UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
of 1934 [fee required] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [no fee required] For the transition period from ___ to ___
Commission File Number 0-15458
MARKEL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0292420
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
4551 Cox Road, Glen Allen, Virginia 23060-3382
(Address of principal executive offices)
(Zip code)
(804) 747-0136
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, no par
value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy of information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the shares of the registrant's Common Stock held
by non-affiliates as of January 31, 1996 was approximately $302,696,408. See
Item 5 for an explanation of the calculation of this figure.
Number of shares of the registrant's Common Stock outstanding at January 31,
1996: 5,423,143.
Documents Incorporated By Reference
The portions of the registrant's Annual Report to Shareholders for the Year
Ended December 31, 1995, referred to in Parts I and II.
The portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on May 7, 1996, referred to in Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS AND ORGANIZATIONAL STRUCTURE
Markel Corporation ("the Company") evolved from a small mutual
insurance company founded in the 1920's. The Company was incorporated in
Virginia in 1930, reorganized as a holding company in 1980 and had its initial
public offering in December 1986.
The Company is primarily an underwriter of specialty insurance products
and programs. The Company focuses on specialty products and programs which serve
particular market niches. This focus allows the Company to develop expertise
which brings added value to its customers. In this way, the Company enhances its
market recognition and is able to compete in its chosen markets on a basis other
than price.
The Company is organized into four primary business units --
professional and products liability, excess and surplus lines, specialty
programs and specialty personal and commercial lines. These products are offered
through the Company's four insurance subsidiaries. Evanston Insurance Company
("EIC") offers professional and products liability coverages. Essex Insurance
Company ("Essex") offers excess and surplus lines property and casualty
coverages. Markel Insurance Company ("MIC") offers specialty program and
specialty personal lines coverages. Markel American Insurance Company ("MAIC")
offers specialty personal and commercial lines coverages.
On May 30, 1995 the Company acquired all of the issued and outstanding
stock of Lincoln Insurance Company ("LIC") and certain other assets for total
consideration of approximately $24.3 million. Some of LIC's business has been
renewed in Essex and LIC is being reorganized. LIC is not currently writing new
or renewal business.
The Company's underwriting management and brokerage operations include
Shand Morahan and Co., Inc. ("SMCO"), Underwriting Management, Inc., ("UMI"),
American Underwriting Managers Agency, Inc. ("AUM") and Markel Service, Inc.
("MSI"). SMCO, UMI, AUM, and MSI develop and market insurance products
primarily for the four business units described above. MSI maintains retail and
wholesale brokerage operations which produce business for the Company and
provide assistance and expertise in marketing and new product development.
Essex and EIC offer coverages in the excess and surplus lines market.
The surplus lines market is for hard to place risks and risks that admitted
insurers specifically refuse to write. Premium levels are typically higher for
excess and surplus lines coverages than for standard coverages because of the
lack of availability of coverage through admitted companies. State insurance
authorities allow excess and surplus lines companies greater rate and policy
form
<PAGE>
flexibility than admitted companies. As a result, the Company is generally
free to set policy premiums and coverage terms by applying its own judgement
after consideration of the risks involved. Surplus lines companies are
required to be admitted in at least one state, usually their state of
domicile. Essex is admitted in Delaware and is eligible to write excess and
surplus lines insurance in 49 states and the District of Columbia. EIC is
admitted in Illinois and is eligible to write excess and surplus lines
insurance in 48 states and the District of Columbia.
MAIC and MIC operate as admitted carriers and consequently the Company
has been able to expand its insurance underwriting operations by insuring
certain risks which Essex and EIC, as non-admitted companies, are unable to
insure. An admitted or licensed insurer is required to follow a state insurance
department's rule, rate and form filing requirements, to pay premium taxes, and
to join various state associations, such as guaranty funds. MAIC is licensed to
write property and casualty risks in 38 states (including the domicile state of
Virginia) and the District of Columbia and is in the process of applying for
licenses in other states. MAIC is eligible to write excess and surplus lines
insurance in Illinois. MIC is licensed to write insurance in 50 states
(including the domicile state of Illinois) and the District of Columbia.
In a "hard" market characterized by constrained capacity, rising rates
and stricter underwriting criteria and policy terms, excess and surplus lines
insurers may benefit from their ability to increase their rates more quickly
than admitted insurers. In a "soft" market, excess and surplus lines companies
may be unable to underwrite certain products due to increased competition from
admitted insurers, which may result in lower rates and less stringent
underwriting criteria. The Company believes its focus on specialty products and
programs mitigates, to some extent, the impact of effects of the cycle of "soft"
and "hard" insurance markets.
Insurance coverages for which losses can be determined and settled in
relatively short periods of time are referred to as "short-tail" lines of
business, while insurance coverages which require extended periods of time
between the occurrence of a loss and the final disposition of a claim are
referred to as "long-tail" lines of business. Exposure to external variables,
such as inflationary trends or adverse trends in the average cost of
settlements, may be greater for "long- tail" lines than for "short-tail" lines
because loss reserves are held open for a longer period of time. The Company's
property and casualty, specialty program insurance and specialty personal and
commercial lines tend to be "short-tail", while its professional and products
liability lines tend to be "long-tail". The Company considers the higher
variability associated with the professional and products liability business
relative to its other lines of business in its estimation of reserves for losses
and loss adjustment expenses.
SPECIALTY INSURANCE PRODUCTS
The Company's specialty insurance products offer coverages designed to
meet the needs of policyholders in various market niches. The Company's products
and programs are unique because they are generally designed to meet the needs of
insureds in niche or emerging markets or they are designed for insureds with
specialized exposures or risks that are not adequately served by the standard
markets.
<PAGE>
In order to avoid the risks of this business as perceived by the
standard markets, the Company must have extensive knowledge and expertise in the
specialty areas being marketed and underwritten, which range from medical
malpractice and specified medical professions liability insurance to property
and liability insurance for campgrounds, exercise clubs or vacant properties.
Each risk is considered on an individual basis, and limit restrictions, large
deductibles, exclusions and/or surcharges are employed in order to respond to
distinctive risk characteristics. The Company may also arrange the
insurance for specialized businesses, such as campgrounds or exercise
clubs, on a "program" basis, which addresses all or most of the property
and liability coverage requirements of the insureds.
In most of its lines of business, the Company acts as an underwriter,
retaining both the risk and related insurance premiums. Specialization allows
the Company to bring value to the customer in the form of the particular
knowledge and experience of its professional personnel. This specialization also
provides a basis for competition other than price and is the manner in which the
Company seeks to attain market leadership and achieve superior profitability.
The Company evaluates market leadership separately for each of its insurance
products and measures market leadership based on external considerations. A
product line exhibiting characteristics of market leadership might include
underwriting profitability consistently better than the industry average, the
fulfillment of a specific need for an identifiable and accessible group of
customers, or the delivery of excellent customer service. Management emphasizes
quality service in all phases of its operations and believes that this approach
has enabled it to maintain strong relationships with its producers.
The Company underwrites professional liability, errors and omissions,
directors and officers and products liability insurance, primarily through EIC.
Target markets for the Company's professional liability products include
architects and engineers, insurance companies, insurance agents and brokers,
lawyers, physicians, surgeons, dentists and other medical professionals. The
Company also underwrites products liability insurance for manufacturers and
distributors on a selected basis and other specialty property and casualty
coverages, including mutual fund management and other specified professions
errors and omissions. In 1995 professional and products liability gross premiums
written totalled $127.2 million.
In 1995 the Company underwrote approximately $104.8 million in excess
and surplus property/casualty gross premiums through Essex. Property coverages
consist principally of fire and allied lines and to a lesser degree, burglary
and theft on small commercial buildings such as restaurants, bowling alleys and
vacant buildings. Essex also underwrites specialized property coverages,
including earthquake, primarily to multi-location, multi-state commercial
accounts. Liability coverages encompass premises and business activities for
which standard insurance is not available, such as bars and taverns (excluding
liquor liability coverages), restaurants, vacant properties and special events.
Inland marine coverages are provided primarily for collision and motor truck
cargo.
<PAGE>
Through MIC, the Company underwrites specialty program insurance which
seeks to meet all of the needs of clients in unique or specialized businesses or
with difficult risks. Coverages offered relate primarily to agribusiness, youth
and recreation, and health and fitness organizations. MIC also provides accident
and health insurance to colleges.
The agribusiness program provides complete property and casualty
coverages, including animal mortality, for any size private farm and for
commercial equine operations such as stables and race tracks. The Company
markets coverages to horse and farm owners directly and through retail and
wholesale insurance agents across the country.
The youth and recreation program includes camp coverages designed to
meet the requirements of the particular facility and may include general
liability, property, workers' compensation, umbrella, auto and inland marine
insurance. The Company's staff has knowledge of and experience with unique camp
exposures such as horseback riding, water sports and other camping activities.
The product line also includes package programs for white water rafting
operations. Gross premiums written on these coverages have historically been
seasonal, peaking during the summer months.
The Company markets insurance products to health clubs, martial arts
schools, gymnastic schools, dance and fitness studios and similar operations.
Coverages include property, liability and auto.
In 1995 gross premium volume from specialty program insurance totalled
$102.3 million.
MAIC underwrites specialty personal and commercial lines insurance.
Products offered include property and liability coverages for watercraft,
motorcycles, automobiles, mobile homes, dwellings, and commercial freight
operations. In 1995 gross premium volume from specialty personal and commercial
lines was $44.5 million.
The Company's brokerage and underwriting management operations, MSI,
SMCO, AUM and UMI, develop insurance products, evaluate insurance applications,
establish applicable premiums and terms of coverage, collect premiums, place
reinsurance and process claims for the Company's insurance company subsidiaries.
These operations also broker a small amount of business for unaffiliated
companies.
Depending on the insurance product offered and the market involved, the
Company may market its products through its own sales representatives, other
wholesale and retail brokers, or direct to its customers. These producers
provide specialized knowledge of particular products, markets and customers and
enable the Company to capitalize on underwriting opportunities. The Company
seeks to be a substantial underwriter for its producers in order to enhance the
likelihood of receiving the most desirable underwriting opportunities. The
Company pays brokers and agents commissions based on the amount of premiums and
types of business underwritten. The Company accepts business from insurance
brokers and general agents nationwide.
<PAGE>
In 1995 the Company's total gross premium volume was approximately
$402.1 million. The Company's largest program accounted for less than 12% of
this total. The risk of geographic concentration is generally higher for
property exposures than for liability exposures. In 1995, 40% of the Company's
earned premiums (32% of gross premiums) were from professional and products
liability business. The Company believes its exposure to the risk of geographic
concentration is not material because the diversity of its coverages and product
lines effectively disperse this risk. In addition, where geographic
concentration occurs (for example, earthquake coverage), management seeks to
reduce exposure to any one event by use of effective reinsurance programs
and through use of exposure analyses generated with catastrophe modeling
software.
For additional information about premium volume and underwriting
results, refer to Management's Discussion and Analysis of Financial Condition
and Result of Operations on pages 41 through 52 of the Company's 1995 Annual
Report to Shareholders filed as an exhibit to this report on Form 10-K. This
information is incorporated by reference into this report on Form 10- K.
CLAIMS AND RESERVES
The table on page 46 of the 1995 Annual Report to Shareholders shows
the development of balance sheet reserves for the Company for a ten year period.
Note 8 to the Consolidated Financial Statements of Markel Corporation (the
"Consolidated Financial Statements") on page 32 of the Company's 1995 Annual
Report to Shareholders sets forth a reconciliation of the beginning and ending
reserves for losses and loss adjustment expenses for the Company for 1995, 1994
and 1993. This information is incorporated by reference into this report on Form
10-K.
REINSURANCE CEDED
The Company enters into reinsurance agreements in order to reduce its
liability on individual risks and enable it to underwrite policies with higher
limits. In a reinsurance transaction, an insurance company transfers, or
"cedes", all or part of its exposure in return for a portion of the premium. The
ceding of insurance does not legally discharge the ceding company from its
primary liability for the full amount of the policies, and the ceding company is
required to pay losses if the reinsurer fails to meet its obligations under the
reinsurance agreement.
The Company's treaties are generally subject to cancellation by the
reinsurers or the Company on the anniversary date upon 90 days prior written
notice and are subject to renegotiation annually. The reinsurer remains
responsible for all business produced prior to termination. The treaties also
typically contain provisions concerning ceding commissions, required reports to
the reinsurers, responsibility for taxes, arbitration in the event of a dispute,
and provisions allowing the Company to demand that a reinsurer post letters of
credit or assets as security if a reinsurer is or becomes an
"unauthorized" or "unapproved" reinsurer under applicable state laws and
regulations.
<PAGE>
Because the Company retains a substantial portion of gross premiums
produced by its subsidiaries, the continued availability of reinsurance is not
considered material to the Company's consolidated operations. The Company's use
of several reinsurers further limits its reliance on any individual reinsurer.
At December 31, 1995, only one reinsurer, TIG Reinsurance Company, had
paid and unpaid claim recoverables which exceeded 10% of the Company's
consolidated shareholders' equity at that date. The recoverable from TIG at
December 31, 1995 was $24.7 million. TIG has received claims paying ability
ratings from A.M. Best Co., Inc. (see "Ratings" below) and S&P of "A" and "AA-"
respectively.
At December 31, 1995, the Company's total paid and unpaid reinsurance
recoverable balance was $179.5 million. For additional information about
reinsurance see Note 12 to the Consolidated Financial Statements included on
page 36 of the Company's 1995 Annual Report to Shareholders. This information is
incorporated by reference into this report on Form 10-K.
Standard & Poor's ("S&P") claims paying ability ratings are assigned at
the request of insurers, and are based on extensive quantitative and qualitative
analysis. Ratings from AAA to BBB- are within S&P's secure range. Within the
secure range, AAA category ratings indicate superior financial security, AA
category ratings indicate excellent financial security and A category ratings
indicate good financial security. Plus (+) or minus (-) signs show relative
standing within a category.
In recent years, the Company has pursued the settlement of older claims
in as aggressive a manner as reasonably possible. These actions may from time to
time prompt some reinsurers to dispute claim payment requests or provisions in
the reinsurance contract. The Company believes that these types of disputes are
without merit, and expects to continue its claims closing efforts in order to
reduce both reserve and reinsurance risks. Further, the Company plans to
continue to commute paid and unpaid reinsurance recoverables when possible in
order to reduce collection risks.
RATINGS
A.M. Best Company ("Best") publishes Best's Insurance Reports,
Property-Casualty, and assigns ratings to property and casualty insurance
companies based on quantitative criteria, such as profitability, leverage and
liquidity as well as qualitative assessments, such as the spread of risk, the
adequacy and soundness of reinsurance, the quality and estimated market value of
assets, the adequacy of loss reserves and surplus and the competence, experience
and integrity of management. Best's letter ratings range from A++ (Superior) to
F (In Liquidation).
<PAGE>
Best has currently assigned an A (Excellent) rating to Essex. EIC has
been assigned an A (Excellent) rating and MAIC, based on its participation in an
intercompany pooling arrangement with EIC, is also rated A (Excellent). MIC is
rated A- (Excellent).
Duff & Phelps' Credit Rating Co. ("Duff & Phelps") and S&P's Insurance
Rating Services each provide purchasers of insurance policies and contracts with
analytical and statistical information on the solvency and liquidity of major
U.S. licensed insurance companies. They also rate companies based on their
ability to meet policyholder obligations. The claims paying ability (CPA)
ratings are based on the same scale as the Duff & Phelps and S&P bond and
preferred stock ratings. However, reflecting the difference between an insurance
company's ability to meet its claim obligations and an obligation to service
debt, the insurance company CPA rating scale utilizes different definitions of
safety. The Duff & Phelps CPA rating categories range from AAA (risk factors are
negligible) to DD (under order of liquidation). The S&P CPA ratings range from
AAA (superior financial security) to R (Regulatory action). Both the S&P and
Duff & Phelps CPA ratings concern only the likelihood of timely payment of
policyholder obligations and are not intended to refer to the ability of either
the rated company, or its parent, affiliate or subsidiary to pay nonpolicy
obligations such as debt or commercial paper.
Duff & Phelps has currently assigned a rating of A+ (High Claims Paying
Ability) to EIC, Essex, MIC and MAIC.
S&P has currently assigned a rating of A (Good Financial Security) to
EIC, Essex, MIC and MAIC.
Ratings from Best, Duff & Phelps and S&P are based upon factors of
concern to policyholders, agents and brokers and are not directed toward the
protection of investors. These ratings are subject to change or withdrawal at
the discretion of the rating agencies.
INVESTMENTS
The Company and its subsidiaries invest their funds in equity and debt
securities with the objectives of preserving capital, maintaining liquidity and
generating income. Approximately 29% of the Company's cash and investments at
December 31, 1995 were managed by Hamblin Watsa Investment Counsel Ltd., a
Canadian investment management firm which is controlled by V. Prem Watsa, a
director of the Company. Approximately 4% is managed by other independent
portfolio managers. The balance of the portfolio is managed by officers of the
Company, with the approval of the boards of directors of the insurance
companies. The investments of the Company's insurance company subsidiaries are
regulated by the insurance laws of their respective states of domicile. These
laws limit the nature of permitted investments and the amount which may be
invested in a particular category of investment or in a single issue or issuer.
<PAGE>
The Company has established an Investment Committee composed of key
members of management to monitor investment performance, make basic asset
allocation decisions, evaluate and direct the activities of outside investment
advisors and review compliance with regulatory requirements. The Company's
Board of Directors provides oversight of the Investment Committee, however,
the Board of Directors of each of the Company's insurance company
subsidiaries reviews and approves all investment transactions on a quarterly
basis.
The Company's investment philosophy generally provides that
policyholder funds are invested predominately in high quality corporate,
government and municipal bonds. Shareholder funds and retained earnings are
primarily invested in growth securities such as common stocks. The Company's
fixed maturity portfolio has an average rating of AA, with over 90% rated A or
better by at least one nationally recognized rating organization. The following
table shows the make-up of the Company's fixed maturity portfolio, at estimated
fair value, by rating category at December 31, 1995 (in thousands).
Est. Fair Value
Rating December 31, 1995
------ -----------------
AAA/AA $ 392,808
A 242,907
BBB 61,223
BB/B 4,387
C/D/UNRATED 4,730
---------
Total $ 706,055
=========
S&P and Moody's Investors Service provide corporate and municipal debt
ratings based on assessments of the credit worthiness of an obligor with respect
to a specific obligation. These debt ratings range from "AAA" (capacity to pay
interest and repay principal is extremely strong) to D (debt is in payment
default). Securities with ratings of "BBB" or higher are referred to as
"investment grade" securities. Debt rated "BB" and below is regarded by the
rating agencies as having predominately speculative characteristics with respect
to capacity to pay interest and repay principal. It is the Company's general
policy to minimize its investments in fixed maturity securities that are unrated
or rated below investment grade.
For further information regarding the Company's investment portfolio,
see Note 2 to the Consolidated Financial Statements included on pages 26 and 27
of the Company's 1995 Annual Report to Shareholders. This information is
incorporated by reference into this report on Form 10-K.
COMPETITION
The Company's underwriting operations compete with numerous other
insurance companies, many of which are much larger and have significantly
greater resources than the Company. Among other things, competition may take
the form of lower prices, broader coverages, greater product flexibility,
higher quality services or the insurer's rating by independent rating
agencies. The Company competes by developing specialty products to
satisfy well-defined market needs and by maintaining relationships with
brokers and insureds who rely upon the Company's expertise in the market
<PAGE>
segments it serves. In the excess and surplus lines markets, the Company
competes principally on the basis of its expertise in offering and
underwriting products that are not readily available. Few barriers exist to
prevent property and casualty insurers from entering into the Company's segments
of the property and casualty industry, but many of the larger property and
casualty insurance companies generally have been unwilling to write
specialty coverages. The Company also competes with risk retention groups,
insurance buying groups and alternative self-insurance mechanisms. In the highly
competitive admitted markets, the Company competes with innovative products,
appropriate pricing, expense control and quality service to policyholders and
agents.
REGULATION
The Company's insurance company subsidiaries are subject to regulation
and supervision by the insurance regulatory authorities of the various
jurisdictions in which they conduct business. Such regulation is intended
primarily for the benefit of policyholders rather than shareholders. The
insurance regulatory authorities have broad regulatory, supervisory and
administrative powers. These powers relate primarily to the standards of
solvency which must be met and maintained; the licensing of insurers and their
agents; the approval of forms and policies used; the nature of, and limitations
on, insurers' investments; the issuance of securities by insurers; periodic
examinations of the affairs of insurers; the form and content of annual
statements and other reports required to be filed on the financial condition of
such insurers or for other purposes; and the establishment of reserves required
to be maintained for unearned premiums, losses or other purposes.
The Company is also subject to state laws regulating insurance holding
companies. Under these laws, the respective insurance departments may, at any
time, examine the Company, require disclosure of material transactions by the
holding company, require prior approval of certain "extraordinary" transactions,
such as extraordinary dividends from the insurance subsidiary to the holding
company, or require approval of changes in control of an insurer or an insurance
holding company such as the Company.
The Company's subsidiaries which act as admitted insurers are also
subject to additional regulation to which the non-admitted insurers are not
subject outside their states of domicile. Such regulation of admitted insurers
includes restrictions on changes to premium rates charged to insureds and, in
certain jurisdictions, may prohibit withdrawing from a line of business and/or
rate increases for certain lines of business at a time when loss experience or
other factors would otherwise mandate such changes. In addition, most
jurisdictions in the United States require all admitted insurance companies to
participate in their respective guaranty funds. Insurers admitted to transact
business in such jurisdictions are required to cover losses of insolvent
insurers and are generally subject to annual assessments from 1% to 2% of direct
premiums written in that jurisdiction to pay the claims of insolvent insurers.
Certain jurisdictions also require admitted companies to participate in assigned
risk plans for automobile insurance and other specialized liability coverage
(for example, natural disasters) for insureds who, for various reasons, cannot
otherwise obtain insurance in the open market. The portion of a particular type
of coverage that is assigned to a particular insurer is based on the relative
amount of that type of coverage that is written by the insurer on a voluntary
basis. Each participating insurer assumes the premiums and losses only for the
insureds assigned to it. Losses for insurance written under assigned risk plans
generally are significantly greater than losses for insurance written in the
voluntary market. Thus, participation in mandatory funds and assigned risk plans
is likely to be unprofitable.
<PAGE>
In addition, the Company may be subject to additional regulation by
certain jurisdictions in the future, including possible limitations on the
ability of the Company's brokerage operations to place business with insurance
companies affiliated with the Company.
The activities of the Company related to insurance brokerage and agency
services are subject to licensing and regulation by the jurisdictions in which
it conducts such activities. In addition to regulatory requirements applicable
to the Company and its subsidiaries, most jurisdictions require that certain
individuals engaging in brokerage and agency activities be personally licensed.
As a result, a number of the Company's employees are so licensed. The Company's
operations depend on the validity and continuation of its good standing under
the licenses and approvals pursuant to which it operates.
The laws of the domicile states of the Company's insurance company
subsidiaries restrict the amount of dividends which may be paid by such
subsidiaries to the Company without prior regulatory approval. Generally,
statutes in Delaware, Illinois and Virginia (the domicile states of the
Company's insurance company subsidiaries) require prior approval for payment of
"extraordinary" as opposed to "ordinary" dividends. Delaware and Illinois define
"ordinary dividends" for any twelve month period as the greater of 10% of the
prior year's surplus or the prior year's net income. Delaware excludes realized
gains in the calculation of prior year's net income. Virginia defines "ordinary
dividends" for any twelve month period as the lesser of 10% of prior year's
surplus or prior year's net income reduced for realized gains. In Virginia, a
company may add to net income for purposes of calculating the dividend
restriction, the net income less realized gains for the second and third
preceding years less dividends paid in those preceding years.
In addition to ordinary dividends described above, a company domiciled
in Delaware, Illinois and Virginia may make an extraordinary dividend if the
respective State Insurance Department approves the dividend within 30 days of
the request.
Difficulties with insurance availability and affordability have
increased legislative activity at both the federal and state levels. Some state
legislatures and regulatory agencies have enacted measures to limit mid-term
cancellations, require advance notice of renewal intentions and limit rates
<PAGE>
which may be charged. Congress is investigating possible avenues for federal
regulation of the insurance industry. Any of these activities could adversely
affect the Company's operations.
In addition, the National Association of Insurance Commissioners (NAIC)
and insurance regulators are re-examining existing laws and regulations and
their application to insurance companies. In particular, this re-examination has
focused on insurance company investment and solvency issues and, in some
instances, has resulted in new interpretations of existing law, the development
of new laws and the implementation of non-statutory guidelines. In connection
with its accreditation of states and as part of its program to monitor the
solvency of insurance companies, the NAIC requires states to adopt model NAIC
laws and regulations on specific topics, such as holding company regulations and
the definition of extraordinary dividends and risk-based capital requirements.
For additional information about risk-based capital requirements, refer to
Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 51 of the Company's 1995 Annual Report to Shareholders. This
information is incorporated by reference into this report on Form 10-K.
EMPLOYEES
At December 31, 1995, the Company and its consolidated subsidiaries
employed 767 persons, of whom four were executive officers. The Company believes
that, as a service organization, its continued growth is dependent to a large
measure upon its personnel.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of January 31,
1996, are as follows:
Name Age Position With the Company
---- --- -------------------------
Alan I. Kirshner 60 Chairman and Chief
Executive Officer
Anthony F. Markel (1) 53 President and Chief
Operating Officer
Steven A. Markel (1) 47 Vice Chairman
Darrell D. Martin 47 Executive Vice President
and Chief Financial
Officer
- ----------------------------------
(1) Anthony and Steven Markel are first cousins.
<PAGE>
Alan I. Kirshner has been Chairman of the Board and Chief Executive
Officer since 1986. He also served as President from 1979 until March of 1992
and has been a director of the Company since 1978.
Anthony F. Markel has been President and Chief Operating Officer since
March 1992. He served as Executive Vice President from 1979 until March of 1992
and has been a director of the Company since 1978.
Steven A. Markel has been Vice Chairman since March of 1992. He served
as Treasurer from 1986 to August 1993, and Executive Vice President from 1986 to
March of 1992. He has been a director of the Company since 1978.
Darrell D. Martin, a certified public accountant, has been Executive
Vice President and Chief Financial Officer of the Company since March 1992. He
served as Chief Financial Officer from 1988 to March of 1992 and has been a
director of the Company since January 1991.
ITEM 2. PROPERTIES
The Company has entered into long term operating leases with respect to
three office buildings in a suburban office park in Richmond, Virginia. The
Company leases approximately 216,000 square feet in these buildings of which
approximately 156,000 square feet is used by the Company and its subsidiaries.
See Note 5 to the Consolidated Financial Statements on page 29 of the 1995
Annual Report to Shareholders for additional information regarding these leases.
This information is incorporated by reference into this report on Form 10-K.
Shand/Evanston currently occupies approximately 65,000 square feet of a
160,000 square foot office building in Evanston, Illinois. This building is
owned by Shand/Evanston.
AUM also leases and occupies approximately 19,000 square feet in an
office building in Pewaukee, Wisconsin.
ITEM 3. LEGAL PROCEEDINGS
The Company's subsidiaries routinely are party to litigation incidental
to their business. In the opinion of the Company's management, no individual
item of litigation or group of similar items of litigation, taken net of claims
reserves established therefore and giving effect to reinsurance, errors and
omissions insurance and indemnity agreements, is likely to result in judgments
for amounts material to the consolidated financial condition of the Company and
its subsidiaries.
<PAGE>
For additional information required by this item, see the information
in Exhibit 13.1 -- Annual Report to Shareholders, under the caption "Notes to
Consolidated Financial Statements-Note 13, "Contingencies" on page 37 thereof,
which information is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The aggregate market value of the shares of the registrant's Common
Stock held by non-affiliates as of January 31, 1996, shown on the cover page of
this report, was calculated by multiplying (i) the closing price of the
registrant's Common Stock as reported on the National Association of Securities
Dealers Automated Quotation National Market System on January 31, 1996 ($75.88),
by (ii) the number of shares of the registrant's Common Stock not held by the
directors or officers of the registrant or any person known to the registrant to
own more than five percent of the outstanding Common Stock of registrant. Such
calculation does not constitute an admission or determination that any such
officer, director or holder of more than five percent of the outstanding shares
of Common Stock of the registrant is, in fact, an affiliate of the registrant.
For additional information required by this item, see the information
in Exhibit 13.1 -- Annual Report to Shareholders, under the captions "Quarterly
Information" and "Market and Dividend Information" on pages 40 and 54,
respectively, which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
For the information required by this item, see the information in
Exhibit 13.1 -- Annual Report to Shareholders, under the caption "Selected
Financial Data" and Notes 1 and 16 to the Consolidated Financial Statements on
pages 18, 19, 24, 25 and 38, respectively, which information is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the information required by this item, see the information in
Exhibit 13.1 -- Annual Report to Shareholders, under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 41 through 52 thereof, which information is incorporated herein by
reference.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the registrant and its subsidiaries
required to be included in this item are set forth in item 14 of this report and
are either incorporated herein by reference to the specified information in
Exhibit 13.1 -- Annual Report to Shareholders or set forth herein, in each case
as indicated in item 14 of this report.
For the supplementary financial information on quarterly results of
operations required by item 302 of Regulation S-K, see the information under the
caption "Quarterly Information" set forth in Exhibit 13.1 -- Annual Report to
Shareholders on page 40 thereof, which information is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information required by this item, other than information required
by Item 401(b) of Regulation S-K, see the information under "Election of
Directors" in the registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held May 7, 1996, which information is incorporated
herein by reference.
Information required by Item 401(b) of Regulation S-K is set forth in
Item 1A of this report.
ITEM 11. EXECUTIVE COMPENSATION
For information required by this item, see the information under the
caption "Executive Compensation" in the registrant's Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held May 7, 1996, which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information required by this item, see the information under the
caption "Principal Shareholders" in the registrant's Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held May 7, 1996, which
information is incorporated herein by reference.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information required by this item, see the information under the
caption "Executive Compensation -- Certain Transactions" and "Executive
Compensation - Compensation Committee Interlocks and Insider Participation" in
the registrant's Proxy Statement for the Annual Meeting of Shareholders
scheduled to be held May 7, 1996, which information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THE REPORT
1. FINANCIAL STATEMENTS
The following financial statements of Markel Corporation and
Subsidiaries are incorporated herein by reference to pages 20 through 39 of
Exhibit 13.1 -- 1995 Annual Report to Shareholders:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income - Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity - Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994 and
1993
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. FINANCIAL STATEMENT SCHEDULES
Included herein are the financial statement schedules listed under
"Index to Financial Statement Schedules" on page 19 of this Report.
<PAGE>
3. EXHIBITS
Included herein or incorporated herein by reference are the exhibits
listed under "Index to Exhibits" on pages 30 through 32 of this report.
Management Contracts and Compensatory Plans or Arrangements required to be filed
are listed in Items 10.1 - 10.7 in the "Index to Exhibits" on pages 30 through
31 of this report.
(B) REPORTS ON FORM 8-K
No reports on form 8-K were filed during the fourth quarter of
1995.
(C) See Index to Exhibits and Item 14(a)(3) of this Report.
(D) See "Index to Financial Statements and Schedules" and Item
14(a)(1) of this Report.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MARKEL CORPORATION
By: /s/ STEVEN A. MARKEL
-----------------------
Steven A. Markel
Vice Chairman
March 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
/s/ ALAN I. KIRSHNER Chief Executive Officer and March 22, 1996
- --------------------- Chairman of the Board of Directors
Alan I. Kirshner
/s/ ANTHONY F. MARKEL President, Chief Operating Officer March 22, 1996
- --------------------- and Director
Anthony F. Markel
/s/ STEVEN A. MARKEL Vice Chairman and Director March 22, 1996
- ---------------------
Steven A. Markel
/s/ DARRELL D. MARTIN Executive Vice President, March 22, 1996
- --------------------- Chief Financial Officer and Director
Darrell D. Martin (Principal Accounting Officer)
/s/ LESLIE A. GRANDIS Director March 22, 1996
- ---------------------
Leslie A. Grandis
/s/ STEWART M. KASEN Director March 22, 1996
- ---------------------
Stewart M. Kasen
/s/ GARY L. MARKEL Director March 22, 1996
- ---------------------
Gary L. Markel
/s/ V. PREM WATSA Director March 22, 1996
- ---------------------
V. Prem Watsa
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page No.
Independent Auditors' Report 20
Schedule I -- Summary of Investments Other Than Investments
in Related Parties 21
Schedule II -- Condensed Financial Information of Registrant 22
Schedule III -- Supplementary Insurance Information 25
Schedule IV -- Reinsurance 26
Schedule V -- Valuation and Qualifying Accounts 27
Schedule VI -- Supplemental Information Property -Casualty Insurance 28
Schedules other than those listed above have been omitted since they either are
not required or are not applicable, or the information called for is shown in
the Consolidated Financial Statements or in the Notes thereto.
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Markel Corporation:
Under date of February 7, 1996, we reported on the consolidated balance sheets
of Markel Corporation and subsidiaries (the "Company") as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995, as contained in the Company's 1995 Annual Report
to Shareholders. These consolidated financial statements and our independent
auditors' report thereon are incorporated by reference in the Company's 1995
annual report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedules as listed in the Company's 1995 annual report on Form 10-K.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
Effective December 31, 1993, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick LLP
Richmond, Virginia
February 7, 1996
<PAGE>
MARKEL CORPORATION AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
Balance
Market Sheet
Type of Investment Cost Value Presentation
- ------------------ --------- --------- ------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
United States Government and government agencies $ 211,779 $ 215,951 $ 215,951
States, municipalities and political subdivisions 109,314 112,811 112,811
Public utilities 48,542 51,747 51,747
Convertibles and bonds with warrants attached 18,076 17,838 17,838
All other corporate bonds 293,853 305,559 305,559
Redeemable preferred stock 2,004 2,149 2,149
--------- --------- ---------
Total fixed maturities 683,568 706,055 706,055
--------- --------- ---------
Equity securities:
Common stocks:
Banks, trusts and insurance companies 32,202 41,765 41,765
Industrial, miscellaneous and all other 68,662 89,008 89,008
Nonredeemable preferred stocks 3,674 3,573 3,573
--------- --------- ---------
Total equity securities 104,538 134,346 134,346
--------- --------- ---------
Short-term investments 68,182 68,182 68,182
--------- --------- ---------
Total investments $ 856,288 $ 908,583 $ 908,583
========= ========= =========
</TABLE>
<PAGE>
MARKEL CORPORATION (PARENT COMPANY)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED BALANCE SHEET INFORMATION
DECEMBER 31,
1995 1994
--------- ---------
(dollars in thousands)
ASSETS
Investments in consolidated subsidiaries $ 282,732 $ 192,459
Short-term investments at estimated fair value
(estimated fair value approximates cost) 13,740 15,302
Cash and cash equivalents 812 692
Notes receivable due from subsidiary 45,224 41,219
Other assets 12,097 8,854
--------- ---------
Total assets $ 354,605 $ 258,526
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Income taxes:
Currently payable $ 173 $ 775
Deferred 8,280 7,548
Long-term debt 106,589 100,536
Other liabilities 26,121 11,166
--------- ---------
Total liabilities 141,163 120,025
Shareholders' equity 213,442 138,501
--------- ---------
Total liabilities and shareholders' equity $ 354,605 $ 258,526
========= =========
<PAGE>
MARKEL CORPORATION (PARENT COMPANY)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENT OF INCOME INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
--------- ---------- --------
(dollars in thousands)
<S> <C> <C> <C>
Revenues:
Net investment income $ 3,879 $ 3,434 $ 1,894
Cash dividends on common stock of
consolidated subsidiaries 35,459 15,380 12,176
Other 129 452 (2,438)
--------- ---------- --------
39,467 19,266 11,632
--------- ---------- --------
Expenses:
Interest 8,460 7,675 5,638
Other 3,144 2,064 6,290
--------- ---------- --------
11,604 9,739 11,928
--------- ---------- --------
Income (loss) before equity in undistributed earnings
of consolidated subsidiaries and income taxes 27,863 9,527 (296)
Equity in undistributed earnings of
consolidated subsidiaries 5,139 11,423 23,092
Income tax expense (benefit) (1,490) 2,361 (839)
--------- ---------- --------
Net income $ 34,492 $ 18,589 $ 23,635
========= ========== ========
</TABLE>
<PAGE>
MARKEL CORPORATION (PARENT COMPANY)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
-------- --------- --------
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 34,492 $ 18,589 $ 23,635
Adjustments to reconcile net income to net cash
provided (used) by operating activities: (3,181) 725 (23,471)
-------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,311 19,314 164
-------- --------- --------
INVESTING ACTIVITIES
Cost of investments purchased (4,626) (20,802) (131,062)
Proceeds from sales of investments 4,663 34,525 121,027
Net change in short-term investments 1,562 (6,650) (8,652)
Increase in notes receivable from subsidiaries (4,005) (18,092) (8,717)
Decrease in unsettled investment trades -- -- 19,640
Capital contribution to subsidiary (9,500) (27,000) --
Purchase of Lincoln Insurance Company (24,281) -- --
Other (96) (31) (7)
-------- --------- --------
NET CASH USED BY INVESTING ACTIVITIES (36,283) (38,050) (7,771)
-------- --------- --------
FINANCING ACTIVITIES
Dividends to subsidiaries (1,080) (1,080) (1,080)
Borrowings under credit facility 27,500 -- --
Repayments of long-term debt and credit facility (21,500) (7,500) (71,000)
Net proceeds from issuance of long-term debt -- 29,280 73,435
Other 172 (2,118) 140
-------- --------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,092 18,582 1,495
-------- --------- --------
Increase (decrease) in cash and cash equivalents 120 (154) (6,112)
Cash and cash equivalents at beginning of year 692 846 6,958
-------- --------- --------
Cash and cash equivalents at end of yea $ 812 $ 692 $ 846
======== ========= ========
</TABLE>
<PAGE>
MARKEL CORPORATION AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
At December 31,
---------------
(dollars in thousands)
Deferred policy Unpaid losses and loss Unearned
Subsidiaries acquisition costs adjustment expenses premiums
- ------------ ----------------- ----------------------- --------
<S> <C> <C> <C>
1995 $ 32,024 734,409 170,697
1994 $ 26,064 652,930 146,553
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
(dollars in thousands)
Amortization
Losses of deferred
Net and loss policy Other
Earned investment adjustment acquisition operating Premiums
Subsidiaries premiums income expenses costs expenses written
- ------------ -------- --------------- -------------- ------------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 285,146 42,981 186,655 66,788 29,325 297,539
1994 $ 243,067 29,110 156,169 58,786 21,895 257,022
1993 $ 192,607 23,512 119,463 45,098 22,157 221,889
</TABLE>
<PAGE>
MARKEL CORPORATION AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
Years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed(*) of amount
Property-liability insurance Gross other from other Net assumed
premiums earned: amount companies companies amount to net
- ---------------------------- ------ --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
1995 $ 349,417 90,429 26,158 285,146 9.17%
1994 $ 291,816 79,367 30,618 243,067 12.60%
1993 $ 228,568 67,864 31,903 192,607 16.56%
</TABLE>
(*) The Company acts as an underwriting manager for its own insurance companies
as well as non-affiliated companies. In 1995, 1994 and 1993, substantially all
of the premiums assumed from other companies were underwritten by the Company's
management subsidiaries.
