as in existence on the date hereof and the reported judicial decisions interpreting such statutes and constitution. In rendering this opinion, we advise you that members of this Firm are members of the Bar of the State of Florida, and we express no opinion herein concerning the applicability or effect of any laws of any other jurisdiction, except the securities laws of the United States of America referred to herein. We hereby consent to the filing of this opinion letter as an exhibit to the Form S-3. We also consent to the use of our name under the caption "Legal Matters" in the prospectus constituting part of the Form S-3. In giving such consent, we do not thereby admit that we are included within the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations promulgated thereunder. Very truly yours, /s/ Broad and Cassel BROAD AND CASSEL EX-4.10 4 v07862_unitpurchaseagreement.txt 21ST CENTURY HOLDING COMPANY 3661 WEST OAKLAND PARK BOULEVARD LAUDERDALE LAKES, FL 33311 UNIT PURCHASE AGREEMENT TO THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A: Ladies and Gentlemen: 21st Century Holding Company, a Florida corporation (the "Company"), agrees with the Purchasers listed in the attached Schedule A (the "Purchasers") to this Unit Purchase Agreement (this "Agreement") as follows: SECTION 1. CERTAIN DEFINITIONS. As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "Affiliate" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of equity interests. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Business Day" means any day other than a Saturday, a Sunday or a day on which the Nasdaq National Market ("Nasdaq") is required or authorized to be closed. "Capital Lease" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Capital Lease Obligation" means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which would, in accordance with GAAP, appear as a liability on a balance sheet of such Person. "Change of Control" is defined in Section 7.2(h). "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. 1 "Confidential Information" is defined in Section 20. "Default" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "Eligible Subsidiary" means each of the Company's Subsidiaries, except such Subsidiaries which are regulated by the Florida Department of Financial Service or successor entity. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, at any time and with respect to any property, the sale value of such property that would be realized in an arm's-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell), as reasonably determined in the good faith opinion of the Company's board of directors. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "Guarantor" shall mean those certain Eligible Subsidiaries of the Company which shall be a party to a Subsidiary Guarantee. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property constituting security therefor primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of any other Person to make payment of the Indebtedness or obligation; (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of any other Person to make payment of the Indebtedness or obligation; or (d) otherwise to assure the owner of such Indebtedness or obligation against loss in respect thereof. In any computation of the Indebtedness or other liabilities of the obligor under any Guaranty, the Indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor, provided that the amount of such Indebtedness outstanding for purposes of this Agreement shall not be exceed the maximum amount of Indebtedness that is the subject of such Guaranty. "Holder" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 14.1. 2 "Indebtedness" means, with respect to any Person, without duplication, (a) all liabilities of such Person for borrowed money (including overdrafts) or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities incurred in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit and acceptances issued under letter of credit facilities, acceptance facilities or other similar facilities, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade payables arising in the ordinary course of business, (d) all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred to in (but not excluded from) the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or with respect to property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the Fair Market Value of such property or asset or the amount of the obligation so secured), and (f) all guarantees by such Person of Indebtedness referred to in this definition of any other Person. "Interest Shares" is defined in Section 9. "Investments" shall mean all investments, in cash or by delivery of property made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise. "Lien" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person. "Material" means material in relation to the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement, the Notes and the Warrants, or (c) the validity or enforceability of this Agreement, the Notes or the Warrants. "Notes" is defined in Section 2. "Offering Document" is defined in Section 6.3. "Permitted Indebtedness" means any of the following: 3 (a) Indebtedness of the Company or its Subsidiary outstanding as of the date hereof; (b) Indebtedness of the Company pursuant to the Notes issued at Closing or of any Subsidiary pursuant to the Subsidiary Guarantee, and any additional indebtedness in an aggregate amount (including the issuing of the Notes) which does not exceed $15 million at any one time outstanding represented by additional senior subordinated notes issued on a pari passu basis with the Notes and guaranteed by guarantees of one or more of the Subsidiaries on a pari passu basis with the Subsidiary Guarantee. (c) Indebtedness of the Company owing to any Subsidiary; provided that any Indebtedness of the Company owing to any such Subsidiary is unsecured and is subordinated in right of payment from and after such time as the Notes shall become due and payable to the payment and performance of the Company's obligations under the Notes; provided further that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or another Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the Company not permitted by this clause (c); (d) Indebtedness of a Subsidiary owing to the Company or to another Subsidiary; provided that any such Indebtedness of any Subsidiary is subordinated in right of payment to the Guaranty of such Subsidiary; provided further that any disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to the Company or a Subsidiary) shall be deemed to be an incurrence of such Indebtedness by such Subsidiary not permitted by this clause (d); (e) Indebtedness of the Company or any Subsidiary in respect of purchase money obligations, Capitalized Lease Obligations of the Company or any Subsidiary and Subordinated Indebtedness of the Company or any Subsidiary in an aggregate amount which does not exceed $5 million at any one time outstanding; (f) Indebtedness of the Company or any Subsidiary consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets, including, without limitation, shares of capital stock of Subsidiaries; (g) Indebtedness of the Company or any Subsidiary represented by (x) letters of credit for the account of the Company or any Subsidiary or (y) other obligations to reimburse third parties pursuant to any surety bond or other similar arrangements, which letters of credit or other obligations, as the case may be, are intended to provide security for workers' compensation claims, payment obligations in connection with self-insurance or other similar requirements