-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lhpq/MVqYsj67CN0n4rikFJ1Ml1Kr0/y0JKpEygjlLHLe7z+EtVv8BbAeqHuNPCc 53tDSGpq6l8JwMRWiqMwzw== 0000916641-96-000178.txt : 19960325 0000916641-96-000178.hdr.sgml : 19960325 ACCESSION NUMBER: 0000916641-96-000178 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960322 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARKEL CORP CENTRAL INDEX KEY: 0000803509 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 540292420 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15458 FILM NUMBER: 96537381 BUSINESS ADDRESS: STREET 1: 4551 COX RD CITY: GLEN ALLEN STATE: VA ZIP: 23060-3382 BUSINESS PHONE: 8047470136 MAIL ADDRESS: STREET 1: P O BOX 2009 CITY: GLEN ALLEN STATE: VA ZIP: 23058-2009 10-K405 1 MARKEL ANNUAL REPORT ON FORM 10-K 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. 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 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. 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. 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. 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. 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). 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. 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 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. 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 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. 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. 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. 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. 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. 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 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 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. 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 MARKEL CORPORATION AND SUBSIDIARIES SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES December 31, 1995 (dollars in thousands)
Balance Market Sheet Type of Investment Cost Value Presentation - ------------------ --------- --------- ------------ 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 ========= ========= =========
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 ========= ========= MARKEL CORPORATION (PARENT COMPANY) SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENT OF INCOME INFORMATION
YEARS ENDED DECEMBER 31, 1995 1994 1993 --------- ---------- -------- (dollars in thousands) 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 ========= ========== ========
MARKEL CORPORATION (PARENT COMPANY) SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENT OF CASH FLOWS INFORMATION
YEARS ENDED DECEMBER 31, 1995 1994 1993 -------- --------- -------- (dollars in thousands) 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 ======== ========= ========
MARKEL CORPORATION AND SUBSIDIARIES SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
At December 31, --------------- (dollars in thousands) Deferred policy Unpaid losses and loss Unearned Subsidiaries acquisition costs adjustment expenses premiums - ------------ ----------------- ----------------------- -------- 1995 $ 32,024 734,409 170,697 1994 $ 26,064 652,930 146,553
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 - ------------ -------- --------------- -------------- ------------------ --------- ----------- 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
MARKEL CORPORATION AND SUBSIDIARIES SCHEDULE IV - REINSURANCE Years ended December 31, 1995, 1994 and 1993 (dollars in thousands)
Percentage Ceded to Assumed(*) of amount Property-liability insurance Gross other from other Net assumed premiums earned: amount companies companies amount to net - ---------------------------- ------ --------- ---------- ------ ---------- 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%
(*) 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. MARKEL CORPORATION AND SUBSIDIARIES SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
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 - ----------- ---------- ------------ ----------- ----------- 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
MARKEL CORPORATION AND SUBSIDIARIES SCHEDULE VI - SUPPLEMENTAL INFORMATION PROPERTY-CASUALTY INSURANCE
At December 31, (dollars in thousands) Affiliation with Deferred policy Unpaid losses and loss Unearned Registrant acquisition costs adjustment expenses premiums - ---------- ----------------- ---------------------- -------- Consolidated property- casualty entities 1995 $ 32,024 734,409 170,697 1994 $ 26,064 652,930 146,553
MARKEL CORPORATION AND SUBSIDIARIES SCHEDULE VI - SUPPLEMENTAL INFORMATION PROPERTY-CASUALTY INSURANCE
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 - ---------------- -------- ------------- ------ ------ -------------- --------- --------- 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
INDEX TO EXHIBITS Exhibit Page 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)**** 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
- ------------------------------ * 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 EX-10 2 EXHIBIT 10.9(A) 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) (SIGNATURES CONTINUED FROM PRECEDING PAGE LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By:. . . . . . . . . . . . . . . . Name: P. James Mehalso Title: Vice President EX-10 3 EXHIBIT 10.9(B) 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) (SIGNATURES CONTINUED FROM PRECEDING PAGE) LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: Name: P. James Mehalso Title: Vice President EX-13 4 EXHIBIT 13.1 Selected Financial Data (dollars in millions, except per share data)
Years Ended December 31, 1995 1994 1993 ------ ------- ------ 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
1992 1991 1990 1989 1988 1987 1986 10-Year CAGR(7) ------ ------ ------ ------ ------ ------ ----- --------------- 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 -
(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. CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994 ---------- ---------- (dollars in thousands) ASSETS Investments, available-for-sale, at estimated fair value 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 ========== ==========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1995 1994 1993 -------- -------- -------- (dollars in thousands, except per share data) OPERATING REVENUES 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 ======== ======== ========
See accompanying notes to consolidated financial statements. Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 1993, 1994, 1995 ----------------------------------------------------------- Common Common Retained Shares Stock Earnings Other Total ------ ------- -------- ------- -------- (in thousands) 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 ====== ======= ======== ======= ========
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 1994 1993 --------- --------- --------- (dollars in thousands) 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 ========= ========= =========
See accompanying notes to consolidated financial statements. 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. 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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Investments a) Following is a summary of investments (dollars in thousands):
December 31, 1995 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- 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 ========= ========== ========== =========
December 31, 1994 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- 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 ========= ========== ========== =========
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. 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. 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 ======== ======== ======== 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 ======= 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% ==== ==== ==== 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):
December 31, 1995 1994 -------- -------- 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 ======== ========
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. 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):
Years Ended December 31, 1995 1994 1993 -------- -------- -------- 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 ======== ======== ========
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. 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. 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, 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:
Years Ended December 31, 1995 1994 1993 -------- -------- -------- 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 ======== ======== ========
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. 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. 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. 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. 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 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):
Mar. 31 June 30 Sept. 30 Dec. 31 ------- ------- -------- -------- 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
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. 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. 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. 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):
Year Ended December 31, 1995 1994 1993 --------- --------- --------- 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% ========= ========= =========
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. 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):
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 -------- -------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 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 =======
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. 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. 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. 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. 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. 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. 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. 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. 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 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 EX-21 5 EXHIBIT 21 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 EX-23 6 EXHIBIT 23 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 EX-27 7 FDS --
7 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. 12-Mos Dec-31-1995 Dec-31-1995 706,055 0 0 134,346 0 0 908,583 18,315 20,404 32,024 1,314,537 734,409 170,697 0 0 106,689 0 0 23,118 190,324 1,314,537 285,146 42,981 11,952 3,496 186,655 66,788 29,325 47,927 13,435 34,492 0 0 0 34,492 6.15 6.12 561,866 195,448 (8,793) 42,002 131,251 575,268 8,793
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