<PAGE>
MARKEL CORPORATION AND SUBSIDIARIES
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Years ended December 31, 1995 and 1994
(dollars in thousands)
Additions Deletions
--------- ---------
Balance at Provision
beginning for doubtful Deductions/ Balance at
Description of year receivables write-offs end of year
- ----------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Allowance for
doubtful
receivables
1995 $ 1,725 803 327 2,201
1994 $ 2,957 229 1,461 1,725
Reserve for
uncollectible
reinsurance
recoverable
1995 $ 10,774 9,168 16,541 3,401
1994 $ 21,030 (1,858) 8,398 10,774
</TABLE>
<PAGE>
MARKEL CORPORATION AND SUBSIDIARIES
SCHEDULE VI - SUPPLEMENTAL INFORMATION
PROPERTY-CASUALTY INSURANCE
<TABLE>
<CAPTION>
At December 31,
(dollars in thousands)
Affiliation
with Deferred policy Unpaid losses and loss Unearned
Registrant acquisition costs adjustment expenses premiums
- ---------- ----------------- ---------------------- --------
<S> <C> <C> <C>
Consolidated
property-
casualty
entities
1995 $ 32,024 734,409 170,697
1994 $ 26,064 652,930 146,553
</TABLE>
<PAGE>
MARKEL CORPORATION AND SUBSIDIARIES
SCHEDULE VI - SUPPLEMENTAL INFORMATION
PROPERTY-CASUALTY INSURANCE
<TABLE>
<CAPTION>
Years ended December 31,
(dollars in thousands)
Losses and loss
adjustment expenses Amortization
incurred related to of deferred Paid losses
Affiliation Net ------------------- policy and loss
with Earned investment Current Prior acquisition adjustment Premiums
Registrant premiums income year years costs expenses written
- ---------------- -------- ------------- ------ ------ -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated
property-
casualty
entities
1995 $ 285,146 42,981 195,448 (8,793) 66,788 173,253 297,539
1994 $ 243,067 29,110 159,730 (3,561) 58,786 171,832 257,022
1993 $ 192,607 23,512 125,454 (5,991) 45,098 115,899 221,889
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit Page
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation, as amended
(Exhibit 3.1)*
3.2 Bylaws, as amended (Exhibit 3.2)a
4.1(a) Indenture dated as of October 26, 1993 between registrant and
Chase Manhattan Bank, N.A., as trustee. (Exhibit 4.1(a))b
4.1(b) Action of Authorized Pricing Officer dated as of October 26, 1993
with respect to $75,000,000 of 7.25% Notes due November 1, 2003.
(Exhibit 4.1(b))b
4.1(c) Action of Authorized Pricing Officer dated as of January 28, 1994
with respect to $25,000,000 of 7.25% Notes due November 1, 2003.
(Exhibit 4.1(c))b
4.2 The registrant hereby agrees to furnish to the Securities and
Exchange Commission a copy of all instruments defining the rights
of holders of long-term debt of the registrant and subsidiaries
shown on the Consolidated Balance Sheet of registrant at
December 31, 1995, and the respective Notes thereto, filed with
this Annual Report on Form 10-K.
Management Contracts or Compensatory Plans required to be filed
(Items 10.1 -- 10.7)
10.1 Markel Corporation 1986 Stock Option Plan as amended (Exhibit 4(d))**
10.2 Markel Corporation 1989 Non-Employee Directors Stock Option Plan
(Exhibit A)***
10.3 Markel Corporation 1993 Incentive Stock Plan (Exhibit 10.3)c
10.4 Executive Employment Agreement between Markel Corporation and
Alan I. Kirshner dated as of October 1, 1991 (Exhibit 10.5)****
10.5 Executive Employment Agreement between Markel Corporation and
Anthony F. Markel dated as of October 1, 1991 (Exhibit 10.6)****
10.6 Executive Employment Agreement between Markel Corporation and
Steven A.. Markel dated as of October 1, 1991 (Exhibit 10.7)****
10.7 Executive Employment Agreement between Markel Corporation and
Darrell D. Martin dated as of March 1, 1992 (Exhibit 10.8)****
<PAGE>
10.8(a) Stock Purchase Agreement dated as of October 7, 1987 between
F-M Acquisition Corporation and Alexander & Alexander Services, Inc.
(Exhibit 2(a))o
10.8(b) Amendment No. 1 to Stock Purchase Agreement between F-M
Acquisition Corporation and Alexander & Alexander Services, Inc.
dated February 15, 1989 (Exhibit 10.7(b))o o
10.8(c) Settlement Agreement No. 3 relating to Stock Purchase Agreement
between F-M Acquisition Corporation and Alexander & Alexander
Services, Inc. (Exhibit 10.8(c))c
10.9(a) Lease Agreement dated July 21, 1995 between Prudential Insurance
Company of America and Registrant related to premises located at 4551
Cox Road, Glen Allen, Virginia
10.9(b) Lease Agreement dated July 21, 1995 between Prudential Insurance
Company of America and Registrant related to premises located at 4600
Cox Road, Glen Allen, Virginia
13.1 1995 Annual Report to Shareholders (With the exception of the
information incorporated by reference in this Form 10-K, no other
information appearing in the 1995 Annual Report is to be deemed filed
as part of this Form 10-K)
21 Subsidiaries of Markel Corporation
23 Consents of independent auditors to incorporation by reference of
certain reports into the Registrant's Registration Statements on
Form S-8
27 Financial Data Schedule
28.1 Information from reports furnished to insurance regulatory authorities
by Essex Insurance Company (Exhibit 28.1)d
28.2 Information from reports furnished to insurance regulatory authorities
by Evanston Insurance Company (Exhibit 28.2)d
28.3 Information from reports furnished to insurance regulatory authorities
by Markel Insurance Company (Exhibit 28.3)d
28.4 Information from reports furnished to insurance regulatory authorities
by Markel American Insurance Company (Exhibit 28.4)d
28.5 Information from reports furnished to insurance regulatory authorities
by Lincoln Insurance Company (Exhibit 28.5)d
</TABLE>
<PAGE>
- ------------------------------
* Incorporated by reference from the exhibit shown in parenthesis filed
with the Commission in the Registrant's 1990 Form 10-K Annual Report
** Incorporated by reference from the exhibit shown in the parenthesis
filed with the Commission on May 25, 1989 in the Registrant's
Registration Statement on Form S-8 (Registration No. 33-28921)
*** Incorporated by reference from the exhibit shown in parenthesis filed
with the Commission in the Registrant's Proxy Statement for the Annual
Meeting of Shareholders held on May 15, 1989, as filed with the
Commission
**** Incorporated by reference from the exhibit shown in the parentheses
filed with the Commission in the Registrant's 1991 Form 10-K Annual
Report
o Incorporated by reference from the exhibit shown in parenthesis filed
with the Commission on January 13, 1988 in the Registrant's current
report on Form 8-K dated December 29, 1987
o o Incorporated by reference from the exhibit shown in the parenthesis
filed with the Commission in the Registrant's 1988 Form 10-K Annual
Report
a Incorporated by reference from the exhibit shown in parentheses filed
with the Commission in the Registrant's 1992 Form 10-K Annual Report
b Incorporated by reference from the exhibit shown in parentheses filed
with the Commission in the Registrant's 1993 Form 10-K Annual Report
c Incorporated by reference from the exhibit shown in parentheses filed
with the Commission in the Registrant's 1994 Form 10-K Annual Report
d Incorporated by reference from the exhibit shown in parentheses filed
with the Commission under cover of Form SE dated March 21, 1996
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease"), made and entered into this
21st day of July, 1995, by and between THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey corporation ("Landlord"), and MARKEL CORPORATION, a
Virginia corporation ("Tenant").
ARTICLE I
DEMISE OF PREMISES
Section 1.01. Demise. For and in consideration of the payment
of rent herein reserved to be paid by Tenant and the performance of the
covenants and agreements herein contained on the part of Tenant to be kept,
observed and performed, Landlord does hereby demise and lease to Tenant,
and Tenant does hereby take and hire, upon and subject to the terms and
conditions herein contained, that certain tract of land lying and being in
Henrico County, Virginia, and being commonly known as 4551 Cox Road,
Richmond, Virginia, and being more particularly described in Exhibit "A"
attached hereto and made a part hereof, together with all buildings,
structures and other improvements now or hereafter located thereon and all
appurtenances thereunto belonging, all right, title and interest of
Landlord in and to all roads, streets and lanes, whether public or private,
bounding said premises, all fixtures and all items of personal property
described in Exhibit "C" attached hereto and made a part hereof and all of
the Other Interests described in Exhibit "F" attached hereto and made a
part hereof (said land, improvements, appurtenances, rights, titles,
interests, fixtures, equipment and Other Interests are herein collectively
referred to as the "Premises"), all subject to the encumbrances set forth
in Exhibit "B" attached hereto and made a part hereof.
ARTICLE II
TERM OF LEASE
Section 2.01. Term of Lease. The term of this Lease (the
"Term") shall commence on the date hereof (the "Commencement Date") and,
unless sooner terminated as herein provided, shall continue thereafter for
ten (10) years, terminating on the 31st day of July, 2005 (the "Expiration
Date"); provided, however, the Term may be extended as provided in
Section 2.02 and Section 2.03 hereof.
Section 2.02. Options to Extend. Tenant has the option to
extend this Lease for two (2) additional five (5) year terms, in accordance
with the following provisions. Each option shall be automatically and
irrevocably terminated and waived by Tenant, unless Tenant provides
Landlord with a written notice (the "Extension Notice") which states that
Tenant has elected to extend this Lease in accordance with the terms
hereof, which notice shall be given no later than six (6) months prior to
the expiration of the Term then in effect, as such Term may be extended as
provided in Section 2.03 hereof. The second extension option shall also
terminate automatically in the event that the first option to extend is not
exercised as aforesaid. If there has been a (i) default or breach by
Tenant under this Lease and such default or breach is one as to which
Landlord must give written notice and an opportunity to cure in order for
such default or breach to become an Event of Default, (ii) Landlord has
delivered such notice to Tenant, and (iii) Tenant has failed to cure or
remedy such breach or default within thirty (30) days after receipt of such
notice (or such lesser period as may be required by this Lease), then no
extension option may be exercised by Tenant (unless Landlord has waived the
enforcement of this provision in a writing delivered to Tenant). In
addition, no extension option may be exercised by Tenant if there is then
any default or breach by Tenant under this Lease or other event which, with
the passing of time would ripen into an Event of Default hereunder (unless
Landlord has received the enforcement of this provision in a writing
delivered to Tenant). If the Term of this Lease is so extended, this Lease
and all terms and provisions hereof shall remain in full force except that
the Rent to be paid by Tenant during such option terms shall be as set
forth in Section 4.01 of this Lease. All references in this Lease to the
Term shall be deemed to include any extension options which are validly
exercised in the manner set forth above. In the event that (a) the
appraisal procedure described in Section 4.01 must be used in the
determination of the applicable Fair Market Rental Rate for the first or
second extension term of this Lease, and (b) the final determination of the
applicable Fair Market Rental Rate is not delivered to Tenant at least
seven (7) months prior to the expiration of the Term or extension Term, as
applicable, then the six (6) month period described in this Section 2.02
hereof by which Tenant is to provide Landlord with the Extension Notice
shall be reduced by the number of days (the "Appraisal Waiting Days")
between the date which is seven (7) months prior to the expiration of the
Term or extension Term, as applicable, and the date on which the final
determination of the applicable Fair Market Rental Rate is delivered to
Tenant, in order to provide Tenant with not less than thirty (30) days
after receipt of the final determination of the applicable Fair Market
Rental Rate within which to decide whether or not to extend this Lease.
Section 2.03. Extension of Current Term of Lease During
Extension Rent Determination. The initial Term of this Lease, or, as
applicable, the first extension Term of this Lease, shall be extended by a
period of time equal to the Appraisal Waiting Days in the event that
(a) the appraisal procedure described in Section 4.01 must be used in the
determination of the applicable Fair Market Rental Rate for the first or
second extension term of this Lease, (b) if in such event the final
determination of the applicable Fair Market Rental Rate is not delivered to
Tenant at least seven (7) months prior to the expiration of the Term or
extension Term, as applicable, and (c) Tenant does not deliver the
Extension Notice in a timely fashion; and in such event for such period
Tenant shall continue to be obligated to pay Rent at the then-existing rate
for such Term or extension Term, as applicable, and to perform all other
obligations of Tenant hereunder in accordance with all terms of this Lease
until the then current Term, as extended, shall expire.
ARTICLE III
COVENANTS AND WARRANTIES OF LANDLORD AND TENANT
Section 3.01. Authority of Landlord. Landlord warrants that it
has full right and lawful authority to enter into this Lease and to keep
and perform the covenants herein contained.
Section 3.02. Authority of Tenant. Tenant warrants that it has
full right and lawful authority to enter into this Lease and to keep and
perform the covenants herein contained.
Section 3.03. Quiet Enjoyment. Landlord hereby warrants that,
unless an Event of Default shall have occurred and be continuing, the
Tenant's peaceful possession, use and enjoyment of the Premises in
accordance with this Lease shall not be interrupted or disturbed by the
Landlord or any person or entity claiming by, through or under the
Landlord. Landlord will warrant and defend Landlord's title to the estate
granted hereby against the lawful claims of all parties claiming by,
through or under Landlord.
Section 3.04. Enforcement of Warranties. Tenant hereby assigns
(to the extent such are assignable) and Landlord hereby accepts the
assignment of all of the Tenant's right, title and interest, if any, in any
and all warranties and other claims against dealers, manufacturers,
vendors, contractors and subcontractors relating to the construction, use
and maintenance of the Premises or any portion thereof. Unless an Event of
Default shall have occurred and be continuing, Landlord authorizes Tenant,
at Tenant's expense, to assert for Landlord's account, all of Landlord's
rights under any applicable warranty or other claim assigned to it (as a
portion of the "Other Interests") hereunder that Landlord may have against
any vendor, manufacturer, contractor or subcontractor with respect to any
part of the Premises.
ARTICLE IV
ANNUAL RENT AND ADDITIONAL RENTAL
Section 4.01. Rent. Tenant covenants and agrees to pay
Landlord, in lawful money of the United States of America, without set-off
or deduction, during the Term as rent hereunder, a base annual rent (the
"Rent") during the following periods in the following amounts:
Period Per Month Per Year
Commencement Date through 12/31/95 $57,000.00 N/A (annual rent being
comprised of the sum of
the monthly rent)
1/1/96 through 12/31/96 $58,140.00 $697,680.00
1/1/97 through 12/31/97 $59,302.83 $711,634.00
1/1/98 through 12/31/98 $60,488.83 $725,866.00
1/1/99 through 12/31/99 $61,698.67 $740,384.00
1/1/00 through 12/31/00 $62,932.58 $755,191.00
1/1/01 through 12/31/01 $64,191.25 $770,295.00
1/1/02 through 12/31/02 $65,475.08 $785,701.00
1/1/03 through 12/31/03 $66,784.67 $801,416.00
1/1/04 through 12/31/04 $68,120.25 $817,443.00
1/1/05 through Expiration Date $69,482.67 N/A (annual rent being
comprised of the sum of
the monthly rent)
The Rent shall be payable in accordance with the following provisions:
(i) Rent for the initial Term shall be payable in equal monthly
installments as set forth above, in advance on or before the first day
of each month. The first such payment shall be due on the
Commencement Date and Landlord shall prorate the Rent for the period
from the Commencement Date to the first day of the first full calendar
month after the date of this Lease, which prorated Rent shall be
computed by multiplying one (1) monthly installment of Rent by a
fraction the numerator of which is the number of calendar days from
the Commencement Date to (but not including) the first calendar day of
the first full calendar month after the Commencement Date and the
denominator of which is the actual number of days in such month.
(ii) Rent for the first twelve (12) months of the first extension
Term, if any, shall be equal to eighty-five (85%) percent of the then
Fair Market Rental Rate (as hereinafter defined) for the Premises,
payable in equal monthly installments, in advance on or before the
first day of each month. Rent for the remaining forty-eight (48)
months of the first extension Term shall escalate annually at the rate
of two percent (2%) per year over the preceding year's rent.
(iii) Rent for the first twelve (12) months of the second
extension Term, if any, shall be eighty-five (85%) percent of the then
Fair Market Rental Rate for the Premises, payable in equal monthly
installments, in advance on or before the first day of each month.
Rent for the remaining forty-eight (48) months of the second extension
Term shall escalate annually at the rate of two percent (2%) per year
over the preceding year's rent.
(iv) In the event that in accordance with the terms of this Lease
the expiration or termination of this Lease occurs other than on the
last calendar day of a month, the last payment due under this Lease
shall be prorated by a fraction, the numerator of which is the number
of calendar days from and including the first calendar day of such
month to and including the last day of the Term of this Lease, and the
denominator of which is the actual number of days in such month.
"Fair Market Rental Rate" for the Premises shall mean the rent at
which a willing landlord would agree to lease comparable premises in the
Innsbrook Corporate Center, or in a comparable office development in the
northwest suburbs of Richmond, Virginia, to a willing tenant of comparable
creditworthiness as the creditworthiness of Tenant (which, so long as
Tenant is a publicly held corporation, shall be determined, as to Tenant,
absent manifest error, as of the date of Tenant's most recent published
shareholders report immediately preceding the date which is no sooner than
12 months prior to the expiration of the then-current Term) on the last day
of the Term then in effect under a lease for a five (5)-year term (with a
five (5)-year renewal, in the case of the first extension) commencing on
the last day of the then-current Term that is similar in all material
economic and non-economic respects to this Lease, under the assumption that
neither the Landlord nor the Tenant is under any compulsion to lease.
Notwithstanding any provision in this paragraph to the contrary, in
comparing the material economic and non-economic aspects of this Lease with
a lease of comparable premises, as aforesaid, and in determining the Fair
Market Rental Rate for the Premises the following factors shall be
considered:
(a) if and to the extent possible, a comparable lease shall
be a fully "net" lease such as this Lease and, therefore, not a lease,
(i) pursuant to which a landlord has or retains any obligation to make
or pay for tenant improvements or leasing commissions, (ii) which is
subject to any free rent, discounts, inducements or other concessions
of value (other than the provision of such space for the term set
forth in such lease), and (iii) pursuant to which Landlord retains any
obligation to pay for operating expenses;
(b) if a fully "net" lease is used for comparison purposes,
no adjustment shall be made to the rental on such lease in calculating
the Fair Market Rental Rate hereunder to adjust for any cost of
leasing commissions, tenant improvements or other allowances, or rent
or other economic concessions which would be incurred, paid for or
made by a landlord on other than a fully "net" lease;
(c) if a lease other than a fully "net" lease is used for
comparison purposes, there shall be deducted from the rent on such
lease the operating costs including, without limitation, taxes
(including the types of "Taxes" as defined herein), charges (including
the types of "Charges" as defined herein), insurance, utilities and
services for the demise premises thereunder, which landlord is
responsible to pay pursuant to the terms of such lease, or, if
applicable, in the event of a lease for less than an entire building,
the prorated share of such operating costs for the entire building,
prorated based on a fraction obtained by dividing (i) the square
footage of the space leased by the tenant under such lease by (ii) the
total square footage of rentable space in such building); and
(d) if a lease other than a fully "net" lease is used for
comparison purposes which includes as part of its terms a tenant
obligation to incur or pay the cost of leasing commissions (to be
spread over the term thereof) or tenant improvements (to the "building
standard" tenant improvements for such building only, and not in
excess of the standard established by the current owner of such
building as the standard tenant improvements for such building), the
costs of these items shall be added back to the rental for comparison
purposes hereunder;
it being the intention of the parties that the costs (and net economic
effect to landlord) of tenant improvements, leasing commissions and tenant
concessions have been accounted for in the provisions hereof which provide
that only 85%, not 100%, of Fair Market Rental Rate shall be the applicable
rental rate for an extension Term hereunder; and it being the intent of
Landlord and Tenant that since (i) this Lease is a fully "net" lease and
(ii) none of the foregoing items have been included in calculating the Rent
for the Term of this Lease, they should not be considered and should be
factored out in the aforesaid manner and not included within the
calculation of the rent for premises comparable to the Premises located in
the Innsbrook Corporate Center or the northwest suburbs of Richmond,
Virginia.
The Fair Market Rental Rate for the Premises shall be determined
by Landlord, subject to the provisions set forth below and the guidelines
set forth above, and shall be designated by Landlord by written notice to
Tenant (the "Extension Rent Notice") delivered no sooner than eighteen (18)
months and no later than twelve (12) months prior to the expiration of the
then-current Term. In the event that Tenant disagrees with Landlord's Fair
Market Rental Rate, then Tenant shall have the right to have the Fair
Market Rental Rate determined by appraisal, in which event Tenant shall
deliver written notice to Landlord no later than thirty (30) days after
receipt of Landlord's Extension Rent Notice, which written notice shall
request an appraisal determination of the Fair Market Rental Value, and
shall name an appraiser who must have at least ten (10) years experience in
the analysis of the rental value of, or the leasing of, office buildings in
the metropolitan Richmond, Virginia market. Within twenty (20) days after
receipt of the notice from Tenant, Landlord shall, by written notice to
Tenant, name a second appraiser with at least ten (10) years experience in
the analysis of the rental value of or the leasing of office buildings in
the metropolitan Richmond, Virginia market, and each such appraiser shall
independently render its opinion of the Fair Market Rental Rate of the
Premises on the basis set forth in the immediately preceding paragraph.
The two (2) appraisers shall within thirty (30) days after Landlord names
its appraiser, each simultaneously submit to Landlord and Tenant a sealed
envelope containing their opinion of the Fair Market Rental Rate for the
Premises. If the two opinions differ by ten (10%) or less, then the two
opinions shall be added together and divided by two (2) to determine the
Fair Market Rental Rate for the Premises.
If the two opinions differ by more than ten percent (10%), then
the two appraisers shall agree upon and select a third appraiser with at
least ten (10) years experience in the analysis of the rental value or the
leasing of office buildings in the metropolitan Richmond, Virginia market.
If the two appraisers appointed by Landlord and Tenant are unable to agree
upon a third appraiser within ten (10) days after being notified by either
Landlord or Tenant that a third appraiser is required, then either Landlord
or Tenant may petition the Central Virginia Chapter of the Appraisal
Institute to appoint a third appraiser with the aforesaid requisite
experience. The third appraiser shall render its opinion of the Fair
Market Rental Rate for the Premises and in doing so shall have access to
and shall review the previous opinions by the initial two (2) appraisers.
The third appraiser shall, within thirty (30) days after being selected,
simultaneously submit to Landlord and Tenant a sealed envelope containing
its opinion of the Fair Market Rental Rate for the Premises, provided that
in no event shall the opinion of the third appraiser be higher than the
higher of the opinions of the initial two (2) appraisers or lower than the
lower of the opinions of the initial two (2) appraisers. Subject to the
foregoing limitation, the opinion of the third appraiser shall be conclusive
and final in determining the Fair Market Rental Rate for the Premises.
Landlord shall send to Tenant written notification of the Rent
payable for the first extension Term or the second extension Term, as
applicable, calculated in accordance with Section 4.01(ii) or (iii), as
applicable, and calculated in accordance with the foregoing provisions, as
soon as possible after the applicable Fair Market Rental Rate shall have
been determined.
If for the first extension Term the initial two (2) opinions are
within ten percent (10%) of each other, then either or both of the initial
appraisers shall be eligible to serve at the second extension, but if such
initial two (2) opinions are not within ten percent (10%) of each other,
then none of the first three (3) appraisers shall be eligible to determine
the Fair Market Rental Rate for the second extension Term.
Landlord and Tenant shall each pay the cost and expense of the
appraiser appointed by it and each shall pay fifty percent (50%) of the
fees and expenses of the third appraiser.
Section 4.02. Additional Rental. Tenant covenants and agrees to
pay to Landlord, from time to time as provided in this Lease, and as
"Additional Rental":
(a) interest (hereinafter called "Interest") at the annual rate
equal to the "prime rate" as announced by NationsBank or its
successors, plus five percent (5%) on all installments of Rent not
paid within five (5) days after the due date, until the date of
payment;
(b) all other costs, expenses, amounts and sums which Tenant
herein agrees to assume or pay to third parties in those circumstances
where Tenant shall not be contesting the same in accordance with
Section 11.01 of this Lease (and is not obligated to make payment
pursuant to such provisions) and where Tenant shall fail or refuse to
pay such third parties and the same is paid instead by Landlord after
any prior written notice to Tenant if and to the extent such notice is
required hereunder; and
(c) Interest at the rate specified above on the sums described
in subparagraph (b) from the date paid by Landlord until paid or, if
demand is required therefor by the terms of this Lease, from the date
of demand until paid after requisite notice of failure of Tenant to
pay if and to the extent any further such notice is required
hereunder.
In the event of any failure on the part of Tenant to pay any Additional
Rental, Landlord shall have all the rights, powers and remedies provided
for in this Lease or at law or in equity or otherwise in the event of the
nonpayment of Rent.
Section 4.03. Net Lease; Non-Termination. This Lease is a net
Lease and Rent and Additional Rental shall be paid without notice, demand
(except as expressly provided herein in the case of certain Additional
Rental), counterclaim, setoff, offset, deduction or defense, and without
abatement, suspension, deferment, diminution or reduction. Except as
otherwise provided in this Lease, this Lease shall not terminate nor shall
Tenant have any right to terminate this Lease or be entitled to the
abatement of any Rent hereunder or any reduction thereof, nor shall the
obligations of Tenant under this Lease be otherwise affected, by reason of:
(a) any damage to or destruction of all or any portion of the
Premises from whatever cause, except as provided in ARTICLE XIII or
ARTICLE XIV;
(b) the prohibition, limitation or restriction of or
interference with Tenant's use of all or any portion of the Premises
(except when such constitutes a willful breach of Landlord's covenant
of quiet enjoyment contained in Section 3.03 hereof caused by the
intentional acts of Landlord);
(c) the failure on the part of Landlord to perform or comply
with any term, provision or covenant of any other agreement to which
Landlord and Tenant may be parties;
(d) the entry of a decree or order for relief by a court having
jurisdiction over the Premises in respect of Tenant in an involuntary
case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of
Tenant or for any substantial part of its property, or ordering the
winding-up or liquidation of its affairs and the continuance of any
such decree or order unstayed and in effect for a period of sixty (60)
consecutive days;
(e) the commencement by Tenant of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or other
similar law, or the consent by it to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Tenant or for any
substantial part of its property, or the making by it of any
assignment for the benefit of creditors, or the failure of Tenant
generally to pay its debts as such debts become due, or the taking of
corporate action by Tenant in furtherance of any of the foregoing; or
(f) any claim which Tenant has or might have against Landlord.
Except as otherwise expressly provided in this Lease, Tenant waives, to the
extent permitted by law, all rights now or hereafter conferred by statute
or otherwise to quit, terminate or surrender this Lease or the leasehold
estate in the Premises or any part thereof, or to any abatement,
suspension, deferment, diminution or reduction of Rent. It is the purpose
and intent of Landlord and Tenant that Rent and Additional Rental (where
payable to Landlord) shall be absolutely net to Landlord, so that this
Lease shall yield, net, to Landlord, the Rent specified in Section 4.01 and
the Additional Rental specified in Section 4.02 hereof throughout the Term,
and, except as provided in Section 5.01 and Section 11.01 and except as
otherwise expressly provided in this Lease, that to the extent permitted by
law, (i) all costs, expenses and obligations of every kind or nature
whatsoever relating to the Premises which may arise and become due as
specified in Sections 5.01 and 5.02 hereof or elsewhere herein during the
Term shall be paid by Tenant, and (ii) Landlord shall be indemnified and
saved harmless by Tenant from and against the same.
ARTICLE V
TAXES, ASSESSMENTS AND CHARGES
Section 5.01. Taxes and Assessments. Subject, to the extent
applicable, to the following provisions of this Section 5.01 and to the
provisions of Sections 5.03 and 11.01 hereof (concerning "Permitted
Contests"), Tenant covenants and agrees to discharge and pay before the
same become delinquent and before any fine, penalty or interest may be
added for nonpayment, any and all taxes, assessments, license or permit
fees, excises, water rates and charges, governmental, community and private
assessments, imposts and charges of every nature and classification,
general and special, ordinary and extraordinary, unforeseen as well as
foreseen, of every kind and nature whatsoever (all or any one of which are
hereinafter referred to as "Tax") that at any time during the Term and any
extension thereof are levied, assessed, charged, laid or imposed, or become
due and payable, upon the Premises or Landlord's fee simple and/or
reversionary interest in the Premises or any Rent or Additional Rental
reserved or payable hereunder (including any gross receipts or other taxes
levied upon, assessed against or measured by the Rent or Additional
Rental); provided, however, that if at any time during the Term the methods
of taxation prevailing at the commencement of the Term shall be altered so
that any imposition which at the commencement of or during the Term is or
shall be levied, assessed or imposed on real estate and the improvements
thereon is thereafter levied, assessed or imposed wholly or partially
(a) on the rents received from real estate or the improvements thereon, or
(b) as a tax assessment, levy or license fee (regardless of the form and
regardless of the taxing authority) upon Landlord, measured by Rent and
Additional Rental payable under this Lease, then all such substitute taxes,
assessments, levies or license fees shall be deemed to be included within
the meaning of the term "Tax" for purposes hereof, and Tenant shall pay and
discharge the same as herein provided in respect to the payment of Tax.
Tax due during the final year of the Term, or if this Lease is extended,
the final year of any extension Term, will be prorated.
Notwithstanding any provision in this Lease to the contrary,
(i) Tenant shall not be deemed to be in default under this Lease until ten
(10) days after Tenant has received copies of such bills and assessments
for Taxes (whether from Landlord or from the authority imposing such
Taxes); (ii) except for any tax now or hereafter imposed specifically on
rents, Tenant shall not be required to pay or reimburse Landlord for the
payment of Landlord's federal, state or local income tax (including any
interest, penalties and additions to tax thereon or thereto) or any profit,
inheritance, estate, succession, gift or franchise tax (regardless how
named or denominated), any transfer tax imposed upon the sale of all or a
part of Landlord's interest in the Premises, any tax, assessment, charge or
levy imposed or levied upon or assessed against any property other than the
Premises, any income or any business activity of Landlord, or any tax
resulting from the misconduct (including tax fraud) of Landlord.
Section 5.02. Charges. Subject, to the extent applicable, to
the provisions of Sections 5.01, 5.03 and 11.01 hereof (concerning
Permitted Contests), Tenant covenants and agrees that it shall pay in
accordance with usual and customary business practices, as such shall
become due, all charges for all public or private utility services and
other services and service contracts with respect to the Premises
including, but not limited to, water, sewer, gas, light, heating and air
conditioning, telephone, telecommunications, electricity, trash removal,
security, power and other utility and communications services (all or
anyone of which are hereinafter referred to as a "Charge") that at any time
during the Term are rendered or become due and payable with respect to the
Premises.
Section 5.03. General. Tenant shall prepare and file all
reports and returns required by law and governmental regulations with
respect to any Tax and shall furnish copies thereof to Landlord. Landlord
and Tenant shall promptly forward to the other, upon receipt, copies of any
bill or assessment respecting any Tax or Charge; provided, however, that if
(i) Tenant has not received a copy of a bill or assessment respecting any
Tax or Charge from any party other than Landlord, (ii) Landlord has
received a copy of such bill or assessment and has failed to deliver such
copy of such bill or assessment to Tenant within fifteen (15) days after
Landlord's receipt of such bill or assessment, (iii) as a result thereof
Tenant has received such copy of such bill or assessment less than five (5)
business days prior to the date such payment under such bill or assessment
is due, and (iv) Tenant pays such bill or assessment within five (5)
business days after receipt of such copy of such bill or assessment, then,
to the extent that any penalty or interest or late charge is incurred as a
result of the foregoing, Landlord shall be liable for, and shall pay or
reimburse Tenant for, promptly upon demand, such penalties or interest or
late charge. Upon request of Landlord, Tenant agrees to furnish and
deliver to Landlord receipts evidencing the payment of any Tax and/or
Charge payable by Tenant as in Sections 5.01 and 5.02 provided. If any Tax
and/or Charge may be paid in installments, Tenant shall be obligated to pay
only such installments as they become due; provided, however, that any and
all installments which are incurred during the Term, as the same may be
extended, and become due and payable after the expiration of the Term shall
be paid on or before the date which is prior to the expiration of the Term,
or, in event of the termination of this Lease, prior to the date of such
termination. Any Tax or Charge for the year in which this Lease terminates
or expires shall be prorated between Landlord and Tenant as of such
termination or expiration date, except that Landlord shall not be liable
for any Charge arising pursuant to a private service contract, which
contract is not terminable upon thirty (30) or fewer days notice to the
service contract party, and that Landlord shall not be liable for any
Charge which is incurred on account of Tenant's occupancy of the Premises
or Tenant's business within the Premises and not on account of the
operation and maintenance of the Premises. Subject, to the extent
applicable, to the provisions of Sections 5.01 and 11.01 and the other
provisions of this Section 5.03, if Tenant fails to pay any Tax and/or
Charge (or any installment thereof) when due, Landlord, after prior notice
to Tenant and Tenant's continued failure to pay or contest the same within
five (5) business days after receipt of such notice (provided, however,
that Landlord shall not be obligated to deliver such prior notice to
Tenant, and Tenant shall not be entitled to such cure period, with respect
to any Tax or Charge as to which Tenant has theretofore received a copy of
such bill or assessment or other notice of the due date thereof from
Landlord), without declaring a default hereunder, may, but shall not be
obligated to, pay any such Tax and/or Charge (or any installment thereof)
and any amount so paid by Landlord, together with all reasonable costs and
expenses incurred by Landlord in connection therewith, shall constitute
Additional Rental hereunder and shall be paid by Tenant to Landlord on
demand with Interest thereon in the manner provided in Section 4.02.
Tenant's obligation to pay Taxes and Charges which accrue during the Term
and any extension thereof shall survive any termination of this Lease. If
Landlord shall receive a refund of all or part of any Tax or Charge paid by
Tenant with respect to the Premises, then, so long as there is no Event of
Default hereunder, Landlord shall pay the same to Tenant promptly upon
receipt thereof, which obligation of Landlord shall survive any expiration
of this Lease or any termination of the Lease which arises other than on
account of the breach or default of the Tenant.
ARTICLE VI
CONDITION AND USE OF THE PREMISES
Section 6.01. Condition of the Premises. Tenant, being the
parent corporation of Essex Insurance Company, which has this day sold the
Premises to Landlord, hereby acknowledges, warrants, represents, covenants
and agrees that the Premises in its present state is accepted as being in
good order and condition and that the Premises comply in all respects with
the requirements of this Lease, and is in all respects suitable for the
purposes intended by Tenant. Landlord leases the Premises and Tenant
accepts the Premises, "as is" at the date hereof without representation or
warranty by Landlord, express or implied, in fact or by law, and without
recourse to Landlord, with respect to: (i) the condition of the Premises,
including, but not limited to the soil and subsurface conditions thereof;
(ii) the ability to use the Premises for any particular purpose;
(iii) access to or from the Premises; (iv) the existence or adequacy of
present or future availability of any utilities to service the Premises,
including, but not limited to, drainage and sewage facilities; or (v) any
other matter whatsoever with respect to the Premises.
Section 6.02. Maintenance and Repairs. Except for repairs
caused by the willful misconduct or gross negligence of Landlord, or its
agents, employees, contractors or servants (which Landlord shall promptly
and properly repair, at Landlord's sole cost and expense, to a condition at
least as good as existed immediately prior to such act by Landlord, or its
agents, employees, contractors or servants of gross negligence or willful
misconduct), Tenant shall, at its own cost and expense, maintain the
Premises, including the buildings and improvements now or at any time
erected thereon, the exterior walls, roofs, foundations and structural
frame of any and all such improvements or buildings, the interior of any
and all such improvements or buildings, including, but not limited to, the
electrical systems, heating, air conditioning and ventilation systems,
plate glass, windows and doors, sprinkler and plumbing systems, and any
access ways and other paved areas upon the Premises and the sidewalks,
curbs, roadways, parking areas, landscaping, grounds, fences and vaults, if
any, and all other items of the Premises and improvements, exterior and
interior, structural and nonstructural, in good, first class and Class "A"
order, condition and repair, in a manner not less than the order, condition
and repair of other first class office buildings in the Innsbrook Corporate
Center development, ordinary wear and tear excepted, subject to Tenant's
obligation to provide such ongoing maintenance of the Premises, including
repairs as necessary of items suffering from ordinary wear and tear, which
will maintain the Premises and improvements in the foregoing first class
order, condition and repair. Tenant shall promptly at the Tenant's sole
cost and expense make all necessary repairs, interior and exterior,
structural and non-structural, ordinary as well as extraordinary, foreseen
as well as unforeseen, with respect to the foregoing items of maintenance
and repair. Repairs shall include replacements or renewals when reasonably
necessary, and all such repairs made by the Tenant shall be equal in
quality and class to the original work. Tenant shall keep and maintain all
portions of the Premises and the sidewalks, walkways and parking areas
adjoining the same in a clean and orderly condition, free of accumulation
of dirt, rubbish, snow and ice. Without limiting the foregoing, on or
before November 1, 1995 Tenant shall repair, replace and/or renovate, as
applicable, the items of repair set forth in that certain letter from
Landlord to Tenant dated June 8, 1995, a copy of which is attached hereto
as Exhibit "G".
Section 6.03. Tenant's Personal Property; Indemnity. All
personal property now or hereafter placed or installed in the Premises by
Tenant or any other occupant of the Premises or any part thereof, whether
owned or leased ("Trade Fixtures") shall be and remain Tenant's or such
other occupants' property at Tenant's or such other occupants' sole risk,
and Landlord shall not be liable for and Tenant hereby releases Landlord
from any and all liability for theft thereof or any damage thereto except
for damage caused by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors or servants, from which liability
Landlord is not hereby released. Tenant and such other occupants shall
have the right to install in the Premises additional Trade Fixtures
required by them or used by them in their business or otherwise desired by
them and otherwise in accordance with applicable law and lease (or
sublease) restrictions, and to remove any and all Trade Fixtures upon
expiration or termination of this Lease; provided, however, that Tenant
shall repair and restore any damage or injury to the Premises (to the
condition in which the Premises existed prior to such installation, whether
prior to, contemporaneous with or subsequent to the date of this Lease,
ordinary wear and tear excepted, subject to Tenant's obligation to provide
such ongoing maintenance of the Premises, including repairs as necessary of
items suffering from ordinary wear and tear, which will maintain the
Premises and improvements in the foregoing first class order, condition and
repair) caused by the installation and/or removal of any such Trade
Fixtures.
Section 6.04. Changes and Alterations. Provided no Event of
Default has occurred and is continuing, Tenant may at its sole cost and
expense make changes and alterations (both structural and non-structural)
to the improvements located on the Premises or any part thereof, as the
Tenant shall deem necessary or desirable, which such changes and
alterations shall be made in all cases subject to the following conditions
which Tenant covenants hereby to observe and perform:
(a) No change or alteration shall be undertaken until Tenant
shall have procured and paid for all applicable permits and
authorizations required with respect to such change or alteration by
any applicable municipal, county, state and other governmental permits
and authorizations of the entity having jurisdiction over the Premises
and such changes and alterations and Landlord hereby agrees, at no
cost to Landlord, to join in the application for such permits or
authorization whenever such action is necessary;
(b) No structural change or alteration shall be undertaken until
detailed plans and specifications have first been submitted to
Landlord and have been approved in writing by the Landlord. Once
approved, no changes to such structural plans and specifications may
be made without the prior written consent of Landlord, which consent
to such changes shall not be unreasonably withheld;
(c) No changes or alterations involving an estimated cost of
more than $500,000.00 ("Significant Alterations") shall be undertaken
until either (i) Tenant shall have furnished to Landlord, at Tenant's
sole cost and expense, a bond on which Tenant shall be the principal,
and a surety company authorized to do business in the state of
Virginia and reasonably satisfactory to Landlord shall be surety, and
in form and content reasonably satisfactory to Landlord, conditioned
upon the completion of and payment in full for such changes or
alterations within a reasonable time, subject, however, to delays
occasioned by strikes, lockouts, acts of God, inability to obtain
labor or materials, governmental restrictions or similar causes beyond
the control of Tenant, or (ii) Tenant shall have deposited with a
national bank or title insurance company chosen by Landlord, subject
to the consent of Tenant which shall not be unreasonably withheld,
conditioned or delayed, to serve as escrow agent (the "Escrow Agent")
a sum sufficient to pay the entire cost of such change or alteration
as estimated by the architect or engineer under whose supervision the
work is to be conducted, under an agreement whereby the Escrow Agent
shall from time to time pay out sums upon the written request of
Tenant, which shall be accompanied by a certificate of the architect
or engineer in charge of the work, stating (x) that the sum requested
is justly due to the contractors, subcontractors, material suppliers,
laborers, engineers, architects or other persons, firms or
corporations rendering services or materials for such changes or
alterations, or is justly required to reimburse Tenant for
expenditures made by Tenant in connection with such changes or
alterations, and when added to all sums previously paid by the
Landlord does not exceed the value of the work done to the date of
such certificates; and (y) that the remaining funds so deposited by
Tenant with the Escrow Agent will be sufficient upon completion of
such work to pay for the same in full and, upon submission of proof
reasonably satisfactory to Landlord that the work has been paid for in
full, turn over to Tenant the balance of the funds so deposited by
Tenant with Escrow Agent, with interest, to the extent any has been
earned on such deposit. Tenant shall also furnish Landlord at the
time of any such request for payment with an official title search,
endorsement to title insurance commitment or other title examination
satisfactory to Landlord, that there has not been filed with respect
to the Premises any mechanics or other lien which has not been
discharged of record or bonded off in respect of any work, labor,
services or materials performed, furnished or supplied, or claimed to
have been performed, furnished or supplied, in connection with any
such work. Escrow Agent shall not be required to pay out any such sum
when the Premises shall be encumbered with any such lien, unless the
lien has been discharged from the Premises by bonding or otherwise and
no longer encumbers the Premises.