in the ordinary course of business; (h) Any renewals, extensions, substitutions, refinancings or replacements (each, for purposes of this clause, a "refinancing") of any Indebtedness, referred to herein, including any successive refinancings, so long as (i) any such new Indebtedness shall be in a principal amount that does not exceed the principal amount (or, if such Indebtedness being refinanced provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such lesser amount as of the date of determination) so refinanced, plus the lesser of the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined as necessary to accomplish such refinancing, (ii) in the case of any refinancing by the Company of Subordinated Indebtedness, such new Indebtedness is made pari passu with or subordinate to the Notes at least to the same extent as the Indebtedness being refinanced, and (iii) in the case of any refinancing by any Subsidiary of Subordinated Indebtedness, such new Indebtedness is made pari passu with or subordinate to the Guaranty of such Guarantor at least to the same extent as the Indebtedness being refinanced; and 4 (i) Indebtedness of the Company not otherwise permitted herein incurred in connection with a merger, acquisition, sales of assets or similar business combinations, with the consent of the Holders of 50% of the principal amount of Notes then outstanding. "Person" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "Prepayment Shares" is defined in Section 7.2(d) "Principal Shares" is defined in Section 7.1. "Property" or "properties" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "Purchasers" means the purchasers of the Units named in Schedule A hereto. "Required Holders" means, at any time, the holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "Responsible Officer" means any officer of the Company with responsibility for the administration of the relevant portion of this Agreement. "Sale and Leaseback Transaction" means any transaction or series of related transactions pursuant to which the Company or a Subsidiary sells or transfers any property or asset in connection with the leasing of such property or asset to the seller or transferor. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Senior Indebtedness" means the principal of, premium, if any, and interest on all other Indebtedness of the Company (other than the Notes), whether outstanding on the date of Closing or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i) Indebtedness evidenced by the Notes, (ii) Indebtedness of the Company that is expressly subordinated in right of payment to any Senior Indebtedness of the Company or the Notes, (iii) Indebtedness of the Company that by operation of law is subordinate to any general unsecured obligations of the Company, (iv) Indebtedness of the Company to the extent incurred in violation of any covenant of this Agreement, (v) any liability for federal, state or local taxes or other taxes, owed or owing by the Company, (vi) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade account payables or other current liabilities (other than the current portion of long-term Indebtedness which would constitute Senior Indebtedness but for the operation of this clause (vi)), (vii) amounts owed by the Company for compensation to employees or for services rendered to the Company, (viii) Indebtedness of the Company to any Subsidiary or any other Affiliate of the Company or any such Affiliate's Subsidiaries, (ix) amounts owing under leases and (x) Indebtedness which when incurred and without respect to any election under Section 1111(b) of Title 11 of the United States Code is without recourse to the Company or any Subsidiary. 5 "Subordinated Indebtedness" means, as of the date of any determination thereof, all unsecured Indebtedness of the Company which shall contain or have applicable thereto subordination provisions providing for the subordination thereof to other the Indebtedness of the Company (including, without limitation, the Notes). "Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "Subsidiary Guarantee" is defined in Section 3.2. "Transaction Shares" means collectively, the Principal Shares, the Interest Shares, the Prepayment Shares and the Warrant Shares. "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants. SECTION 2. AUTHORIZATION OF UNITS; PRIORITY 2.1 AUTHORIZATION OF UNITS. The Company will authorize the issue and sale of up to 12,500 units (the "Units") at a price (the "Subscription Price") of $1,000 per Unit. Each Unit consists of (i) a $1,000 6% Senior Subordinated Note (the "Note"), and (ii) warrants to purchase shares of the Company's common stock, par value $0.01 per share (the "Common Stock") for an exercise price per share as set forth therein (the "Warrant"). The Note and Warrant shall be substantially in the forms set out in Exhibits A and B, respectively. 6 2.2 PRIORITY OF NOTES. The Notes shall rank pari passu in terms of payment and shall be equal in priority to the 6% Senior Subordinated Notes dated July 31, 2003 in the original principal amount of $7,500,000. SECTION 3. SALE AND PURCHASE OF UNITS. 3.1 UNITS. Subject to the terms and conditions of this Agreement, the Company will issue and sell to each Purchaser and each Purchaser will purchase from the Company, at the Closing provided for in Section 4, such number of Units specified opposite such Purchaser's name in Schedule A at the aggregate Subscription Price. The obligations of each Purchaser hereunder are several and not joint obligations and each Purchaser shall have no obligation and no liability to any Person for the performance or nonperformance by any other Purchaser hereunder. 3.2 SUBSIDIARY GUARANTEE. The payment by the Company of all amounts due with respect to the Notes and the performance by the Company of its obligations under this Agreement will be unconditionally guaranteed by all Eligible Subsidiaries of the Company (the "Guarantors") under the subsidiary guarantee (the "Subsidiary Guarantee") which shall be in substantially the form attached hereto as Exhibit C. SECTION 4. CLOSING. The sale and purchase of the Units to be purchased by each Purchaser shall occur at 10:00 am Miami time, at a closing (the "Closing") on September 29, 2004 or on such other Business Day as may be agreed upon by the Company and the Purchasers. At the Closing, the Company will deliver to J. Giordano Securities, LLC, as agent for each Purchaser, the Units to be purchased by such Purchaser dated the date of the Closing and registered in such Purchaser's name, against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the Subscription Price therefor by wire transfer of immediately available funds for the account of the Company to account number 9660323321, account name 21st Century Holding Company Operating, at Union Planters Bank, ABA Number 067008414. If at the Closing the Company shall fail to tender such Units to any Purchaser as provided above in this Section 4, such Purchaser shall, at such Purchaser's election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment. SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Purchaser that: 5.1 ORGANIZATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of Florida with full power and authority to own, lease, license and use its properties and assets and to carry out the businesses in which it is engaged in. The Company is duly qualified to transact the business in which it is engaged and is in good standing as a foreign corporation in every jurisdiction in which its ownership, leasing, licensing or use of property or assets or the conduct of its business make such qualification necessary, except where the failure to be so qualified would not individually or in the aggregate have a Material Adverse Effect. 7 5.2 POWER AND AUTHORIZATION. The Company has all requisite power and authority to (i) execute, deliver and perform its obligations under this Agreement; and (ii) to issue and sell the Units. All necessary corporate proceedings of the Company have been duly taken to authorize the execution, delivery, and performance of this Agreement. This Agreement has been duly authorized by the Company and, when executed and delivered by the Company, will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting creditors' rights generally; (ii) as enforceability of any indemnification, contribution or exculpation provision may be limited under applicable federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 5.3 PUBLIC DISCLOSURE. As of their respective filing dates, none of the Company's filings with the SEC (the "Public Filings") contained any untrue statement of a material fact or omitted any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent such filings have been prior to the date hereof corrected, updated or superseded by a document subsequently filed with the SEC. SECTION 6. REPRESENTATIONS OF THE PURCHASER. Each Purchaser hereby represents and warrants to, and agrees with, the Company as follows: 6.1 It is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 6.2 If a natural person, the Purchaser is: a bona fide resident of the state contained in the address set forth on Schedule A as the Purchaser's home address; at least 21 years of age; and legally competent to execute this Agreement. If an entity, the Purchaser is duly authorized to execute this Agreement and this Agreement constitutes the legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms. 6.3 The Purchaser is familiar with the Company's business, plans and financial condition, the terms of the offering of the Units (the "Offering"), and any other matters relating to the Offering; the Purchaser has received all materials that have been requested by the Purchaser; the Purchaser has had a reasonable opportunity to ask questions of the Company and its representatives; and the Company has answered all inquiries that the Purchaser or the Purchaser's representatives have put to it. The Purchaser has had access to all additional non-confidential information necessary to verify the accuracy of the information set forth in this Agreement and any other materials furnished herewith, and has taken all the steps necessary to evaluate the merits and risks of an investment as proposed hereunder. Without limiting the foregoing, the Purchaser acknowledges that it has reviewed certain information regarding the Company, its business and the terms of this Offering, including but not limited to, the information contained in the Offering Document dated September , 2004 (the "Offering Document"). 8 6.4 The Purchaser has such knowledge and experience in finance, securities, investments and other business matters so as to be able to protect the interests of the Purchaser in connection with this transaction, and the Purchaser's investment in the Company hereunder is not material when compared to the Purchaser's total financial capacity. 6.5 The Purchaser understands the various risks of an investment in the Company as proposed herein, including without limitation those set forth in the Offering Document and in the Public Filings, and can afford to bear such risks, including, without limitation, the risks of losing the entire investment. 6.6 The Purchaser acknowledges that no market for the Units currently exists and none may develop in the future and that the Purchaser may find it impossible to liquidate the investment at a time when it may be desirable to do so, or at any other time. 6.7 The Purchaser has been advised by the Company that the Units have not been registered under the Securities Act, that the Securities will be issued on the basis of the statutory exemption provided by Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or both, relating to transactions by an issuer not involving any public offering and under exemptions under certain state securities laws, that this transaction has not been reviewed by, passed on or submitted to any federal or state agency or self-regulatory organization where an exemption is being relied upon, and that the Company's reliance thereon is based in part upon the representations made by the Purchaser in this Agreement. The Purchaser acknowledges that the Purchaser has been informed by the Company of, or is otherwise familiar with, the nature of the limitations imposed by the Securities Act and the rules and regulations thereunder on the transfer of the Units. In particular, the Purchaser agrees that the Company shall not be required to give any effect to sale, assignment or transfer, unless (i) the sale, assignment or transfer of such Units is registered under the Securities Act, it being understood that the Units are not currently registered for sale and that the Company has no obligation or intention to so register the Securities except as set forth herein, or (ii) such Units are sold, assigned or transferred in accordance with all the requirements and limitations of Rule 144 under the Securities Act, or (iii) such sale, assignment or transfer is otherwise exempt from registration under the Securities Act. The Purchaser further understands that an opinion of counsel and other documents may be required to transfer the Units. The Purchaser acknowledges that the Units shall be subject to stop transfer orders and the certificate or certificates evidencing any Units shall bear the following or a substantially similar legend or such other legend as may appear on the forms of Units and such other legends as may be required by state blue sky laws: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR FOREIGN SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE OR FOREIGN SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE OR FOREIGN SECURITIES LAWS." 9 6.8 The Purchaser will acquire the Units for the Purchaser's own account (or for the joint account of the Purchaser and the Purchaser's spouse either in joint tenancy, tenancy by the entirety or tenancy in common) for investment and not with a view to the sale or distribution thereof or the granting of any participation therein, and has no present intention of distributing or selling to others any of such interest or granting any participation therein. 6.9 Neither the Company nor any of the officers, directors, shareholders, partners, employees or agents of either, or any other Persons, whether expressly or by implication, have represented, guaranteed or warranted that, (a) The Company or the Purchaser will realize any given percentage of profits and/or amount or type of consideration, profit or loss as a result of the Company's activities or the Purchaser's investment in the Company; or (b) the past performance or experience of the management of the Company, or of any other person, will in any way indicate the predictable results of the ownership of the Units or of the Company's activities. 6.10 No oral or written representations have been made other than as stated in this Agreement, the Offering Document dated September , 2004, and the Purchaser has not relied on any oral or written representation from the Company other than as set forth in this Agreement and the Offering Document in making its investment decision. The Purchaser hereby acknowledges that the information and representations set forth in this Agreement and the Offering Document supersede all prior information and representations provided to the Purchaser in connection with the Offering. 