(d) All Significant Alterations shall be conducted under the
supervision of an architect or engineer and performed by a contractor,
each of whom shall be licensed by all applicable authorities, insured
to the reasonable satisfaction of Landlord and otherwise acceptable to
Landlord in Landlord's reasonable discretion.
(e) All changes and alterations when completed shall be of a
character as not to reduce, or otherwise adversely affect, the
then-existing value of the Premises, nor to reduce the square footage
of the Premises, nor change the character of the improvements as to
the use thereof.
(f) All work done in connection with any change or alteration
shall be done promptly and in a good and workmanlike manner and in
compliance with all applicable building, zoning and other laws of the
jurisdictions in which the Premises are located and with all
applicable laws, ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments and the
appropriate departments, commissions, boards and officers thereof, and
in accordance with the applicable orders, rules and regulations of the
Board of Fire Underwriters where the Premises are situated or any
other body exercising similar functions; the cost of any such change
or alteration shall be paid in cash so that the Premises shall at all
times be free of liens for labor and materials supplied or claimed to
have been supplied to the Premises. The work of any change or
alteration shall be prosecuted with reasonable dispatch, delays due to
strikes, lockouts, acts of God, inability to obtain labor or
materials, governmental restrictions or similar causes beyond the
control of Tenant excepted. Tenant shall maintain or cause its
contractors to maintain, (and, with respect to all Significant
Alterations, deliver to Landlord within thirty (30) days after notice
from Landlord requesting evidence of such insurance), the following
insurance with respect to such work, which insurance shall be
maintained by such contractors (or, at Tenant's option, by Tenant) at
all times when any work is in process in connection with any change or
alteration: (i) workman's compensation insurance to the extent
required by law (which may, to the extent permitted by law, be
maintained by Tenant in lieu of the contractor) covering all persons
employed in connection with the work and with respect to whom death or
injury claims could be asserted against Landlord, Tenant or the
Premises, and (ii) general liability insurance for the mutual benefit
of Tenant and Landlord (which may, to the extent permitted by law, be
maintained by Tenant in lieu of the contractor) in accordance with
Section 12.01(i); without limiting the foregoing, with respect to
changes or alterations which are not Significant Alterations, Tenant's
insurance coverage covering the aforesaid risks shall be satisfactory
evidence of compliance with this requirement. All such insurance
shall be in a company or companies authorized to do business in the
state of Virginia and reasonably satisfactory to Landlord, and all
such policies shall be delivered endorsed "premium paid" by the
company or agency issuing the same or with other commercially
reasonable evidence of payment of the premium reasonably satisfactory
to Landlord.
(g) All improvements and alterations (other than Trade Fixtures)
made or installed shall immediately upon completion of installation
thereof be and become the property of Landlord without payment
therefor by Landlord, and shall be surrendered to Landlord upon
expiration or sooner termination of the initial Term or any extension
Term of this Lease.
(h) Anything in this Lease to the contrary notwithstanding,
Tenant shall not be obligated at the end of the initial Term or any
extension Term of this Lease to remove, change or restore to their
original condition any improvements, changes or alterations to the
Premises permitted hereby. To the extent that any covenant of this
Lease requires restoration to the state of the Premises as of the date
hereof, and as to such permitted improvements, changes or alterations,
Tenant shall be obligated at the end of the initial Term or extension
Term of this Lease to restore such permitted improvements, changes or
alterations to substantially their condition as of the later of the
date hereof or the date of the completion of their construction or
installation pursuant to the terms of this Article VI, in accordance
with the standards, subject to the provisions and in compliance with
the terms set forth in Section 6.02 hereof.
ARTICLE VII
ADDITIONAL TENANT COVENANTS
Section 7.01. Compliance with Laws. Tenant shall, at Tenant's
sole cost and expense, and subject to all of the provisions of this
Section 7.01, promptly comply in all respects with any and all present and
future laws, ordinances, rules, regulations, directives and standards of
all federal, state, county and municipal governments and all departments
and agencies thereof having jurisdiction over the Premises ("laws"),
including but not limited to, the making of all changes to the Premises
which now or hereafter may be required in order to comply with the
foregoing.
Section 7.02. Liens and Encumbrances. Subject, to the extent
applicable, to the provisions of Sections 5.01, 5.03 and 11.01 hereof
(concerning Permitted Contests) and except for (i) the encumbrances set
forth in Exhibit "B", (ii) any judgment or other liens placed on the
Premises or any part thereof by or against Landlord or which result from
any act of or claim against Landlord and which judgment or other lien does
not arise from an obligation of Tenant pursuant to this Lease, (iii) liens
for Taxes, to the extent not yet due and payable, (iv) easements, rights of
way, covenants, conditions and restrictions and other encumbrances on the
Premises or any part thereof which are placed thereon subsequent to the
Commencement Date by Landlord or hereafter which are consented to in
writing by Landlord, and (v) leases, subleases and licenses for all or any
part of the Premises in accordance with the terms of this Lease which shall
terminate or expire on or prior to the expiration or termination of the
current Term of this Lease (being the term of this Lease as then currently
exercised by Tenant, and not any extension Terms which have not yet been
exercised by Tenant), Tenant shall not create or permit to be created or to
remain, and, shall promptly discharge or remove or otherwise render
ineffective by payment or posting of a surety bond, or otherwise, within
ninety (90) days after filing of such lien, at its sole cost and expense,
any lien, encumbrance or charge (each or all of which are herein referred
to as "Lien") upon the Premises, or any part thereof or upon Tenant's
leasehold estate hereunder that arises from the use or occupancy of the
Premises by Tenant or by reason of any labor, service or material furnished
or claimed to have been furnished to Tenant or by reason of any
construction, repair or demolition by Tenant. Notice is hereby given that
Landlord shall not be liable for the cost and expense of any labor,
services or material furnished or to be furnished with respect to the
Premises at or by the direction of Tenant or anyone holding the Premises or
any part thereof by, through or under Tenant and that no laborer's,
mechanic's or materialman's or other lien for any such labor, services or
materials shall attach to or affect the interest of Landlord in and to the
Premises. Nothing in this Lease contained shall be deemed or construed in
any way as constituting the consent or request of Landlord, express or
implied, by inference or otherwise, to any contractor, subcontractor,
laborer or materialman for the performance of any labor or the furnishing
of any materials for any specific improvements or repair to or of the
Premises or any part thereof, nor as giving Tenant any right, power or
authority on behalf of Landlord to contract for or permit the rendering of
any services or the furnishing of any materialsthat would give rise to the
filing of any lien against the Premises or any part thereof. If Tenant
fails to discharge, remove or otherwise render ineffective by payment,
posting of a surety bond, or otherwise, any Lien or to pay the cost of
compliance with any regulation as hereinabove provided, within thirty (30)
days after the date of filing of (or, if later, fifteen (15) days after the
date on which Tenant receives written notice from any party of) such Lien
or the due date of such Charge, Landlord, without declaring a default
hereunder and without relieving Tenant of any liability hereunder, may, but
shall not be obligated to, discharge or pay the same, either by paying the
amount claimed to be due or by procuring the discharge of such Lien by
deposit or by bonding proceedings, and any amount so paid by Landlord and
all reasonable costs and expenses incurred by Landlord in connection
therewith shall constitute Additional Rental hereunder and shall be paid by
Tenant to Landlord on demand with Interest thereon. Landlord shall
cooperate with Tenant, at Tenant's sole cost and expense, as may be
reasonably necessary in connection with any litigation concerning such Lien
or Charge, provided that any such cooperation shall be fully consistent
with Landlord's interests in Landlord's sole discretion.
Section 7.03. Financial Reports and Operating Statements.
Annually, and quarterly where specified, Tenant shall furnish to Landlord
the financial information as follows:
(a) Certified Public Accountant ("C.P.A.") audited financial
statements of Tenant for the most current fiscal year prepared and
certified in accordance with generally accepted accounting principles
and stating specifically in a certification addressed to Landlord that
such C.P.A. acknowledges that Landlord is relying thereon; for so long
as Tenant is a publicly held company, such certification may be in the
form as generally distributed to Tenant's shareholders and may be
delivered simultaneously with the distribution thereof to Tenant's
shareholders and the public; and
(b) Quarterly unaudited financial statements prepared by Tenant
in the form as generally distributed to Tenant's shareholders, to be
delivered simultaneously with the distribution thereof to Tenant's
shareholders and the public; and
(c) Internally prepared unaudited budget and expense operating
statements for the Premises (including income and expenses, an annual
rents schedule or copies of all subleases and amendments thereto not
previously delivered to Landlord and a list of any subleases which
have terminated) certified by Tenant to the best of Tenant's knowledge
to be true and correct in all material respects (the "Operating
Statements"); and
(d) Copies of paid tax receipts for the Premises for the most
recent tax year; and
(e) A certified rent roll of all subleases of any portion of the
Premises, in such detail as Landlord may reasonably require.
In addition, on a quarterly basis, Landlord may request that Tenant shall
furnish to Landlord quarterly Operating Statements for the Premises
certified by Tenant to the best of Tenant's knowledge. All of the reports,
statements, and items required under this Section shall be complete and
accurate in all material respects and all such statements shall be in form
and substance reasonably satisfactory to Landlord in all material respects.
Tenant agrees to provide Landlord with such material additional financial,
management, or other information regarding Tenant and the Premises as
Landlord may reasonably request; provided, however, that for so long as
Tenant is a publicly held corporation, in the event that Landlord requests
such additional information regarding Tenant (and not relating solely to
financial information with respect to the Premises), Tenant shall have no
obligation to deliver any such information regarding Tenant which is not
otherwise publicly available, and any non-public information forwarded to
Landlord hereunder and identified by Tenant as "confidential" shall be kept
confidential by Landlord. Except as otherwise set forth above, all of the
annual reports, statements, and items required under this Section must be
received each year this Lease is in force by the date which is one hundred
twenty (120) days after the end of the Tenant's fiscal year. In addition,
Tenant shall allow Landlord or its authorized representatives at all
reasonable times and, so long as there is no Event of Default under this
Lease, upon not less than ten (10) business days prior notice, to examine
and make copies of all such books and records and all supporting data for
the Operating Statements and other records relating to the Premises to be
delivered to Landlord pursuant to the foregoing provisions of this Section
at Tenant's principal place of business or at such other place where such
books, records, and data may be located. Tenant, at no cost or expense to
Tenant so long as there is not an Event of Default under his Lease, shall
cooperate with Landlord or such representative in effecting such
examination.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Indemnification. Tenant covenants and agrees to
indemnify, defend, and save harmless Landlord from and against any and all
liability, loss, damage, causes of action, suits, claims, demands or
judgments of any nature whatsoever (a) arising from any injury to or the
death of any person or damage to any property occurring on the Premises,
(b) in any manner arising out of or connected with the use, non-use,
condition, possession, operation, maintenance, management or occupation of
the Premises or any part thereof during the Term of this Lease or any
extensions thereof, (c) any negligence on the part of the Tenant or its
agents, contractors, servants, employees, licensees or invitees, or
(d) resulting from the violation by Tenant of any term, condition or
covenant of this Lease or of any contract, agreement, restriction, or
regulation affecting the Premises or any part thereof during the Term of
this Lease or any extensions thereof or the ownership, occupancy or use
thereof. Tenant, at its sole cost and expense, shall defend Landlord
against such causes of action, suits, claims, and demands and be
responsible for such judgments as to which Landlord is indemnified. In no
event, however, shall Tenant be obligated to indemnify, defend or save
harmless Landlord from any such liability, loss, damage, cause of action,
suit, claim, demand or judgment if the same shall be caused by, arise out
of or be in any manner connected to any gross negligence or willful
misconduct of Landlord or its agents, employees, contractors, servants,
successors or assigns. Promptly upon receipt by Landlord of any summons,
complaint, lawsuit, charge or process in which there shall be asserted any
causes of action, suits, claims or demands against which Landlord is
indemnified in this Section 8.01, Landlord shall promptly cause the same to
be transmitted and delivered to Tenant unless it is manifest from such item
that such item has also been delivered to or served on Tenant. Without
diminishing any of Tenant's obligations set forth above (except that if and
to the extent that Tenant is not aware of a matter and Landlord is aware of
a matter, Tenant shall not have an obligation to undertake the
indemnification actions set forth above in this Section 8.01 unless and
until Landlord has delivered to Tenant the following notice of such a
matter), Landlord shall deliver to Tenant written notice of the assertion
in writing against Landlord of any such cause of action, suit, claim or
demand promptly after Landlord receives knowledge thereof or the threat
thereof unless it is manifest that Tenant has theretofore received written
notice of such assertion. The obligations of Tenant and Landlord under
this Section 8.01 shall survive any termination of this Lease and any
transfer or assignment by Landlord or Tenant of this Lease or any interest
hereunder. Without diminishing any of Tenant's obligations set forth
above, Landlord agrees to cooperate, at the sole cost and expense of
Tenant, with Tenant in connection with any defense, counterclaim, or
cross-claim required by Tenant under this Section 8.01 in a manner which is
reasonably acceptable to Landlord and is consistent with the interests of
Landlord.
ARTICLE IX
SURRENDER
Section 9.01. Surrender. Upon the Expiration Date or any
termination of this Lease, Tenant shall peaceably quit and surrender the
Premises to Landlord, and any and all machinery and equipment constructed,
installed or placed by Tenant thereon, which is used in or necessary for
the operation of the Premises, excepting Trade Fixtures, inventory,
merchandise and other personalty not comprising the Premises. In the event
there is no Event of Default under this Lease, beyond any applicable grace
or cure periods herein provided, Tenant shall have the right upon a
termination or expiration of this Lease to remove from the Premises all
Trade Fixtures and other personal property and equipment located on the
Premises, except for machinery and equipment used in and necessary to the
operation of the Premises. Any Trade Fixtures or other machinery and
equipment not so removed by Tenant on or before termination or expiration
of this Lease shall become the property of Landlord.
Section 9.02. Release of Landlord's Lien on and Removal of Trade
Fixtures. All Trade Fixtures shall be exempt from the claims of any
Mortgagee or lien holder of Landlord without regard to the means by which
or the persons by whom the same are installed in or attached to the
Premises. Landlord agrees to execute and deliver a waiver on the form
reasonably specified by the owner of any Trade Fixtures which relinquishes
any rights Landlord may now or hereafter have by virtue of this Lease to
the Trade Fixtures, except any rights which Landlord may hereafter hold as
a money judgment creditor (on the same basis and priority as other money
judgment creditors) in the event of an Event of Default and a levy or
judgment against Tenant for amounts due Landlord hereunder. Tenant, at its
sole cost and expense, shall have the right at any time or from time to
time to remove any Trade Fixtures, and upon Landlord's written request
therefor, shall remove on the termination or expiration of this Lease all
or any Trade Fixtures from the Premises. Tenant, at its sole cost and
expense, shall repair any damage caused thereby to the Premises.
ARTICLE X
ASSIGNMENT AND SUBLETTING
Section 10.01. Tenant's Assignment. Without in any way limiting
the express rights granted to Tenant pursuant to Section 10.02 below,
including, but not limited to, the right to sublet (in the manner and
subject to the conditions set forth below) the entire Premises for the then
remaining Term or extended Term, as applicable, so long as such sublease
constitutes a sublease, and not an assignment, in accordance with
applicable law, it being the intent of Landlord and Tenant under this Lease
that subleases shall be permitted, but assignments by Tenant shall be
restricted as hereinafter set forth (and Landlord agrees that if Tenant
enters into a sublease in accordance with the terms of Section 10.02 of the
entire Premises, and reserves and excepts from the term of such sublease
the last day of the Term of this Lease, that Landlord shall not have
grounds to claim that such sublease is in effect an assignment), Tenant
shall not have the right to assign this Lease or its leasehold interest in
the Premises, or any part thereof, or pledge, mortgage, hypothecate or
otherwise transfer as security for any debt or other obligation, all or any
portion of the Premises, without obtaining, in each and every instance, the
prior written consent of Landlord, which consent shall not be unreasonably
withheld; provided, however, no consent by Landlord to an assignment by
Tenant shall relieve the Tenant of its obligations under this Lease. In
the event that Landlord grants such written consent, Tenant agrees to cause
any assignee to execute and deliver to Landlord an agreement, in form and
substance reasonably satisfactory to Landlord, pursuant to which such
assignee agrees to assume and to discharge all the obligations of Tenant
under this Lease, without, however, relieving Tenant of any such
obligations, and the receipt of such executed agreement shall be a
condition precedent to the effectiveness and validity of such consent.
Section 10.02. Tenant's Subletting. Notwithstanding the
foregoing, Tenant shall have the right to sublease the Premises or any
portion of the Premises, subject, however, to the following conditions:
(a) Tenant may sublease to subtenants portions of the Premises, not
to exceed 7,500 square feet in the aggregate for a single
subtenant, without any requirement of obtaining the prior written
consent of Landlord, but subject to the obligation to notify
Landlord within 90 days after the execution of such sublease by
the delivery to Landlord of a true, correct and complete copy of
such sublease and any modifications thereof or side letters
executed in connection therewith; and
(b) Tenant may sublease to subtenants portions of the Premises, equal
to or in excess of 7,500 square feet in the aggregate for a
single subtenant, with the requirement of obtaining the prior
written consent of Landlord to such subtenant, which consent
Landlord shall not unreasonably delay, condition or withhold, and
may only be withheld or conditioned in the event that the
identity of the subtenant (or the size of such subtenant's space
so subleased) results in any non-compliance under, or other
material obligation upon Landlord under ERISA; and subject to the
obligation to notify Landlord within 90 days after the execution
of such sublease by the delivery to Landlord of a true, correct
and complete copy of such sublease and any modifications thereof
or side letters executed in connection therewith; provided,
however, that in the event that Tenant desires to enter into a
sublease of the entire Premises for the entire remaining Term of
this Lease, Tenant shall structure such sublease so as to be a
sublease of this Lease, and not an assignment of this Lease, it
being the intent of Landlord and Tenant that Tenant shall be
permitted to enter into subleases of some or all of the Premises,
but not assignments of this Lease, and that Tenant shall remain
directly and primarily liable to Landlord with respect to all
obligations of Tenant hereunder (and Landlord agrees that if
Tenant enters into a sublease in accordance with the terms of
this Section 10.02 of the entire Premises, and reserves and
excepts from the term of such sublease the last day of the Term
of this Lease, that Landlord shall not have grounds to claim that
such sublease is in effect an assignment);
provided, however, that none of the aforesaid provisions, and no consent by
Landlord to a subleasing by Tenant, shall relieve the Tenant of its
obligations under this Lease. Tenant agrees that Tenant shall use
reasonable efforts to incorporate into the lease or sublease form used by
Tenant and presented to any proposed subtenant the sublease language (the
"Sublease Language") set forth on Exhibit "E" attached hereto and
incorporated herein by this reference (or such other language as is
reasonably acceptable to Landlord, which approval shall not be unreasonably
withheld, delayed or conditioned); provided that such sublease is entitled
a "Sublease", "Sublease Agreement", "Subtenancy Agreement" or words of
similar import.
Notwithstanding anything to the contrary set forth herein, without the
prior written consent of Landlord, which consent may be withheld in the
Landlord's sole discretion, Tenant shall have no right whatsoever to
sublease all or any portion of the Premises for any term which shall extend
beyond the then-current Term of this Lease (being the term of this Lease as
then currently exercised by Tenant, and not any extension Terms which have
not yet been exercised by Tenant), as the Term may have theretofore been
extended as set forth in Article II of this Lease, unless Tenant shall have
first received the prior written consent of Landlord to the provision of
the sublease which evidences that such subtenant acknowledges that the
sublease term extends beyond the current Term of the Lease and into an
extension term of this Lease which has not yet been exercised by Tenant,
and that in the event that Tenant does not exercise Tenant's option to
extend the Term of the Lease as set forth herein, such sublease shall
expire and terminate immediately upon the expiration of this Lease, which
consent to such sublease provision Landlord shall not unreasonably
withhold, delay or condition.
In addition, the 4-inch conduit system leased pursuant to that certain
Letter Agreement (the "Conduit Lease") dated May 19, 1993 by and between
Virginia Metrotel, Inc. and Markel Corporation shall be deemed to be a
sublease pursuant to this Section 10.02, to which Landlord hereby consents,
provided, however, that if during the Term or any extension thereof the
lessee under the Conduit Lease should exercise any rights it may have to
purchase the conduit systems, the purchase price thereof shall belong to
Tenant, and in the event of such purchase and removal of any such conduits,
such removal shall be accomplished in accordance with the provisions of
this Lease relating to Trade Fixtures.
Section 10.03. Landlord's Assignment. Landlord shall be
permitted to assign this lease or any of its interest herein, to any
assignee, without the necessity of any consent by Tenant; provided,
however, that, except as set forth in Section 18.01, no assignment by
Landlord shall relieve Landlord of its obligations under this Lease.
Section 10.04. Existing Leases. With respect to those Leases
listed on Exhibit "F" attached hereto and made a part hereof (the "Existing
Markel Leases"), as assigned by Essex Insurance Company (an affiliate of
Tenant) to Landlord, (a) Tenant acknowledges and accepts the existence of
such Existing Markel Leases, and acknowledges and agrees that neither the
Existing Markel Leases nor any rights of the tenants thereunder shall
alter, diminish, reduce or modify any obligations of Tenant hereunder,
including, but not limited to, obligations to pay Rent and Additional Rent
hereunder, notwithstanding that parties other than Tenant have occupancy
rights under and pursuant to the Existing Markel Leases and the space
demised thereby; (b) Tenant requests that Landlord permit Tenant to receive
and retain the rights to receive the rent and other performance by the
tenants under the Existing Markel Leases, as if such Existing Markel Leases
constituted subleases permitted hereby; (c) Landlord agrees that Tenant
shall be entitled to receive and retain the rights to receive the rent and
other performance by the tenants under the Existing Markel Leases, as if
such Existing Markel Leases constituted subleases permitted hereby;
(d) Landlord agrees that Tenant shall be entitled to negotiate with, take
actions with respect to, and otherwise deal with such tenants under the
Existing Markel Leases, as if such Existing Markel Leases constituted
subleases permitted hereby, and, in connection therewith Landlord agrees
that Landlord shall enter into any modification or amendment of such
Existing Markel Leases as Tenant may direct Landlord in writing, subject to
Landlord's review and approval thereof, which shall not be unreasonably
withheld, delayed or conditioned, (e) Tenant shall have no right to modify
or amend any covenant set forth in any Existing Markel Lease which would
increase or impose any new (or extended) obligations on Landlord or on the
successor in title to any landlord or lessor thereunder, after the
expiration of the Term of this Lease, and (f) Landlord hereby relinquishes
any rights to which Tenant is entitled under this Paragraph 10.04 during
the Term or extended Term of this Lease.
ARTICLE XI
RIGHT TO CONTEST
Section 11.01. Permitted Contests. Tenant, at its expense, may
contest by appropriate legal proceedings conducted in good faith and with
due diligence the amount, validity or application, in whole or in part, of
any Tax or Charge referred to in Sections 5.01 and 5.02 hereof or any Lien
referred to in Section 7.02 hereof; provided that (a) Tenant shall give
Landlord prior written notice of such contest, (b) Tenant shall first make
all contested payments (under protest if it desires) unless such proceeding
shall suspend the collection thereof from Landlord and Tenant and from Rent
under this Lease or from the Premises (meaning that the payment obligation,
and the other party's right to collect, such Tax or Charge is held in
abeyance, and cannot be enforced, pending the final resolution of such
contest or proceeding and during the pendency thereof), (c) no part of the
Premises or any interest therein or the Rent under this Lease shall be
subjected thereby to sale, forfeiture, foreclosure or interference (and, as
used herein, "subjected to" means that the entity or authority imposing
such Tax or Charge would have any right, which is not stayed during the
pendency of such proceeding, to do any of the foregoing) pending the final
unappealable resolution of such contest or proceeding and during the
pendency thereof, (d) pending the final unappealable resolution of such
contest or proceeding and during the pendency thereof, Landlord shall not
be subject to any civil or criminal liability for failure to comply with
any governmental regulation and the Premises shall not be subject to the
imposition of any Lien as a result of such failure other than the lien then
being contested. Tenant agrees that it shall indemnify, defend, and save
Landlord harmless from and against, any and all losses, judgments, decrees
and costs (including all reasonable attorneys' fees and expenses) in
connection with any Permitted Contest and that, promptly after the final
determination of every Permitted Contest, Tenant shall fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed
or be determined to be payable therein, together with all penalties, fines,
interests, costs and expenses resulting therefrom and will promptly comply
with any regulation of any governmental body or agency having jurisdiction
under which compliance is required. Without diminishing any of Tenant's
obligations set forth above, Landlord agrees to cooperate, at the sole cost
and expense of Tenant, with Tenant in connection with any Permitted
Contests, in a manner which is reasonably acceptable to Landlord and is
reasonably consistent with the interests of Landlord in Landlord's sole
discretion.
ARTICLE XII
INSURANCE
Section 12.01. Insurance. Tenant covenants and agrees that
Tenant will carry and maintain, at its sole cost and expense, the following
types of insurance, in the amounts and in form hereinafter required:
(i) Liability insurance in the Commercial General Liability form
(or reasonable equivalent thereto) covering the Premises and Tenant's
use thereof against claims for personal injury or death and property
damage occurring upon, in or about the Premises, such insurance to be
written on an occurrence basis (not a claims made basis), in no event
less than Two Million Dollars ($2,000,000.00) combined single limit
per occurrence (or at least $1,000,000.00 primary single limit
coverage with the required excess coverage through an umbrella excess
policy), with an "umbrella"/"excess" liability policy insuring the
risks insured under the Commercial General Liability policy to Ten
Million Dollars ($10,000,000.00) for each policy year).
(ii) (A) insurance in the "All-Risk" or equivalent form on a
Replacement Cost Basis against loss or damage to all improvements now
or hereafter located on the Premises; and in an amount sufficient to
prevent Landlord or Tenant from becoming a co-insurer of any loss, and
with a maximum deductible of $25,000.00, but in any event in an amount
at least equal to the full replacement value of the improvements;
provided, however, that (except during the final year of the Term, or
the final year of any extension of the Term, of this Lease) so long as
Tenant maintains an A.M. Best rating of its insurance company
subsidiaries or divisions of not less than the average of the current
ratings thereof (which are currently, A, A, A, and A-) Tenant shall be
permitted to either increase its deductible to $500,000.00 or to co-
insure (or self-insure as to such amount) up to $500,000.00 of such
risk;
(B) boiler and machinery insurance covering losses to or
from any steam boilers, pressure vessels or similar apparatus, if any
are so located on the Premises, requiring inspection under applicable
state or municipal laws or regulations which are located at the
Premises or on any other building systems for which such coverage is
commercially available at reasonable rates, in amounts determined by
Tenant to be appropriate or for such higher amounts as may at any time
be reasonably required by Landlord and having a deductible of not more
than Fifty Thousand Dollars ($50,000.00); coverage shall be on a broad
form comprehensive basis; provided, however, that (except during the
final year of the Term, or the final year of any extension of the
Term, of this Lease) so long as Tenant maintains an A.M. Best rating
of its insurance company subsidiaries or divisions of not less than
the average of the current ratings thereof (which are currently, A, A,
A, and A-) Tenant shall be permitted to either increase its deductible
to $500,000.00 or to co-insure (or self-insure as to such amount) up
to $500,000.00 of such risk; and
(C) worker's compensation insurance, if required by law, or
other coverage, if required by law, in accordance with applicable law
covering Tenant's employees and those of its subsidiaries and
affiliates, such insurance to be to the extent necessary to protect
Landlord, and the Premises against workmen's compensation claims.
Section 12.02. Policies. All policies of the insurance provided
for in Section 12.01 shall be issued in form reasonably acceptable to
Landlord by responsible insurance companies (with an AM Best rating of no
less than A-, VIII) authorized to do business in the State of Virginia.
Each and every such policy:
(i) shall name Landlord, Tenant and any Mortgagee of Landlord,
as an additional insured (or mortgagee, as applicable) as their
respective interests may appear. In addition, the coverage described
in Section 12.01 (ii) shall also name Tenant, Landlord and its
Mortgagee as loss payee as their respective interests may appear;
(ii) shall be described as to coverage and amounts in a
certificate of insurance from the appropriate insurance carrier
delivered to Landlord on or prior to the Commencement Date of this
Lease. Certificates of insurance which evidence the continued,
renewed or replaced insurance required hereunder shall be procured by
Tenant and delivered to Landlord within thirty (30) days prior to the
expiration of such policies, describing coverage and amounts
applicable under this Lease and as reflected in such policies;
(iii) shall contain a provision that the insurer will give to
Landlord and such other parties in interest at least thirty (30) days
notice in writing in advance of cancellation for non-payment of
premiums; and
(iv) shall be written as a primary policy which does not
contribute to and is not in excess of coverage which Landlord may
carry.
Any insurance provided for in Section 12.01 may be maintained by means of a
policy or policies of blanket insurance, covering additional items or
locations or insureds, provided, however, that Landlord and any other
parties in interest as designated in this Lease shall be named as an
additional insured thereunder as their interests may appear, and the
requirements set forth in this Section 12.01 are otherwise satisfied.
Section 12.03. Failure to Carry. In the event that Tenant shall
fail to carry and maintain the insurance coverages set forth in this
Section 12.01, Landlord may, upon fifteen (15) days notice to Tenant
(unless such coverages will lapse within such time period in which event no
such notice shall be necessary) and Tenant's failure to procure the same
and deliver reasonably satisfactory evidence thereof to Landlord within
said period, procure such policies of insurance and Tenant shall promptly
reimburse Landlord therefor.
ARTICLE XIII
FIRE AND OTHER CASUALTIES
Section 13.01. Damage. If any of the improvements or buildings,
including any parking garage on the Premises shall be damaged or destroyed
by fire or other casualty, Tenant, at Tenant's sole cost and expense, shall
promptly and diligently proceed to adjust the loss with the insurance
companies and arrange for the disbursement of insurance proceeds, and
repair, rebuild or replace such improvements, buildings, or parking garage,
so as to restore the Premises to the condition in which they were
immediately prior to such damage or destruction. The net proceeds of any
insurance recovered by reason of such damage or destruction in excess of
the cost of adjusting the insurance claim and collecting the insurance
proceeds (such excess being referred to herein as the "Net Insurance
Proceeds") shall be held by any escrow agent which is reasonably acceptable
to Landlord and Tenant; and the Net Insurance Proceeds shall be released
for the purpose of paying the cost of restoring such improvements,
buildings or garage. Such Net Insurance Proceeds shall be released to
Tenant, or to Tenant's contractors, from time to time as the work
progresses, pursuant to such requirements and limitations as may be
reasonably acceptable to Tenant and Landlord and Landlord's Mortgagee (if
any), including, without limitation, lien waivers from each of the
contractors, subcontractors, materialmen and suppliers performing the work.
If the Net Insurance Proceeds (less any applicable deductible) are
insufficient to restore the Premises, Tenant shall be obligated to pay such
deficiency and the amount of any such deductible.
If the Net Insurance Proceeds (regardless of the amount thereof)
exceed the full cost of the repair, rebuilding or replacement of the
damaged buildings improvements or parking garage, then the amount of such
excess Net Insurance Proceeds shall be paid to Landlord, provided, however,
that in the event that Tenant believes that Tenant shall be able to restore
the Premises for an amount less than the Net Insurance Proceeds available
in connection therewith, Tenant shall notify Landlord prior to commencement
of such repair or restoration with Tenant's proposals for repair or
restoration and opportunities for cost-saving, and Landlord agrees that
Landlord shall consider, and not unreasonably withhold its consent to, an
agreement for the retention of such cost savings by Tenant upon the
completion of such repairs or restoration.
Section 13.02. Plans. Whenever Tenant shall be required to
carry out any work or repair and restoration pursuant to Section 13.01,
such work shall be performed in accordance with the provisions of
Article VI hereof and, in addition, and without limiting any of the
provisions of Article VI, Tenant, prior to the commencement of such work,
shall deliver to Landlord for Landlord's prior approval, which approval
shall not be unreasonably withheld, delayed or conditioned, a full set of
the plans and specifications therefor, together with a copy of all
approvals and permits which shall be required from any governmental
authority having jurisdiction. After completion of any major repair or
restoration, Tenant shall, as soon as reasonably possible, obtain and
deliver to Landlord a Certificate of Substantial Completion from Tenant's
inspecting architect or engineer and a permanent Certificate of Occupancy,
if required by applicable laws, issued by the appropriate authority with
respect to the use of the Premises, as thus repaired and restored. Any
such work or repair and restoration, in all cases, shall be carried out by
in a good and workmanlike manner with first quality materials. If an Event
of Default shall have occurred and be continuing, Landlord may carry out
any such work or repair and restoration pursuant to the provisions of this
Article XIII and in such event, Landlord shall be entitled to withdraw
monies held pursuant to Section 13.01 for application to the reasonable
costs of such work from time to time as such costs are incurred.
13.03. Termination of Obligation to Rebuild. Notwithstanding
Tenant's obligations to rebuild, repair or replace as herein provided, if
said buildings, improvements or parking garage are destroyed or damaged
during the last one (1) year of the Term of this Lease (being the last year
of the then current Term of this Lease, if no extension Term is available
to be exercised, or will be exercised by the Tenant), to the extent of
twenty-five percent (25%) or more of the greater of the then insured value
or, if greater, the then insurable value thereof, Tenant may, at its
option, elect by delivery of written notice of such election within ninety
(90) days after the occurrence thereof not to repair, replace and rebuild
the same, and in such event the Net Insurance Proceeds shall be paid to
Landlord; and provided, however, that this Lease and the other obligations
of Tenant shall remain in full force and effect, including, but not limited
to, the payment of Rent and Additional Rental less any amount actually
received by Landlord for reletting any portion of the Premises during the
remainder of such Term.
ARTICLE XIV
CONDEMNATION
Section 14.01. Total Condemnation. If all of the Premises (or
so much thereof so that no portion of the Premises remaining is usable by
Tenant for its intended purpose in an economically feasible manner) shall
be taken for any public or quasi-public use under any statute or by right
of eminent domain or by private purchase in lieu thereof under threat of
condemnation, this Lease shall automatically terminate as of the date that
title to the Premises or portion thereof or the right to possession thereof
vests in the condemnor; provided, however, that such termination shall not
benefit the condemnor and shall be without prejudice to the rights of
either Landlord or Tenant to recover just and adequate compensation from
the condemning authority. And in the event that in accordance with the
terms of this paragraph the termination of this Lease occurs other than on
the last calendar day of a month, all Rent and Additional Rental due under
this Lease shall be prorated by a fraction, the numerator of which is the
number of calendar days from and including the first calendar day of such
month to and including the last day of the Term of this Lease, and the
denominator of which is the actual number of days in such month.
Section 14.02. Partial Condemnation. If a portion of the
Premises is condemned or taken by the United States or any other legal
entity having the power of eminent domain with respect thereto (or by
purchase in lieu thereof) and the part of the Premises remaining is usable
by Tenant for its intended purpose in an economically feasible manner, then
this Lease shall remain in full force and effect and Tenant shall forthwith
cause the Premises to be restored to a complete architectural unit for the
operation of Tenant's business. Monthly Rent shall be reduced
proportionately to reflect the amount of the Premises usable by Tenant in
an economically feasible manner after such restoration.
Section 14.03. Awards. The court in any condemnation proceeding
shall, if not prohibited by law, be requested to make separate awards to
Landlord and Tenant. Landlord and Tenant agree to request such action of
the court. This Article XIV, to the extent permitted by law, shall be
construed as superseding any statutory provisions now in force or hereafter
enacted concerning condemnation proceedings. In the event of a partial
taking or purchase not resulting in a termination of this Lease, the net
proceeds of the award or purchase (and if and to the extent any portion of
the award is separately allocated to the repair or restoration of the
remaining portion of the Premises, such portion shall be first applied)
shall be used by Tenant to repair the buildings, improvements or parking
garage affected by the taking or purchase and the excess thereof shall be
paid to Landlord (except to the extent that such amount has theretofore
been awarded separately to Tenant); provided, however, that if the net
proceeds of the award or purchase are not sufficient to repair and/or
restore the Premises to a complete architectural unit for the operation of
Tenant's business, Tenant shall be responsible for the cost and expense of
the additional work to so repair or restore the Premises. In addition, if
and to the extent any portion of the award is separately allocated solely
to the repair or restoration of the remaining portion of the Premises in
order to pay for the costs only of such repair or restoration as aforesaid
(the "Separate Repair Award"), and another portion or portions of the award
are allocated to all compensation for loss of use or property which cannot
be restored or replaced, then in the event that Tenant believes that Tenant
shall be able to repair and restore the Premises for an amount less than
the Separate Repair Award available in connection therewith, Tenant shall
notify Landlord prior to commencement of such repair or restoration with
Tenant's proposals for repair or restoration and opportunities for cost-
saving, and Landlord agrees that Landlord shall consider, and not
unreasonably withhold its consent to, an agreement for the retention of
such cost savings by Tenant upon the completion of such repairs or
restoration.
Section 14.04. General. Nothing contained in this Lease to the
contrary shall be deemed to prohibit Landlord or Tenant from introducing
into any condemnation proceeding or proceedings with respect to the
Premises such appraisals or other estimates of value, loss and/or damage as
each may in its discretion determine.
ARTICLE XV
DEFAULT
Section 15.01. Tenant Events of Default. The occurrence of any
of the following acts, events or conditions, regardless of the pendency of
any proceeding which has or might have the effect of preventing Tenant from
complying with the terms, conditions or covenants of this Lease, shall
constitute an "Event of Default" under this Lease:
(a) Tenant fails to make any payment of Rent within
ten (10) days after the due date thereof, or Tenant fails to make any
payment of Additional Rent within ten (10) days after receipt of
written notice from Landlord that Additional Rent is due; provided,
however, the first two (2) times in any given calendar year during the
Term that Tenant shall fail to make payment of Rent, it shall not be
deemed an Event of Default under this Lease unless Tenant has not paid
such past due Rent within five (5) days after receipt of written
notice from Landlord that such Rent is past due; or
(b) Tenant fails or refuses to fulfill or perform any other
covenant, agreement or obligation of Tenant hereunder and such failure
or refusal shall continue without correction for a period of
thirty (30) calendar days after receipt of written notice from
Landlord of such default; provided, however, that in the event of a
default which cannot be cured within such 30-day period, then such
cure period shall continue for so long as Tenant, after receiving such
notice, proceeds to cure the default as soon as reasonably practicable
and continues to take all steps necessary to complete the same within
a period of time which, under all prevailing circumstances shall be
reasonable, not to exceed, in any event, ninety (90) days; or
(c) The estate or interest of Tenant in the Premises, or
any portion thereof, or in this Lease is levied upon or attached in
any proceedings and such process is not vacated or discharged within
sixty (60) days after the date of such levy or attachment; or
(d) There is any entry of a decree or order for relief by a
court having jurisdiction in the Premises in respect of Tenant in an
involuntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Tenant or for any substantial part of its property, or
ordering the winding-up or liquidation of its affairs and the
continuance of any such decree or order unstayed and in effect for a
period of sixty (60) days; or
(e) There is commenced by Tenant a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or other
similar law, or the consent by it to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Tenant or for any
substantial part of its property, or the making by it of any
assignment for the benefit of creditors, or the failure of Tenant
generally to pay its debts as such debts become due, or the taking of
corporate action by Tenant in furtherance of any of the foregoing.
Section 15.02. Termination. Upon the occurrence of any Event of
Default hereunder, Landlord shall have the right, at its election and
regardless of the availability to Landlord of any other remedy under this
Lease or by law or in equity provided, to give Tenant (then or at any time
thereafter while any such Event of Default exists or continues) written
notice of the termination of this Lease as of the date specified in such
notice of termination, which date shall be not less than fifteen (15) days
after the date of the giving of such notice. On such termination date this
Lease and the Term and estate herein granted shall, subject to the
provisions of 15.05 hereof, expire and terminate, and all rights of Tenant
under this Lease shall expire and terminate.