6.11 The Purchaser is not purchasing the Units as a result of or subsequent to any advertisement, press release, public announcement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting. 6.12 The Purchaser is not relying on the Company with respect to the tax and other economic considerations of an investment. 6.13 The Purchaser understands that the net proceeds from the Offering (after deduction for expenses of the Offering) will be used in all material respects for the purposes set forth in the Offering Document. 10 6.14 The Purchaser acknowledges that the representations, warranties and agreements made by the Purchaser herein shall survive the execution and delivery of this Agreement and the purchase of the Units. 6.15 Blue Sky matters: THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OTHER FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. SUBSCRIBERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. 6.16 The Purchaser agrees to use its reasonable best efforts to make all warranties and representations required by the securities laws of Purchaser's jurisdiction of domicile necessary to enable the Company to issue the Transaction Shares in compliance with such securities laws. 6.17 The Purchaser acknowledges that as a result of its investment hereunder it may become subject to the reporting requirements of Sections 13 and 16 of the Exchange Act. In the event that Purchaser becomes subject to the reporting requirements of Sections 13 and 16, Purchaser agrees to file a Schedule 13-D and a Form 3 no later than 10 days from the Closing and to keep current such filings in accordance with the requirements of Sections 13 and 16. 6.18 The Purchaser has consulted his own financial, legal and tax advisors with respect to the economic, legal and tax consequences of an investment in the Units and has not relied on the Company, its officers, directors or professional advisors for advice as to such consequences. SECTION 7. PAYMENT OF THE NOTES. 7.1 REQUIRED PAYMENTS. (a) PRINCIPAL. The principal amount of the Notes shall be due and payable in equal quarterly installments commencing on January 31, 2005 with the last installment due on September 29, 2007 (the date due of each quarterly installment is referred to herein as a "Quarterly Payment Date" and the last Quarterly Payment Date on September 29, 2007 is referred to as the "Maturity Date"). Each principal payment shall be paid in United States dollars or, to the extent legally permitted, in shares of Common Stock (the "Principal Shares"), at the Company's option; provided, however, that the Company shall make principal payments in Principal Shares only to the extent provided in Section 12 hereof. If such principal payment is paid in Principal Shares, then the number of Principal Shares to be issued on account of the principal payment shall be equal to (i) the amount of the principal payment due divided by (ii) 95% of the weighted-average volume price for the Common Stock on Nasdaq as reported by Bloomberg Financial Markets ("Bloomberg") for the 20 consecutive trading days prior to the Quarterly Payment Date (the "Calculation Price"). In the event the Company elects to pay the principal amount due in Principal Shares, (a) it shall notify the Holder of its election no later than 15 days prior to the commencement of the 20 consecutive trading day period referenced above, (b) it shall issue the applicable Principal Shares on the Quarterly Payment Date, and (c) it shall file a registration statement covering resale of the applicable Principal Shares (the "Registration Statement") no later than two Business Days following the Quarterly Payment Date. 11 (b) COMPENSATORY PAYMENT. If a principal payment is made in Principal Shares and (i) the date of effectiveness (the "Effective Date") of the applicable Registration Statement is more than 10 Business Days after the relevant Quarterly Payment Date and (ii) the weighted-average volume price for the Common Stock on Nasdaq as reported by Bloomberg for the three Business Day period ending on (and including) the Effective Date (the "Post-Issuance Average Price") is less than the Calculation Price, then the Company shall pay to each holder of the Notes an amount equal to (i) the difference between the Calculation Price and the Post-Issuance Average Price, multiplied by (ii) the number of Principal Shares issued on the applicable Quarterly Payment Date. Such amount shall be paid to each holder of the Notes in cash not later than 10 Business Days following the Effective Date of the applicable Registration Statement." 7.2 CHANGE IN CONTROL. (a) NOTICE OF CHANGE IN CONTROL OR CONTROL EVENT. The Company will, within 15 Business Days after any Responsible Officer has knowledge of the occurrence of any Change in Control or Control Event (subject in the case of any Control Event to contractual limitations on disclosure and disclosure limitations imposed by applicable securities laws), give written notice of such Change in Control or Control Event to each holder of Notes unless notice in respect of such Change in Control (or the Change in Control contemplated by such Control Event) shall have been given pursuant to this Section 7.2. If a Change in Control has occurred, such notice shall contain and constitute an offer to prepay Notes as described in of this Section 7.2 and shall be accompanied by the certificate described in this Section 7.2. (b) OFFER TO PREPAY NOTES. The offer to prepay Notes contemplated by this Section 7.2(b) shall be an offer to prepay, in accordance with and subject to this Section 7.2, all, but not less than all, the Notes held by each holder (in this case only, "holder" in respect of any Note registered in the name of a nominee for a disclosed beneficial owner shall mean such beneficial owner) on a date specified in such offer (the "Proposed Prepayment Date"). If such Proposed Prepayment Date is in connection with an offer contemplated by this Section 7.2, such date shall be not less than 30 days and not more than 60 days after the date of such offer (if the Proposed Prepayment Date shall not be specified in such offer, the Proposed Prepayment Date shall be the 30th day after the date of such offer). 12 (c) ACCEPTANCE. A holder of Notes may accept the offer to prepay made pursuant to this Section 7.2 by causing a notice of such acceptance to be delivered to the Company at least 15 days prior to the Proposed Prepayment Date. A failure by a holder of Notes to respond to an offer to prepay made pursuant to this Section 7.2 shall be deemed to constitute a rejection of such offer by such holder. (d) PREPAYMENT. Prepayment of the Notes to be prepaid pursuant to this Section 7.2 shall be at 101% of the then-outstanding principal amount of such Notes together with interest on such Notes accrued to the date of prepayment (the "Change in Control Prepayment"). The prepayment shall be made on the Proposed Prepayment Date except as provided in Section 7.2(e). The Company may pay the Change in Control Prepayment in United States dollars or in shares of Common Stock (the "Prepayment Shares"), at the Company's option. In the event the Company pays the Change in Control Prepayment in Prepayment Shares, it shall prepare and file with the Securities and Exchange Commission, a Registration Statement on Form S-3 covering the resale of the Prepayment Shares within 5 days of the issuance of the Prepayment Shares. The Company shall pay the Change in Control Prepayment in Prepayment Shares only to the extent provided in Section 12 hereof. If the Change in Control Prepayment is paid in Prepayment Shares, then the number of Prepayment Shares to be issued on account of the prepayment shall be equal to the amount of the Change in Control Prepayment divided by 95% of the weighted-average volume price for the Common Stock on Nasdaq as reported by Bloomberg for the 20 consecutive trading days prior to the date of the Proposed Prepayment Date. In the event the Company elects to pay the Change in Control Prepayment in Prepayment Shares, it shall notify the Holder of its election no later than 15 days prior to the commencement of the 20 consecutive trading day period referenced above. (e) DEFERRAL PENDING CHANGE IN CONTROL. The obligation of the Company to prepay Notes pursuant to the offer required by this Section 7.2 is subject to the occurrence of the Change in Control in respect of which such offer and acceptance shall have been made. In the event that such Change in Control does not occur on the Proposed Prepayment Date in respect thereof, the prepayment shall be deferred until, and shall be made on the date on which, such Change in Control occurs. The Company shall keep each holder of Notes reasonably and timely informed of (i) any such deferral of the date of prepayment, (ii) the date on which such Change in Control and the prepayment are expected to occur, and (iii) any determination by the Company that efforts to effect such Change in Control have ceased or been abandoned (in which case the offers and acceptances made pursuant to this Section 7.2 in respect of such Change in Control shall be deemed rescinded). (f) CONTENT OF OFFER. Each offer to prepay the Notes pursuant to this Section 7.2 shall, specify: (i) the Proposed Prepayment Date; (ii) that such offer is made pursuant to this Section 7.2; (iii) the principal amount of each Note offered to be prepaid; 13 (iv) the interest that would be due on each Note offered to be prepaid, accrued to the Proposed Prepayment Date; (v) that the conditions of this Section 7.2 have been fulfilled; and (vi) in reasonable detail, the nature and date or proposed date of the Change in Control. (g) "CHANGE IN CONTROL" DEFINED. "Change in Control" means each and every issue, sale or other disposition of shares of stock of the Company which results in any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act) or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act) (herein, an "Acquiring Person") becoming the "beneficial owners" (as such term is used in Rule 13d-3 under the Exchange Act as in effect on the date of the Closing), directly or indirectly, of more than 50% (by total voting power) of the issued and outstanding capital stock of the Company which is entitled to vote in the election of the members of the Company's board of directors. (h) "CONTROL EVENT" DEFINED. "Control Event" means: (i) the execution by the Company or any of its Subsidiaries or Affiliates of any agreement or letter of intent with respect to any proposed transaction or event or series of transactions or events which, individually or in the aggregate, may reasonably be expected to result in a Change in Control, or (ii) the execution of any written agreement which, when fully performed by the parties thereto, would result in a Change in Control. SECTION 8. SUBORDINATION OF NOTES AND GUARANTY. 8.1 NOTES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company covenants and agrees, and each Purchaser of a Note, by its acceptance thereof, likewise covenants and agrees, for the benefit of the holders, from time to time, of Senior Indebtedness that, to the extent and in the manner hereinafter set forth in this Section, the Indebtedness represented by the Notes and the payment of the principal of (and premium, if any) and interest on each and all of the Notes are hereby expressly made subordinate and subject in right of payment as provided in this Section to the prior payment in full in cash or cash equivalents or in any other form acceptable to each holder of Senior Indebtedness, of all Senior Indebtedness; provided, however, that the Notes, the Indebtedness represented thereby and the payment of the principal of (and premium, if any) and interest on the Notes in all respects shall rank equally with, or prior to, all existing and future senior subordinated indebtedness (including, without limitation, Indebtedness) of the Company that is subordinated to Senior Indebtedness. 8.2 SUBORDINATION OF GUARANTY. The Guaranty issued by any Guarantor will be unsecured senior subordinated obligations of such Guarantor, ranking pari passu with all other existing and future senior subordinated indebtedness of such Guarantor, if any. The Indebtedness evidenced by such Subsidiary Guarantee will be subordinated on the same basis as the guaranty of any Senior Indebtedness of such Guarantor as the Notes are subordinated to Senior Indebtedness. 14 SECTION 9. PAYMENT OF INTEREST. 9.1 INTEREST. The principal amount of the Notes outstanding shall bear interest at the rate of 6% per annum beginning on the date of issuance. Interest shall be payable quarterly beginning on January 31, 2005. Each interest payment shall be paid in United States dollars or, to the extent legally permitted, in shares of Common Stock (the "Interest Shares"), at the Company's option; provided, however, that the Company shall make interest payments in Interest Shares only to the extent provided in Section 12 hereof. If such interest payment is paid in Interest Shares, then the number of Interest Shares to be issued on account of the interest payment shall be equal to (i) the amount of the interest payment due divided by (ii) the Calculation Price. In the event the Company elects to pay the interest amount due in Interest Shares, (a) it shall notify the Holder of its election no later than 15 days prior to the commencement of the 20 consecutive trading day period referenced in Section 7.1 above, (b) it shall issue the applicable Interest Shares on the Quarterly Payment Date, and (c) it shall file the Registration Statement covering resale of the applicable Interest Shares no later than two Business Days following the Quarterly Payment Date. 9.2 COMPENSATORY PAYMENT. If an interest payment is made in Interest Shares and (i) the Effective Date of the applicable Registration Statement is more than 10 Business Days after the relevant Quarterly Payment Date and (ii) the Post-Issuance Average Price of the applicable Interest Shares is less than the Calculation Price, then the Company shall pay to each holder of the Notes an amount equal to (i) the difference between the Calculation Price and the Post-Issuance Average Price, multiplied by (ii) the number of Interest Shares issued on the applicable Quarterly Payment Date. Such amount shall be paid to each holder of the Notes in cash not later than 10 Business Days following the Effective Date of the applicable Registration Statement." SECTION 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 10.1 LIMITATION ON LIENS. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise), any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits except: (a) Liens for taxes, assessments or other governmental charges which are not yet due and payable; (b) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords', carriers', warehousemen's, mechanics', materialmen's and other similar Liens) and Liens to secure the performance of bids, tenders, leases, or trade contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens incurred in the ordinary course of business and not in connection with the borrowing of money; 15 (c) leases or subleases entered into by the Company or its Subsidiaries as either lessors or sublessors, easements, rights-of-way, restrictions and other similar charges or encumbrances (including zoning restrictions), in each case incidental to the ownership of property or assets or the ordinary conduct of the business of the Company or any of its Subsidiaries, provided that such Liens do not, in the aggregate, detract from the value of such property in any material way; (d) Liens incidental to minor survey exceptions and similar Liens, provided that such Liens do not, in the aggregate, materially detract from the value of such property; (e) Liens on property or assets of Subsidiaries securing Indebtedness owing to the Company or to another Subsidiary; (f) Liens existing on the date of Closing which secure outstanding Indebtedness of the Company and its Subsidiaries; (g) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Subsidiary or its becoming a Subsidiary, or any Lien existing on any property acquired by the Company or any Subsidiary at the time such property is so acquired (whether or not the Indebtedness secured thereby shall have been assumed; and (h) Liens pursuant to indebtedness created in connection with or incidental to a merger, acquisition, purchase of assets or other business combinations. (i) any extensions, renewals or replacements of any Lien permitted by the preceding subparagraphs of this Section 10.1, provided that (i) no additional property shall be encumbered by such Liens, (ii) the unpaid principal amount of the Indebtedness secured thereby shall not be increased prior to or on or after the date of any extension, renewal or replacement, (iii) the weighted average life to maturity of the Indebtedness secured by such Liens shall not be reduced, and (iv) at such time and immediately after giving effect thereto, no Default or Event of Default would exist. 10.2 MERGER, CONSOLIDATION. The Company will not, and will not permit any Subsidiary to, consolidate with or be a party to a merger with any other Person; provided, however, that: (a) any Subsidiary may merge or consolidate with or into the Company, so long as in any merger or consolidation involving the Company, the Company shall be the surviving entity; 16 (b) any Subsidiary may merge or consolidate with or into any other Person if either (x) the Subsidiary shall be the surviving entity, or (y) if the Subsidiary is not the surviving entity, such transaction is permitted by Section 10.3; and (c) the Company may consolidate or merge with any other Person if (i) either (x) the Company shall be the surviving entity, or (y) if the surviving entity is other than the Company, such entity expressly assumes, by written agreement reasonably satisfactory in scope and form to the Required Holders, all obligations of the Company under the Notes, the Warrants and this Agreement, and (ii) at the time of such consolidation or merger and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing. 10.3 SALES OF ASSETS. The Company will not, and will not permit any Subsidiary to, sell, lease or otherwise dispose of substantially all of the assets of the Company and its Subsidiaries unless the consideration received by the Company or such Subsidiary for such sale is not less than the Fair Market Value of the assets sold (as determined by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a Board Resolution). 10.4 TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any Subsidiary to enter into, directly or indirectly, any Material transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. 10.5 LIMITATION ON INDEBTEDNESS. The Company will not, and will not permit any Subsidiary to, create, issue, assume, guarantee or in any manner become directly or indirectly liable for the payment of, or otherwise incur (collectively, "incur"), any Indebtedness (including any Acquired Indebtedness), other than Permitted Indebtedness. 10.6 LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not permit any Subsidiary to, directly or indirectly: (i) declare or pay any dividend on, or make any distribution to holders of, any shares of the Common Stock of the Company or any Subsidiary (other than the declaration or payment of dividends or distributions to the extent declared or paid to the Company or any Subsidiary or in accordance with the Company's dividend payment policy); (ii) purchase, redeem or otherwise acquire or retire for value, directly or indirectly, any shares of Common Stock of the Company or any Affiliate of the Company (other than as authorized by the Board of Directors or Common Stock of any Subsidiary) or any options, warrants or other rights to acquire such shares of Common Stock; or (iii) make any principal payment on, or repurchase, redeem, defease or otherwise acquire or retire for value, prior to any scheduled principal payment, sinking fund payment or maturity, any Subordinated Indebtedness of the Company or any Subsidiary. 17 10.7 LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, enter into any Sale and Leaseback Transaction with respect to any property or assets (whether now owned or hereafter acquired), unless (i) the sale or transfer of such property or assets to be leased is treated as a sale of assets and the Company complies with Section 10.3, and (ii) the Company or such Subsidiary would be permitted to incur Indebtedness under Section 10.5 in the amount of the Capitalized Lease Obligations incurred in respect of such Sale and Leaseback Transaction. SECTION 11. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal on any Note for more than 10 Business Days after the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable, whether at a date fixed for payment or by declaration or otherwise; or (c) the Company defaults in the performance of or compliance with any Material terms contained herein and such default is not remedied within 30 days after receipt of written notice from the Required Holders of such default; or (d) any representation or warranty made in writing by or on behalf of the Company or any Guarantor or by any officer of the Company or any Guarantor in this Agreement, any or in any writing furnished in connection with the transactions contemplated hereby or thereby proves to have been false or incorrect in any Material respect on the date as of which made; or (e) the Company defaults in the payment of any principal or interest on any Indebtedness of the Company, in any case in an amount in excess of $1,000,000, which default continues for more than the applicable cure period, if any, and/or is not waived in writing by the other party thereto; (f) the Company or any Guarantor (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (g) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of the Guarantors, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of the Guarantors, or any such petition shall be filed against the Company or any of the Guarantors and such petition shall not be dismissed within 60 days. 18 SECTION 12. LIMITATION ON ISSUANCE OF COMMON STOCK. Notwithstanding anything to the contrary contained herein or in the Offering Document, the Company shall not: (a) (i) Issue any of the Transaction Shares, or (ii) adjust the number of Warrant Shares in accordance with the terms of the Warrants, if such issuance or adjustment would, either individually or together with other one or more other issuances or adjustments, cause the issuance of shares of Common Stock to exceed the number of shares that the Company could then issue in compliance with Section 4350(i) of the rules and regulations of Nasdaq (the "Nasdaq Rules") or any successor rule or regulation. Under Section 4350(i) of the Nasdaq Rules, a company may not issue