Section 15.03. Reentry by Landlord. Whether or not this Lease has
been terminated pursuant to Section 15.02 hereof, if an Event of Default occurs,
Landlord may, for and on behalf of Tenant and as Tenant's legal representative,
enter upon and repossess the Premises or any part thereof by force, summary
proceedings, ejectment or otherwise, and may dispossess Tenant and remove Tenant
and all other persons and any and all property therefrom. Landlord shall not be
liable to Tenant or to any person or entity claiming by, through or under Tenant
for or by reason of any such entry, repossession or removal, unless due to the
gross negligence or willful misconduct of Landlord or its agents, employees,
servants or contractors.
Section 15.04. Rights upon Repossession. At any time or from
time to time after the repossession of the Premises or any part thereof
pursuant to Section 15.03 hereof, and whether or not this Lease shall have
been terminated pursuant to Section 15.02 hereof, Landlord may at its
option (a) repair or alter the Premises in such manner as Landlord may deem
reasonably necessary or advisable so as to put the Premises in good order
and make the same rentable, and (b) relet or operate the Premises or any
part thereof for the account of Tenant for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
remainder of the Term) and on such conditions (which may include
concessions or free rent) and for such uses as Landlord in its reasonable
discretion may determine, and may collect and receive the rents therefor.
All reasonable costs and expenses incurred by Landlord in the exercise of
its right to reenter and to relet the Premises, or any part thereof,
including, without limitation, reasonable attorneys' fees, construction and
alteration costs, brokerage fees and all such similar and dissimilar
expenses, shall be charged to Tenant and shall be and become the due
obligation of Tenant to pay Landlord, as Additional Rental, hereunder. All
rental and other sums collected by Landlord during any period of reletting
of the Premises shall be and remain the property of Landlord and the total
collected amount thereof, to the extent it exceeds the sum of all
reasonable costs and expenses incurred in reletting as aforesaid, is herein
defined as the "Reletting Proceeds." Landlord shall not be responsible or
liable for any failure to relet the Premises or any part hereof or for any
failure to collect any rent due upon any such reletting. No repossession
of the Premises by Landlord shall be construed as an election to terminate
this Lease and the Term herein demised unless, in conjunction therewith, a
written notice of termination evidencing such intention is given to Tenant
as provided in Section 15.02 hereof.
Section 15.05. Liability of Tenant and Landlord. No termination
of this Lease pursuant to Section 15.02 hereof or by operation of law or
otherwise (except as expressly provided herein) and no repossession of the
Premises or any part thereof pursuant to Section 15.03 hereof or otherwise,
shall relieve Tenant or Landlord of their respective liability and
obligations hereunder, all of which shall survive such termination or
repossession. Landlord shall be entitled, at its election, to sue for and
receive each increment of Rent and Additional Rental as and when the same
shall become due, irrespective of whether Landlord shall have terminated
this Lease or reentered and relet the Premises or any portion thereof,
provided only that in the event of reletting, Tenant shall be entitled to a
credit for the Reletting Proceeds, if any, up to the amount of Rent and
Additional Rental that would otherwise have been due from Tenant to
Landlord hereunder.
Section 15.06. Right of Landlord to Perform for Tenant.
Notwithstanding any other provision of this Lease to the contrary, upon the
occurrence of any Event of Default hereunder, Landlord may, at its
exclusive option, take, on behalf of Tenant, whatever steps it deems
reasonably necessary to cure such Event of Default and to charge Tenant for
the costs and expenses attributable thereto. Tenant shall pay all costs
and expenses immediately upon receipt of a statement thereof from Landlord.
Any such amounts, paid or unpaid, shall be deemed Additional Rental
hereunder.
Section 15.07. General. Each right, power and remedy of
Landlord provided in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to each and every other right, power or remedy
provided in this Lease or now or hereafter existing at law or in equity or
by statute or otherwise. In addition to any other remedy provided in this
Lease, Landlord shall be entitled, to the extent permitted by applicable
law, to injunctive relief in the event of the violation or attempted or
threatened violation of any term, condition or covenant of this Lease or to
a decree compelling performance thereof. The exercise by Landlord of any
one or more of the rights, powers or remedies provided in this Lease or now
or hereafter existing at law or in equity or by statute or otherwise shall
not preclude the simultaneous or later exercise by Landlord of any such
right, power or remedy.
ARTICLE XVI
ENVIRONMENTAL MATTERS
Section 16.01. Definitions. For purposes of this Article XVI:
(i) "Contamination" as used herein means the uncontained or
uncontrolled presence of or release of Hazardous Substances into any
environmental media and into or on any portion of the Premises or any part
thereof so as to require remediation, cleanup or investigation under any
applicable Environmental Law.
(ii) "Environmental Laws" as used herein means all federal,
state, and local laws, regulations, orders, permits, ordinances, and the
like concerning protection of human health and/or the environment.
(iii) "Hazardous Substances" as used herein means any
hazardous or toxic substance or waste as those terms are defined by any
applicable federal or state law or regulation (including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. 9601 et. sec. ["CERCLA"] and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et. sec. ["RCRA"]) and
petroleum products and oil.
Section 16.02. Compliance. Tenant warrants that all its
activities on the Premises, during the Term of this Lease will be conducted
in compliance with Environmental Laws. Tenant warrants that it and the
Premises are, to the best of Tenant's knowledge, currently in compliance
with all applicable Environmental Laws and that there are no pending or, to
the best of Tenant's knowledge, threatened notices of deficiency, notices
of violation, orders, or judicial or administrative actions involving
alleged violations by Tenant or the Premises of any Environmental Laws.
Tenant, at Tenant's sole cost and expense, shall be responsible for
obtaining all permits or licenses or approvals under Environmental Laws
necessary for Tenant's operation of its business on the Premises and shall
make all notifications and registrations required by any applicable
Environmental Laws. Tenant, at Tenant's sole cost and expense, shall at
all times comply with the terms and conditions of all such permits,
licenses, approvals, notifications and registrations and with any other
applicable Environmental Laws. Tenant warrants that it has obtained all
such permits, licenses or approvals and made all such notifications and
registrations required by any applicable Environmental Laws necessary for
Tenant's operation of its business on the Premises.
Section 16.03. Hazardous Substances. Except in compliance with
all laws and/or regulations and the requirements of any insurance carrier
insuring the Premises, Tenant shall not cause or permit any Hazardous
Substances to be brought upon, kept or used in or about the Premises.
Except in compliance with all laws and/or regulations and the requirements
of any insurance carrier insuring the Premises, Tenant shall not cause or
permit the release of any Hazardous Substances into any environmental media
such as air, water or land, or into or on the Premises. If such release
shall occur during the Term or any extension thereof, Tenant shall
(a) immediately take all necessary steps to contain, control and clean up
such release and any associated Contamination, (b) notify Landlord, and
(c) take any and all other action which may be required by Environmental
Laws and governmental agencies, and/or reasonably required by Landlord
unless the release or violation of Environmental Laws shall have been
caused solely by any gross negligence or willful misconduct of Landlord or
its agents, employees, servants or contractors, in which event Landlord
shall be responsible for and shall pay all costs and expenses to remedy the
same. Tenant shall under no circumstances whatsoever (i) treat, store or
dispose of any Hazardous Waste (as all such terms are defined by RCRA, and
the regulations promulgated thereunder) within the Premises, (ii) discharge
Hazardous Substances into the storm sewer system serving the Premises; or
(iii) install any underground storage tank or underground piping on or
under the Premises, other than as shall be reasonably required in the use
and occupancy of the Premises (or in replacement of such existing
underground storage tank or underground piping) and then only in full
compliance with all laws and/or regulations.
Section 16.04. Indemnity. Except to the extent the same has
been made necessary solely by any gross negligence or willful misconduct of
Landlord or its employees, agents, contractors or servants, Tenant shall
and hereby does indemnify, defend Landlord and hold Landlord harmless from
and against any and all expense, loss, and liability suffered by Landlord,
by reason of Tenant's improper storage, generation, handling, treatment,
transportation, disposal, or arrangement for transportation or disposal, of
any Hazardous Substances (whether accidental, intentional, or negligent) or
by reason of Tenant's breach of any warranty or of the provisions of this
Article XVI. Such expenses, losses and liabilities shall include, without
limitation, (i) any and all expenses that Landlord may incur to comply with
any Environmental Laws as a result of Tenant's failure to comply with the
terms of this Lease; (ii) any and all costs that Landlord may incur in
studying or remedying any Contamination at or arising from the Premises,
(iii) any and all reasonable costs that Landlord may incur in studying,
removing, disposing or otherwise addressing any Hazardous Substances that
Tenant improperly stored, generated, handled, treated, transported or
disposed of or failed to remove from the Premises; (iv) any and all fines,
penalties or other sanctions assessed upon Landlord by reason of Tenant's
failure to comply with Environmental Laws; and (v) any and all reasonable
legal and professional fees and costs incurred by Landlord in connection
with the foregoing. The indemnity contained herein shall survive the
termination or expiration of this Lease but only with regard to conditions
or provisions which Tenant is obligated by this Lease to prevent, correct,
or comply with during the Term of this Lease and any extensions thereof.
ARTICLE XVII
BROKERAGE PROVISIONS
Section 17.01. No Broker. Landlord and Tenant represent and
warrant that no broker, commission agent, real estate agent or salesman has
participated in the negotiation of this Lease, its procurement or in the
procurement of Landlord or Tenant other than Kiniry and Company, Inc. (the
"Broker"), which has been retained by Tenant and has executed a waiver and
acknowledgment that Broker has been paid any and all commission in full.
Tenant hereby represents and warrants to Landlord that Broker is not and
shall not be, and Landlord and Tenant represent and warrant to each other
that no other person, firm or corporation is or shall be, entitled to the
payment of any fee, commission, compensation or other form of remuneration
in connection herewith in any manner. Landlord and Tenant shall and do
hereby mutually indemnify and hold harmless each other from and against any
and all loss, cost, claim, damage or expense (including court costs and
reasonable attorneys' fees) arising from and out of or in any manner
connected with this Lease or any claim (meritorious or otherwise), demand
or assertion which is in the nature of a brokerage fee, commission or other
compensation for services rendered. The terms of this 17.01 shall survive
any termination of this Lease.
ARTICLE XVIII
MISCELLANEOUS
Section 18.01. Landlord Liability. No owner of the Premises,
whether or not named herein, shall have liability hereunder after such
owner ceases to hold title to the Premises, except for obligations which
may have theretofore accrued. Neither Landlord nor any officer, director,
shareholder, partner or principal, whether disclosed or undisclosed, of
Landlord shall be under any personal liability with respect to any of the
provisions of this Lease, and if Landlord is in breach or default with
respect to Landlord's obligations or otherwise under this Lease, Tenant
shall look solely to the equity of Landlord in the Premises for the
satisfaction of Tenant's remedies. It is expressly understood and agreed
that Landlord's liability under the terms, covenants, conditions,
warranties and obligations of this Lease shall in no event exceed the loss
of Landlord's equity interest in the Premises.
Section 18.02. Waiver. Failure of Landlord or Tenant to insist
upon the strict performance by the other of any term, condition or covenant
of this Lease or to exercise any option, right, power, or remedy contained
in this Lease shall not be deemed to be nor be construed as a waiver of
such performance or relinquishment of such right now or subsequent hereto.
The receipt by Landlord or the payment by Tenant of any Rent or Additional
Rental required to be paid hereunder with knowledge of any default by
Tenant or Landlord hereunder shall not be deemed a waiver of such default.
No waiver by Landlord or Tenant of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord
or Tenant, as the case may be.
Section 18.03. Waiver of Redemption. Tenant hereby waives and
surrenders any right or privilege under any present or future constitution,
statute or law to redeem the Premises or to continue this Lease after the
termination of this Lease for any reason, and the benefits of any present
or future constitution, statute or rule of law which exempts property from
liability for debt or for distress for rent.
Section 18.04. Estoppel Certificates. Within thirty (30) days
after written request of Landlord or Tenant, the other shall execute,
acknowledge and deliver to the requesting party (being either Landlord or
Tenant) and to any Mortgagee of or prospective purchaser from Landlord or
to any actual or prospective assignee or subtenant of Tenant, written
certificate certifying (a) that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the Lease is in full
force and effect as modified, and stating the modifications), (b) the dates
to which Rent and Additional Rental payable by Tenant hereunder have been
paid, (c) that no notice has been received by or sent to Tenant of any
default by Tenant hereunder which has not been cured, except as to any
default specified in said certificate, (d) setting forth the amounts of
current rental payments and other matters set forth in this Lease, and
(e) other items with respect to this Lease as may be reasonably required by
Landlord or by any lender to, or purchaser from, Landlord or by Tenant or
any actual or prospective assignee or subtenant of Tenant.
Section 18.05. No Merger of Title. There shall be no merger of
the leasehold estate created by this Lease with the fee estate of Landlord
by reason of the fact that the same person may own or hold both the
leasehold estate created by this Lease or any interest therein and the fee
estate in the Premises or any interest therein; and no such merger shall
occur unless and until all persons or entities (including any Mortgagee as
hereinafter defined with respect to the fee estate of Landlord) having any
interest in the leasehold estate created by this Lease or the fee estate in
the Premises shall join in a written instrument effecting such merger and
shall duly record the same.
Section 18.06. Mortgagee's Rights. Subject to all the
provisions of this Section 18.06, this Lease may be either superior or
subordinate to any "Mortgage". The term "Mortgage", as used in this Lease,
shall mean any and all mortgages, deeds to secure debt, deeds of trust, or
other instruments creating a lien or conveying a security interest at any
time and from time to time, granted by Landlord and affecting or
encumbering the title of Landlord to the Premises or this Lease. The term
"Mortgagee" refers to the holder of the Mortgage. Any Mortgagee may elect
to have this Lease superior to its Mortgage by signifying such election in
the Mortgage or by separate recorded instrument. Upon request by any
Mortgagee, Tenant shall execute and deliver a written instrument, in a form
acceptable for recording in the real estate records of Henrico County,
Virginia, recognizing that this Lease is superior to a Mortgage and that,
upon foreclosure of or exercise of the power of sale contained in the
Mortgage, Tenant shall recognize and attorn to the purchaser at the
foreclosure sale as the Landlord under this Lease, subject to all the terms
and provisions of this Lease. Upon request by Landlord or a Mortgagee,
Tenant shall subordinate its rights hereunder to a Mortgagee pursuant to
form of Subordination, Non-Disturbance and Attornment Agreement ("SNDA")
attached hereto as Exhibit "D" and made a part hereof, provided that
(i) Tenant's rights under this Lease shall remain in full force and effect,
(ii) any person (including Mortgagee) who becomes the holder of the
interest of the Landlord by virtue of foreclosure of the Mortgage or deed
in lieu thereof shall be subject to and bound by all the provisions of this
Lease.
Section 18.07. Separability. Each and every covenant and
agreement contained in this Lease shall be for any and all purposes hereof
construed as separate and independent and the breach of any covenant by
Landlord or Tenant shall not discharge or relieve the other party from its
obligation to perform each and every covenant and agreement to be performed
by such party under this Lease. All rights, powers and remedies provided
herein may be exercised only to the extent that the exercise thereof does
not violate applicable law and shall be limited to the extent necessary to
render this Lease valid and enforceable. If any term, provision or
covenant of this Lease or the application thereof to any person or
circumstance shall be held to be invalid, illegal or unenforceable, by a
court of last resort having jurisdiction over the Premises, the validity of
the remainder of this Lease shall not be affected; this Lease shall not
terminate, and there shall be substituted for such illegal, invalid or
unenforceable provision a like provision which is legal, valid and
enforceable within the limits established by such court's final opinion and
which most nearly accomplishes and reflects the original intention of the
parties.
Section 18.08. Notices, Demands and Other Instruments. All
notices, demands, requests, consents, and approvals desired, necessary,
required or permitted to be given pursuant to the terms of this Lease shall
be in writing and shall be deemed to have been properly given when
personally delivered (which shall include delivery by a nationally
recognized overnight delivery service, such as Federal Express, UPS, or
Airborne), or when sent by facsimile (with a copy forwarded by personal
delivery or registered or certified mail as provided herein), or after
being mailed by prepaid registered or certified mail, return receipt
requested, to the address for each party set forth below.
If to Landlord: The Prudential Insurance Company of America
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attn: Vice President, Asset
Management; Prudential Real
Estate Investors; Markel
Headquarters Building Lease
Notices
Fax Number: (404) 396-9246
With a copy to: The Prudential Insurance Company of America
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attn: Law Department; Markel
Headquarters Building Lease
Notices
Fax Number: (404) 512-0495
If to Tenant: Markel Corporation
4551 Cox Road
Richmond, Virginia 23060
Attn: Bruce Kay
Fax Number: (804) 527-3810
With a copy to: Markel Corporation
4551 Cox Road
Richmond, Virginia 23060
Attn: Gregory B. Nevers
Fax Number: (804) 527-3810
or at such other address in the United States as Landlord or Tenant may
from time to time designate by like notice. Rejection or other refusal to
accept or inability to deliver because of changed address of which no
notice was given shall be deemed to be receipt of the notice, demand,
request or other communication. Such notices or other communication shall
be effective and deemed "received" for all purposes hereunder (i) in the
case of personal delivery or courier delivery, on the date of delivery to
the party to whom such notice is addressed as evidenced by the written
receipt signed on behalf of such party, (ii) if by overnight courier, on
the next succeeding business day after the deposit thereof with all
delivery charges prepaid, and (iii) in the case of registered or certified
mail, the earlier of the date receipt is acknowledged on the return receipt
for such notice or five (5) business days after the date of posting by the
United States Post Office.
Section 18.09. Successors and Assigns. Each and every covenant,
term, condition and obligation contained in this Lease shall apply to and
be binding upon and inure to the benefit or detriment of the respective
legal representatives, heirs, successors and assigns of Landlord and
Tenant. Whenever reference to the parties hereto is made in this Lease,
such reference shall be deemed to include the legal representatives,
successors, heirs and assigns of said party the same as if in each case
expressed. The term "person" when used in this Lease shall mean any
individual, corporation, partnership, firm, trust, joint venture, business
association, syndicate, government or governmental organization or any
other entity.
Section 18.10. Headings. The headings to the various Articles
and Sections of this Lease have been inserted for purposes of reference
only and shall not limit or define or otherwise affect the express terms
and provisions of this Lease.
Section 18.11. Counterparts. This Lease may be executed in any
number of counterparts, each of which is an original, but all of which
shall constitute one instrument.
Section 18.12. Applicable Law. This Lease shall be construed
under and enforced in accordance with the laws of the State of Virginia.
Section 18.13. Entire Agreement; Amendments. This Lease sets
forth the entire understanding and agreement of Landlord and Tenant with
respect to the Premises; all courses of dealing, usage of trade and all
prior representations, promises, understandings and agreements, whether
oral or written, are superseded by and merged into this Lease. No
modification or amendment of this Lease shall be binding upon Landlord and
Tenant, or either of them, unless in writing and fully executed.
Section 18.14. All Genders and Numbers Included. Whenever the
singular or plural number, or masculine, feminine, or neuter gender is used
in this Lease, it shall equally apply to, extend to, and include the other.
Section 18.15. Time is of Essence. Time is of the essence of
this Lease. Whenever a day certain is provided for the payment of any sum
of money or the performance of any act or thing, the same enters into and
becomes a part of the consideration for this Lease.
Section 18.16. Short Form Lease. Landlord and Tenant hereby
agree that this Lease shall not be recorded in the public records. Either
Landlord or Tenant may require that such other party execute a Short Form
Lease. The Short Form Lease shall be filed for record in the real estate
records of Henrico County, Virginia. Any and all recording cost and tax,
if any, required in connection with the recording of the Short Form Lease
shall be at the sole cost and expense of Tenant.
Section 18.17. Holding Over. In the event Tenant continues to
occupy the Premises after the last day of the last extension Term, a
tenancy from month to month only shall be created, and not a tenancy for
any longer period.
Section 18.18. Names. Landlord and Tenant acknowledge that this
Lease does not effect an assignment or grant to Landlord of any right to
use the name "Markel" or any other name of Tenant or any other occupant of
the Premises; provided, however that nothing in this clause shall be
interpreted to restrict or limit any other rights Landlord may have by
contract or at law.
Section 18.19. Mediation. If a dispute arises out of or
relating to this Lease relating to whether Landlord has breached a covenant
of Landlord set forth in this Lease, whether repair or maintenance is
required pursuant to Section 6.02 of this Lease, whether changes or
alterations may be permitted pursuant to Section 6.04 of this Lease,
whether disbursements under Section 6.04 are due Tenant from the Escrow
Agent, or as to the interpretation of the provisions of Article XIII and
Article XIV as to repair or restoration of the Premises, and if the dispute
cannot be settled through negotiation, Landlord and Tenant agree first to
try in good faith, for a period not to exceed 60 days (commencing as of the
date either Landlord or Tenant delivers to the other a written notice to
commence mediation hereunder) to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration, litigation or some other
dispute resolution procedure.
If such dispute, controversy or claim arising out of or relating
to this Lease or the breach thereof is not resolved through mediation as
aforesaid, the parties shall be restored to their pre-existing rights at
law and in equity.
Notwithstanding the foregoing, nothing in this Section 18.19
shall be deemed to (i) limit the applicability of any otherwise applicable
statutes of limitation or the enforceability of any waivers contained in
this Lease; or (ii) limit either of the parties hereto to exercise self
help remedies provided for herein; or (iii) to obtain from a court
provisional or ancillary remedies such as (but not limited to) injunctive
relief or the appointment of a receiver. Neither the exercise of self help
remedies nor the obtaining of provisional or ancillary remedies shall
constitute a waiver of the right of either party to arbitrate the merits of
the controversy.
Section 18.20. Innsbrook Association. With respect to the
rights that Landlord may have, as owner of the Premises, under protective
covenants, easements, conditions, restrictions and agreements affecting any
of the land comprising the development known as "Innsbrook", including, but
not limited to, the rights to vote for directors of the Innsbrook
Association (the "Association") and for or against the acceptance of
assessments to operate the Association, Landlord and Tenant agree as
follows:
(a) Unless it is manifest that Landlord has theretofore received
written notice thereof, Tenant shall promptly forward to Landlord copies of
all written notices, materials, agenda and other communications to or from
the Association, and to or from other owners or members within the
Association, or otherwise materially related to the Association, and shall,
in addition, promptly inform Landlord and keep Landlord advised of other
material discussions and communications with such parties regarding
material issues related to the Association; Landlord and Tenant shall
direct the Association to send notices from the Association to both
Landlord and Tenant;
(b) Tenant shall promptly inform Landlord of the date, time and
location of any meeting to be held of the Association or of members of the
Association with regard to issues applicable with respect to the
Association unless it is manifest that Landlord has theretofore received
written notice thereof;
(c) Landlord shall have the right to attend any such meetings in
order to address the issues relevant to the Landlord with respect to this
Lease and Landlord's ownership of the Premises;
(d) Tenant shall be entitled to exercise Landlord's right to vote, or
(if Landlord must cast such vote) to direct Landlord to vote, on any
matters arising with respect to the Association (except to the extent that
such matters relate to obligations arising after expiration of the Term),
provided that in Landlord's reasonable analysis such vote (or the position
evidenced by such vote) is not contrary to the respective rights and
obligations of Landlord and Tenant under the Lease, and that Tenant shall
have no right to bind Landlord to, or direct Landlord to incur, any
obligation without Landlord's prior written consent, which consent shall
not be unreasonably withheld, conditioned or delayed; and
(e) In the event that Tenant is to cast such vote or exercise any
right or take any action on behalf of Landlord in a manner permitted
hereunder, Landlord hereby agrees to execute and deliver to Tenant, the
Association and/or other owners of property comprising the Association such
certificates or other documentation as may be reasonably requested to
evidence Tenant's right to act for and on behalf of Landlord and its
successors and assigns in such matters.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
by their duly authorized officers, have affixed their seals hereunto and
have delivered same, as of the day and year first above written.
TENANT:
MARKEL CORPORATION
By:. . . . . . . . . . . . . . . .
Name: Bruce A. Kay
Title: Vice President
Attest:. . . . . . . . . . . . . .
Name: Gregory B. Nevers
Title: Assistant Secretary
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
<PAGE>
(SIGNATURES CONTINUED FROM PRECEDING PAGE
LANDLORD:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:. . . . . . . . . . . . . . . .
Name: P. James Mehalso
Title: Vice President
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease"), made and entered into this
21st day of July, 1995, by and between THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey corporation ("Landlord"), and MARKEL CORPORATION, a
Virginia corporation ("Tenant").
ARTICLE I
DEMISE OF PREMISES
Section 1.01. Demise. For and in consideration of the payment
of rent herein reserved to be paid by Tenant and the performance of the
covenants and agreements herein contained on the part of Tenant to be kept,
observed and performed, Landlord does hereby demise and lease to Tenant,
and Tenant does hereby take and hire, upon and subject to the terms and
conditions herein contained, that certain tract of land lying and being in
Henrico County, Virginia, and being commonly known as 4600 Cox Road,
Richmond, Virginia, and being more particularly described in Exhibit "A"
attached hereto and made a part hereof, together with all buildings,
structures and other improvements now or hereafter located thereon and all
appurtenances thereunto belonging, all right, title and interest of
Landlord in and to all roads, streets and lanes, whether public or private,
bounding said premises, all fixtures and all items of personal property
described in Exhibit "C" attached hereto and made a part hereof and all of
the Other Interests described in Exhibit "F" attached hereto and made a
part hereof (said land, improvements, appurtenances, rights, titles,
interests, fixtures, equipment and Other Interests are herein collectively
referred to as the "Premises"), all subject to the encumbrances set forth
in Exhibit "B" attached hereto and made a part hereof.
ARTICLE II
TERM OF LEASE
Section 2.01. Term of Lease. The term of this Lease (the
"Term") shall commence on the date hereof (the "Commencement Date") and,
unless sooner terminated as herein provided, shall continue thereafter for
twelve (12) years, terminating on the 31st day of July, 2007 (the
"Expiration Date"); provided, however, the Term may be extended as provided
in Section 2.02 and Section 2.03 hereof.
Section 2.02. Options to Extend. Tenant has the option to
extend this Lease for two (2) additional five (5) year terms, in accordance
with the following provisions. Each option shall be automatically and
irrevocably terminated and waived by Tenant, unless Tenant provides
Landlord with a written notice (the "Extension Notice") which states that
Tenant has elected to extend this Lease in accordance with the terms
hereof, which notice shall be given no later than six (6) months prior to
the expiration of the Term then in effect, as such Term may be extended as
provided in Section 2.03 hereof. The second extension option shall also
terminate automatically in the event that the first option to extend is not
exercised as aforesaid. If there has been a (i) default or breach by
Tenant under this Lease and such default or breach is one as to which
Landlord must give written notice and an opportunity to cure in order for
such default or breach to become an Event of Default, (ii) Landlord has
delivered such notice to Tenant, and (iii) Tenant has failed to cure or
remedy such breach or default within thirty (30) days after receipt of such
notice (or such lesser period as may be required by this Lease), then no
extension option may be exercised by Tenant (unless Landlord has waived the
enforcement of this provision in a writing delivered to Tenant). In
addition, no extension option may be exercised by Tenant if there is then
any default or breach by Tenant under this Lease or other event which, with
the passing of time would ripen into an Event of Default hereunder (unless
Landlord has received the enforcement of this provision in a writing
delivered to Tenant). If the Term of this Lease is so extended, this Lease
and all terms and provisions hereof shall remain in full force except that
the Rent to be paid by Tenant during such option terms shall be as set
forth in Section 4.01 of this Lease. All references in this Lease to the
Term shall be deemed to include any extension options which are validly
exercised in the manner set forth above. In the event that (a) the
appraisal procedure described in Section 4.01 must be used in the
determination of the applicable Fair Market Rental Rate for the first or
second extension term of this Lease, and (b) the final determination of the
applicable Fair Market Rental Rate is not delivered to Tenant at least
seven (7) months prior to the expiration of the Term or extension Term, as
applicable, then the six (6) month period described in this Section 2.02
hereof by which Tenant is to provide Landlord with the Extension Notice
shall be reduced by the number of days (the "Appraisal Waiting Days")
between the date which is seven (7) months prior to the expiration of the
Term or extension Term, as applicable, and the date on which the final
determination of the applicable Fair Market Rental Rate is delivered to
Tenant, in order to provide Tenant with not less than thirty (30) days
after receipt of the final determination of the applicable Fair Market
Rental Rate within which to decide whether or not to extend this Lease.
Section 2.03. Extension of Current Term of Lease During
Extension Rent Determination. The initial Term of this Lease, or, as
applicable, the first extension Term of this Lease, shall be extended by a
period of time equal to the Appraisal Waiting Days in the event that
(a) the appraisal procedure described in Section 4.01 must be used in the
determination of the applicable Fair Market Rental Rate for the first or
second extension term of this Lease, (b) if in such event the final
determination of the applicable Fair Market Rental Rate is not delivered to
Tenant at least seven (7) months prior to the expiration of the Term or
extension Term, as applicable, and (c) Tenant does not deliver the
Extension Notice in a timely fashion; and in such event for such period
Tenant shall continue to be obligated to pay Rent at the then-existing rate
for such Term or extension Term, as applicable, and to perform all other
obligations of Tenant hereunder in accordance with all terms of this Lease
until the then current Term, as extended, shall expire.
ARTICLE III
COVENANTS AND WARRANTIES OF LANDLORD AND TENANT
Section 3.01. Authority of Landlord. Landlord warrants that it
has full right and lawful authority to enter into this Lease and to keep
and perform the covenants herein contained.
Section 3.02. Authority of Tenant. Tenant warrants that it has
full right and lawful authority to enter into this Lease and to keep and
perform the covenants herein contained.
Section 3.03. Quiet Enjoyment. Landlord hereby warrants that,
unless an Event of Default shall have occurred and be continuing, the
Tenant's peaceful possession, use and enjoyment of the Premises in
accordance with this Lease shall not be interrupted or disturbed by the
Landlord or any person or entity claiming by, through or under the
Landlord. Landlord will warrant and defend Landlord's title to the estate
granted hereby against the lawful claims of all parties claiming by,
through or under Landlord.
Section 3.04. Enforcement of Warranties. Tenant hereby assigns
(to the extent such are assignable) and Landlord hereby accepts the
assignment of all of the Tenant's right, title and interest, if any, in any
and all warranties and other claims against dealers, manufacturers,
vendors, contractors and subcontractors relating to the construction, use
and maintenance of the Premises or any portion thereof. Unless an Event of
Default shall have occurred and be continuing, Landlord authorizes Tenant,
at Tenant's expense, to assert for Landlord's account, all of Landlord's
rights under any applicable warranty or other claim assigned to it (as a
portion of the "Other Interests") hereunder that Landlord may have against
any vendor, manufacturer, contractor or subcontractor with respect to any
part of the Premises.
ARTICLE IV
ANNUAL RENT AND ADDITIONAL RENTAL
Section 4.01. Rent. Tenant covenants and agrees to pay
Landlord, in lawful money of the United States of America, without set-off
or deduction, during the Term as rent hereunder, a base annual rent (the
"Rent") during the following periods in the following amounts:
Period Per Month Per Year
Commencement Date through 12/31/95 $95,000.00 N/A (annual rent being
comprised of the sum of
the monthly rent)
1/1/96 through 12/31/96 $96,900.00 $1,162,800
1/1/97 through 12/31/97 $98,838.00 $1,186,056
1/1/98 through 12/31/98 $100,814.75 $1,209,777
1/1/99 through 12/31/99 $102,831.08 $1,233,973
1/1/00 through 12/31/00 $104,887.67 $1,258,652
1/1/01 through 12/31/01 $106,985.42 $1,283,825
1/1/02 through 12/31/02 $109,124.33 $1,309,502
1/1/03 through 12/31/03 $111,307.67 $1,335,692
1/1/04 through 12/31/04 $113,533.83 $1,362,406
1/1/05 through 12/31/05 $115,804.50 $1,389,654
1/1/06 through 12/31/06 $118,120.58 $1,417,447
1/1/07 through Expiration Date $120,483.00 N/A (annual rent being
comprised of the sum of
the monthly rent)
The Rent shall be payable in accordance with the following provisions:
(i) Rent for the initial Term shall be payable in equal monthly
installments as set forth above, in advance on or before the first day
of each month. The first such payment shall be due on the
Commencement Date and Landlord shall prorate the Rent for the period
from the Commencement Date to the first day of the first full calendar
month after the date of this Lease, which prorated Rent shall be
computed by multiplying one (1) monthly installment of Rent by a
fraction the numerator of which is the number of calendar days from
the Commencement Date to (but not including) the first calendar day of
the first full calendar month after the Commencement Date and the
denominator of which is the actual number of days in such month.
(ii) Rent for the first twelve (12) months of the first extension
Term, if any, shall be equal to eighty-five (85%) percent of the then
Fair Market Rental Rate (as hereinafter defined) for the Premises,
payable in equal monthly installments, in advance on or before the
first day of each month. Rent for the remaining forty-eight (48)
months of the first extension Term shall escalate annually at the rate
of two percent (2%) per year over the preceding year's rent.
(iii) Rent for the first twelve (12) months of the second
extension Term, if any, shall be eighty-five (85%) percent of the then
Fair Market Rental Rate for the Premises, payable in equal monthly
installments, in advance on or before the first day of each month.
Rent for the remaining forty-eight (48) months of the second extension
Term shall escalate annually at the rate of two percent (2%) per year
over the preceding year's rent.
(iv) In the event that in accordance with the terms of this Lease
the expiration or termination of this Lease occurs other than on the
last calendar day of a month, the last payment due under this Lease
shall be prorated by a fraction, the numerator of which is the number
of calendar days from and including the first calendar day of such
month to and including the last day of the Term of this Lease, and the
denominator of which is the actual number of days in such month.
"Fair Market Rental Rate" for the Premises shall mean the rent at
which a willing landlord would agree to lease comparable premises in the
Innsbrook Corporate Center, or in a comparable office development in the
northwest suburbs of Richmond, Virginia, to a willing tenant of comparable
creditworthiness as the creditworthiness of Tenant (which, so long as
Tenant is a publicly held corporation, shall be determined, as to Tenant,
absent manifest error, as of the date of Tenant's most recent published
shareholders report immediately preceding the date which is no sooner than
12 months prior to the expiration of the then-current Term) on the last day
of the Term then in effect under a lease for a five (5)-year term (with a
five (5)-year renewal, in the case of the first extension) commencing on
the last day of the then-current Term that is similar in all material
economic and non-economic respects to this Lease, under the assumption that
neither the Landlord nor the Tenant is under any compulsion to lease.
Notwithstanding any provision in this paragraph to the contrary, in
comparing the material economic and non-economic aspects of this Lease with
a lease of comparable premises, as aforesaid, and in determining the Fair
Market Rental Rate for the Premises the following factors shall be
considered:
(a) if and to the extent possible, a comparable lease shall
be a fully "net" lease such as this Lease and, therefore, not a lease,
(i) pursuant to which a landlord has or retains any obligation to make
or pay for tenant improvements or leasing commissions, (ii) which is
subject to any free rent, discounts, inducements or other concessions
of value (other than the provision of such space for the term set
forth in such lease), and (iii) pursuant to which Landlord retains any
obligation to pay for operating expenses;
(b) if a fully "net" lease is used for comparison purposes,
no adjustment shall be made to the rental on such lease in calculating
the Fair Market Rental Rate hereunder to adjust for any cost of
leasing commissions, tenant improvements or other allowances, or rent
or other economic concessions which would be incurred, paid for or
made by a landlord on other than a fully "net" lease;
(c) if a lease other than a fully "net" lease is used for
comparison purposes, there shall be deducted from the rent on such
lease the operating costs including, without limitation, taxes
(including the types of "Taxes" as defined herein), charges (including
the types of "Charges" as defined herein), insurance, utilities and
services for the demise premises thereunder, which landlord is
responsible to pay pursuant to the terms of such lease, or, if
applicable, in the event of a lease for less than an entire building,
the prorated share of such operating costs for the entire building,
prorated based on a fraction obtained by dividing (i) the square
footage of the space leased by the tenant under such lease by (ii) the
total square footage of rentable space in such building); and
(d) if a lease other than a fully "net" lease is used for
comparison purposes which includes as part of its terms a tenant
obligation to incur or pay the cost of leasing commissions (to be
spread over the term thereof) or tenant improvements (to the "building
standard" tenant improvements for such building only, and not in
excess of the standard established by the current owner of such
building as the standard tenant improvements for such building), the
costs of these items shall be added back to the rental for comparison
purposes hereunder;
it being the intention of the parties that the costs (and net economic
effect to landlord) of tenant improvements, leasing commissions and tenant
concessions have been accounted for in the provisions hereof which provide
that only 85%, not 100%, of Fair Market Rental Rate shall be the applicable
rental rate for an extension Term hereunder; and it being the intent of
Landlord and Tenant that since (i) this Lease is a fully "net" lease and
(ii) none of the foregoing items have been included in calculating the Rent
for the Term of this Lease, they should not be considered and should be
factored out in the aforesaid manner and not included within the
calculation of the rent for premises comparable to the Premises located in
the Innsbrook Corporate Center or the northwest suburbs of Richmond,
Virginia.
The Fair Market Rental Rate for the Premises shall be determined
by Landlord, subject to the provisions set forth below and the guidelines
set forth above, and shall be designated by Landlord by written notice to
Tenant (the "Extension Rent Notice") delivered no sooner than eighteen (18)
months and no later than twelve (12) months prior to the expiration of the
then-current Term. In the event that Tenant disagrees with Landlord's Fair
Market Rental Rate, then Tenant shall have the right to have the Fair
Market Rental Rate determined by appraisal, in which event Tenant shall
deliver written notice to Landlord no later than thirty (30) days after
receipt of Landlord's Extension Rent Notice, which written notice shall
request an appraisal determination of the Fair Market Rental Value, and
shall name an appraiser who must have at least ten (10) years experience in
the analysis of the rental value of, or the leasing of, office buildings in
the metropolitan Richmond, Virginia market. Within twenty (20) days after
receipt of the notice from Tenant, Landlord shall, by written notice to
Tenant, name a second appraiser with at least ten (10) years experience in
the analysis of the rental value of or the leasing of office buildings in
the metropolitan Richmond, Virginia market, and each such appraiser shall
independently render its opinion of the Fair Market Rental Rate of the
Premises on the basis set forth in the immediately preceding paragraph.
The two (2) appraisers shall within thirty (30) days after Landlord names
its appraiser, each simultaneously submit to Landlord and Tenant a sealed
envelope containing their opinion of the Fair Market Rental Rate for the
Premises. If the two opinions differ by ten (10%) or less, then the two
opinions shall be added together and divided by two (2) to determine the
Fair Market Rental Rate for the Premises.
If the two opinions differ by more than ten percent (10%), then
the two appraisers shall agree upon and select a third appraiser with at
least ten (10) years experience in the analysis of the rental value or the
leasing of office buildings in the metropolitan Richmond, Virginia market.
If the two appraisers appointed by Landlord and Tenant are unable to agree
upon a third appraiser within ten (10) days after being notified by either
Landlord or Tenant that a third appraiser is required, then either Landlord
or Tenant may petition the Central Virginia Chapter of the Appraisal
Institute to appoint a third appraiser with the aforesaid requisite
experience. The third appraiser shall render its opinion of the Fair
Market Rental Rate for the Premises and in doing so shall have access to
and shall review the previous opinions by the initial two (2) appraisers.
The third appraiser shall, within thirty (30) days after being selected,
simultaneously submit to Landlord and Tenant a sealed envelope containing
its opinion of the Fair Market Rental Rate for the Premises, provided that
in no event shall the opinion of the third appraiser be higher than the
higher of the opinions of the initial two (2) appraisers or lower than the
lower of the opinions of the initial two (2) appraisers. Subject to the
foregoing limitation, the opinion of the third appraiser shall be
conclusive and final in determining the Fair Market Rental Rate for the
Premises.
Landlord shall send to Tenant written notification of the Rent
payable for the first extension Term or the second extension Term, as
applicable, calculated in accordance with Section 4.01(ii) or (iii), as
applicable, and calculated in accordance with the foregoing provisions, as
soon as possible after the applicable Fair Market Rental Rate shall have
been determined.
If for the first extension Term the initial two (2) opinions are
within ten percent (10%) of each other, then either or both of the initial
appraisers shall be eligible to serve at the second extension, but if such
initial two (2) opinions are not within ten percent (10%) of each other,
then none of the first three (3) appraisers shall be eligible to determine
the Fair Market Rental Rate for the second extension Term.
Landlord and Tenant shall each pay the cost and expense of the
appraiser appointed by it and each shall pay fifty percent (50%) of the
fees and expenses of the third appraiser.
Section 4.02. Additional Rental. Tenant covenants and agrees to
pay to Landlord, from time to time as provided in this Lease, and as
"Additional Rental":
(a) interest (hereinafter called "Interest") at the annual rate
equal to the "prime rate" as announced by NationsBank or its
successors, plus five percent (5%) on all installments of Rent not
paid within five (5) days after the due date, until the date of
payment;
(b) all other costs, expenses, amounts and sums which Tenant
herein agrees to assume or pay to third parties in those circumstances
where Tenant shall not be contesting the same in accordance with
Section 11.01 of this Lease (and is not obligated to make payment
pursuant to such provisions) and where Tenant shall fail or refuse to
pay such third parties and the same is paid instead by Landlord after
any prior written notice to Tenant if and to the extent such notice is
required hereunder; and
(c) Interest at the rate specified above on the sums described
in subparagraph (b) from the date paid by Landlord until paid or, if
demand is required therefor by the terms of this Lease, from the date
of demand until paid after requisite notice of failure of Tenant to
pay if and to the extent any further such notice is required
hereunder.
In the event of any failure on the part of Tenant to pay any Additional
Rental, Landlord shall have all the rights, powers and remedies provided
for in this Lease or at law or in equity or otherwise in the event of the
nonpayment of Rent.
Section 4.03. Net Lease; Non-Termination. This Lease is a net
Lease and Rent and Additional Rental shall be paid without notice, demand
(except as expressly provided herein in the case of certain Additional
Rental), counterclaim, setoff, offset, deduction or defense, and without
abatement, suspension, deferment, diminution or reduction. Except as
otherwise provided in this Lease, this Lease shall not terminate nor shall
Tenant have any right to terminate this Lease or be entitled to the
abatement of any Rent hereunder or any reduction thereof, nor shall the
obligations of Tenant under this Lease be otherwise affected, by reason of:
(a) any damage to or destruction of all or any portion of the
Premises from whatever cause, except as provided in ARTICLE XIII or
ARTICLE XIV;
(b) the prohibition, limitation or restriction of or
interference with Tenant's use of all or any portion of the Premises
(except when such constitutes a willful breach of Landlord's covenant
of quiet enjoyment contained in Section 3.03 hereof caused by the
intentional acts of Landlord);
(c) the failure on the part of Landlord to perform or comply
with any term, provision or covenant of any other agreement to which
Landlord and Tenant may be parties;
(d) the entry of a decree or order for relief by a court having
jurisdiction over the Premises in respect of Tenant in an involuntary
case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of
Tenant or for any substantial part of its property, or ordering the
winding-up or liquidation of its affairs and the continuance of any
such decree or order unstayed and in effect for a period of sixty (60)
consecutive days;
(e) the commencement by Tenant of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or other
similar law, or the consent by it to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Tenant or for any
substantial part of its property, or the making by it of any
assignment for the benefit of creditors, or the failure of Tenant
generally to pay its debts as such debts become due, or the taking of
corporate action by Tenant in furtherance of any of the foregoing; or
(f) any claim which Tenant has or might have against Landlord.
Except as otherwise expressly provided in this Lease, Tenant waives, to the
extent permitted by law, all rights now or hereafter conferred by statute
or otherwise to quit, terminate or surrender this Lease or the leasehold
estate in the Premises or any part thereof, or to any abatement,
suspension, deferment, diminution or reduction of Rent. It is the purpose
and intent of Landlord and Tenant that Rent and Additional Rental (where
payable to Landlord) shall be absolutely net to Landlord, so that this
Lease shall yield, net, to Landlord, the Rent specified in Section 4.01 and
the Additional Rental specified in Section 4.02 hereof throughout the Term,
and, except as provided in Section 5.01 and Section 11.01 and except as
otherwise expressly provided in this Lease, that to the extent permitted by
law, (i) all costs, expenses and obligations of every kind or nature
whatsoever relating to the Premises which may arise and become due as
specified in Sections 5.01 and 5.02 hereof or elsewhere herein during the
Term shall be paid by Tenant, and (ii) Landlord shall be indemnified and
saved harmless by Tenant from and against the same.
ARTICLE V
TAXES, ASSESSMENTS AND CHARGES
Section 5.01. Taxes and Assessments. Subject, to the extent
applicable, to the following provisions of this Section 5.01 and to the
provisions of Sections 5.03 and 11.01 hereof (concerning "Permitted
Contests"), Tenant covenants and agrees to discharge and pay before the
same become delinquent and before any fine, penalty or interest may be
added for nonpayment, any and all taxes, assessments, license or permit
fees, excises, water rates and charges, governmental, community and private
assessments, imposts and charges of every nature and classification,
general and special, ordinary and extraordinary, unforeseen as well as
foreseen, of every kind and nature whatsoever (all or any one of which are
hereinafter referred to as "Tax") that at any time during the Term and any
extension thereof are levied, assessed, charged, laid or imposed, or become
due and payable, upon the Premises or Landlord's fee simple and/or
reversionary interest in the Premises or any Rent or Additional Rental
reserved or payable hereunder (including any gross receipts or other taxes
levied upon, assessed against or measured by the Rent or Additional
Rental); provided, however, that if at any time during the Term the methods
of taxation prevailing at the commencement of the Term shall be altered so
that any imposition which at the commencement of or during the Term is or
shall be levied, assessed or imposed on real estate and the improvements
thereon is thereafter levied, assessed or imposed wholly or partially
(a) on the rents received from real estate or the improvements thereon, or
(b) as a tax assessment, levy or license fee (regardless of the form and
regardless of the taxing authority) upon Landlord, measured by Rent and
Additional Rental payable under this Lease, then all such substitute taxes,
assessments, levies or license fees shall be deemed to be included within
the meaning of the term "Tax" for purposes hereof, and Tenant shall pay and
discharge the same as herein provided in respect to the payment of Tax.
Tax due during the final year of the Term, or if this Lease is extended,
the final year of any extension Term, will be prorated.
Notwithstanding any provision in this Lease to the contrary,
(i) Tenant shall not be deemed to be in default under this Lease until ten
(10) days after Tenant has received copies of such bills and assessments
for Taxes (whether from Landlord or from the authority imposing such
Taxes); (ii) except for any tax now or hereafter imposed specifically on
rents, Tenant shall not be required to pay or reimburse Landlord for the
payment of Landlord's federal, state or local income tax (including any
interest, penalties and additions to tax thereon or thereto) or any profit,
inheritance, estate, succession, gift or franchise tax (regardless how
named or denominated), any transfer tax imposed upon the sale of all or a
part of Landlord's interest in the Premises, any tax, assessment, charge or
levy imposed or levied upon or assessed against any property other than the
Premises, any income or any business activity of Landlord, or any tax
resulting from the misconduct (including tax fraud) of Landlord.
Section 5.02. Charges. Subject, to the extent applicable, to
the provisions of Sections 5.01, 5.03 and 11.01 hereof (concerning
Permitted Contests), Tenant covenants and agrees that it shall pay in
accordance with usual and customary business practices, as such shall
become due, all charges for all public or private utility services and
other services and service contracts with respect to the Premises
including, but not limited to, water, sewer, gas, light, heating and air
conditioning, telephone, telecommunications, electricity, trash removal,
security, power and other utility and communications services (all or
anyone of which are hereinafter referred to as a "Charge") that at any time
during the Term are rendered or become due and payable with respect to the
Premises.
Section 5.03. General. Tenant shall prepare and file all
reports and returns required by law and governmental regulations with
respect to any Tax and shall furnish copies thereof to Landlord. Landlord
and Tenant shall promptly forward to the other, upon receipt, copies of any
bill or assessment respecting any Tax or Charge; provided, however, that if
(i) Tenant has not received a copy of a bill or assessment respecting any
Tax or Charge from any party other than Landlord, (ii) Landlord has
received a copy of such bill or assessment and has failed to deliver such
copy of such bill or assessment to Tenant within fifteen (15) days after
Landlord's receipt of such bill or assessment, (iii) as a result thereof
Tenant has received such copy of such bill or assessment less than five (5)
business days prior to the date such payment under such bill or assessment
is due, and (iv) Tenant pays such bill or assessment within five (5)
business days after receipt of such copy of such bill or assessment, then,
to the extent that any penalty or interest or late charge is incurred as a
result of the foregoing, Landlord shall be liable for, and shall pay or
reimburse Tenant for, promptly upon demand, such penalties or interest or
late charge. Upon request of Landlord, Tenant agrees to furnish and
deliver to Landlord receipts evidencing the payment of any Tax and/or
Charge payable by Tenant as in Sections 5.01 and 5.02 provided. If any Tax
and/or Charge may be paid in installments, Tenant shall be obligated to pay
only such installments as they become due; provided, however, that any and
all installments which are incurred during the Term, as the same may be
extended, and become due and payable after the expiration of the Term shall
be paid on or before the date which is prior to the expiration of the Term,
or, in event of the termination of this Lease, prior to the date of such
termination. Any Tax or Charge for the year in which this Lease terminates
or expires shall be prorated between Landlord and Tenant as of such
termination or expiration date, except that Landlord shall not be liable
for any Charge arising pursuant to a private service contract, which
contract is not terminable upon thirty (30) or fewer days notice to the
service contract party, and that Landlord shall not be liable for any
Charge which is incurred on account of Tenant's occupancy of the Premises
or Tenant's business within the Premises and not on account of the
operation and maintenance of the Premises. Subject, to the extent
applicable, to the provisions of Sections 5.01 and 11.01 and the other
provisions of this Section 5.03, if Tenant fails to pay any Tax and/or
Charge (or any installment thereof) when due, Landlord, after prior notice
to Tenant and Tenant's continued failure to pay or contest the same within
five (5) business days after receipt of such notice (provided, however,
that Landlord shall not be obligated to deliver such prior notice to
Tenant, and Tenant shall not be entitled to such cure period, with respect
to any Tax or Charge as to which Tenant has theretofore received a copy of
such bill or assessment or other notice of the due date thereof from
Landlord), without declaring a default hereunder, may, but shall not be
obligated to, pay any such Tax and/or Charge (or any installment thereof)
and any amount so paid by Landlord, together with all reasonable costs and
expenses incurred by Landlord in connection therewith, shall constitute
Additional Rental hereunder and shall be paid by Tenant to Landlord on
demand with Interest thereon in the manner provided in Section 4.02.
Tenant's obligation to pay Taxes and Charges which accrue during the Term
and any extension thereof shall survive any termination of this Lease. If
Landlord shall receive a refund of all or part of any Tax or Charge paid by
Tenant with respect to the Premises, then, so long as there is no Event of
Default hereunder, Landlord shall pay the same to Tenant promptly upon
receipt thereof, which obligation of Landlord shall survive any expiration
of this Lease or any termination of the Lease which arises other than on
account of the breach or default of the Tenant.
ARTICLE VI
CONDITION AND USE OF THE PREMISES
Section 6.01. Condition of the Premises. Tenant, being the
parent corporation of Evanston Insurance Company, which has this day sold
the Premises to Landlord, hereby acknowledges, warrants, represents,
covenants and agrees that the Premises in its present state is accepted as
being in good order and condition and that the Premises comply in all
respects with the requirements of this Lease, and is in all respects
suitable for the purposes intended by Tenant. Landlord leases the Premises
and Tenant accepts the Premises, "as is" at the date hereof without
representation or warranty by Landlord, express or implied, in fact or by
law, and without recourse to Landlord, with respect to: (i) the condition
of the Premises, including, but not limited to the soil and subsurface
conditions thereof; (ii) the ability to use the Premises for any particular
purpose; (iii) access to or from the Premises; (iv) the existence or
adequacy of present or future availability of any utilities to service the
Premises, including, but not limited to, drainage and sewage facilities; or
(v) any other matter whatsoever with respect to the Premises.
Section 6.02. Maintenance and Repairs. Except for repairs
caused by the willful misconduct or gross negligence of Landlord, or its
agents, employees, contractors or servants (which Landlord shall promptly
and properly repair, at Landlord's sole cost and expense, to a condition at
least as good as existed immediately prior to such act by Landlord, or its
agents, employees, contractors or servants of gross negligence or willful
misconduct), Tenant shall, at its own cost and expense, maintain the
Premises, including the buildings and improvements now or at any time
erected thereon, the exterior walls, roofs, foundations and structural
frame of any and all such improvements or buildings, the interior of any
and all such improvements or buildings, including, but not limited to, the
electrical systems, heating, air conditioning and ventilation systems,
plate glass, windows and doors, sprinkler and plumbing systems, and any
access ways and other paved areas upon the Premises and the sidewalks,
curbs, roadways, parking areas, landscaping, grounds, fences and vaults, if
any, and all other items of the Premises and improvements, exterior and
interior, structural and nonstructural, in good, first class and Class "A"
order, condition and repair, in a manner not less than the order, condition
and repair of other first class office buildings in the Innsbrook Corporate
Center development, ordinary wear and tear excepted, subject to Tenant's
obligation to provide such ongoing maintenance of the Premises, including
repairs as necessary of items suffering from ordinary wear and tear, which
will maintain the Premises and improvements in the foregoing first class
order, condition and repair. Tenant shall promptly at the Tenant's sole
cost and expense make all necessary repairs, interior and exterior,
structural and non-structural, ordinary as well as extraordinary, foreseen
as well as unforeseen, with respect to the foregoing items of maintenance
and repair. Repairs shall include replacements or renewals when reasonably
necessary, and all such repairs made by the Tenant shall be equal in
quality and class to the original work. Tenant shall keep and maintain all
portions of the Premises and the sidewalks, walkways and parking areas
adjoining the same in a clean and orderly condition, free of accumulation
of dirt, rubbish, snow and ice. Without limiting the foregoing, on or
before November 1, 1995 Tenant shall repair, replace and/or renovate, as
applicable, the items of repair set forth in that certain letter from
Landlord to Tenant dated June 8, 1995, a copy of which is attached hereto
as Exhibit "G".
Section 6.03. Tenant's Personal Property; Indemnity. All
personal property now or hereafter placed or installed in the Premises by
Tenant or any other occupant of the Premises or any part thereof, whether
owned or leased ("Trade Fixtures") shall be and remain Tenant's or such
other occupants' property at Tenant's or such other occupants' sole risk,
and Landlord shall not be liable for and Tenant hereby releases Landlord
from any and all liability for theft thereof or any damage thereto except
for damage caused by the willful misconduct or gross negligence of Landlord
or its agents, employees, contractors or servants, from which liability
Landlord is not hereby released. Tenant and such other occupants shall
have the right to install in the Premises additional Trade Fixtures
required by them or used by them in their business or otherwise desired by
them and otherwise in accordance with applicable law and lease (or
sublease) restrictions, and to remove any and all Trade Fixtures upon
expiration or termination of this Lease; provided, however, that Tenant
shall repair and restore any damage or injury to the Premises (to the
condition in which the Premises existed prior to such installation, whether
prior to, contemporaneous with or subsequent to the date of this Lease,
ordinary wear and tear excepted, subject to Tenant's obligation to provide
such ongoing maintenance of the Premises, including repairs as necessary of
items suffering from ordinary wear and tear, which will maintain the
Premises and improvements in the foregoing first class order, condition and
repair) caused by the installation and/or removal of any such Trade
Fixtures.
Section 6.04. Changes and Alterations. Provided no Event of
Default has occurred and is continuing, Tenant may at its sole cost and
expense make changes and alterations (both structural and non-structural)
to the improvements located on the Premises or any part thereof, as the
Tenant shall deem necessary or desirable, which such changes and
alterations shall be made in all cases subject to the following conditions
which Tenant covenants hereby to observe and perform:
(a) No change or alteration shall be undertaken until Tenant
shall have procured and paid for all applicable permits and
authorizations required with respect to such change or alteration by
any applicable municipal, county, state and other governmental permits
and authorizations of the entity having jurisdiction over the Premises
and such changes and alterations and Landlord hereby agrees, at no
cost to Landlord, to join in the application for such permits or
authorization whenever such action is necessary;
(b) No structural change or alteration shall be undertaken until
detailed plans and specifications have first been submitted to
Landlord and have been approved in writing by the Landlord. Once
approved, no changes to such structural plans and specifications may
be made without the prior written consent of Landlord, which consent
to such changes shall not be unreasonably withheld;
(c) No changes or alterations involving an estimated cost of
more than $500,000.00 ("Significant Alterations") shall be undertaken
until either (i) Tenant shall have furnished to Landlord, at Tenant's
sole cost and expense, a bond on which Tenant shall be the principal,
and a surety company authorized to do business in the state of
Virginia and reasonably satisfactory to Landlord shall be surety, and
in form and content reasonably satisfactory to Landlord, conditioned
upon the completion of and payment in full for such changes or
alterations within a reasonable time, subject, however, to delays
occasioned by strikes, lockouts, acts of God, inability to obtain
labor or materials, governmental restrictions or similar causes beyond
the control of Tenant, or (ii) Tenant shall have deposited with a
national bank or title insurance company chosen by Landlord, subject
to the consent of Tenant which shall not be unreasonably withheld,
conditioned or delayed, to serve as escrow agent (the "Escrow Agent")
a sum sufficient to pay the entire cost of such change or alteration
as estimated by the architect or engineer under whose supervision the
work is to be conducted, under an agreement whereby the Escrow Agent
shall from time to time pay out sums upon the written request of
Tenant, which shall be accompanied by a certificate of the architect
or engineer in charge of the work, stating (x) that the sum requested
is justly due to the contractors, subcontractors, material suppliers,
laborers, engineers, architects or other persons, firms or
corporations rendering services or materials for such changes or
alterations, or is justly required to reimburse Tenant for
expenditures made by Tenant in connection with such changes or
alterations, and when added to all sums previously paid by the
Landlord does not exceed the value of the work done to the date of
such certificates; and (y) that the remaining funds so deposited by
Tenant with the Escrow Agent will be sufficient upon completion of
such work to pay for the same in full and, upon submission of proof
reasonably satisfactory to Landlord that the work has been paid for in
full, turn over to Tenant the balance of the funds so deposited by
Tenant with Escrow Agent, with interest, to the extent any has been
earned on such deposit. Tenant shall also furnish Landlord at the
time of any such request for payment with an official title search,
endorsement to title insurance commitment or other title examination
satisfactory to Landlord, that there has not been filed with respect
to the Premises any mechanics or other lien which has not been
discharged of record or bonded off in respect of any work, labor,
services or materials performed, furnished or supplied, or claimed to
have been performed, furnished or supplied, in connection with any
such work. Escrow Agent shall not be required to pay out any such sum
when the Premises shall be encumbered with any such lien, unless the
lien has been discharged from the Premises by bonding or otherwise and
no longer encumbers the Premises.
(d) All Significant Alterations shall be conducted under the
supervision of an architect or engineer and performed by a contractor,
each of whom shall be licensed by all applicable authorities, insured
to the reasonable satisfaction of Landlord and otherwise acceptable to
Landlord in Landlord's reasonable discretion.
(e) All changes and alterations when completed shall be of a
character as not to reduce, or otherwise adversely affect, the
then-existing value of the Premises, nor to reduce the square footage
of the Premises, nor change the character of the improvements as to
the use thereof.
(f) All work done in connection with any change or alteration
shall be done promptly and in a good and workmanlike manner and in
compliance with all applicable building, zoning and other laws of the
jurisdictions in which the Premises are located and with all
applicable laws, ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments and the
appropriate departments, commissions, boards and officers thereof, and
in accordance with the applicable orders, rules and regulations of the
Board of Fire Underwriters where the Premises are situated or any
other body exercising similar functions; the cost of any such change
or alteration shall be paid in cash so that the Premises shall at all
times be free of liens for labor and materials supplied or claimed to
have been supplied to the Premises. The work of any change or
alteration shall be prosecuted with reasonable dispatch, delays due to
strikes, lockouts, acts of God, inability to obtain labor or
materials, governmental restrictions or similar causes beyond the
control of Tenant excepted. Tenant shall maintain or cause its
contractors to maintain, (and, with respect to all Significant
Alterations, deliver to Landlord within thirty (30) days after notice
from Landlord requesting evidence of such insurance), the following
insurance with respect to such work, which insurance shall be
maintained by such contractors (or, at Tenant's option, by Tenant) at
all times when any work is in process in connection with any change or
alteration: (i) workman's compensation insurance to the extent
required by law (which may, to the extent permitted by law, be
maintained by Tenant in lieu of the contractor) covering all persons
employed in connection with the work and with respect to whom death or
injury claims could be asserted against Landlord, Tenant or the
Premises, and (ii) general liability insurance for the mutual benefit
of Tenant and Landlord (which may, to the extent permitted by law, be
maintained by Tenant in lieu of the contractor) in accordance with
Section 12.01(i); without limiting the foregoing, with respect to
changes or alterations which are not Significant Alterations, Tenant's
insurance coverage covering the aforesaid risks shall be satisfactory
evidence of compliance with this requirement. All such insurance
shall be in a company or companies authorized to do business in the
state of Virginia and reasonably satisfactory to Landlord, and all
such policies shall be delivered endorsed "premium paid" by the
company or agency issuing the same or with other commercially
reasonable evidence of payment of the premium reasonably satisfactory
to Landlord.
(g) All improvements and alterations (other than Trade Fixtures)
made or installed shall immediately upon completion of installation
thereof be and become the property of Landlord without payment
therefor by Landlord, and shall be surrendered to Landlord upon
expiration or sooner termination of the initial Term or any extension
Term of this Lease.
(h) Anything in this Lease to the contrary notwithstanding,
Tenant shall not be obligated at the end of the initial Term or any
extension Term of this Lease to remove, change or restore to their
original condition any improvements, changes or alterations to the
Premises permitted hereby. To the extent that any covenant of this
Lease requires restoration to the state of the Premises as of the date
hereof, and as to such permitted improvements, changes or alterations,
Tenant shall be obligated at the end of the initial Term or extension
Term of this Lease to restore such permitted improvements, changes or
alterations to substantially their condition as of the later of the
date hereof or the date of the completion of their construction or
installation pursuant to the terms of this Article VI, in accordance
with the standards, subject to the provisions and in compliance with
the terms set forth in Section 6.02 hereof.
ARTICLE VII
ADDITIONAL TENANT COVENANTS
Section 7.01. Compliance with Laws. Tenant shall, at Tenant's
sole cost and expense, and subject to all of the provisions of this
Section 7.01, promptly comply in all respects with any and all present and
future laws, ordinances, rules, regulations, directives and standards of
all federal, state, county and municipal governments and all departments
and agencies thereof having jurisdiction over the Premises ("laws"),
including but not limited to, the making of all changes to the Premises
which now or hereafter may be required in order to comply with the
foregoing.
Section 7.02. Liens and Encumbrances. Subject, to the extent
applicable, to the provisions of Sections 5.01, 5.03 and 11.01 hereof
(concerning Permitted Contests) and except for (i) the encumbrances set
forth in Exhibit "B", (ii) any judgment or other liens placed on the
Premises or any part thereof by or against Landlord or which result from
any act of or claim against Landlord and which judgment or other lien does
not arise from an obligation of Tenant pursuant to this Lease, (iii) liens
for Taxes, to the extent not yet due and payable, (iv) easements, rights of
way, covenants, conditions and restrictions and other encumbrances on the
Premises or any part thereof which are placed thereon subsequent to the
Commencement Date by Landlord or hereafter which are consented to in
writing by Landlord; provided, however, that Landlord hereby agrees that
it shall, promptly upon written request, execute and deliver such
easements, agreements, terminations and/or other documents or instruments
(the "Easement Relocation Documents") reasonably necessary to relocate the
access road in front of the entrance to the building located on the
Premises to another location, so long as such new location shall not reduce
any parking for the Premises and any such relocation shall be accomplished
at no expense to Landlord, which Easement Relocation Documents shall be in
form satisfactory to Prudential (and Prudential agrees that it shall not
unreasonably withhold, condition or delay its consent to, and execution of,
the form of such Easement Relocation Documents), provided, however, that
Landlord shall have the right to require as a condition to Landlord's
execution of such Easement Relocation Documents that Landlord's owner's
policy of title insurance be appropriately endorsed to reflect such
relocation (and/or termination of such existing easement) and the
modification of the insured access easement, including an updated survey
and survey endorsement coverage showing the new location of the relocated
access easement and road, and (v) leases, subleases and licenses for all or
any part of the Premises in accordance with the terms of this Lease which
shall terminate or expire on or prior to the expiration or termination of
the current Term of this Lease (being the term of this Lease as then
currently exercised by Tenant, and not any extension Terms which have not
yet been exercised by Tenant), Tenant shall not create or permit to be
created or to remain, and, shall promptly discharge or remove or otherwise
render ineffective by payment or posting of a surety bond, or otherwise,
within ninety (90) days after filing of such lien, at its sole cost and
expense, any lien, encumbrance or charge (each or all of which are herein
referred to as "Lien") upon the Premises, or any part thereof or upon
Tenant's leasehold estate hereunder that arises from the use or occupancy
of the Premises by Tenant or by reason of any labor, service or material
furnished or claimed to have been furnished to Tenant or by reason of any
construction, repair or demolition by Tenant. Notice is hereby given that
Landlord shall not be liable for the cost and expense of any labor,
services or material furnished or to be furnished with respect to the
Premises at or by the direction of Tenant or anyone holding the Premises or
any part thereof by, through or under Tenant and that no laborer's,
mechanic's or materialman's or other lien for any such labor, services or
materials shall attach to or affect the interest of Landlord in and to the
Premises. Nothing in this Lease contained shall be deemed or construed in
any way as constituting the consent or request of Landlord, express or
implied, by inference or otherwise, to any contractor, subcontractor,
laborer or materialman for the performance of any labor or the furnishing
of any materials for any specific improvements or repair to or of the
Premises or any part thereof, nor as giving Tenant any right, power or
authority on behalf of Landlord to contract for or permit the rendering of
any services or the furnishing of any materialsthat would give rise to the
filing of any lien against the Premises or any part thereof. If Tenant
fails to discharge, remove or otherwise render ineffective by payment,
posting of a surety bond, or otherwise, any Lien or to pay the cost of
compliance with any regulation as hereinabove provided, within thirty (30)
days after the date of filing of (or, if later, fifteen (15) days after the
date on which Tenant receives written notice from any party of) such Lien
or the due date of such Charge, Landlord, without declaring a default
hereunder and without relieving Tenant of any liability hereunder, may, but
shall not be obligated to, discharge or pay the same, either by paying the
amount claimed to be due or by procuring the discharge of such Lien by
deposit or by bonding proceedings, and any amount so paid by Landlord and
all reasonable costs and expenses incurred by Landlord in connection
therewith shall constitute Additional Rental hereunder and shall be paid by
Tenant to Landlord on demand with Interest thereon. Landlord shall
cooperate with Tenant, at Tenant's sole cost and expense, as may be
reasonably necessary in connection with any litigation concerning such Lien
or Charge, provided that any such cooperation shall be fully consistent
with Landlord's interests in Landlord's sole discretion.
In addition, Tenant agrees that Tenant shall use its best efforts in
good faith to obtain the modification of that certain Agreement (the "Dam
Easement") by and between The Innsbrook Corporation, a Virginia
corporation, The County of Henrico, and J.K. Timmons and Associates, Inc.,
a Virginia corporation, dated September 27, 1984, recorded December 12,
1984, in Deed Book 1937, at Page 872, Henrico County, Virginia records to
address the following objection to title to the Premises: a portion of the
Dam Easement provides for a dam reconstruction easement, which is located,
in part, under the building located on the Premises. The Dam Easement must
be modified to release the building area from the easement, by such
modification instruments(the "Dam Easement Modification Documents") as may
be acceptable to Landlord, which consent shall not be unreasonably
withheld, delayed or conditioned, provided, however, that Landlord shall
have the right to require as a condition to Landlord's approval of such Dam
Easement Modification Documents that Landlord's owner's policy of title
insurance be appropriately endorsed to reflect such release or relocation
(and/or termination of such existing easement) and the modification of the
location of the Dam Easement, including an updated survey and survey
endorsement coverage showing the new location of the relocated Dam
Easement. Tenant shall use its best efforts to obtain such Dam Easement
Modification Documents (including the retaining of engineers, surveyors and
attorneys in order to analyze, effect and draft such Dam Easement
Modification Documents and attendant plans and proposals), on or before
August 1, 1996, and Tenant shall keep Landlord apprised of all material
efforts to obtain such Dam Easement Modification Documents. In the event
that Tenant is unable to obtain such Dam Easement Modification Documents on
or before August 1, 1996, then Landlord shall thereafter have the right to
attempt in good faith to obtain such Dam Easement Modification Documents,
at the sole cost and expense of Tenant (up to a limit of $50,000.00, with
Landlord expenditures in excess thereof to be paid for by Landlord);
provided, however, that Landlord shall cooperate with Tenant in an effort
to minimize such costs and expenses, and Landlord shall keep Tenant
apprised of all material efforts to obtain such Dam Easement Modification
Documents. Each of Landlord and Tenant shall coperate with the other in
such efforts to obtain such Dam Easement Modification Documents.
Notwithstanding any provisions of this Lease to the contrary, in the event
that Landlord is not able to obtain such Dam Easement Modification
Documents, Tenant shall have no further liability or responsibility
whatsoever with respect to the relocation of the Dam Easement or the
obtaining of the Dam Easement Modification Documents.
Section 7.03. Financial Reports and Operating Statements.
Annually, and quarterly where specified, Tenant shall furnish to Landlord
the financial information as follows:
(a) Certified Public Accountant ("C.P.A.") audited financial
statements of Tenant for the most current fiscal year prepared and
certified in accordance with generally accepted accounting principles
and stating specifically in a certification addressed to Landlord that
such C.P.A. acknowledges that Landlord is relying thereon; for so long
as Tenant is a publicly held company, such certification may be in the
form as generally distributed to Tenant's shareholders and may be
delivered simultaneously with the distribution thereof to Tenant's
shareholders and the public; and
(b) Quarterly unaudited financial statements prepared by Tenant
in the form as generally distributed to Tenant's shareholders, to be
delivered simultaneously with the distribution thereof to Tenant's
shareholders and the public; and
(c) Internally prepared unaudited budget and expense operating
statements for the Premises (including income and expenses, an annual
rents schedule or copies of all subleases and amendments thereto not
previously delivered to Landlord and a list of any subleases which
have terminated) certified by Tenant to the best of Tenant's knowledge
to be true and correct in all material respects (the "Operating
Statements"); and
(d) Copies of paid tax receipts for the Premises for the most
recent tax year; and
(e) A certified rent roll of all subleases of any portion of the
Premises, in such detail as Landlord may reasonably require.
In addition, on a quarterly basis, Landlord may request that Tenant shall
furnish to Landlord quarterly Operating Statements for the Premises
certified by Tenant to the best of Tenant's knowledge. All of the reports,
statements, and items required under this Section shall be complete and
accurate in all material respects and all such statements shall be in form
and substance reasonably satisfactory to Landlord in all material respects.
Tenant agrees to provide Landlord with such material additional financial,
management, or other information regarding Tenant and the Premises as
Landlord may reasonably request; provided, however, that for so long as
Tenant is a publicly held corporation, in the event that Landlord requests
such additional information regarding Tenant (and not relating solely to
financial information with respect to the Premises), Tenant shall have no
obligation to deliver any such information regarding Tenant which is not
otherwise publicly available, and any non-public information forwarded to
Landlord hereunder and identified by Tenant as "confidential" shall be kept
confidential by Landlord. Except as otherwise set forth above, all of the
annual reports, statements, and items required under this Section must be
received each year this Lease is in force by the date which is one hundred
twenty (120) days after the end of the Tenant's fiscal year. In addition,
Tenant shall allow Landlord or its authorized representatives at all
reasonable times and, so long as there is no Event of Default under this
Lease, upon not less than ten (10) business days prior notice, to examine
and make copies of all such books and records and all supporting data for
the Operating Statements and other records relating to the Premises to be
delivered to Landlord pursuant to the foregoing provisions of this Section
at Tenant's principal place of business or at such other place where such
books, records, and data may be located. Tenant, at no cost or expense to
Tenant so long as there is not an Event of Default under his Lease, shall
cooperate with Landlord or such representative in effecting such
examination.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Indemnification. Tenant covenants and agrees to
indemnify, defend, and save harmless Landlord from and against any and all
liability, loss, damage, causes of action, suits, claims, demands or
judgments of any nature whatsoever (a) arising from any injury to or the
death of any person or damage to any property occurring on the Premises,
(b) in any manner arising out of or connected with the use, non-use,
condition, possession, operation, maintenance, management or occupation of
the Premises or any part thereof during the Term of this Lease or any
extensions thereof, (c) any negligence on the part of the Tenant or its
agents, contractors, servants, employees, licensees or invitees, or
(d) resulting from the violation by Tenant of any term, condition or
covenant of this Lease or of any contract, agreement, restriction, or
regulation affecting the Premises or any part thereof during the Term of
this Lease or any extensions thereof or the ownership, occupancy or use
thereof. Tenant, at its sole cost and expense, shall defend Landlord
against such causes of action, suits, claims, and demands and be
responsible for such judgments as to which Landlord is indemnified. In no
event, however, shall Tenant be obligated to indemnify, defend or save
harmless Landlord from any such liability, loss, damage, cause of action,
suit, claim, demand or judgment if the same shall be caused by, arise out
of or be in any manner connected to any gross negligence or willful
misconduct of Landlord or its agents, employees, contractors, servants,
successors or assigns. Promptly upon receipt by Landlord of any summons,
complaint, lawsuit, charge or process in which there shall be asserted any
causes of action, suits, claims or demands against which Landlord is
indemnified in this Section 8.01, Landlord shall promptly cause the same to
be transmitted and delivered to Tenant unless it is manifest from such item
that such item has also been delivered to or served on Tenant. Without
diminishing any of Tenant's obligations set forth above (except that if and
to the extent that Tenant is not aware of a matter and Landlord is aware of
a matter, Tenant shall not have an obligation to undertake the
indemnification actions set forth above in this Section 8.01 unless and
until Landlord has delivered to Tenant the following notice of such a
matter), Landlord shall deliver to Tenant written notice of the assertion
in writing against Landlord of any such cause of action, suit, claim or
demand promptly after Landlord receives knowledge thereof or the threat
thereof unless it is manifest that Tenant has theretofore received written
notice of such assertion. The obligations of Tenant and Landlord under
this Section 8.01 shall survive any termination of this Lease and any
transfer or assignment by Landlord or Tenant of this Lease or any interest
hereunder. Without diminishing any of Tenant's obligations set forth
above, Landlord agrees to cooperate, at the sole cost and expense of
Tenant, with Tenant in connection with any defense, counterclaim, or
cross-claim required by Tenant under this Section 8.01 in a manner which is
reasonably acceptable to Landlord and is consistent with the interests of
Landlord.
ARTICLE IX
SURRENDER
Section 9.01. Surrender. Upon the Expiration Date or any
termination of this Lease, Tenant shall peaceably quit and surrender the
Premises to Landlord, and any and all machinery and equipment constructed,
installed or placed by Tenant thereon, which is used in or necessary for
the operation of the Premises, excepting Trade Fixtures, inventory,
merchandise and other personalty not comprising the Premises. In the event
there is no Event of Default under this Lease, beyond any applicable grace
or cure periods herein provided, Tenant shall have the right upon a
termination or expiration of this Lease to remove from the Premises all
Trade Fixtures and other personal property and equipment located on the
Premises, except for machinery and equipment used in and necessary to the
operation of the Premises. Any Trade Fixtures or other machinery and
equipment not so removed by Tenant on or before termination or expiration
of this Lease shall become the property of Landlord.
Section 9.02. Release of Landlord's Lien on and Removal of Trade
Fixtures. All Trade Fixtures shall be exempt from the claims of any
Mortgagee or lien holder of Landlord without regard to the means by which
or the persons by whom the same are installed in or attached to the
Premises. Landlord agrees to execute and deliver a waiver on the form
reasonably specified by the owner of any Trade Fixtures which relinquishes
any rights Landlord may now or hereafter have by virtue of this Lease to
the Trade Fixtures, except any rights which Landlord may hereafter hold as
a money judgment creditor (on the same basis and priority as other money
judgment creditors) in the event of an Event of Default and a levy or
judgment against Tenant for amounts due Landlord hereunder. Tenant, at its
sole cost and expense, shall have the right at any time or from time to
time to remove any Trade Fixtures, and upon Landlord's written request
therefor, shall remove on the termination or expiration of this Lease all
or any Trade Fixtures from the Premises. Tenant, at its sole cost and
expense, shall repair any damage caused thereby to the Premises.
ARTICLE X
ASSIGNMENT AND SUBLETTING
Section 10.01. Tenant's Assignment. Without in any way limiting
the express rights granted to Tenant pursuant to Section 10.02 below,
including, but not limited to, the right to sublet (in the manner and
subject to the conditions set forth below) the entire Premises for the then
remaining Term or extended Term, as applicable, so long as such sublease
constitutes a sublease, and not an assignment, in accordance with
applicable law, it being the intent of Landlord and Tenant under this Lease
that subleases shall be permitted, but assignments by Tenant shall be
restricted as hereinafter set forth (and Landlord agrees that if Tenant
enters into a sublease in accordance with the terms of Section 10.02 of the
entire Premises, and reserves and excepts from the term of such sublease
the last day of the Term of this Lease, that Landlord shall not have
grounds to claim that such sublease is in effect an assignment), Tenant
shall not have the right to assign this Lease or its leasehold interest in
the Premises, or any part thereof, or pledge, mortgage, hypothecate or
otherwise transfer as security for any debt or other obligation, all or any
portion of the Premises, without obtaining, in each and every instance, the
prior written consent of Landlord, which consent shall not be unreasonably
withheld; provided, however, no consent by Landlord to an assignment by
Tenant shall relieve the Tenant of its obligations under this Lease. In
the event that Landlord grants such written consent, Tenant agrees to cause
any assignee to execute and deliver to Landlord an agreement, in form and
substance reasonably satisfactory to Landlord, pursuant to which such
assignee agrees to assume and to discharge all the obligations of Tenant
under this Lease, without, however, relieving Tenant of any such
obligations, and the receipt of such executed agreement shall be a
condition precedent to the effectiveness and validity of such consent.
Section 10.02. Tenant's Subletting. Notwithstanding the
foregoing, Tenant shall have the right to sublease the Premises or any
portion of the Premises, subject, however, to the following conditions:
(a) Tenant may sublease to subtenants portions of the Premises, not
to exceed 7,500 square feet in the aggregate for a single
subtenant, without any requirement of obtaining the prior written
consent of Landlord, but subject to the obligation to notify
Landlord within 90 days after the execution of such sublease by
the delivery to Landlord of a true, correct and complete copy of
such sublease and any modifications thereof or side letters
executed in connection therewith; and
(b) Tenant may sublease to subtenants portions of the Premises, equal
to or in excess of 7,500 square feet in the aggregate for a
single subtenant, with the requirement of obtaining the prior
written consent of Landlord to such subtenant, which consent
Landlord shall not unreasonably delay, condition or withhold, and
may only be withheld or conditioned in the event that the
identity of the subtenant (or the size of such subtenant's space
so subleased) results in any non-compliance under, or other
material obligation upon Landlord under ERISA; and subject to the
obligation to notify Landlord within 90 days after the execution
of such sublease by the delivery to Landlord of a true, correct
and complete copy of such sublease and any modifications thereof
or side letters executed in connection therewith; provided,
however, that in the event that Tenant desires to enter into a
sublease of the entire Premises for the entire remaining Term of
this Lease, Tenant shall structure such sublease so as to be a
sublease of this Lease, it being the intent of Landlord and
Tenant that Tenant shall be permitted to enter into subleases of
some or all of the Premises, but not assignments of this Lease,
and that Tenant shall remain directly and primarily liable to
Landlord with respect to all obligations of Tenant hereunder (and
Landlord agrees that if Tenant enters into a sublease in
accordance with the terms of Section 10.02 of the entire
Premises, and reserves and excepts from the term of such sublease
the last day of the Term of this Lease, that Landlord shall not
have grounds to claim that such sublease is in effect an
assignment);
provided, however, that none of the aforesaid provisions, and no consent by
Landlord to a subleasing by Tenant, shall relieve the Tenant of its
obligations under this Lease. Tenant agrees that Tenant shall use
reasonable efforts to incorporate into the lease or sublease form used by
Tenant and presented to any proposed subtenant the sublease language (the
"Sublease Language") set forth on Exhibit "E" attached hereto and
incorporated herein by this reference (or such other language as is
reasonably acceptable to Landlord, which approval shall not be unreasonably
withheld, delayed or conditioned); provided that such sublease is entitled
a "Sublease", "Sublease Agreement", "Subtenancy Agreement" or words of
similar import.