shares, and may not issue securities convertible into shares, where the shares issued could in the aggregate equal 20% or more of the voting power of the shares outstanding, without obtaining shareholder approval. The foregoing limitation shall only apply until such time as the Company obtains the requisite approval of its shareholders for the issuance of the Transaction Shares, as required by Section 4350(i) of the Nasdaq Rules or any successor rule or regulation. The Company covenants and agrees that it shall include a proposal for the approval of the issuance of the Transaction Shares in the Company's proxy statement for its next annual meeting of shareholders. If, due to the foregoing limitation, the Company cannot adjust the Warrant Shares as provided in Section 8.3 of the Warrant, then, subject to NASD approval, the Company agrees that the exercise price thereof shall be reduced to equal the Issuance Price(s) of the shares of Common Stock that triggered the adjustment pursuant to Section 8.3 of the Warrant. (b) Issue any of the Transaction Shares, if such issuance would violate the securities laws of the jurisdiction in which any Purchaser receiving such shares is located. SECTION 13. REMEDIES ON DEFAULT, ETC. 13.1 ACCELERATION. (a) If an Event of Default with respect to the Company described in Section 11 has occurred, all the Notes then outstanding may at any time thereafter at the Holder's option, by notice or notices to the Company, be declared immediately due and payable. Upon any Note becoming due and payable under this Section 13.1, such Note will forthwith mature and the entire unpaid principal amount of such Note, plus (i) all accrued and unpaid interest thereon shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. 13.2 OTHER REMEDIES. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 13.1, the Required Holders at the time outstanding may proceed to protect and enforce the rights of the holders by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 19 13.3 RESCISSION. At any time after any Notes have been declared due and payable pursuant to Section 13.1, the holders of not less than 50% in principal amount of the Notes, taken individually, then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes and, all principal if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 18, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to any Notes. No rescission and annulment under this Section 13.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 13.4 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. The Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, the reasonable attorneys' fees, expenses and disbursements for the holders. SECTION 14. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 14.1 REGISTRATION OF NOTES. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. 14.2 TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or its attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver not more than five Business Days following surrender of such Note, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of the Note originally issued hereunder. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6. 20 14.3 REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note, and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $50,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver not more than five Business Days following satisfaction of such conditions, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. SECTION 15. PAYMENTS ON NOTES. The Company will pay all sums becoming due on the Notes for principal, and interest by the method and at the address specified for such purpose for such Purchaser on Schedule A hereto or by such other method or at such other address as such Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 19. Prior to any sale or other disposition of any Note held by any Purchaser, such Person will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 14.2. 21 SECTION 16. REGISTRATION RIGHTS. The Purchasers have entered into a registration rights agreement (the "Registration Rights Agreement") pursuant to which the Company has agreed to grant Purchasers certain registration rights with respect to the resale of the Transaction Shares and the Warrants. SECTION 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the related Units, the purchase or transfer by any Purchaser of any such Units or portion thereof or interest therein and may be relied upon by any subsequent holder of any such Units, regardless of any investigation made at any time by or on behalf of any Purchaser or any other holder of any such Units. This Agreement, the Subsidiary Guarantee, the Notes, the Warrants, and the Registration Rights Agreement embody the entire agreement and understanding between the Purchasers and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. SECTION 18. AMENDMENT AND WAIVER. 18.1 REQUIREMENTS. (a) This Agreement and the Notes may be amended, and the observance of any term hereof including subsection (i) of Section 1 hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the holders of Notes holding more than 50% in aggregate principal amount of the Notes at the time outstanding, except that unless otherwise provided herein (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, or 6 hereof or the corresponding provision of any Supplement, or any defined term (as it is used in any such Section or such corresponding provision of any Supplement), will be effective as to any holder of Notes unless consented to by such holder of Notes in writing, and (b) no such amendment or waiver may, without the written consent of all of the holders of Notes at the time outstanding affected thereby, (i) subject to the provisions of Section 10 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest on the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 7, 10, 11.1, 14 or 16. 18.2 SOLICITATION OF HOLDERS OF NOTES. (a) SOLICITATION. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof, or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 18 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. 22 (b) PAYMENT. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 18.3 BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section 18 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 18.4 NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. SECTION 19. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telefacsimile if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to a Purchaser, to such Purchaser at the address specified for such communications in Schedule A to this Agreement, or at such other address as such Purchaser shall have specified to the Company in writing pursuant to this Section 19, or (ii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Chief Financial Officer, with a copy to the General Counsel, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 19 will be deemed given only when actually received. 23 SECTION 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "Confidential Information" means information delivered to any Purchaser by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or any Person acting on such Purchaser's behalf, or (c) otherwise becomes known to such Purchaser other than through disclosure by the Company or any Subsidiary. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser, provided that such Purchaser may deliver or disclose Confidential Information to (w)(i) such Purchaser's directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by such Purchaser's Notes), (ii) such Purchaser's financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, or (iii) any other holder of any Note (x) to effect compliance with any law, Rule, regulation or order applicable to such Purchaser, (y) in response to any subpoena or other legal process, provided that, to the extent permitted by law, each holder will use reasonable efforts to notify the Company of any request to disclose Confidential Information requested pursuant to any subpoena or other legal process, provided further that the failure to notify the Company of any such request shall not result in any liability to such holder, or (z) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchaser's Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. SECTION 21. MISCELLANEOUS. 21.1 SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 21.2 PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. 24 21.3 SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 21.4 CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 21.5 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 21.6 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Florida excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state. 21.7 LEGAL RATE OF INTEREST. Regardless of any provision contained in this Agreement or in any Guaranty, the rate of interest borne by the Notes shall not exceed the maximum amount of nonusurious interest that may be contracted for, taken, reserved, charged or received under any applicable law; any interest in excess of that maximum amount shall be credited on the principal of the Notes or, if that has been paid, refunded. On any acceleration or required or permitted prepayment, any such excess shall be canceled automatically as of the acceleration or prepayment or, if already paid, credited on the principal of the Notes or, if the principal of the Notes has been paid, refunded. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum amount of nonusurious interest, the Company and holders of the Notes shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) spread the total amount of interest throughout the entire contemplated term of the Notes. 21.8 SUBMISSION TO PROCESS. THE COMPANY AND THE PURCHASERS HEREBY AGREE THAT ANY LEGAL ACTION OR PROCEEDING AGAINST THE COMPANY WITH RESPECT TO THIS AGREEMENT, OR THE NOTES SHALL BE BROUGHT IN THE COURTS OF THE STATE OF FLORIDA OR (TO THE EXTENT THEY HAVE SUBJECT MATTER JURISDICTION) OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF FLORIDA AS THE HOLDERS OF 51% IN PRINCIPAL AMOUNT OF THE NOTES MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF, THE COMPANY ACCEPTS AND CONSENTS, FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, TO THE JURISDICTION OF THE AFORESAID COURTS AND AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE, UNLESS WAIVED BY THE COMPANY AND THE HOLDERS OF 51% IN PRINCIPAL AMOUNT OF THE NOTES IN WRITING. THE COMPANY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. 25 21.9 WAIVERS. THE COMPANY WAIVES (A) THE RIGHT TO TRIAL BY JURY (WHICH EACH HOLDER OF NOTES HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY SECURITY DOCUMENT OR THE NOTES; (B) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON-PAYMENT, INTENT TO ACCELERATE, ACCELERATION, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL DOCUMENTS, INSTRUMENTS, AND GUARANTIES AT ANY TIME HELD BY THE HOLDERS OF NOTES (OR ANY AGENT THEREFOR) ON WHICH THE COMPANY MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER THE HOLDERS OF NOTES MAY DO IN THIS REGARD; AND (C) NOTICE OF ACCEPTANCE HEREOF. THE COMPANY ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO THE HOLDERS' ENTERING INTO THIS AGREEMENT AND THAT THE HOLDERS ARE RELYING UPON THE FOREGOING WAIVERS IN THEIR FUTURE DEALINGS WITH THE COMPANY. THE COMPANY WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS WRITTEN CONSENT TO A TRIAL BY THE COURT. 21.10 EXCULPATION. Each party to this Agreement acknowledges that Brown Raysman Millstein Felder & Steiner, LLP represented J. Giordano Securities, LLC in the transactions contemplated by this Agreement and has not represented either the Company or any Purchaser in connection with such transaction. The execution hereof by the Purchasers shall constitute a contract among the Company and the Purchasers for the uses and purposes hereinabove set forth. Very truly yours, 21ST CENTURY HOLDING COMPANY By -------------------------------------- Richard A. Widdicombe, Chief Executive Officer 26 Accepted as of the first date written above. PURCHASER: By -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- 27 EXHIBIT A FORM OF NOTE EXHIBIT B FORM OF WARRANT EXHIBIT C FORM OF SUBSIDIARY GUARANTEE SCHEDULE A PURCHASERS EX-5.1 5 v07862_opinionltr.txt 7777 GLADES ROAD SUITE 300 BOCA RATON, FLORIDA 33434 [GRAPHIC OMITTED] TELEPHONE: 561.483.7000 BROAD AND CASSEL FACSIMILE: 561.483.7321 - ----------------- www.broadandcassel.com ATTORNEYS AT LAW NINA S. GORDON, P.A. DIRECT LINE: (561) 218-8856 DIRECT FACSIMILE: (561) 218-8978 EMAIL: NGORDON@BROADANDCASSEL.COM November 2, 2004 VIA EDGAR TRANSMISSION U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: 21st Century Holding Company Registration Statement on Form S-3 Ladies and Gentlemen: On behalf of 21st Century Holding Company (the "Company"), we respectfully submit this Registration Statement on Form S-3 that registers the resale of 69,200 shares of the Company's Common Stock issued to the holders of the Company's 6% Subordinated Notes due July 31, 2006 (the "Notes"). These shares were issued to pay the October 29, 2004 payment of principal and interest due on the Notes. This registration statement conforms to the disclosures in the Company's prior registration statements covering the shares issued to pay the October 31, 2003 and January 30, 2004 payments of principal and interest due on the Notes (File Nos. 333-108739 and 333-112402, respectively), except to the extent that updating was appropriate due to the passage of time. Please be advised that the Company anticipates making an oral request for acceleration of effectiveness pursuant to Rule 461 under the Securities Act of 1933 (the "Securities Act"). In that regard, this letter confirms that the Company is aware of its obligations under the Securities Act as they relate to the offering of shares described in this registration statement. Please call me at my direct telephone number above if you have any questions about this filing. We'd very much appreciate the staff's assistance in declaring this registration statement effective as soon as possible. Very truly yours, BROAD AND CASSEL /s/ Nina S. Gordon Nina S. Gordon, P.A. BOCA RATON O FT. LAUDERDALE O MIAMI O ORLANDO O TALLAHASSEE O TAMPA O WEST PALM BEACH EX-23.2 6 v07949_ex23-2.txt Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation by reference in this Form S-3 registration statement covering the registration of up to 69,200 shares of common stock, of our report dated March 29, 2002 included in 21st Century Holding Company's Form 10-K for the year ended December 31, 2003 and to all references to our Firm included in this registration statement. MCKEAN, PAUL, CHRYCY, FLETCHER & Co. Miami, Florida, November 1, 2004. EX-23.3 7 v07949_ex23-3.txt Exhibit 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in this registration statement on Form S-3, covering the registration of 69,200 shares of common stock, of our report dated April 2, 2004 included in the annual report on Form 10-K of 21st Century Holding Company for the year ended December 31, 2003, and to the reference to our firm under the caption "Experts" in the prospectus. DEMEO, YOUNG, MCGRATH Boca Raton, Florida, November 1, 2004 -----END PRIVACY-ENHANCED MESSAGE-----