Notwithstanding anything to the contrary set forth herein, without the
prior written consent of Landlord, which consent may be withheld in the
Landlord's sole discretion, Tenant shall have no right whatsoever to
sublease all or any portion of the Premises for any term which shall extend
beyond the then-current Term of this Lease (being the term of this Lease as
then currently exercised by Tenant, and not any extension Terms which have
not yet been exercised by Tenant), as the Term may have theretofore been
extended as set forth in Article II of this Lease, unless Tenant shall have
first received the prior written consent of Landlord to the provision of
the sublease which evidences that such subtenant acknowledges that the
sublease term extends beyond the current Term of the Lease and into an
extension term of this Lease which has not yet been exercised by Tenant,
and that in the event that Tenant does not exercise Tenant's option to
extend the Term of the Lease as set forth herein, such sublease shall
expire and terminate immediately upon the expiration of this Lease, which
consent to such sublease provision Landlord shall not unreasonably
withhold, delay or condition.
In addition, the 4-inch conduit system leased pursuant to that certain
Letter Agreement (the "Conduit Lease") dated May 19, 1993 by and between
Virginia Metrotel, Inc. and Markel Corporation shall be deemed to be a
sublease pursuant to this Section 10.02, to which Landlord hereby consents,
provided, however, that if during the Term or any extension thereof the
lessee under the Conduit Lease should exercise any rights it may have to
purchase the conduit systems, the purchase price thereof shall belong to
Tenant, and in the event of such purchase and removal of any such conduits,
such removal shall be accomplished in accordance with the provisions of
this Lease relating to Trade Fixtures.
Section 10.03. Landlord's Assignment. Landlord shall be
permitted to assign this lease or any of its interest herein, to any
assignee, without the necessity of any consent by Tenant; provided,
however, that, except as set forth in Section 18.01, no assignment by
Landlord shall relieve Landlord of its obligations under this Lease.
Section 10.04. Existing Leases. With respect to those Leases
listed on Exhibit "F" attached hereto and made a part hereof (the "Existing
Mercer Leases"), as assigned by Evanston Insurance Company (an affiliate of
Tenant) to Landlord, (a) Tenant acknowledges and accepts the existence of
such Existing Mercer Leases, and acknowledges and agrees that neither the
Existing Mercer Leases nor any rights of the tenants thereunder shall
alter, diminish, reduce or modify any obligations of Tenant hereunder,
including, but not limited to, obligations to pay Rent and Additional Rent
hereunder, notwithstanding that parties other than Tenant have occupancy
rights under and pursuant to the Existing Mercer Leases and the space
demised thereby; (b) Tenant requests that Landlord permit Tenant to receive
and retain the rights to receive the rent and other performance by the
tenants under the Existing Mercer Leases, as if such Existing Mercer Leases
constituted subleases permitted hereby; (c) Landlord agrees that Tenant
shall be entitled to receive and retain the rights to receive the rent and
other performance by the tenants under the Existing Mercer Leases, as if
such Existing Mercer Leases constituted subleases permitted hereby;
(d) Landlord agrees that Tenant shall be entitled to negotiate with, take
actions with respect to, and otherwise deal with such tenants under the
Existing Mercer Leases, as if such Existing Mercer Leases constituted
subleases permitted hereby, and, in connection therewith Landlord agrees
that Landlord shall enter into any modification or amendment of such
Existing Mercer Leases as Tenant may direct Landlord in writing, subject to
Landlord's review and approval thereof, which shall not be unreasonably
withheld, delayed or conditioned, (e) Tenant shall have no right to modify
or amend any covenant set forth in any Existing Mercer Lease which would
increase or impose any new (or extended) obligations on Landlord or on the
successor in title to any landlord or lessor thereunder, after the
expiration of the Term of this Lease, and (f) Landlord hereby relinquishes
any rights to which Tenant is entitled under this Paragraph 10.04 during
the Term or extended Term of this Lease.
ARTICLE XI
RIGHT TO CONTEST
Section 11.01. Permitted Contests. Tenant, at its expense, may
contest by appropriate legal proceedings conducted in good faith and with
due diligence the amount, validity or application, in whole or in part, of
any Tax or Charge referred to in Sections 5.01 and 5.02 hereof or any Lien
referred to in Section 7.02 hereof; provided that (a) Tenant shall give
Landlord prior written notice of such contest, (b) Tenant shall first make
all contested payments (under protest if it desires) unless such proceeding
shall suspend the collection thereof from Landlord and Tenant and from Rent
under this Lease or from the Premises (meaning that the payment obligation,
and the other party's right to collect, such Tax or Charge is held in
abeyance, and cannot be enforced, pending the final resolution of such
contest or proceeding and during the pendency thereof), (c) no part of the
Premises or any interest therein or the Rent under this Lease shall be
subjected thereby to sale, forfeiture, foreclosure or interference (and, as
used herein, "subjected to" means that the entity or authority imposing
such Tax or Charge would have any right, which is not stayed during the
pendency of such proceeding, to do any of the foregoing) pending the final
unappealable resolution of such contest or proceeding and during the
pendency thereof, (d) pending the final unappealable resolution of such
contest or proceeding and during the pendency thereof, Landlord shall not
be subject to any civil or criminal liability for failure to comply with
any governmental regulation and the Premises shall not be subject to the
imposition of any Lien as a result of such failure other than the lien then
being contested. Tenant agrees that it shall indemnify, defend, and save
Landlord harmless from and against, any and all losses, judgments, decrees
and costs (including all reasonable attorneys' fees and expenses) in
connection with any Permitted Contest and that, promptly after the final
determination of every Permitted Contest, Tenant shall fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed
or be determined to be payable therein, together with all penalties, fines,
interests, costs and expenses resulting therefrom and will promptly comply
with any regulation of any governmental body or agency having jurisdiction
under which compliance is required. Without diminishing any of Tenant's
obligations set forth above, Landlord agrees to cooperate, at the sole cost
and expense of Tenant, with Tenant in connection with any Permitted
Contests, in a manner which is reasonably acceptable to Landlord and is
reasonably consistent with the interests of Landlord in Landlord's sole
discretion.
ARTICLE XII
INSURANCE
Section 12.01. Insurance. Tenant covenants and agrees that
Tenant will carry and maintain, at its sole cost and expense, the following
types of insurance, in the amounts and in form hereinafter required:
(i) Liability insurance in the Commercial General Liability form
(or reasonable equivalent thereto) covering the Premises and Tenant's
use thereof against claims for personal injury or death and property
damage occurring upon, in or about the Premises, such insurance to be
written on an occurrence basis (not a claims made basis), in no event
less than Two Million Dollars ($2,000,000.00) combined single limit
per occurrence (or at least $1,000,000.00 primary single limit
coverage with the required excess coverage through an umbrella excess
policy), with an "umbrella"/"excess" liability policy insuring the
risks insured under the Commercial General Liability policy to Ten
Million Dollars ($10,000,000.00) for each policy year).
(ii) (A) insurance in the "All-Risk" or equivalent form on a
Replacement Cost Basis against loss or damage to all improvements now
or hereafter located on the Premises; and in an amount sufficient to
prevent Landlord or Tenant from becoming a co-insurer of any loss, and
with a maximum deductible of $25,000.00, but in any event in an amount
at least equal to the full replacement value of the improvements;
provided, however, that (except during the final year of the Term, or
the final year of any extension of the Term, of this Lease) so long as
Tenant maintains an A.M. Best rating of its insurance company
subsidiaries or divisions of not less than the average of the current
ratings thereof (which are currently, A, A, A, and A-) Tenant shall be
permitted to either increase its deductible to $500,000.00 or to co-
insure (or self-insure as to such amount) up to $500,000.00 of such
risk;
(B) boiler and machinery insurance covering losses to or
from any steam boilers, pressure vessels or similar apparatus, if any
are so located on the Premises, requiring inspection under applicable
state or municipal laws or regulations which are located at the
Premises or on any other building systems for which such coverage is
commercially available at reasonable rates, in amounts determined by
Tenant to be appropriate or for such higher amounts as may at any time
be reasonably required by Landlord and having a deductible of not more
than Fifty Thousand Dollars ($50,000.00); coverage shall be on a broad
form comprehensive basis; provided, however, that (except during the
final year of the Term, or the final year of any extension of the
Term, of this Lease) so long as Tenant maintains an A.M. Best rating
of its insurance company subsidiaries or divisions of not less than
the average of the current ratings thereof (which are currently, A, A,
A, and A-) Tenant shall be permitted to either increase its deductible
to $500,000.00 or to co-insure (or self-insure as to such amount) up
to $500,000.00 of such risk; and
(C) worker's compensation insurance, if required by law, or
other coverage, if required by law, in accordance with applicable law
covering Tenant's employees and those of its subsidiaries and
affiliates, such insurance to be to the extent necessary to protect
Landlord, and the Premises against workmen's compensation claims.
Section 12.02. Policies. All policies of the insurance provided
for in Section 12.01 shall be issued in form reasonably acceptable to
Landlord by responsible insurance companies (with an AM Best rating of no
less than A-, VIII) authorized to do business in the State of Virginia.
Each and every such policy:
(i) shall name Landlord, Tenant and any Mortgagee of Landlord,
as an additional insured (or mortgagee, as applicable) as their
respective interests may appear. In addition, the coverage described
in Section 12.01 (ii) shall also name Tenant, Landlord and its
Mortgagee as loss payee as their respective interests may appear;
(ii) shall be described as to coverage and amounts in a
certificate of insurance from the appropriate insurance carrier
delivered to Landlord on or prior to the Commencement Date of this
Lease. Certificates of insurance which evidence the continued,
renewed or replaced insurance required hereunder shall be procured by
Tenant and delivered to Landlord within thirty (30) days prior to the
expiration of such policies, describing coverage and amounts
applicable under this Lease and as reflected in such policies;
(iii) shall contain a provision that the insurer will give to
Landlord and such other parties in interest at least thirty (30) days
notice in writing in advance of cancellation for non-payment of
premiums; and
(iv) shall be written as a primary policy which does not
contribute to and is not in excess of coverage which Landlord may
carry.
Any insurance provided for in Section 12.01 may be maintained by means of a
policy or policies of blanket insurance, covering additional items or
locations or insureds, provided, however, that Landlord and any other
parties in interest as designated in this Lease shall be named as an
additional insured thereunder as their interests may appear, and the
requirements set forth in this Section 12.01 are otherwise satisfied.
Section 12.03. Failure to Carry. In the event that Tenant shall
fail to carry and maintain the insurance coverages set forth in this
Section 12.01, Landlord may, upon fifteen (15) days notice to Tenant
(unless such coverages will lapse within such time period in which event no
such notice shall be necessary) and Tenant's failure to procure the same
and deliver reasonably satisfactory evidence thereof to Landlord within
said period, procure such policies of insurance and Tenant shall promptly
reimburse Landlord therefor.
ARTICLE XIII
FIRE AND OTHER CASUALTIES
Section 13.01. Damage. If any of the improvements or buildings,
including any parking garage on the Premises shall be damaged or destroyed
by fire or other casualty, Tenant, at Tenant's sole cost and expense, shall
promptly and diligently proceed to adjust the loss with the insurance
companies and arrange for the disbursement of insurance proceeds, and
repair, rebuild or replace such improvements, buildings, or parking garage,
so as to restore the Premises to the condition in which they were
immediately prior to such damage or destruction. The net proceeds of any
insurance recovered by reason of such damage or destruction in excess of
the cost of adjusting the insurance claim and collecting the insurance
proceeds (such excess being referred to herein as the "Net Insurance
Proceeds") shall be held by any escrow agent which is reasonably acceptable
to Landlord and Tenant; and the Net Insurance Proceeds shall be released
for the purpose of paying the cost of restoring such improvements,
buildings or garage. Such Net Insurance Proceeds shall be released to
Tenant, or to Tenant's contractors, from time to time as the work
progresses, pursuant to such requirements and limitations as may be
reasonably acceptable to Tenant and Landlord and Landlord's Mortgagee (if
any), including, without limitation, lien waivers from each of the
contractors, subcontractors, materialmen and suppliers performing the work.
If the Net Insurance Proceeds (less any applicable deductible) are
insufficient to restore the Premises, Tenant shall be obligated to pay such
deficiency and the amount of any such deductible.
If the Net Insurance Proceeds (regardless of the amount thereof)
exceed the full cost of the repair, rebuilding or replacement of the
damaged buildings improvements or parking garage, then the amount of such
excess Net Insurance Proceeds shall be paid to Landlord, provided, however,
that in the event that Tenant believes that Tenant shall be able to restore
the Premises for an amount less than the Net Insurance Proceeds available
in connection therewith, Tenant shall notify Landlord prior to commencement
of such repair or restoration with Tenant's proposals for repair or
restoration and opportunities for cost-saving, and Landlord agrees that
Landlord shall consider, and not unreasonably withhold its consent to, an
agreement for the retention of such cost savings by Tenant upon the
completion of such repairs or restoration.
Section 13.02. Plans. Whenever Tenant shall be required to
carry out any work or repair and restoration pursuant to Section 13.01,
such work shall be performed in accordance with the provisions of
Article VI hereof and, in addition, and without limiting any of the
provisions of Article VI, Tenant, prior to the commencement of such work,
shall deliver to Landlord for Landlord's prior approval, which approval
shall not be unreasonably withheld, delayed or conditioned, a full set of
the plans and specifications therefor, together with a copy of all
approvals and permits which shall be required from any governmental
authority having jurisdiction. After completion of any major repair or
restoration, Tenant shall, as soon as reasonably possible, obtain and
deliver to Landlord a Certificate of Substantial Completion from Tenant's
inspecting architect or engineer and a permanent Certificate of Occupancy,
if required by applicable laws, issued by the appropriate authority with
respect to the use of the Premises, as thus repaired and restored. Any
such work or repair and restoration, in all cases, shall be carried out by
in a good and workmanlike manner with first quality materials. If an Event
of Default shall have occurred and be continuing, Landlord may carry out
any such work or repair and restoration pursuant to the provisions of this
Article XIII and in such event, Landlord shall be entitled to withdraw
monies held pursuant to Section 13.01 for application to the reasonable
costs of such work from time to time as such costs are incurred.
13.03. Termination of Obligation to Rebuild. Notwithstanding
Tenant's obligations to rebuild, repair or replace as herein provided, if
said buildings, improvements or parking garage are destroyed or damaged
during the last one (1) year of the Term of this Lease (being the last year
of the then current Term of this Lease, if no extension Term is available
to be exercised, or will be exercised by the Tenant), to the extent of
twenty-five percent (25%) or more of the greater of the then insured value
or, if greater, the then insurable value thereof, Tenant may, at its
option, elect by delivery of written notice of such election within ninety
(90) days after the occurrence thereof not to repair, replace and rebuild
the same, and in such event the Net Insurance Proceeds shall be paid to
Landlord; and provided, however, that this Lease and the other obligations
of Tenant shall remain in full force and effect, including, but not limited
to, the payment of Rent and Additional Rental less any amount actually
received by Landlord for reletting any portion of the Premises during the
remainder of such Term.
ARTICLE XIV
CONDEMNATION
Section 14.01. Total Condemnation. If all of the Premises (or
so much thereof so that no portion of the Premises remaining is usable by
Tenant for its intended purpose in an economically feasible manner) shall
be taken for any public or quasi-public use under any statute or by right
of eminent domain or by private purchase in lieu thereof under threat of
condemnation, this Lease shall automatically terminate as of the date that
title to the Premises or portion thereof or the right to possession thereof
vests in the condemnor; provided, however, that such termination shall not
benefit the condemnor and shall be without prejudice to the rights of
either Landlord or Tenant to recover just and adequate compensation from
the condemning authority. And in the event that in accordance with the
terms of this paragraph the termination of this Lease occurs other than on
the last calendar day of a month, all Rent and Additional Rental due under
this Lease shall be prorated by a fraction, the numerator of which is the
number of calendar days from and including the first calendar day of such
month to and including the last day of the Term of this Lease, and the
denominator of which is the actual number of days in such month.
Section 14.02. Partial Condemnation. If a portion of the
Premises is condemned or taken by the United States or any other legal
entity having the power of eminent domain with respect thereto (or by
purchase in lieu thereof) and the part of the Premises remaining is usable
by Tenant for its intended purpose in an economically feasible manner, then
this Lease shall remain in full force and effect and Tenant shall forthwith
cause the Premises to be restored to a complete architectural unit for the
operation of Tenant's business. Monthly Rent shall be reduced
proportionately to reflect the amount of the Premises usable by Tenant in
an economically feasible manner after such restoration.
Section 14.03. Awards. The court in any condemnation proceeding
shall, if not prohibited by law, be requested to make separate awards to
Landlord and Tenant. Landlord and Tenant agree to request such action of
the court. This Article XIV, to the extent permitted by law, shall be
construed as superseding any statutory provisions now in force or hereafter
enacted concerning condemnation proceedings. In the event of a partial
taking or purchase not resulting in a termination of this Lease, the net
proceeds of the award or purchase (and if and to the extent any portion of
the award is separately allocated to the repair or restoration of the
remaining portion of the Premises, such portion shall be first applied)
shall be used by Tenant to repair the buildings, improvements or parking
garage affected by the taking or purchase and the excess thereof shall be
paid to Landlord (except to the extent that such amount has theretofore
been awarded separately to Tenant); provided, however, that if the net
proceeds of the award or purchase are not sufficient to repair and/or
restore the Premises to a complete architectural unit for the operation of
Tenant's business, Tenant shall be responsible for the cost and expense of
the additional work to so repair or restore the Premises. In addition, if
and to the extent any portion of the award is separately allocated solely
to the repair or restoration of the remaining portion of the Premises in
order to pay for the costs only of such repair or restoration as aforesaid
(the "Separate Repair Award"), and another portion or portions of the award
are allocated to all compensation for loss of use or property which cannot
be restored or replaced, then in the event that Tenant believes that Tenant
shall be able to repair and restore the Premises for an amount less than
the Separate Repair Award available in connection therewith, Tenant shall
notify Landlord prior to commencement of such repair or restoration with
Tenant's proposals for repair or restoration and opportunities for cost-
saving, and Landlord agrees that Landlord shall consider, and not
unreasonably withhold its consent to, an agreement for the retention of
such cost savings by Tenant upon the completion of such repairs or
restoration.
Section 14.04. General. Nothing contained in this Lease to the
contrary shall be deemed to prohibit Landlord or Tenant from introducing
into any condemnation proceeding or proceedings with respect to the
Premises such appraisals or other estimates of value, loss and/or damage as
each may in its discretion determine.
ARTICLE XV
DEFAULT
Section 15.01. Tenant Events of Default. The occurrence of any
of the following acts, events or conditions, regardless of the pendency of
any proceeding which has or might have the effect of preventing Tenant from
complying with the terms, conditions or covenants of this Lease, shall
constitute an "Event of Default" under this Lease:
(a) Tenant fails to make any payment of Rent within
ten (10) days after the due date thereof, or Tenant fails to make any
payment of Additional Rent within ten (10) days after receipt of
written notice from Landlord that Additional Rent is due; provided,
however, the first two (2) times in any given calendar year during the
Term that Tenant shall fail to make payment of Rent, it shall not be
deemed an Event of Default under this Lease unless Tenant has not paid
such past due Rent within five (5) days after receipt of written
notice from Landlord that such Rent is past due; or
(b) Tenant fails or refuses to fulfill or perform any other
covenant, agreement or obligation of Tenant hereunder and such failure
or refusal shall continue without correction for a period of
thirty (30) calendar days after receipt of written notice from
Landlord of such default; provided, however, that in the event of a
default which cannot be cured within such 30-day period, then such
cure period shall continue for so long as Tenant, after receiving such
notice, proceeds to cure the default as soon as reasonably practicable
and continues to take all steps necessary to complete the same within
a period of time which, under all prevailing circumstances shall be
reasonable, not to exceed, in any event, ninety (90) days; or
(c) The estate or interest of Tenant in the Premises, or
any portion thereof, or in this Lease is levied upon or attached in
any proceedings and such process is not vacated or discharged within
sixty (60) days after the date of such levy or attachment; or
(d) There is any entry of a decree or order for relief by a
court having jurisdiction in the Premises in respect of Tenant in an
involuntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Tenant or for any substantial part of its property, or
ordering the winding-up or liquidation of its affairs and the
continuance of any such decree or order unstayed and in effect for a
period of sixty (60) days; or
(e) There is commenced by Tenant a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or other
similar law, or the consent by it to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Tenant or for any
substantial part of its property, or the making by it of any
assignment for the benefit of creditors, or the failure of Tenant
generally to pay its debts as such debts become due, or the taking of
corporate action by Tenant in furtherance of any of the foregoing.
Section 15.02. Termination. Upon the occurrence of any Event of
Default hereunder, Landlord shall have the right, at its election and
regardless of the availability to Landlord of any other remedy under this
Lease or by law or in equity provided, to give Tenant (then or at any time
thereafter while any such Event of Default exists or continues) written
notice of the termination of this Lease as of the date specified in such
notice of termination, which date shall be not less than fifteen (15) days
after the date of the giving of such notice. On such termination date this
Lease and the Term and estate herein granted shall, subject to the
provisions of 15.05 hereof, expire and terminate, and all rights of Tenant
under this Lease shall expire and terminate.
Section 15.03. Reentry by Landlord. Whether or not this Lease
has been terminated pursuant to Section 15.02 hereof, if an Event of
Default occurs, Landlord may, for and on behalf of Tenant and as Tenant's
legal representative, enter upon and repossess the Premises or any part
thereof by force, summary proceedings, ejectment or otherwise, and may
dispossess Tenant and remove Tenant and all other persons and any and all
property therefrom. Landlord shall not be liable to Tenant or to any
person or entity claiming by, through or under Tenant for or by reason of
any such entry, repossession or removal, unless due to the gross negligence
or willful misconduct of Landlord or its agents, employees, servants or
contractors.
Section 15.04. Rights upon Repossession. At any time or from
time to time after the repossession of the Premises or any part thereof
pursuant to Section 15.03 hereof, and whether or not this Lease shall have
been terminated pursuant to Section 15.02 hereof, Landlord may at its
option (a) repair or alter the Premises in such manner as Landlord may deem
reasonably necessary or advisable so as to put the Premises in good order
and make the same rentable, and (b) relet or operate the Premises or any
part thereof for the account of Tenant for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
remainder of the Term) and on such conditions (which may include
concessions or free rent) and for such uses as Landlord in its reasonable
discretion may determine, and may collect and receive the rents therefor.
All reasonable costs and expenses incurred by Landlord in the exercise of
its right to reenter and to relet the Premises, or any part thereof,
including, without limitation, reasonable attorneys' fees, construction and
alteration costs, brokerage fees and all such similar and dissimilar
expenses, shall be charged to Tenant and shall be and become the due
obligation of Tenant to pay Landlord, as Additional Rental, hereunder. All
rental and other sums collected by Landlord during any period of reletting
of the Premises shall be and remain the property of Landlord and the total
collected amount thereof, to the extent it exceeds the sum of all
reasonable costs and expenses incurred in reletting as aforesaid, is herein
defined as the "Reletting Proceeds." Landlord shall not be responsible or
liable for any failure to relet the Premises or any part hereof or for any
failure to collect any rent due upon any such reletting. No repossession
of the Premises by Landlord shall be construed as an election to terminate
this Lease and the Term herein demised unless, in conjunction therewith, a
written notice of termination evidencing such intention is given to Tenant
as provided in Section 15.02 hereof.
Section 15.05. Liability of Tenant and Landlord. No termination
of this Lease pursuant to Section 15.02 hereof or by operation of law or
otherwise (except as expressly provided herein) and no repossession of the
Premises or any part thereof pursuant to Section 15.03 hereof or otherwise,
shall relieve Tenant or Landlord of their respective liability and
obligations hereunder, all of which shall survive such termination or
repossession. Landlord shall be entitled, at its election, to sue for and
receive each increment of Rent and Additional Rental as and when the same
shall become due, irrespective of whether Landlord shall have terminated
this Lease or reentered and relet the Premises or any portion thereof,
provided only that in the event of reletting, Tenant shall be entitled to a
credit for the Reletting Proceeds, if any, up to the amount of Rent and
Additional Rental that would otherwise have been due from Tenant to
Landlord hereunder.
Section 15.06. Right of Landlord to Perform for Tenant.
Notwithstanding any other provision of this Lease to the contrary, upon the
occurrence of any Event of Default hereunder, Landlord may, at its
exclusive option, take, on behalf of Tenant, whatever steps it deems
reasonably necessary to cure such Event of Default and to charge Tenant for
the costs and expenses attributable thereto. Tenant shall pay all costs
and expenses immediately upon receipt of a statement thereof from Landlord.
Any such amounts, paid or unpaid, shall be deemed Additional Rental
hereunder.
Section 15.07. General. Each right, power and remedy of
Landlord provided in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to each and every other right, power or remedy
provided in this Lease or now or hereafter existing at law or in equity or
by statute or otherwise. In addition to any other remedy provided in this
Lease, Landlord shall be entitled, to the extent permitted by applicable
law, to injunctive relief in the event of the violation or attempted or
threatened violation of any term, condition or covenant of this Lease or to
a decree compelling performance thereof. The exercise by Landlord of any
one or more of the rights, powers or remedies provided in this Lease or now
or hereafter existing at law or in equity or by statute or otherwise shall
not preclude the simultaneous or later exercise by Landlord of any such
right, power or remedy.
ARTICLE XVI
ENVIRONMENTAL MATTERS
Section 16.01. Definitions. For purposes of this Article XVI:
(i) "Contamination" as used herein means the uncontained or
uncontrolled presence of or release of Hazardous Substances into any
environmental media and into or on any portion of the Premises or any part
thereof so as to require remediation, cleanup or investigation under any
applicable Environmental Law.
(ii) "Environmental Laws" as used herein means all federal,
state, and local laws, regulations, orders, permits, ordinances, and the
like concerning protection of human health and/or the environment.
(iii) "Hazardous Substances" as used herein means any
hazardous or toxic substance or waste as those terms are defined by any
applicable federal or state law or regulation (including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. 9601 et. sec. ["CERCLA"] and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et. sec. ["RCRA"]) and
petroleum products and oil.
Section 16.02. Compliance. Tenant warrants that all its
activities on the Premises, during the Term of this Lease will be conducted
in compliance with Environmental Laws. Tenant warrants that it and the
Premises are, to the best of Tenant's knowledge, currently in compliance
with all applicable Environmental Laws and that there are no pending or, to
the best of Tenant's knowledge, threatened notices of deficiency, notices
of violation, orders, or judicial or administrative actions involving
alleged violations by Tenant or the Premises of any Environmental Laws.
Tenant, at Tenant's sole cost and expense, shall be responsible for
obtaining all permits or licenses or approvals under Environmental Laws
necessary for Tenant's operation of its business on the Premises and shall
make all notifications and registrations required by any applicable
Environmental Laws. Tenant, at Tenant's sole cost and expense, shall at
all times comply with the terms and conditions of all such permits,
licenses, approvals, notifications and registrations and with any other
applicable Environmental Laws. Tenant warrants that it has obtained all
such permits, licenses or approvals and made all such notifications and
registrations required by any applicable Environmental Laws necessary for
Tenant's operation of its business on the Premises.
Section 16.03. Hazardous Substances. Except in compliance with
all laws and/or regulations and the requirements of any insurance carrier
insuring the Premises, Tenant shall not cause or permit any Hazardous
Substances to be brought upon, kept or used in or about the Premises.
Except in compliance with all laws and/or regulations and the requirements
of any insurance carrier insuring the Premises, Tenant shall not cause or
permit the release of any Hazardous Substances into any environmental media
such as air, water or land, or into or on the Premises. If such release
shall occur during the Term or any extension thereof, Tenant shall
(a) immediately take all necessary steps to contain, control and clean up
such release and any associated Contamination, (b) notify Landlord, and
(c) take any and all other action which may be required by Environmental
Laws and governmental agencies, and/or reasonably required by Landlord
unless the release or violation of Environmental Laws shall have been
caused solely by any gross negligence or willful misconduct of Landlord or
its agents, employees, servants or contractors, in which event Landlord
shall be responsible for and shall pay all costs and expenses to remedy the
same. Tenant shall under no circumstances whatsoever (i) treat, store or
dispose of any Hazardous Waste (as all such terms are defined by RCRA, and
the regulations promulgated thereunder) within the Premises, (ii) discharge
Hazardous Substances into the storm sewer system serving the Premises; or
(iii) install any underground storage tank or underground piping on or
under the Premises, other than as shall be reasonably required in the use
and occupancy of the Premises (or in replacement of such existing
underground storage tank or underground piping) and then only in full
compliance with all laws and/or regulations.
Section 16.04. Indemnity. Except to the extent the same has
been made necessary solely by any gross negligence or willful misconduct of
Landlord or its employees, agents, contractors or servants, Tenant shall
and hereby does indemnify, defend Landlord and hold Landlord harmless from
and against any and all expense, loss, and liability suffered by Landlord,
by reason of Tenant's improper storage, generation, handling, treatment,
transportation, disposal, or arrangement for transportation or disposal, of
any Hazardous Substances (whether accidental, intentional, or negligent) or
by reason of Tenant's breach of any warranty or of the provisions of this
Article XVI. Such expenses, losses and liabilities shall include, without
limitation, (i) any and all expenses that Landlord may incur to comply with
any Environmental Laws as a result of Tenant's failure to comply with the
terms of this Lease; (ii) any and all costs that Landlord may incur in
studying or remedying any Contamination at or arising from the Premises,
(iii) any and all reasonable costs that Landlord may incur in studying,
removing, disposing or otherwise addressing any Hazardous Substances that
Tenant improperly stored, generated, handled, treated, transported or
disposed of or failed to remove from the Premises; (iv) any and all fines,
penalties or other sanctions assessed upon Landlord by reason of Tenant's
failure to comply with Environmental Laws; and (v) any and all reasonable
legal and professional fees and costs incurred by Landlord in connection
with the foregoing. The indemnity contained herein shall survive the
termination or expiration of this Lease but only with regard to conditions
or provisions which Tenant is obligated by this Lease to prevent, correct,
or comply with during the Term of this Lease and any extensions thereof.
ARTICLE XVII
BROKERAGE PROVISIONS
Section 17.01. No Broker. Landlord and Tenant represent and
warrant that no broker, commission agent, real estate agent or salesman has
participated in the negotiation of this Lease, its procurement or in the
procurement of Landlord or Tenant other than Kiniry and Company, Inc. (the
"Broker"), which has been retained by Tenant and has executed a waiver and
acknowledgment that Broker has been paid any and all commission in full.
Tenant hereby represents and warrants to Landlord that Broker is not and
shall not be, and Landlord and Tenant represent and warrant to each other
that no other person, firm or corporation is or shall be, entitled to the
payment of any fee, commission, compensation or other form of remuneration
in connection herewith in any manner. Landlord and Tenant shall and do
hereby mutually indemnify and hold harmless each other from and against any
and all loss, cost, claim, damage or expense (including court costs and
reasonable attorneys' fees) arising from and out of or in any manner
connected with this Lease or any claim (meritorious or otherwise), demand
or assertion which is in the nature of a brokerage fee, commission or other
compensation for services rendered. The terms of this 17.01 shall survive
any termination of this Lease.
ARTICLE XVIII
MISCELLANEOUS
Section 18.01. Landlord Liability. No owner of the Premises,
whether or not named herein, shall have liability hereunder after such
owner ceases to hold title to the Premises, except for obligations which
may have theretofore accrued. Neither Landlord nor any officer, director,
shareholder, partner or principal, whether disclosed or undisclosed, of
Landlord shall be under any personal liability with respect to any of the
provisions of this Lease, and if Landlord is in breach or default with
respect to Landlord's obligations or otherwise under this Lease, Tenant
shall look solely to the equity of Landlord in the Premises for the
satisfaction of Tenant's remedies. It is expressly understood and agreed
that Landlord's liability under the terms, covenants, conditions,
warranties and obligations of this Lease shall in no event exceed the loss
of Landlord's equity interest in the Premises.
Section 18.02. Waiver. Failure of Landlord or Tenant to insist
upon the strict performance by the other of any term, condition or covenant
of this Lease or to exercise any option, right, power, or remedy contained
in this Lease shall not be deemed to be nor be construed as a waiver of
such performance or relinquishment of such right now or subsequent hereto.
The receipt by Landlord or the payment by Tenant of any Rent or Additional
Rental required to be paid hereunder with knowledge of any default by
Tenant or Landlord hereunder shall not be deemed a waiver of such default.
No waiver by Landlord or Tenant of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord
or Tenant, as the case may be.
Section 18.03. Waiver of Redemption. Tenant hereby waives and
surrenders any right or privilege under any present or future constitution,
statute or law to redeem the Premises or to continue this Lease after the
termination of this Lease for any reason, and the benefits of any present
or future constitution, statute or rule of law which exempts property from
liability for debt or for distress for rent.
Section 18.04. Estoppel Certificates. Within thirty (30) days
after written request of Landlord or Tenant, the other shall execute,
acknowledge and deliver to the requesting party (being either Landlord or
Tenant) and to any Mortgagee of or prospective purchaser from Landlord or
to any actual or prospective assignee or subtenant of Tenant, written
certificate certifying (a) that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the Lease is in full
force and effect as modified, and stating the modifications), (b) the dates
to which Rent and Additional Rental payable by Tenant hereunder have been
paid, (c) that no notice has been received by or sent to Tenant of any
default by Tenant hereunder which has not been cured, except as to any
default specified in said certificate, (d) setting forth the amounts of
current rental payments and other matters set forth in this Lease, and
(e) other items with respect to this Lease as may be reasonably required by
Landlord or by any lender to, or purchaser from, Landlord or by Tenant or
any actual or prospective assignee or subtenant of Tenant.
Section 18.05. No Merger of Title. There shall be no merger of
the leasehold estate created by this Lease with the fee estate of Landlord
by reason of the fact that the same person may own or hold both the
leasehold estate created by this Lease or any interest therein and the fee
estate in the Premises or any interest therein; and no such merger shall
occur unless and until all persons or entities (including any Mortgagee as
hereinafter defined with respect to the fee estate of Landlord) having any
interest in the leasehold estate created by this Lease or the fee estate in
the Premises shall join in a written instrument effecting such merger and
shall duly record the same.
Section 18.06. Mortgagee's Rights. Subject to all the
provisions of this Section 18.06, this Lease may be either superior or
subordinate to any "Mortgage". The term "Mortgage", as used in this Lease,
shall mean any and all mortgages, deeds to secure debt, deeds of trust, or
other instruments creating a lien or conveying a security interest at any
time and from time to time, granted by Landlord and affecting or
encumbering the title of Landlord to the Premises or this Lease. The term
"Mortgagee" refers to the holder of the Mortgage. Any Mortgagee may elect
to have this Lease superior to its Mortgage by signifying such election in
the Mortgage or by separate recorded instrument. Upon request by any
Mortgagee, Tenant shall execute and deliver a written instrument, in a form
acceptable for recording in the real estate records of Henrico County,
Virginia, recognizing that this Lease is superior to a Mortgage and that,
upon foreclosure of or exercise of the power of sale contained in the
Mortgage, Tenant shall recognize and attorn to the purchaser at the
foreclosure sale as the Landlord under this Lease, subject to all the terms
and provisions of this Lease. Upon request by Landlord or a Mortgagee,
Tenant shall subordinate its rights hereunder to a Mortgagee pursuant to
form of Subordination, Non-Disturbance and Attornment Agreement ("SNDA")
attached hereto as Exhibit "D" and made a part hereof, provided that
(i) Tenant's rights under this Lease shall remain in full force and effect,
(ii) any person (including Mortgagee) who becomes the holder of the
interest of the Landlord by virtue of foreclosure of the Mortgage or deed
in lieu thereof shall be subject to and bound by all the provisions of this
Lease.
Section 18.07. Separability. Each and every covenant and
agreement contained in this Lease shall be for any and all purposes hereof
construed as separate and independent and the breach of any covenant by
Landlord or Tenant shall not discharge or relieve the other party from its
obligation to perform each and every covenant and agreement to be performed
by such party under this Lease. All rights, powers and remedies provided
herein may be exercised only to the extent that the exercise thereof does
not violate applicable law and shall be limited to the extent necessary to
render this Lease valid and enforceable. If any term, provision or
covenant of this Lease or the application thereof to any person or
circumstance shall be held to be invalid, illegal or unenforceable, by a
court of last resort having jurisdiction over the Premises, the validity of
the remainder of this Lease shall not be affected; this Lease shall not
terminate, and there shall be substituted for such illegal, invalid or
unenforceable provision a like provision which is legal, valid and
enforceable within the limits established by such court's final opinion and
which most nearly accomplishes and reflects the original intention of the
parties.
Section 18.08. Notices, Demands and Other Instruments. All
notices, demands, requests, consents, and approvals desired, necessary,
required or permitted to be given pursuant to the terms of this Lease shall
be in writing and shall be deemed to have been properly given when
personally delivered (which shall include delivery by a nationally
recognized overnight delivery service, such as Federal Express, UPS, or
Airborne), or when sent by facsimile (with a copy forwarded by personal
delivery or registered or certified mail as provided herein), or after
being mailed by prepaid registered or certified mail, return receipt
requested, to the address for each party set forth below.
If to Landlord: The Prudential Insurance Company of America
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attn: Vice President, Asset Management;
Prudential Real Estate
Investors; Mercer Plaza Building Lease Notices
Fax Number: (404) 396-9246
With a copy to: The Prudential Insurance Company of America
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attn: Law Department; Mercer Plaza Building
Lease Notices
Fax Number: (404) 512-0495
If to Tenant: Markel Corporation
4551 Cox Road
Richmond, Virginia 23060
Attn: Bruce Kay
Fax Number: (804) 527-3810
With a copy to: Markel Corporation
4551 Cox Road
Richmond, Virginia 23060
Attn: Gregory B. Nevers
Fax Number: (804) 527-3810
or at such other address in the United States as Landlord or Tenant may
from time to time designate by like notice. Rejection or other refusal to
accept or inability to deliver because of changed address of which no
notice was given shall be deemed to be receipt of the notice, demand,
request or other communication. Such notices or other communication shall
be effective and deemed "received" for all purposes hereunder (i) in the
case of personal delivery or courier delivery, on the date of delivery to
the party to whom such notice is addressed as evidenced by the written
receipt signed on behalf of such party, (ii) if by overnight courier, on
the next succeeding business day after the deposit thereof with all
delivery charges prepaid, and (iii) in the case of registered or certified
mail, the earlier of the date receipt is acknowledged on the return receipt
for such notice or five (5) business days after the date of posting by the
United States Post Office.
Section 18.09. Successors and Assigns. Each and every covenant,
term, condition and obligation contained in this Lease shall apply to and
be binding upon and inure to the benefit or detriment of the respective
legal representatives, heirs, successors and assigns of Landlord and
Tenant. Whenever reference to the parties hereto is made in this Lease,
such reference shall be deemed to include the legal representatives,
successors, heirs and assigns of said party the same as if in each case
expressed. The term "person" when used in this Lease shall mean any
individual, corporation, partnership, firm, trust, joint venture, business
association, syndicate, government or governmental organization or any
other entity.
Section 18.10. Headings. The headings to the various Articles
and Sections of this Lease have been inserted for purposes of reference
only and shall not limit or define or otherwise affect the express terms
and provisions of this Lease.
Section 18.11. Counterparts. This Lease may be executed in any
number of counterparts, each of which is an original, but all of which
shall constitute one instrument.
Section 18.12. Applicable Law. This Lease shall be construed
under and enforced in accordance with the laws of the State of Virginia.
Section 18.13. Entire Agreement; Amendments. This Lease sets
forth the entire understanding and agreement of Landlord and Tenant with
respect to the Premises; all courses of dealing, usage of trade and all
prior representations, promises, understandings and agreements, whether
oral or written, are superseded by and merged into this Lease. No
modification or amendment of this Lease shall be binding upon Landlord and
Tenant, or either of them, unless in writing and fully executed.
Section 18.14. All Genders and Numbers Included. Whenever the
singular or plural number, or masculine, feminine, or neuter gender is used
in this Lease, it shall equally apply to, extend to, and include the other.
Section 18.15. Time is of Essence. Time is of the essence of
this Lease. Whenever a day certain is provided for the payment of any sum
of money or the performance of any act or thing, the same enters into and
becomes a part of the consideration for this Lease.
Section 18.16. Short Form Lease. Landlord and Tenant hereby
agree that this Lease shall not be recorded in the public records. Either
Landlord or Tenant may require that such other party execute a Short Form
Lease. The Short Form Lease shall be filed for record in the real estate
records of Henrico County, Virginia. Any and all recording cost and tax,
if any, required in connection with the recording of the Short Form Lease
shall be at the sole cost and expense of Tenant.
Section 18.17. Holding Over. In the event Tenant continues to
occupy the Premises after the last day of the last extension Term, a
tenancy from month to month only shall be created, and not a tenancy for
any longer period.
Section 18.18. Names. Landlord and Tenant acknowledge that this
Lease does not effect an assignment or grant to Landlord of any right to
use the name "Markel" or any other name of Tenant or any other occupant of
the Premises; provided, however that nothing in this clause shall be
interpreted to restrict or limit any other rights Landlord may have by
contract or at law. For so long as that certain Lease dated April 16, 1992
(the "Mercer Lease") between Rowe Properties--Southlake, L.P., as lessor,
and William M. Mercer, Inc., as lessee, with respect to approximately
26,994 rental square feet, Suite 400, of the Premises, as assigned by Rowe
Properties--Southlake, L.P. to Evanston Insurance Company, and as assigned
by Evanston Insurance Company to Landlord, remains in full force and
effect, Landlord agrees that Landlord shall not rename the Premises other
than the Mercer Plaza Building, provided, however, that without the prior
written consent of Landlord, Tenant shall have no right to modify or amend
any covenant set forth in the Mercer Space Lease with respect to such name
or other obligations which may be imposed on Landlord or on the successor
in title to any landlord or lessor thereunder.
Section 18.19. Mediation. If a dispute arises out of or
relating to this Lease relating to whether Landlord has breached a covenant
of Landlord set forth in this Lease, whether repair or maintenance is
required pursuant to Section 6.02 of this Lease, whether changes or
alterations may be permitted pursuant to Section 6.04 of this Lease,
whether disbursements under Section 6.04 are due Tenant from the Escrow
Agent, or as to the interpretation of the provisions of Article XIII and
Article XIV as to repair or restoration of the Premises, and if the dispute
cannot be settled through negotiation, Landlord and Tenant agree first to
try in good faith, for a period not to exceed 60 days (commencing as of the
date either Landlord or Tenant delivers to the other a written notice to
commence mediation hereunder) to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration, litigation or some other
dispute resolution procedure.
If such dispute, controversy or claim arising out of or relating
to this Lease or the breach thereof is not resolved through mediation as
aforesaid, the parties shall be restored to their pre-existing rights at
law and in equity.
Notwithstanding the foregoing, nothing in this Section 18.19
shall be deemed to (i) limit the applicability of any otherwise applicable
statutes of limitation or the enforceability of any waivers contained in
this Lease; or (ii) limit either of the parties hereto to exercise self
help remedies provided for herein; or (iii) to obtain from a court
provisional or ancillary remedies such as (but not limited to) injunctive
relief or the appointment of a receiver. Neither the exercise of self help
remedies nor the obtaining of provisional or ancillary remedies shall
constitute a waiver of the right of either party to arbitrate the merits of
the controversy.
Section 18.20. Innsbrook Association. With respect to the
rights that Landlord may have, as owner of the Premises, under protective
covenants, easements, conditions, restrictions and agreements affecting any
of the land comprising the development known as "Innsbrook", including, but
not limited to, the rights to vote for directors of the Innsbrook
Association (the "Association") and for or against the acceptance of
assessments to operate the Association, Landlord and Tenant agree as
follows:
(a) Unless it is manifest that Landlord has theretofore received
written notice thereof, Tenant shall promptly forward to Landlord copies of
all written notices, materials, agenda and other communications to or from
the Association, and to or from other owners or members within the
Association, or otherwise materially related to the Association, and shall,
in addition, promptly inform Landlord and keep Landlord advised of other
material discussions and communications with such parties regarding
material issues related to the Association; Landlord and Tenant shall
direct the Association to send notices from the Association to both
Landlord and Tenant;
(b) Tenant shall promptly inform Landlord of the date, time and
location of any meeting to be held of the Association or of members of the
Association with regard to issues applicable with respect to the
Association unless it is manifest that Landlord has theretofore received
written notice thereof;
(c) Landlord shall have the right to attend any such meetings in
order to address the issues relevant to the Landlord with respect to this
Lease and Landlord's ownership of the Premises;
(d) Tenant shall be entitled to exercise Landlord's right to vote, or
(if Landlord must cast such vote) to direct Landlord to vote, on any
matters arising with respect to the Association (except to the extent that
such matters relate to obligations arising after expiration of the Term),
provided that in Landlord's reasonable analysis such vote (or the position
evidenced by such vote) is not contrary to the respective rights and
obligations of Landlord and Tenant under the Lease, and that Tenant shall
have no right to bind Landlord to, or direct Landlord to incur, any
obligation without Landlord's prior written consent, which consent shall
not be unreasonably withheld, conditioned or delayed; and
(e) In the event that Tenant is to cast such vote or exercise any
right or take any action on behalf of Landlord in a manner permitted
hereunder, Landlord hereby agrees to execute and deliver to Tenant, the
Association and/or other owners of property comprising the Association such
certificates or other documentation as may be reasonably requested to
evidence Tenant's right to act for and on behalf of Landlord and its
successors and assigns in such matters.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
by their duly authorized officers, have affixed their seals hereunto and
have delivered same, as of the day and year first above written.
TENANT:
MARKEL CORPORATION
By:. . . . . . . . . . . . . . .
Name: Bruce A. Kay
Title: Vice President
Attest:. . . . . . . . . . . . .
Name: Gregory B. Nevers
Title: Assistant Secretary
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
<PAGE>
(SIGNATURES CONTINUED FROM PRECEDING PAGE)
LANDLORD:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By:
Name: P. James Mehalso
Title: Vice President
Selected Financial Data (dollars in millions, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
RESULTS OF OPERATIONS (1)
Earned premiums $ 285 $ 243 $ 193
Net investment income 43 29 24
Total operating revenues 344 280 235
Net income 34 19 24
PRIMARY EARNINGS PER SHARE (2)
Core operations $ 5.15 $ 3.77 $ 3.31
Net realized gains 1.39 0.45 1.83
Nonrecurring items - - -
Amortization expense (0.39) (0.89) (0.91)
Net income $ 6.15 $ 3.33 $ 4.23
FINANCIAL POSITION (1)(3)(4)
Total investments $ 909 $ 612 $ 597
Total assets 1,315 1,103 1,135
Unpaid losses and loss adjustment expenses 734 653 688
Long-term debt 107 101 78
Total shareholders' equity 213 139 151
RATIO ANALYSIS
GAAP combined ratio 99% 97% 97%
Investment yield (5) 6% 5% 5%
Total return (6) 15% (2%) 11%
Debt to total capital 33% 42% 34%
Return on average shareholders' equity 20% 13% 18%
PER SHARE DATA (2)
Common shares outstanding (in thousands) 5,422 5.387 5,414
Total investments $ 167.57 $113.55 $110.27
Book value 39.37 $ 25.71 $ 27.83
Growth in book value 53% (8%) 38%
5-Year CAGR in book value (7) 31% 17% 25%
Closing stock price $ 75.50 $ 41.50 $ 39.38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987 1986 10-Year CAGR(7)
------ ------ ------ ------ ------ ------ ----- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (1)
Earned premiums $ 153 $ 152 $ 33 $ 24 $ 20 $ 13 $ 10 52%
Net investment income 27 31 7 5 4 2 2 44%
Total operating revenues 206 223 73 48 37 28 25 36%
Net income 26 14 6 14 11 7 5 42%
PRIMARY EARNINGS PER SHARE (2)
Core operations $ 3.03 $ 2.61 $ 1.76 $ 1.33 $ 1.61 $ 0.86 $0.98 32%
Net realized gains 0.89 0.94 0.13 0.89 0.28 0.14 0.08 -
Nonrecurring items 1.90 0.28 (0.41) 0.65 0.45 0.51 0.29 -
Amortization expense (1.18) (1.15) (0.43) (0.25) (0.05) - -
Net income $ 4.64 $ 2.68 $ 1.05 $ 2.62 $ 2.29 $ 1.51 $1.35 37%
FINANCIAL POSITION (1)(3)(4)
Total investments $ 434 $ 415 $ 360 $ 66 $ 51 $ 43 $ 30 47%
Total assets 1,129 700 670 196 147 104 57 43%
Unpaid losses and loss
adjustment expenses 733 346 302 31 27 22 6 -
Long-term debt 101 94 127 44 24 21 3 -
Total shareholders' equity 109 83 55 60 45 20 15 51%
RATIO ANALYSIS
GAAP combined ratio 97% 106% 81% 78% 84% 85% 78% -
Investment yield (5) 6% 7% 10% 8% 8% 8% 8% -
Total return (6) 7% 16% 8% 11% 11% 6% 10% -
Debt to total capital 48% 53% 70% 42% 35% 52% 15% -
Return on average
shareholders' equity 27% 21% 10% 26% 33% 38% 55% -
PER SHARE DATA (2)
Common shares outstanding
(in thousands) 5,403 5,332 5,323 5,401 5,220 4,320 4,320 -
Total investments $80.27 $77.91 $67.59 $12.31 $ 9.71 $ 9.97 $6.92 41%
Book value $20.24 $15.59 $10.27 $11.69 $ 9.22 $ 4.66 $3.42 45%
Growth in book value 30% 52% (12%) 27% 98% 36% 268% -
5-Year CAGR in book value (7) 34% 35% - - - - - -
Closing stock price $31.25 $22.00 $11.75 $22.50 $15.42 $11.46 $8.13 -
</TABLE>
(1) In December 1990, the Company acquired the remaining interests of a
previously unconsolidated subsidiary, Shand/Evanston Group, Inc.
(Shand/Evanston). Assets and liabilities reflect the consolidation of
Shand/Evanston beginning in 1990, and income reflects the consolidation of
the revenues and expenses of Shand/Evanston in 1991 and subsequent years.
(2) All per share amounts have been restated to reflect a 20% stock dividend in
1989.
(3) The change in accounting for net unrealized gains (losses) on fixed
maturities in accordance with provisions of Statement of Financial
Accounting Standards No. 115 affect 1993 and subsequent years.
(4) The gross reinsurance reporting provisions of Statement of Financial
Accounting Standards No. 113 affect 1992 and subsequent years.
(5) Investment yield reflects net investment income as a percent of average
invested assets.
(6) Total return includes net investment income, net realized investment gains
and the change during the period between estimated fair value and the cost
of fixed maturities and equity securities as a percent of average invested
assets.
(7) CAGR - compound annual growth rate.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ----------
(dollars in thousands)
ASSETS
Investments, available-for-sale, at estimated fair value
<S> <C> <C>
Fixed maturities (cost of $683,568 in 1995 and $441,983 in 1994) $ 706,055 $ 423,114
Equity securities (cost of $104,538 in 1995 and $98,117 in 1994) 134,346 107,315
Short-term investments (estimated fair value approximates cost) 68,186 81,258
Total Investments, Available-For-Sale 905,583 611,687
---------- ----------
Cash and cash equivalents 18,315 10,229
Receivables 47,210 71,561
Reinsurance recoverable on unpaid losses 159,141 180,934
Reinsurance recoverable on paid losses 20,404 45,163
Deferred policy acquisition costs 32,024 26,064
Prepaid reinsurance premiums 39,728 37,290
Property and equipment 27,729 43,288
Intangible assets 41,657 45,086
Other assets 19,746 32,186
Total Assets $1,314,537 $1,103,488
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 734,409 $ 652,930
Unearned premiums 170,697 146,553
Payables to insurance companies 17,247 20,757
Long-term debt (estimated fair value of $109,189 in 1995 and $87,489 in 1994) 106,689 100,686
Other liabilities 72,053 44,061
Total Liabilities 1,101,095 964,987
---------- ----------
Shareholders' equity
Common stock 23,118 22,929
Retained earnings 156,333 121,858
Net unrealized gains (losses) on fixed maturities and equity securities,
net of tax expense of $18,304 in 1995 and tax benefit of $3,385 in 1994 33,991 (6,286)
TOTAL SHAREHOLDERS' EQUITY 213,442 138,501
---------- ----------
Commitments and contingencies
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$1,314,537 $1,103,488
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1995 1994 1993
-------- -------- --------
(dollars in thousands, except per share data)
OPERATING REVENUES
<S> <C> <C> <C>
Earned premiums $285,146 $243,067 $192,607
Net investment income 42,981 29,110 23,512
Net realized gains from investment sales 11,952 3,870 15,756
Other 3,496 3,646 3,020
Total Operating Revenues 343,575 279,693 234,895
-------- -------- --------
OPERATING EXPENSES
Losses and loss adjustment expenses 186,655 156,169 119,463
Underwriting, acquisition and insurance expenses 96,113 80,681 67,255
Other 1,642 2,386 3,193
Amortization of intangible assets 2,778 7,051 7,190
Total Operating Expenses 287,188 246,287 197,101
-------- -------- --------
Operating Income 56,387 33,406 37,794
-------- -------- --------
Interest Expense 8,460 7,675 5,638
Income Before Income Taxes 47,927 25,731 32,156
Income Taxes 13,435 7,142 8,521
NET INCOME $ 34,492 $ 18,589 $ 23,635
======== ======== ========
Earnings per share
Primary $ 6.15 $ 3.33 $ 4.23
======== ======== ========
Fully diluted $ 6.12 $ 3.33 $ 4.22
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of
Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Years Ended December 31, 1993, 1994, 1995
-----------------------------------------------------------
Common Common Retained
Shares Stock Earnings Other Total
------ ------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 5,403 $22,636 $ 81,846 $ 4,860 $109,342
Net income - - 23,635 - 23,635
Implementation of change in accounting
for investments, net of taxes - - - 17,552 17,552
Issuance of common stock 11 169 - - 169
Other - - (20) - (20)
------ ------- -------- ------- --------
Balance at December 31, 1993 5,414 22,805 105,461 22,412 150,678
Net income - - 18,589 - 18,589
Net unrealized depreciation of fixed maturities
and equity securities, net of taxes - - - (28,698) (28,698)
Issuance of common stock 19 124 - - 124
Repurchase of common stock (46) - (2,175) - (2,175)
Other - - (17) - (17)
------ ------- -------- ------- --------
Balance at December 31, 1994 5,387 22,929 121,858 (6,286) 138,501
Net income - - 34,492 - 34,492
Net unrealized appreciation of fixed maturities
and equity securities, net of taxes - - - 40,277 40,277
Issuance of common stock 35 189 - - 189
Other - - (17) - (17)
BALANCE AT DECEMBER 31, 1995 5,422 $23,118 $156,333 $33,991 $213,442
====== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 34,492 $ 18,589 $ 23,635
Adjustments to reconcile net income to net cash provided by
operating activities
Deferred income tax expense (benefit) 1,374 4,328 (1,131)
Depreciation and amortization 11,088 15,361 13,037
Net realized gains from investment sales (11,952) (3,870) (15,756)
Proceeds from reinsurer commutations and other settlements 82,637 31,818 65,900
Increase in receivables (296) (10,261) (16,234)
Increase in deferred policy acquisition costs (3,563) (2,513) (9,708)
Increase (decrease) in unpaid losses and loss
adjustment expenses, net 43,133 (21,224) 7,731
Increase in unearned premiums, net 12,393 14,014 29,252
Increase (decrease) in payables to insurance companies (7,270) 13,782 (3,202)
Increase (decrease) in current income taxes (894) (2,344) 2,469
Other 7,867 3,310 (3,981)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 169,009 60,990 92,012
========= ========= =========
INVESTING ACTIVITIES
Proceeds from sales of fixed maturities and equity securities 586,121 344,433 454,392
Proceeds from maturities of fixed maturities 35,993 15,983 33,129
Cost of fixed maturities and equity securities purchased (793,058) (400,936) (585,396)
Net change in short-term investments 13,076 (17,099) 3,998
Purchase of Lincoln Insurance Company, net of cash acquired (21,747) - -
Net proceeds from sale of buildings 19,068 - -
Decrease in funds held in escrow - - 20,055
Additions to property and equipment (4,509) (7,025) (4,644)
Other (1,989) 1,469 (1,452)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (167,045) (63,175) (79,918)
========= ========= =========
FINANCING ACTIVITIES
Borrowings under credit facility 27,500 - -
Net proceeds from issuance of long-term debt - 29,280 83,375
Repayments of long-term debt and credit facility (21,550) (7,550) (107,195)
Retirement of capital lease - (19,584) -
Other 172 (2,118) 140
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 6,122 28 (23,320)
========= ========= =========
Increase (decrease) in cash and cash equivalents 8,086 (2,157) (11,226)
Cash and cash equivalents at beginning of year 10,229 12,386 23,612
Cash and cash equivalents at end of year $ 18,315 $ 10,229 $ 12,386
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of The Company underwrites specialty insurance products and
Significant programs to niche markets. Significant areas of underwriting
Accounting include professional and products liability, excess and
Policies surplus lines, specialty programs and specialty personal and
commercial lines.
a) PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS.
Generally accepted accounting principles require management to
make estimates and assumptions when preparing financial
statements. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of
Markel Corporation and all subsidiaries (the Company). All
significant intercompany balances and transactions have been
eliminated in consolidation.
b) INVESTMENTS. All investments are considered
available-for-sale and are recorded at estimated fair value,
generally based on quoted market prices. The net unrealized
gains or losses on investments, net of deferred income taxes,
are included as a separate component of shareholders' equity.
A decline in the fair value of any investment below cost
that is deemed other than temporary is charged to earnings,
resulting in a new cost basis for the security.
Premiums and discounts are amortized or accreted over the
lives of the related fixed maturities as an adjustment to yield
using the effective interest method. Dividend and interest
income are recognized when earned. Realized gains and
losses are included in earnings and are derived using the
first in, first out method for determining the cost of
securities sold.
c) CASH EQUIVALENTS. The Company considers overnight
deposits to be cash equivalents for purposes of the
consolidated statements of cash flows.
d) DEFERRED POLICY ACQUISITION COSTS. Costs directly related
to the acquisition of insurance premiums, such as commissions
to agents and brokers, are deferred and amortized over the
related policy period, generally one year. If it is
determined that future policy revenues on existing policies
are not adequate to cover related costs and expenses, deferred
policy acquisition costs are charged to earnings.
e) PROPERTY AND EQUIPMENT. Owned property and equipment are
stated at cost less accumulated depreciation. Depreciation and
amortization of buildings and equipment are calculated using
the straight-line method over the respective estimated service
lives.
f) INTANGIBLE ASSETS. Policy renewal rights represent the
value attributable to renewal rights for lines of businesses
acquired and are amortized using either the straight-line or
accelerated methods over the estimated lives of the
businesses acquired, generally seven to ten years. Goodwill
is amortized using the straight-line method, generally over
40 years. The Company assesses the recoverability of
goodwill by determining whether the amortization of the
balance over its remaining life can be recovered through the
undiscounted future operating cash flows of the acquired
operations.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of g) UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES. Unpaid losses
Significant and loss adjustment expenses are based on evaluations of
Accounting reported claims and estimates for losses and loss adjustment
Policies expenses incurred but not reported. Estimates for losses and
(continued) loss adjustment expenses incurred but not reported are
based on reserve development studies. The reserves
recorded are estimates, and the ultimate liability may be
greater than or less than the estimates; however, management
believes the reserves are adequate.
h) REVENUE RECOGNITION. Insurance premiums are earned on a
pro rata basis over the policy period, generally one year.
Profit-sharing commissions from reinsurers are recognized when
received and earned and are netted against policy
acquisition costs. Reinsurance premiums ceded are netted
against premiums written.
i) INCOME TAXES. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period of the enactment date.
j) EARNINGS PER SHARE. Primary earnings per share is
computed by dividing net income, less required dividends on
redeemable preferred stock, by the weighted average number of
common shares outstanding during the year. The weighted
average number of common shares outstanding includes the
weighted average common equivalent shares attributable to
dilutive stock options. Fully diluted earnings per share is
computed using the weighted average common shares
outstanding during the year, including the maximum dilutive
effect of common equivalent shares.
k) DERIVATIVE FINANCIAL INSTRUMENTS. The Company is not
currently a party to any derivative financial instruments as
defined by Statement of Financial Accounting Standards No. 119.
l) RECLASSIFICATIONS. Certain reclassifications of prior
years' amounts have been made to conform with 1995
presentations.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Investments
a) Following is a summary of investments (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed maturities
U.S. Treasury securities and obligations
of U.S. government agencies $211,779 $ 4,384 $ (212) $215,951
Obligations of states and political
subdivisions 109,314 3,674 (177) 112,811
Corporate securities 360,471 15,967 (1,294) 375,144
Other debt securities 2,004 145 - 2,149
--------- ---------- ---------- ---------
Total fixed maturities 683,568 24,170 (1,683) 706,055
Equity securities 104,538 40,542 (10,734) 134,346
Short-term investments 68,182 - - 68,182
TOTAL $856,288 $64,712 $(12,417) $908,538
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed maturities
U.S. Treasury securities and obligations
of U.S. government agencies $147,042 $ 7 $(11,176) $135,873
Obligations of states and political
subdivisions 182,252 509 (4,482) 178,279
Corporate securities 111,109 2,848 (6,665) 107,292
Other debt securities 1,580 90 - 1,670
--------- ---------- ---------- ---------
Total fixed maturities 441,983 3,454 (22,323) 423,114
Equity securities 98,117 23,388 (14,190) 107,315
Short-term investments 81,258 - - 81,258
TOTAL $621,358 $26,842 $(36,513) $611,687
========= ========== ========== =========
</TABLE>
b) The amortized cost and estimated fair value of fixed maturities at December
31, 1995 are shown below by contractual maturity (dollars in thousands):
Estimated
Amortized Fair
Cost Value
--------- ---------
Due in one year or less $ 19,905 $ 20,000
Due after one year through five years 208,614 212,776
Due after five years through ten years 247,011 254,113
Due after ten years 208,038 219,166
--------- ---------
TOTAL $683,568 $706,055
========= =========
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties, and the lenders may have the right to put the securities back to the
borrower. Based on expected maturities, the estimated average duration of the
fixed maturities was 4.3 years.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Investments (continued)
C) Components of net investment income were as follows (dollars in thousands):
Years Ended December 31,
1995 1994 1993
------- ------- -------
Interest
Municipal bonds (tax-exempt) $ 6,900 $ 7,784 $ 6,093
Taxable bonds 31,042 18,299 15,336
Short-term investments, including
overnight deposits 3,969 2,691 3,062
Dividends on equity securities 3,675 2,804 2,229
------- ------- -------
45,586 31,578 26,720
Less investment expenses 2,605 2,468 3,208
------- ------- -------
NET INVESTMENT INCOME $42,981 $29,110 $23,512
======= ======= =======
d) The following table presents the Company's realized gains and losses from
investment sales and the change in gross unrealized gains (losses) (dollars in
thousands):
Years Ended December 31,
1995 1994 1993
-------- -------- -------
Realized gains
Fixed maturities $ 13,861 $ 8,894 $15,162
Equity securities 9,838 5,569 8,070
-------- -------- -------
23,699 14,463 23,232
Realized losses
Fixed maturities (9,281) (9,621) (5,947)
Equity securities (2,466) (972) (1,529)
-------- -------- -------
(11,747) (10,593) (7,476)
-------- -------- -------
Net Realized Gains from Investment Sales $ 11,952 $ 3,870 $15,756
======== ======== =======
Change in gross unrealized gains (losses)
Fixed maturities $ 41,356 $(31,029) $ 844
Equity securities 20,610 (13,121) 14,955
-------- -------- -------
Net Increase (Decrease) $ 61,966 $(44,150) $15,799
======== ======== =======
e) Investments with a carrying value of $30.0 million and $22.9 million were on
deposit with regulatory authorities at December 31, 1995 and 1994, respectively.
f) At December 31, 1995, there were no investments in any one issuer, other
than U.S. Treasury securities and obligations of U.S. government agencies, that
exceeded 10% of consolidated shareholders' equity.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Receivables
Following are the components of receivables (dollars in thousands):
December 31,
1995 1994
------- -------
Agents' balances and premiums in course of collection $39,326 $36,144
Less allowance for doubtful receivables 2,201 1,725
------- -------
37,125 34,419
Other 10,085 37,142
------- -------
RECEIVABLES $47,210 $71,561
======= =======
Included in other receivables at December 31, 1994 is $28 million due from
Alexander & Alexander, Inc. (A&A) (see Note 13a).
4. Deferred Policy Acquisition Costs
The following reflects the amounts of policy costs deferred and amortized
(dollars in thousands):
Years Ended December 31,
1995 1994 1993
-------- -------- --------
Balance, beginning of year $ 26,064 $ 23,551 $ 13,843
Policy acquisition costs deferred 72,748 61,299 54,806
Amortization charged to expense (66,788) (58,786) (45,098)
-------- -------- --------
DEFERRED POLICY ACQUISITION COSTS $ 32,024 $ 26,064 $ 23,551
======== ======== ========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Property and Equipment
Following are the components of property and equipment (dollars in thousands):
December 31,
1995 1994
-------- --------
Land $ 2,372 $ 3,628
Buildings and building equipment 24,221 39,771
Furniture and equipment 22,772 19,182
Other 130 609
-------- --------
49,495 63,190
Less accumulated depreciation and amortization 21,766 19,902
-------- --------
PROPERTY AND EQUIPMENT $ 27,729 $ 43,288
======== ========
Depreciation and amortization expense of property and equipment was $6.0
million, $5.0 million and $4.0 million for the years ended December 31, 1995,
1994 and 1993, respectively.
Total rental expense for the years ended December 31, 1995, 1994 and 1993 was
approximately $1.9 million, $1.0 million and $0.9 million, respectively.
During 1995, the Company entered into sale-leaseback agreements related to its
home office facilities in Richmond, Virginia. The Company sold the properties
which house its corporate offices and Richmond-based underwriting units for
approximately $19.1 million after expenses and concurrently entered into ten to
twelve year lease agreements with the buyers. The Company realized a $4.9
million gain on the sale of the properties which is being deferred and amortized
over the terms of the operating leases.
In addition, the Company has other office facilities, furniture and equipment
under operating leases with remaining terms ranging from 24 months to 68 months.
Minimum annual rental commitments for noncancelable operating leases at December
31, 1995 were as follows (dollars in thousands):
Year Ending December 31,
1996 $ 2,692
1997 2,837
1998 2,675
1999 2,577
2000 2,581
2001 and thereafter 12,380
-------
Total $26,192
=======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Intangible Assets
Following are the components of intangible assets (dollars in thousands):
December 31,
1995 1994
-------- --------
Goodwill $ 36,628 $ 38,964
Policy renewal rights 5,029 6,122
-------- --------
INTANGIBLE ASSETS $ 41,657 $ 45,086
======== ========
Accumulated amortization related to intangible assets was $14.9 million and
$12.2 million at December 31, 1995 and 1994, respectively.
7. Income Taxes
Income tax expense (benefit) on income before income taxes, substantially all of
which was federal tax expense, consists of (dollars in thousands):
Current Deferred Total
-------- -------- --------
1995 $ 12,061 $ 1,374 $ 13,435
1994 $ 2,814 $ 4,328 $ 7,142
1993 $ 9,652 $ (1,131) $ 8,521
The Company made income tax payments of $13.0 million in 1995, $5.2 million in
1994 and $7.2 million in 1993. Income taxes currently payable were $0.2 million
and $0.9 million at December 31, 1995 and 1994, respectively.
Reconciliations of the U.S. corporate income tax rate and the effective tax rate
on income before income taxes are as follows:
Years Ended December 31,
1995 1994 1993
---- ---- ----
U.S. corporate tax rate 35% 35% 35%
Tax-exempt investment income (6) (11) (7)
Amortization of intangibles 1 2 2
Change in tax rate on deferred tax assets
and liabilities - - (1)
Other (2) 2 (2)
---- ---- ----
EFFECTIVE TAX RATE 28% 28% 27%
==== ==== ====
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Income Taxes (continued)
The components of the net deferred tax asset (liability) were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1995 1994
-------- --------
<S> <C> <C>
Assets
Income reported in different periods for
financial reporting and tax purposes $ 10,409 $ 4,276
Unpaid losses and loss adjustment expenses,
nondeductible portion for income tax purposes 42,558 39,259
Unearned premiums, adjustment for income tax purposes 9,168 7,648
Investments, net unrealized losses - 3,385
Other 815 563
-------- --------
Total gross deferred tax assets 62,950 55,131
-------- --------
Liabilities
Property and equipment, depreciation 3,069 2,361
Deferred policy acquisition costs 11,208 9,122
Safe harbor leases 10,224 11,480
Investments, net unrealized gains 18,304 -
Differences between financial reporting and
tax bases of assets acquired 22,849 16,256
Other 1,169 1,000
-------- --------
Total gross deferred tax liabilities 66,823 40,219
-------- --------
DEFERRED TAX ASSET (LIABILITY), NET $ (3,873) $ 14,912
======== ========
</TABLE>
The Company believes that a valuation allowance with respect to the realization
of the total gross deferred tax assets is not necessary. The Company expects to
realize all of its $63.0 million gross deferred tax assets existing at December
31, 1995 through the reversal of existing temporary differences attributable to
the gross deferred tax liabilities and the application of the carryback
provisions of the Internal Revenue Code.
Federal tax returns through 1990 have been examined and are no longer subject to
adjustment by the Internal Revenue Service (IRS). The IRS has also examined tax
returns for 1991 through 1994. While the IRS has not issued its final report,
management believes the outcome of the examination will not have a material
adverse effect on consolidated earnings.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Unpaid Losses and Loss Adjustment Expenses
The following table sets forth a reconciliation of beginning and ending reserves
for losses and loss adjustment expenses (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT
EXPENSES, BEGINNING OF YEAR $471,996 $426,796 $353,114
Commutations and other settlements 54,637 59,818 65,900
Lincoln Insurance Company reserves for
losses and loss adjustment expenses at
acquisition date 35,233 - -
-------- -------- --------
RESTATED NET RESERVES FOR LOSSES
AND LOSS ADJUSTMENT EXPENSES,
BEGINNING OF YEAR $561,866 486,614 $419,014
Incurred losses and loss adjustment expenses
Current year 195,448 159,730 125,454
Prior years (8,793) (3,561) (5,991)
-------- -------- --------
TOTAL INCURRED LOSSES AND
LOSS ADJUSTMENT EXPENSES 186,655 156,169 119,463
Payments
Current year 42,002 27,456 22,253
Prior years 131,251 144,376 93,646
-------- -------- --------
TOTAL PAYMENTS 173,253 171,832 115,899
Other - 1,045 4,218
-------- -------- --------
NET RESERVES FOR LOSSES AND LOSS
ADJUSTMENT EXPENSES, END OF YEAR 575,268 471,996 426,796
-------- -------- --------
Reinsurance recoverable on unpaid losses 159,141 180,934 261,037
-------- -------- --------
GROSS RESERVES FOR LOSSES AND LOSS
ADJUSTMENT EXPENSES, END OF YEAR $734,409 $652,930 $687,833
======== ======== ========
</TABLE>
The provision for prior years decreased in 1995, 1994 and 1993. Inherent in the
Company's reserving practices is the desire to have reserves more likely to
prove to be redundant than deficient. Furthermore, the Company's philosophy is
to price its insurance products to make an underwriting profit, not to increase
written premiums.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Unpaid Losses and Loss Adjustment Expenses (continued)
Management continually attempts to improve its loss estimation process by
refining its ability to analyze loss development patterns, claim payments and
other information, but there remain many reasons for potential adverse
development of estimated ultimate liabilities. For example, the uncertainties
inherent in the loss estimation process have become increasingly subject to
changes in social and legal trends. In recent years, these trends have expanded
the liability of insureds, established new liabilities and reinterpreted
contracts to provide unanticipated coverage long after the related policies were
written. Such changes from past experience significantly affect the ability of
insurers to estimate reserves for unpaid losses and related expenses.
Management recognizes the higher variability associated with certain exposures
and books of business and considers this factor when establishing loss reserves.
Management currently believes the Company's gross and net reserves, including
the reserves for environmental impairment liability (EIL) and toxic tort
exposures, are adequate. The Company has shown redundancies in 1987 and
subsequent years.
The net reserves for losses and loss adjustment expenses maintained by the
Company's insurance subsidiaries are equal under both statutory and generally
accepted accounting principles. However, certain reserves for claim handling
expenses are maintained by the Company's underwriting management subsidiaries,
in accordance with the contractual obligations of these subsidiaries. As a
result, the consolidated net reserves for losses and loss adjustment expenses
will be different from the statutory net reserves for losses and loss adjustment
expenses by those amounts.
9. Long-Term Debt
Long-term debt consists of the following (dollars in thousands):
December 31,
1995 1994
-------- --------
7.25% notes, due November 1, 2003,
interest payable semi-annually,
net of unamortized discount of $411
in 1995 and $464 in 1994 $ 99,589 $ 99,536
9% subordinated debentures, due
December 19, 1997, interest
payable annually - 1,000
6.63% borrowings under revolving credit
facility, due June 30, 1997 7,000 -
Other 100 150
-------- --------
LONG-TERM DEBT $106,689 $100,686
======== ========
The notes due November 1, 2003 are not redeemable or subject to any sinking fund
requirements and have an effective cost of approximately 7.54%. The estimated
fair value of the Company's long-term debt is based on quoted market prices at
the reporting date.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Long-Term Debt (continued)
In 1994, the Company arranged a revolving credit facility which provides up to
$40.0 million for working capital and other general corporate purposes.
Outstanding balances under the revolving credit facility bear interest based
either on the prime rate, the London Interbank Offered Rate, or the individual
bank's certificate of deposit rate.
Following is a schedule of future principal payments due on long-term debt as of
December 31, 1995 (dollars in thousands):
Years Ending December 31,
1996 $ 50
1997 7,050
1998 -
1999 -
2000 -
2001 and thereafter 99,589
--------
Total $106,689
========
The Company paid $8.4 million, $7.4 million and $5.2 million in interest during
the years ended December 31, 1995, 1994 and 1993, respectively.
10. Shareholders' Equity
A) The Company has 15,000,000 shares of no par value common stock authorized, of
which 5,421,988 and 5,386,996 shares were issued and outstanding at December 31,
1995 and 1994, respectively. The Company is authorized to issue up to 2,069,200
shares of preferred stock, $1.00 par value per share, in one or more series and
to fix the powers, designations, preferences and rights of each series. There
were 11,269 shares of Series A redeemable preferred stock outstanding at
December 31, 1995 and 1994. These shares were included in other liabilities at a
redemption value of $28.50 per share and carry a cumulative dividend of $1.50
per share, payable semi-annually. There were also 120,000 shares of Series B
redeemable preferred stock outstanding at December 31, 1995 and 1994. These
shares have a redemption value of $100 per share, carry a cumulative dividend of
$9.00 per share and are eliminated in consolidation as all shares are held by
the Company's wholly-owned subsidiaries.
B) The Company has three stock option or stock award plans for employees and
directors; the 1986 Stock Option Plan, the 1989 Non-employee Director Stock
Option Plan, and the 1993 Incentive Stock Plan. At December 31, 1995, there were
330,797 shares, 60,000 shares and 100,000 shares reserved for issuance under the
1986 plan, the 1989 plan and the 1993 plan, respectively. The 1986 and 1993
plans are administered by the Compensation Committee of the Company's Board of
Directors. The 1986 plan provides for the award of incentive stock options, and
the 1993 plan provides for the award of incentive stock options, stock
appreciation rights, or incentive stock awards to employees of the Company. The
1989 plan is administered by the Company's Board of Directors and provides for
the award of non-statutory stock options to the non-employee directors. Options
are granted at a price not less than market on the date of the grant and are
exercisable within a period established by the Committee or the Board at the
time of the grant, but not earlier than six months from the date of grant.
Options expire either five or ten years from the date of grant. At December 31,
1995, the Company had 15,215 and 36,000 options available for grant under the
1986 and 1989 plans, respectively, and 100,000 options,
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Shareholders' Equity (continued)
stock appreciation rights or incentive stock awards were available for grant
under the 1993 plan. Stock option transactions are summarized below:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at January 1 382,421 383,566 370,056
Granted - 46,000 41,050
Exercised (40,919) (44,850) (11,660)
Canceled (1,920) (2,295) (15,880)
-------- -------- --------
Options outstanding at December 31 339,582 382,421 383,566
======== ======== ========
Option price range at December 31
Low $ 10.53 $ 10.53 $ 10.53
High $ 47.00 $ 47.00 $ 39.00
Options exercisable at December 31 255,274 273,935 230,874
Options available for grant at December 31 151,215 149,295 193,000
======== ======== ========
</TABLE>
C) Earnings per share was determined by dividing net income, as adjusted
below, by the applicable shares outstanding (in thousands):
Years Ended December 31,
1995 1994 1993
------- ------- -------
$34,492 $18,589 $23,635
Net income as reported
Dividends on redeemable preferred stock (17) (17) (20)
------- ------- -------
Primary and fully diluted income $34,475 $18,572 $23,615
======= ======= =======
Average common shares outstanding 5,405 5,395 5,410
Shares applicable to common stock
equivalents 200 174 179
------- ------- -------
Average primary shares outstanding 5,605 5,569 5,589
Additional dilution attributable to
common stock equivalents 28 - 9
------- ------- -------
Average fully diluted shares outstanding 5,633 5,569 5,598
======= ======= =======
Average primary and fully diluted shares include common and common equivalent
shares attributable to stock options. Common stock market prices which produce
the maximum dilutive effect are used to calculate fully diluted shares
attributable to stock options.
11. Employee Benefit Plan
The Company maintains a defined contribution plan, the Markel Corporation
Retirement Savings Plan, in accordance with Section 401(k) of the Internal
Revenue Code. The plan requires the Company to contribute, on an annual basis,
6% of each participating employee's compensation plus a matching contribution of
100% of the first 2% and 50% of the next 2% of each participating employee's
contribution. Annual expenses relating to this plan were $1.9 million in 1995,
1994 and 1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Reinsurance
The Company enters into reinsurance agreements in order to reduce its liability
on individual risks and enable it to underwrite policies with higher limits. In
a reinsurance transaction, an insurance company transfers, or cedes, all or part
of its exposure in return for a portion of the premium. The ceding of the
insurance does not legally discharge the ceding company from its primary
liability for the full amount of the policies, and the ceding company is
required to pay the loss and bear collection risk if the reinsurer fails to meet
its obligations under the reinsurance agreement.
The table below summarizes the effect of reinsurance on premiums written and
earned (dollars in thousands):
Years Ended December 31,
1995 1994 1993
------------------- ------------------- --------------------
Written Earned Written Earned Written Earned
-------- -------- -------- -------- -------- --------
Direct $366,739 $349,417 $310,748 $291,816 $259,662 $228,568
Assumed 23,879 26,158 29,121 30,618 36,772 31,903
Ceded (93,079) (90,429) (82,847) (79,367) (74,545) (67,864)
-------- -------- -------- -------- -------- --------
Net Premiums $297,539 $285,146 $257,022 $243,067 $221,889 $192,607
======== ======== ======== ======== ======== ========
Incurred losses and loss adjustment expenses are net of reinsurance recoveries
of $63.9 million, $67.1 million and $92.2 million for the years ended December
31, 1995, 1994 and 1993, respectively.
Since 1993, the Company has pursued the commutation, or termination, of
contracts with certain reinsurers of Shand/Evanston's 1987 and prior books of
business. The objectives of the commutations were to reduce credit risk
and eliminate administrative expenses associated with the run-off of
reinsurance placed with certain inactive reinsurers. Primarily as a result of
the commutation program, during 1995, the Company reassumed exposures for
ceded unpaid losses and loss adjustment expenses in exchange for $54.6 million.
In 1994 and 1993, reinsurer commutations and other settlements totaled $59.8
million and $65.9 million, respectively. In all years, pricing for
commutations was based on ceded unpaid losses and loss adjustment expenses at
the date of commutation plus other factors deemed appropriate by management.
The recording of commutations had no effect on the Company's results of
operations in 1995, 1994 and 1993.
At December 31, 1995, the Company recorded reinsurance recoverable on paid and
unpaid claims of $146.0 million from 19 reinsurance companies, which represented
approximately 81% of the total reinsurance recoverable on paid and unpaid
claims. At December 31, 1995, reinsurers had established irrevocable letters of
credit or trust accounts in the amount of $37.8 million for the Company's
benefit. Requests for payments of recoverables from reinsurers are often not
made for several years after the inception of a reinsurance agreement, so it is
possible that the financial strength of a reinsurer may deteriorate during that
period. In order to reduce its credit risk, the Company seeks to do business
only with financially sound reinsurance companies and regularly reviews the
financial strength of all reinsurers used.
An allowance for uncollectible reinsurance recoverable is included as a
component of reinsurance recoverable on paid and unpaid losses. The allowance
was $3.4 million and $10.8 million at December 31, 1995 and 1994, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Contingencies
A) Under the terms of the agreement for the Company's purchase of Shand/Evanston
from Alexander &Alexander, Inc. (A&A), A&A is obligated to indemnify the Company
with respect to certain liabilities and actions pre-dating the acquisition of
Shand/Evanston. During 1994 and 1995, the Company concluded several agreements
with A&A to resolve disputes regarding the scope and nature of A&A's
indemnification obligations. As a result of these agreements, the Company is now
responsible for defending certain claims against Shand/Evanston while A&A
remains responsible for other exposures. A&A is actively performing with
respect to its ongoing indemnification obligations.
A&A further provided indemnification for claims arising out of or related to the
Rehabilitation of Mutual Fire Marine and Inland Marine Insurance Company (Mutual
Fire). During 1995, A&A resolved a lawsuit and certain other disputes with
the Rehabilitator for Mutual Fire. This settlement favorably resolved a
material contingency previously reported in the Company's consolidated
financial statements.
B) The Company has other contingencies arising in the normal conduct of its
operations. In the opinion of management, the resolutions of these
contingencies are not expected to have a material impact on the Company's
financial condition.
14. Related Party Transactions
The Company purchases investment counseling services from Hamblin Watsa
Investment Counsel Ltd., a company in which a director of the Company has a
significant interest. The cost of such services was $618,000, $512,000 and
$1,236,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company pays commissions to Gary Markel &Associates, Inc. and Gary Markel
Surplus Lines Brokerage, Inc., entities owned by a director of the Company. The
commissions paid were $424,000, $344,000 and $53,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
15. Statutory Financial Information
The following table includes selected information for the Company's wholly-owned
insurance subsidiaries as filed with insurance regulatory authorities (dollars
in thousands):
Years Ended December 31,
1995 1994 1993
-------- -------- --------
$ 42,181 $ 26,816 $ 26,271
Net income
Statutory capital and surplus $224,833 $164,650 $144,379
The Company's insurance company subsidiaries are subject to certain regulatory
restrictions on the payment of dividends or advances to the Company. As of
December 31, 1995, $188.6 million of the insurance company subsidiaries'
statutory surplus was so restricted.
In converting from statutory accounting principles to generally accepted
accounting principles, typical adjustments include deferral of policy
acquisition costs, a provision for deferred federal income taxes and the
inclusion of net unrealized gains or losses in shareholders' equity relating to
fixed maturities.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Acquisition
On May 30, 1995, the Company acquired the stock of Lincoln Insurance Company
(LIC), an excess and surplus lines company. The acquisition was accounted for
using the purchase method of accounting. The terms of the transaction provided
for the Company to pay total consideration of $24.3 million which approximated
the fair value of the assets acquired. Additionally, the seller will provide
indemnification against adverse development of reserves for losses and loss
adjustment expenses and uncollectible reinsurance, if any, in an amount up to
the purchase price. The Company funded the transaction with available cash and
borrowings of approximately $17.0 million under existing lines of credit. After
the acquisition, LIC ceased writing business as soon as practical. However,
certain portions of the business will be renewed in Essex Insurance Company, a
subsidiary of the Company. The acquisition's effect on current earnings, which
consist primarily of investment income from LIC's investment portfolio, was not
significant in 1995.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
[KPMG Peat Marwick LLP LOGO]
The Board of Directors and Shareholders
Markel Corporation:
We have audited the accompanying consolidated balance sheets of Markel
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Markel Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Effective December 31, 1993, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
/s/ KPMG PEAT MARWICK LLP
Richmond, Virginia
February 7, 1996
<PAGE>
QUARTERLY INFORMATION
The following table presents the unaudited quarterly results of consolidated
operations for 1995, 1994 and 1993 (dollare in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- --------
<S> <C> <C> <C> <C>
1995
Operating revenues $76,525 $82,565 $91,543 $92,942
Income before income taxes 8,838 11,286 12,835 14,968
Net income 6,540 8,352 8,984 10,616
Earnings per share
Primary $ 1.17 $ 1.49 $ 1.59 $ 1.88
Fully diluted 1.17 1.49 1.59 1.88
Common stock price ranges
High $ 48 1/4 $ 57 $ 75 1/2 $ 75 1/2
Low 40 3/4 47 1/4 56 1/4 67 1/2
1994
Operating revenues $65,468 $66,398 $72,414 $75,413
Income before income taxes 7,236 6,388 5,858 6,249
Net income 5,210 4,599 4,218 4,562
Earnings per share
Primary $ 0.93 $ 0.83 $ 0.76 $ 0.82
Fully diluted 0.93 0.83 0.76 0.82
Common stock price ranges
High $ 44 1/2 $ 42 1/2 $ 44 $ 42 1/4
Low 38 1/2 37 1/2 39 40 1/4
1993
Operating revenues $50,841 $54,689 $61,963 $67,402
Income before income taxes 7,899 7,680 7,635 8,942
Net income 5,687 5,530 5,650 6,768
Earnings per share
Primary $ 1.02 $ 0.99 $ 1.01 $ 1.21
Fully diluted 1.02 0.99 1.01 1.21
Common stock price ranges
High $ 36 1/2 $ 36 1/2 $ 40 1/2 $ 40 1/4
Low 30 3/4 32 1/4 36 1/4 37 3/4
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company underwrites specialty insurance products and programs to
niche markets. Significant areas of underwriting include professional and
products liability, excess and surplus lines, specialty programs and specialty
personal and commercial lines. Professional liability coverage is offered to
physicians and health professionals, insurance companies, directors and
officers, attorneys and architects and engineers. Products liability insurance
is provided to manufacturers and distributors. Property/casualty insurance for
nonstandard and hard-to-place risks is underwritten on an excess and surplus
lines basis. Specialty program insurance includes coverages for camps and
youth recreation, child care, health and fitness and agribusiness
organizations, as well as accident and health insurance for colleges.
The Company also underwrites personal and commercial property and
liability coverages for watercraft, motorcycles, automobiles, mobile homes,
dwellings and commercial freight companies, and maintains wholesale and
retail brokerage operations that produce business primarily for its
insurance subsidiaries.
The Company relies on sound underwriting practices to produce investable funds
with minimum underwriting risk which management can then invest for long-term
total return. Three quarters of the Company's investable assets come from
premiums paid by policyholders. Policyholder funds are invested
predominately in high quality corporate, government and municipal bonds
with relatively short duration. The balance, comprised of shareholder
funds, is available to be invested in equity securities, which over the long
run, have produced superior returns relative to fixed income investments.
Confidence in the ability to produce consistent underwriting profits and
confidence in loss reserving practices enables the Company to invest for
long-term returns.
RESULTS OF OPERATIONS
In 1995, gross premium volume totaled $402.1 million compared to $349.3
million in 1994 and $312.9 million in 1993.
Following is a comparison of gross premium volume by significant
underwriting area (dollars in thousands):
Years Ended December 31,
1995 1994 1993
-------- -------- --------
GROSS PREMIUM VOLUME
Professional/Products Liability $127,245 $128,876 $113,337
Excess and Surplus Lines 104,841 90,211 67,467
Specialty Program Insurance 102,336 94,637 94,002
Specialty Personal and Commercial Lines 44,456 13,924 9,442
Other 23,212 21,636 28,672
-------- -------- --------
Total $402,090 $349,284 $312,920
======== ======== ========
Premiums from professional/products liability insurance totaled $127.2
million in 1995 compared to $128.9 million in 1994 and $113.3 million in
1993. The Company reported growth in the medical malpractice and
specified medical professions product lines in both 1995 and 1994. However,
1995 production from professional and products liability programs was
adversely affected by increasing competition from the standard markets,
especially in the insurance companies, lawyers and architects and engineers
programs, which more than offset the growth in the medical malpractice and
specified medical professions lines. The gain in 1994 was also aided by
higher production from directors' and officers' professional liability
insurance following increased limits of liability for that program.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Excess and surplus lines premiums grew 16% in 1995 to $104.8 million and 34%
in 1994 to $90.2 million from $67.5 million in 1993. The increases in 1995 and
1994 were fueled by strong growth in the special property program. Special
property premiums amounted to $34.2 million in 1995 compared to $21.6 million
in 1994 and $7.5 million in 1993. Growth in 1995 production from other
excess and surplus lines products was moderate due to increased
competition during the year. Production in 1994 also reflected growth in
casualty premiums primarily from more favorable market conditions.
[Graph]
Growth in Gross Premium Volume
1993 1994 1995
2.8% 11.6% 15.1%
Premiums from specialty program insurance totaled $102.3 million in
1995 compared to $94.6 million in 1994 and $94.0 million in 1993. Higher
production in 1995 was prompted by policy processing improvements and
other operating efficiencies. Growth in the child care programs also
contributed to the 1995 and 1994 increases. In 1994, higher than expected
persistency with the camps and youth recreation programs resulted in premium
growth which was largely offset by the elimination or restriction of
unprofitable workers' compensation business and intense competition in the
health and fitness markets.
Specialty personal and commercial lines premiums rose to $44.5 million in
1995, a 219% increase over 1994 production. In 1994, premiums were $13.9
million, 47% higher than 1993 premiums of $9.4 million. New programs
were primarily responsible for the growth in 1995. These programs, including
property coverage for mobile homes and low value dwellings, liability
coverages for commercial autos and physical damage coverage for personal
autos, contributed $28.5 million to 1995 production. In 1995 and 1994, focused
marketing efforts enhanced production from the specialty motorcycle
program while an improved economy helped increase production in the
watercraft program.
Other gross premium volume was $23.2 million in 1995 compared to $21.6
million in 1994 and $28.7 million in 1993. Other gross premium volume included
premiums from the Company's brokerage operations as well as business
related to the acquisition of LIC in May 1995. Production in both 1995 and 1994
reflected lower premiums from facultative reinsurance related to professional/
products liability programs and a decreased emphasis on business underwritten
by managing general agents.
While certain of the Company's products may be adversely affected by
the increased competition and lower rates which characterize a "soft"
insurance market, the Company does not intend to relax underwriting standards
or rates in order to sustain premium volume. Further, the volume of premiums
written may vary significantly with the Company's decision to alter
its product concentration to maintain or improve underwriting profitability.
Total operating revenues increased 23% to $343.6 million in 1995 from
$279.7 million in 1994. Operating revenues in 1994 were 19% above the $234.9
million reported in 1993. In 1995, growth in earned premiums and
substantially higher net investment income and realized gains accounted for
the increase in revenues. In 1994, the increase in earned premiums and net
investment income more than offset lower realized gains from the sales of
investments.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Earned premiums advanced 17% to $285.1 million in 1995 and 26% to $243.1
million in 1994 from $192.6 million in 1993.
Following is a comparison of earned premiums by significant underwriting
area (dollars in thousands):
Years Ended December 31,
1995 1994 1993
-------- -------- --------
EARNED PREMIUMS
Professional/Products Liability $112,988 $107,735 $ 83,796
Excess and Surplus Lines 70,160 62,236 47,526
Specialty Program Insurance 64,582 56,002 47,413
Specialty Personal and Commercial Lines 25,181 11,180 8,943
Other 12,235 5,914 4,929
-------- -------- --------
TOTAL $285,146 $243,067 $192,607
======== ======== ========
Premiums earned from professional/products liability insurance increased 5% in
1995 to $113.0 million and 29% in 1994 to $107.7 million from $83.8 million in
1993. The growth resulted from slightly higher retention levels in 1995 and 1994
and higher gross premium volume throughout 1994. Excess and surplus lines earned
premiums rose 13% in 1995 to $70.2 million and 31% in 1994 to $62.2 million from
$47.5 million in 1993. Higher gross premium volume over the past several years
accounted for the increases. Specialty program insurance earned premiums
increased 15% to $64.6 million in 1995 and 18% to $56.0 million in 1994 from
$47.4 million in 1993. The growth was caused by increased retentions of gross
premium volume over the past three years and growth in gross premiums in 1995.
Specialty personal and commercial lines earned premiums rose 125% in 1995 to
$25.2 million and 25% in 1994 to $11.2 million from $8.9 million in 1993. The
increase was due to significant growth in gross premium volume from new programs
as well as established programs over the past two years.
Net investment income increased 48% in 1995 to $43.0 million and 24% in 1994 to
$29.1 million from $23.5 million in 1993. The increases reflected the impact of
a significantly larger investment portfolio. Invested assets grew 49% in 1995 to
$908.6 million and 2% in 1994 to $611.7 million from $597.0 million in 1993.
Higher yields during 1995 further enhanced the Company's investment return.
Net realized gains from the sales of investments totaled $12.0 million in 1995
compared to $3.9 million in 1994 and $15.8 million in 1993. Over the past three
years, the Company has experienced variability in its realized and unrealized
investment gains. The fluctuations are primarily the result of interest rate
volatility which influences the market values of fixed maturity and equity
investments.
[Graph]
Investment Earnings (in millions)
1993 1994 1995
---- ---- ----
Net realized gains $ 16 $ 4 $ 12
Net investment income $ 24 $ 29 $ 43
---- ---- ----
$ 40 $ 33 $ 55
==== ==== ====
The Company's investment strategy seeks to maximize total investment returns
over a long-term period. Total investment returns include items which impact
earnings, such as net investment income and realized gains and losses from the
sales of investments, as well as items which do not impact earnings, such as
unrealized gains and losses. The Company does not intend to lower the quality of
its investment portfolio in order to maintain yields. Further, the Company's
focus on long-term total investment returns may result in variability in the
level of realized investment gains and losses from one period to the next.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Total operating expenses, which included losses and loss adjustment expenses,
underwriting, acquisition and insurance expenses, other operating expenses and
amortization of intangible assets, were $287.2 million in 1995 compared to
$246.3 million in 1994 and $197.1 million in 1993. Higher variable expenses
associated with higher earned premiums accounted for the majority of the
increase in 1995 and 1994.
The following is a comparison of selected data from the Company's operations
(dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Gross premium volume $ 402,090 $ 349,284 $ 312,920
Net premiums written $ 297,539 $ 257,022 $ 221,889
Net retention 74% 74% 71%
Earned premiums $ 285,146 $ 243,067 $ 192,607
Losses and loss adjustment expenses $ 186,655 $ 156,169 $ 119,463
Underwriting, acquisition and insurance expenses $ 96,113 $ 80,681 $ 67,255
GAAP RATIOS
Loss ratio 65% 64% 62%
Expense ratio 34% 33% 35%
--------- --------- ---------
COMBINED RATIO 99% 97% 97%
========= ========= =========
</TABLE>
The combined ratio measures the relationship of incurred losses, loss adjustment
expenses and underwriting, acquisition and insurance expenses to earned premium
revenues. The loss ratio for 1995 increased to 65% from 64% in 1994 and from 62%
in 1993. In 1995 loss ratios rose as increased competition and continued soft
market conditions prompted the Company to establish loss reserves for current
business at higher levels relative to the prior years. The increase in 1994 was
due to larger reserve redundancies in 1993 and losses related to the January
1994 earthquake in Northridge, California. The 1995 expense ratio was 34%
compared to 33% in 1994 and 35% in 1993. The increase in 1995 is largely the
result of investments in new programs which carry nonrecurring start-up costs,
as well as higher commission expenses. Cost control efforts and higher earned
premiums accounted for the improvement in the expense ratio in 1994.
Non-cash expenses related to the amortization of intangible assets were $2.8
million in 1995 compared to $7.1 million in 1994 and $7.2 million in 1993. The
61% decrease in 1995 reflected the expiration of certain noncompete agreements
in December 1994.
Interest expense amounted to $8.5 million in 1995 compared to $7.7 million in
1994 and $5.6 million in 1993. During 1995, the Company increased borrowings in
order to facilitate the purchase of LIC, leading to higher interest expense. In
November 1993 and February 1994, the Company issued fixed rate, 10-year bonds
totaling $75 million and $25 million, respectively. The proceeds of the November
issue and cash on hand were used to retire variable rate bank debt, while the
proceeds of the February issue were used to retire certain capital lease
obligations. Interest expense in 1994 increased due primarily to higher rates
associated with the fixed rate bond issues and interest on short-term
borrowings.
[Graph]
Earnings from Core Operations (per primary share)
1993 $3.31
1994 $3.77
1995 $5.15
In evaluating its operating performance, the Company focuses on core
underwriting and investing results before consideration of realized gains or
losses from the sales of investments and expenses related to the amortization of
intangible assets. Management believes this is a better indicator of the
Company's performance because it reduces the variability in results associated
with realized gains or losses and also eliminates the impact of accounting
conventions which do not reflect current operating costs. Income from core
underwriting and investing operations advanced to $29.0 million in 1995 which
represented a 38% increase over 1994. In 1994, income from core operations rose
14% to $21.0 million from $18.5 million in 1993. The 1995 and 1994 increases
were due to growth in earned premiums, continued underwriting profitability and
higher net investment income.
Net income was $34.5 million in 1995 compared to $18.6 million in 1994 and $23.6
million in 1993. The increase in 1995 was due to substantial growth in net
investment income, realized investment gains and continued underwriting profits.
In 1994, higher income from core underwriting and investing operations was
offset by lower realized investment gains.
CLAIMS & RESERVES
The Company maintains reserves for specific claims incurred and reported,
reserves for claims incurred but not reported (IBNR) and reserves for
uncollectible reinsurance. Reserves for reported claims are based primarily on
case-by-case evaluations of the claims and their potential for adverse
development. Reserves for reported claims consider the Company's estimate of the
ultimate cost to settle the claims, including investigation and defense of
lawsuits resulting from the claims, and may be subject to adjustment for
differences between costs originally estimated and costs subsequently
re-estimated or incurred.
Generally accepted accounting principles require that reserves for claims
incurred but not reported be based on the estimated ultimate cost of settling
claims (including the effects of inflation and other social and economic
factors), using past experience adjusted for current trends and any other
factors that would modify past experience. The Company also evaluates and
adjusts reserves for uncollectible reinsurance in accordance with its collection
experience and the development of the gross reserves.
Ultimate liability may be greater or less than current reserves. In the
insurance industry there is always the risk that reserves may prove inadequate.
Reserves are continually monitored by the Company using new information on
reported claims and a variety of statistical techniques. Anticipated inflation
is reflected implicitly in the reserving process through analysis of cost trends
and the review of historical development. The Company does not discount its
reserves for losses and loss adjustment expenses to reflect estimated present
value.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The following table presents the development of the Company's balance sheet
reserves for the period 1985 through 1995 (in thousands):
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net reserves restated
for commutations
and other settlements $290,468 378,570 462,977 461,250 479,634 480,576 522,100 525,322 535,776 526,633 575,268
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Paid (cumulative as of:
One year later 68,870 77,466 98,107 79,466 87,266 84,509 82,970 93,601 144,376 131,251
Two years later 83,592 111,834 130,717 115,260 137,874 139,175 155,506 214,362 247,716
Three years later 101,436 134,560 158,949 157,185 176,254 192,773 251,339 295,551
Four years later 111,875 151,880 195,230 186,228 215,655 273,300 317,548
Five years later 121,773 175,055 213,940 225,267 278,533 329,879
Six years later 132,537 188,654 248,897 285,135 331,904
Seven years later 138,513 219,919 302,749 337,496
Eight years later 146,415 270,945 354,759
Nine years later 189,703 321,392
Ten years later 236,585
Reserves re-estimated as of:
One year later 323,003 405,021 475,404 471,194 474,168 476,198 512,512 519,083 532,215 517,840
Two years later 326,735 402,152 472,670 451,851 472,079 464,321 507,450 507,411 519,840
Three years later 327,612 401,415 454,776 448,976 464,732 460,324 492,912 493,497
Four years later 328,658 392,508 463,402 454,140 457,922 447,988 478,529
Five years later 325,273 410,611 471,886 451,311 445,398 433,701
Six years later 335,605 426,402 468,857 439,385 430,381
Seven years later 348,967 418,814 458,784 423,535
Eight years later 348,439 409,133 442,617
Nine years later 343,263 393,653
Ten years later 328,936
Cumulative redundancy $(38,468) (15,083) 20,360 37,715 49,253 46,875 43,571 31,825 15,936 8,793
(deficiency) -------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Cumulative % (13%) (4%) 4% 8% 10% 10% 8% 6% 3% 2%
Gross liability, end of year 652,930 734,409
Reinsurance recoverable,
restated for commutations 126,297 159,141
------- -------
Net liability, end of year,
restated for commuations 526,633 575,268
------- -------
Gross re-estimated liability-latest 648,006
Re-estimated recoverable-latest 130,166
-------
Net re-estimated liability-latest 517,850
=======
Gross cumulative redundancy 4,924
=======
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The first line of the table shows net reserves for losses and loss adjustment
expenses restated for reinsurer commutations and other settlements, and is the
result of adding the reserves for losses and loss adjustment expenses as
originally estimated at the end of each year and all prior years to reserves
reassumed through commutations and other activities completed in 1993, 1994 and
1995.
The upper portion of the table shows the cumulative amount paid with respect to
the previously recorded liability as of the end of each succeeding year. The
lower portion of the table shows the re-estimated amount of the previously
recorded reserves based on experience as of the end of each succeeding year,
including cumulative payments made since the end of the respective year. For
example, the 1990 liability for losses and loss adjustment expenses at the end
of 1990 for 1990 and all prior years, adjusted for commutations, was originally
estimated to be $480.6 million. Five years later (as of December 31, 1995), this
amount was re-estimated to be $433.7 million, of which $329.9 million had been
paid, leaving a reserve of $103.8 million for losses and loss adjustment
expenses for 1990 and prior years remaining unpaid as of December 31, 1995.
Cumulative redundancy (deficiency) represents the change in the estimate from
the original balance sheet date to the date of the current estimate. For
example, the 1990 liability for losses and loss adjustment expenses developed a
$46.9 million redundancy from December 31, 1990 to December 31, 1995 (five years
later). Conditions and trends that have affected development of liability in the
past may not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on the
table. Moreover, as the Company writes or reinsures greater amounts of liability
coverages, for which reserves are more difficult to estimate accurately, there
is a greater likelihood that reserve redundancies or deficiencies will develop.
The gross cumulative redundancy for 1994 and prior is presented before
deductions for reinsurance. Gross deficiencies and redundancies may be
significantly more or less than net deficiencies and redundancies, depending on
the nature and extent of applicable reinsurance.
The deficiencies in net reserves for losses and loss adjustment expenses in the
1985 and 1986 years are related primarily to Shand/Evanston's experience prior
to the Company's ownership. From 1987 to 1991, Shand/Evanston increased reserves
for its pre-1987 book of business by approximately $97 million. These increases
were made in response to adverse development related to professional liability
policies with optional extension provisions, EIL and toxic tort exposures, and
potentially uncollectible reinsurance recoverables. A significant portion of the
reserve increases (approximately $51 million) was ultimately offset by
reductions in deferred purchase price obligations owed to the former owners of
Shand/Evanston and therefore did not affect operating results.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
ENVIRONMENTAL MATTERS: From 1980 to 1985, Shand/Evanston offered EIL insurance
to large companies which generated or transported or disposed of toxic wastes.
The EIL coverage was intended to fill gaps in an insured's general liability
coverage to the extent a gap would have existed and was offered as a primary
policy with an "Other Insurance" clause. To the extent that other insurance was
not valid and collectible, Shand/Evanston's EIL policy was intended to perform
as primary coverage. To the extent that other insurance was valid and
collectible, the policy was intended to perform as excess coverage, provided all
other terms and conditions of the policy were met. All EIL policies were
underwritten on a claims made basis, and in most instances, with policy limits
that included the costs of defense. This book of business was reinsured with
numerous reinsurers and Shand/Evanston's original retentions were less than 5%
of policy limits. Policy limits ranged from $1 million per impairment with $2
million in the aggregate to $30 million per impairment with $60 million in the
aggregate.
Shand/Evanston's defenses in EIL claims have generally been policy specific and
have included defenses of non-disclosure and misrepresentation on policy
applications, policy exclusions including site limitations, late assertion of
claims and the existence of other valid and collectible insurance.
Following is an analysis of the Company's net outstanding reserves for
Shand/Evanston's EIL exposures. Commutations include reinsurer commutations
completed in 1995 as well as changes in reserves related to reinsurer
commutations completed in earlier years (dollars in thousands):
December 31,
1995 1994 1993
------- ------- -------
Case reserves $ 579 $ 1,130 $ 2,339
Incurred but not reported (IBNR) reserves - 49 4,663
Case and IBNR reserves reassumed through
commutations 13,125 14,008 58,629
------- ------- -------
TOTAL $13,704 $15,187 $65,631
======= ======= =======
Shand/Evanston carried net EIL case and IBNR reserves for losses and loss
adjustment expenses of $13.7 million at December 31, 1995 compared to $15.2
million at December 31, 1994 and $65.6 million at December 31, 1993. Over the
past three years, the Company has endeavored to close EIL claims as aggressively
as reasonably possible. The decrease in net EIL reserves in 1995 and 1994 was
due primarily to these efforts. Claim settlements were made within established
reserves.
In some cases, the Company may be entitled to subrogation against other primary
insurers. No specific provision for these potential recoveries is made when
establishing reserves for losses and loss adjustment expenses. As of December
31, 1995, Shand/Evanston's net retention of case and IBNR reserves related to
EIL was approximately 74% of gross EIL case and IBNR reserves.
Inception to date net paid losses and loss adjustment expenses for EIL related
exposures totaled $111.3 million at December 31, 1995, of which approximately
$8.6 million was litigation related expense.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
There were 9 active site exposures related to EIL at December 31, 1995 compared
to 11 active site exposures at December 31, 1994 and 109 active site exposures
at December 31, 1993. The 9 active site exposures at December 31, 1995 represent
9 insureds. Management believes future exposure to valid claims is limited
because coverage was afforded on a claims made basis.
Shand/Evanston's exposure to toxic tort related claims originated from umbrella,
excess and commercial general liability (CGL) insurance it underwrote on an
occurrence basis from the late 1970's to mid-1980's. The majority of the
policies attach over a self-insured retention, deductible, or other insurance.
This book of business was reinsured with numerous reinsurers, and
Shand/Evanston's original retention was less than 5% of policy limits. Policy
limits ranged from $125,000 to $30 million. Toxic tort claims include property
damage and clean-up related to pollution, as well as personal injury allegedly
arising from exposure to hazardous materials. After 1986, Shand/Evanston
underwrote CGL coverage using a claims made form which included a pollution
exclusion that significantly reduced its exposure to toxic tort claims.
Insurance coverage issues and other uncertainties have made the estimation of
reserves for toxic tort exposures difficult. The outcome of legal actions to
determine general liability coverages related to toxic tort issues have been
inconsistent among the states with respect to whether insurance coverage exists
at all; what policies provide the coverage; when and if an insurer has a duty to
defend; whether the release of contaminants is one or more occurrence for
purposes of determining applicable policy limits; how pollution exclusions in
policies should be applied; and whether clean-up costs constitute property
damage. Regulatory requirements regarding environmental matters are also
inconsistent and change frequently.
Following is an analysis of the Company's net outstanding reserves for
Shand/Evanston's toxic tort exposures. Commutations include reinsurer
commutations completed in 1995 as well as changes in reserves related to
reinsurer commutations occurring in earlier years (dollars in thousands):
December 31,
1995 1994 1993
------- ------- -------
Case reserves $ 2,197 $ 2,089 $ 1,198
Incurred but not reported (IBNR) reserves 1,589 1,032 2,320
Case and IBNR reserves reassumed through
commutations 44,636 24,887 16,268
------- ------- -------
TOTAL $48,422 28,008 $19,786
======= ======= =======
Shand/Evanston carried net toxic tort case and IBNR reserves for losses and loss
adjustment expenses of $48.4 million at December 31, 1995 compared to $28.0
million at December 31, 1994 and $19.8 million at December 31, 1993. The net
toxic tort reserves increased from 1993 to 1995 due to commutations with
reinsurers, adverse development in the underlying exposures and reserve
strengthening by management. As of December 31, 1995, Shand/Evanston's net
retention of case and IBNR reserves related to toxic torts was approximately 81%
of gross toxic tort case and IBNR reserves.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Inception to date net paid losses and loss adjustment expenses for toxic tort
related exposures totaled $8.4 million, of which approximately $0.6 million was
litigation related expense.
There were 249 open claims related to toxic torts at December 31, 1995 compared
to 307 at December 31, 1994 and 417 at December 31, 1993. Of the toxic tort
claims open at December 31, 1995, less than 10% were products liability asbestos
or related claims. Furthermore, the average severity of toxic tort claims is
substantially lower than the average severity of EIL claims.
The Company's reserves for losses and loss adjustment expenses related to EIL
and toxic tort exposures represent management's best estimate of ultimate
settlement values. These reserves are continually monitored by management, and
the Company's statistical analyses of these reserves are reviewed by independent
consulting actuaries. In addition, the Company continues to maintain unallocated
IBNR reserves to further mitigate the impact of adverse development, if any, in
these and other reserves.
At December 31, 1995, LIC held case reserves for toxic tort claims of $0.7
million. The sellers of LIC will indemnify the Company against adverse
development of reserves for losses and loss adjustment expenses and
uncollectible reinsurance, if any, in an amount up to the purchase price of
approximately $24.3 million. This indemnification covers all of LIC's reserves,
including those related to environmental matters.
Exposures of these types are generally subject to significant uncertainty due to
potential severity and an uncertain legal climate. Reserves for these types of
claims could be subject to increases in the future; however, these reserves have
been established in accordance with the Company's desire to have reserves of all
types that are more likely to prove to be redundant than deficient.
LIQUIDITY AND CAPITAL RESOURCES
The Company's insurance operations collect premiums and pay current claims,
reinsurance costs and operating expenses. Premiums collected and positive cash
flows from the insurance operations are invested primarily in short-term
investments and long-term bonds. Short-term investments held by the Company's
insurance subsidiaries provide liquidity for projected claims, reinsurance costs
and operating expenses.
As a holding company, the Company receives cash from its subsidiaries as
reimbursement for operating and other administrative expenses. The
reimbursements are executed within the guidelines of various management
agreements between the holding company and its subsidiaries.
The holding company also relies upon dividends from its subsidiaries to meet
debt service obligations. Under the insurance laws of the various states in
which the Company's insurance subsidiaries are incorporated or licensed to write
insurance, an insurer is restricted in the amount of dividends it may pay
without prior approval of regulatory authorities. Pursuant to such laws, at
December 31, 1995, the Company's insurance subsidiaries could pay dividends of
$36.2 million without prior regulatory approval.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
The Company's invested assets increased to $908.6 million at December 31, 1995
from $611.7 million at December 31, 1994. The increase in invested assets was
largely due to operating cash flows which included cash provided by reinsurer
commutations and other settlements, the purchase of LIC and an increase in the
market value of the Company's fixed maturity and equity investments. Absent
unusual circumstances, the Company expects that the rate of future investment
portfolio growth will moderate and result primarily from normal operating cash
flows.
[Graph]
Invested Assets (in millions)
1993 $597
1994 $612
1995 $909
Long-term debt increased to $106.7 million at December 31, 1995 from $100.7
million at December 31, 1994. The increase was due to the purchase of LIC in May
1995. In 1994, the Company arranged a revolving credit facility which provides
up to $40.0 million of funds for working capital and other general corporate
purposes. As of December 31, 1995, $7.0 million was outstanding under the
revolving credit facility.
The insurance operations require capital to support premium writings. The
National Association of Insurance Commissioners (NAIC) developed a model law and
risk-based capital formula designed to help regulators identify
property/casualty insurers that may be inadequately capitalized. Under the
NAIC's requirements, an insurer must maintain total capital and surplus above a
calculated threshold or face varying levels of regulatory action. The capital
and surplus at December 31, 1995 of each of the Company's insurance subsidiaries
was above the calculated minimum regulatory threshold. The Company believes that
its insurance subsidiaries have sufficient capital to support their expected
near-term writings.
IMPACT OF INFLATION
Property and casualty insurance premiums are established before the amount of
losses and loss adjustment expenses, or the extent to which inflation may affect
such expenses, is known. Consequently, in establishing premiums, the Company
attempts to anticipate the potential impact of inflation. Inflation is also
considered by the Company in the determination and review of reserves for losses
and loss adjustment expenses since portions of these reserves are expected to be
paid over extended periods of time. The importance of continually reviewing
reserves is even more pronounced in periods of extreme inflation.
IMPACT OF ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121 (SFAS 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
Statement requires that long-lived assets and certain identifiable intangibles
to be held and used by a company be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, a company should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. An impairment loss would be recognized if the sum of
the expected future cash flows, undiscounted, is less than the carrying amount
of the asset. SFAS 121 also establishes standards for recording an impairment
loss for certain assets that are subject to disposal. The Company expects that
adoption will have no impact on the Company's consolidated financial position or
results of operations.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123 (SFAS 123), Accounting for Stock-Based Compensation. The Standard
establishes financial accounting and reporting standards for stock-based
employee compensation plans, including stock option plans. While SFAS 123
defines a fair value based method of accounting for an employee stock option or
similar equity instrument, it also allows an entity to continue to measure
compensation costs for those plans using Accounting Principles Board Opinion No.
25 (APB 25), Accounting for Stock Issued to Employees. The Company has evaluated
SFAS 123 and has elected to continue to measure the costs of its stock-based
compensation plans under APB 25. Accordingly, the implementation of SFAS 123
will have no impact on the Company's consolidated financial position or results
of operations.
<PAGE>
Operating Units
ESSEX INSURANCE COMPANY Glen Allen, Virginia
Britton L. Glisson, President and Chief Operating Officer
Provides excess and surplus lines property & casualty insurance.
Rated "A" (Excellent) by A.M. Best Company, Inc.
SHAND/EVANSTON GROUP Evanston, Illinois
Paul W. Springman, President and Chief Operating Officer
Michael A. Rozenberg, Executive Vice President and Chief Administrative Officer
Provides medical malpractice, professional, products, and errors & omissions
liability insurance and specialty casualty coverages through the Evanston
Insurance Company.
Rated "A" (Excellent) by A.M. Best Company, Inc.
MARKEL INSURANCE COMPANY Glen Allen, Virginia
Ronald A. Abram, President and Chief Operating Officer
Michael W. Powell, Executive Vice President
Specializes in insurance for agribusiness, camps and youth recreation, child
care, health & fitness, and other types of specialty program business.
Rated "A-" (Excellent) by A.M. Best Company, Inc.
MARKEL AMERICAN INSURANCE COMPANY Glen Allen, Virginia
Mark J. Rickey, President and Chief Operating Officer
Timberlee T. Grove, Senior Vice President
Underwrites watercraft, motorcycle, mobile homes, dwelling, personal automobile,
commercial trucking and other miscellaneous products.
Rated "A" (Excellent) by A.M. Best Company, Inc.
MARKEL SERVICE, INC. Glen Allen, Virginia
Robert M. Bryant, Vice President
Serves as wholesale broker for independent agents in the mid-atlantic states
placing business primarily in Markel-owned companies.
<PAGE>
MARKET AND DIVIDEND INFORMATION
The Company's common stock is traded in the NASDAQ stock market under the symbol
MAKL. The number of shareholders of record as of January 31, 1996 was 491. The
total number of shareholders, including those holding shares in "street name" or
in brokerage accounts is estimated to be in excess of 2,000. The Company's
current strategy is to retain earnings, permitting the Company to take advantage
of expansion and acquisition opportunities. Consequently, the Company has never
paid a cash dividend on its common stock.
NASDAQ quotations during 1995 reflect a high sales price of $75.50 and a low
sales price of $40.75. See quarterly information for additional quarterly sales
price information.
SHAREHOLDER RELATIONS, FORM 10-K
Information about Markel Corporation, including the Form 10-K filed with the
Securities and Exchange Commission, may be obtained without charge by writing
Mr. Bruce A. Kay, Vice President-Investor Relations, at the corporate offices,
or by calling (800) 446-6671.
ANNUAL SHAREHOLDER'S MEETING
Shareholders of Markel Corporation are invited to attend the Annual Meeting to
be held at The Jefferson Hotel, Franklin and Adams Streets, Richmond, Virginia
at 4:30 p.m., May 7, 1996.
<PAGE>
TRANSFER AGENT
First Union National Bank
Shareholder Services Group
Two First Union Center
301 South Tryon Street
Charlotte, North Carolina 28288-1154
(800) 829-8432
CORPORATE OFFICES
Markel Corporation
4551 Cox Road
Glen Allen, Virginia 23060
(804) 747-0136
(800) 446-6671
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
ALAN I. KIRSHNER
Chairman of the Board and Chief Executive Officer
LESLIE A. GRANDIS
Partner
McGuire Woods Battle & Boothe, LLP
STEWART M. KASEN
President and Chief Operating Officer
Best Products Co., Inc.
ANTHONY F. MARKEL
President and Chief Operating Officer
GARY L. MARKEL
President
Gary Markel & Associates, Inc.
STEVEN A. MARKEL
Vice Chairman
DARRELL D. MARTIN
Executive Vice President and Chief Financial Officer
V. PREM WATSA
Principal
Hamblin Watsa Investment Counsel Ltd.
EXECUTIVE OFFICERS
ALAN I. KIRSHNER
Chairman of the Board and Chief Executive Officer
ANTHONY F. MARKEL
President and Chief Operating Officer
STEVEN A. MARKEL
Vice Chairman
DARRELL D. MARTIN
Executive Vice President and Chief Financial Officer
<PAGE>
EXHIBIT 21
CERTAIN SUBSIDIARIES OF MARKEL CORPORATION
State or Other
Jurisdiction of
Incorporation or
Subsidiary Organization
- ---------- -----------------
Markel Service, Incorporated Virginia
Essex Insurance Company Delaware
Markel Insurance Company Illinois
Shand/Evanston Group, Inc. Virginia
Shand Morahan & Company, Inc. Illinois
Evanston Insurance Company Illinois
Markel American Insurance Company Virginia
American Underwriting Managers Agency. Inc. Wisconsin
Lincoln Insurance Company Delaware
<PAGE>
Exhibit 23
Consent of Independent Auditors
The Board of Directors
Markel Corporation
We consent to incorporation by reference in Registration Statements No.
33-28921, No. 33-46706 and No. 33- 61598 on Form S-8 of Markel Corporation of
our reports dated February 7, 1996, relating to the consolidated balance sheets
of Markel Corporation and subsidiaries (the "Company") as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995, and the related financial statement schedules,
which reports are included or incorporated by reference in the Company's 1995
annual report on Form 10-K. Our reports refer to the adoption by the Company of
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities.
KPMG Peat Marwick LLP
Richmond, Virginia
March 22, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Financial Statements contained in the Form 10-K for the
year ended December 31, 1995 for Markel Corporation and is qualified in its
entirety by reference to such financial statements and notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<DEBT-HELD-FOR-SALE> 706,055
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 134,346
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 908,583
<CASH> 18,315
<RECOVER-REINSURE> 20,404
<DEFERRED-ACQUISITION> 32,024
<TOTAL-ASSETS> 1,314,537
<POLICY-LOSSES> 734,409
<UNEARNED-PREMIUMS> 170,697
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 106,689
0
0
<COMMON> 23,118
<OTHER-SE> 190,324
<TOTAL-LIABILITY-AND-EQUITY> 1,314,537
285,146
<INVESTMENT-INCOME> 42,981
<INVESTMENT-GAINS> 11,952
<OTHER-INCOME> 3,496
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<UNDERWRITING-AMORTIZATION> 66,788
<UNDERWRITING-OTHER> 29,325
<INCOME-PRETAX> 47,927
<INCOME-TAX> 13,435
<INCOME-CONTINUING> 34,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,492
<EPS-PRIMARY> 6.15
<EPS-DILUTED> 6.12
<RESERVE-OPEN> 561,866
<PROVISION-CURRENT> 195,448
<PROVISION-PRIOR> (8,793)
<PAYMENTS-CURRENT> 42,002
<PAYMENTS-PRIOR> 131,251
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</TABLE>
